Last week was wild, and we are still trying to unpack the impact on the energy markets. The debate and its effects around the world and the Supreme Court decision are only a few of the serious topics that Michael and Stu cover as we head into the July 4th week.
China leads the world in the implementation of renewable energy and over all pollution. Europe has reduced its pollution through its de-industrialization, and what good does it do to move the manufacturing greenhouse gases and pollution to China if it does no good to help the global efforts on pollution?
China’s energy consumption per capita has surpassed that of Europe, driven by decades of economic growth and infrastructure development.
China has made significant investments in renewable energy but remains the world’s largest emitter of greenhouse gases due to its manufacturing-heavy economy.
Achieving climate goals requires global cooperation, as policies aimed at reducing emissions in one country may inadvertently increase emissions elsewhere.
“China has changed the energy world, but now China is changing,” the International Energy Agency (IEA) reported in their 2023 flagship World Energy Outlook. The second-largest economy in the world has saturated its own market. After years and years of building roads, buildings and other infrastructure as fast as it possibly could, the vast Chinese domestic market is finally just about tapped.
But while China’s economic growth is plateauing, its energy demand just keeps growing. After decades of breakneck growth, China’s economy is slowing down, the country-wide property bubble is bursting, and unemployment rates are blisteringly high as a record number of students graduate only to face a stagnant job market. But instead of redirecting, Beijing is doubling down on manufacturing and leaning on exports to keep the country’s great economic gears turning.
As a result, China’s energy consumption per capita has surpassed that of Europe for the first time in history. This eclipse has been a long time coming, as China’s energy consumption has grown at a brisk clip over the past decades. According to figures from the IEA, China’s per-person energy consumption grew a jaw-dropping 489% in the two-decade stretch from 2001 to 2021.
While China’s greenhouse gas emissions have also climbed over the same time period, they haven’t kept pace with energy demand thanks to China’s unparalleled investments in renewable energy. Since 2000, China’s carbon dioxide emissions have climbed 244%. While that’s still a whole heck of a lot of carbon, it’s a pretty impressive figure at just half of the growth of energy consumption.
In fact, China added more renewable energy capacity last year than the entire rest of the world combined, and renewables now make up half of China’s installed power generation capacity. However, due to the size of the nation’s economy and the gargantuan scale of its industrial sectors, China alone is responsible for a whopping 31.72% of global emissions according to IEA stats.
Everything that China does therefore has major implications for the entire world’s energy and climate concerns. To be sure, China’s manufacturing-happy policy, which has led to overproduction of a great many goods, poses a threat to global climate goals. However, to place all the blame on Beijing would be a major oversimplification of a complex situation at best, and outright scapegoating at worst. As usual, the truth is likely somewhere in the middle.
While it’s true that China is overproducing a number of goods with the intent to inflate supply for export rather than to meet existing demand for export, that only represents a small share of the country’s overall manufacturing. Most of the manufacturing taking place in China is to meet very real overseas demand that is central to keeping the global economy humming along. And that requires a whole lot of energy and produces a whole lot of carbon.
“We should not ignore the energy and emissions that Europeans have effectively exported to Chinese manufacturers,” Energy Institute Chief Executive Officer Nick Wayth recently told Bloomberg. “If a decline in energy consumption and emissions in Europe simply boosts carbon output elsewhere, policies to tackle global climate change aren’t working,” the Bloomberg article concludes.
This underscores the importance of looking at climate goals and pathways from a global perspective rather than focusing on the ‘successes’ and ‘failures’ of individual countries and economies. Achieving the pledges set forth in the Paris agreement will require unprecedented cooperation and coordination from developing and developed economies alike, and will require that nations overcome the political temptation to outsource their emissions to poorer countries for the sake of reaching their own, isolated emissions goals. At the end of the day, it’s a zero sum game. Without a global approach, everyone loses.
The US dollar is still by far the most dominant global reserve currency, among many reserve currencies held by central banks, but its share has been eroding for years, as central banks have been diversifying to other reserve currencies, and also to gold. But the process is slow and uneven.
The share of USD-denominated foreign exchange reserves ticked up to 58.9% of total exchange reserves in Q1, from 58.4% in Q4, which had been the lowest share since 1994, according to the IMF’s COFER data released on Friday for Q1 2023.
Central banks held total foreign exchange reserves in all currencies of $12.3 trillion in Q1. This included $6.77 trillion in US-dollar denominated assets, such as US Treasury securities, US agency securities, US government-backed MBS, US corporate bonds, even US stocks.
Excluded are any central bank’s holdings of assets denominated in its own currency, such as the Fed’s holdings of Treasury securities and MBS, and the ECB’s holdings of euro-denominated assets.
In dollar terms, holdings of USD-denominated assets at foreign central banks rose to $6.77 trillion in Q1.
It’s not that central banks are “dumping” their dollar-assets – in dollar amounts, their dollar-holdings haven’t changed all that much. It’s that they take on assets denominated in many alternative currencies, and as overall foreign exchange reserves grow, the dollar’s share of the total shrinks.
The USD’s share of global reserve currencies has seen a lot of turmoil between 1978 through 1991, when the share collapsed from 85% to 46%, after inflation exploded in the US in the late 1970s, and the world lost confidence in the Fed’s ability or willingness to get this inflation under control.
By the 1990s, confidence returned, and central banks loaded up on dollar-assets again, until the euro came along (share at the end of the year, except 2024 = Q1)
The other major reserve currencies.
The euro is #2, with a share of 19.7% in Q1. The share has been around 20% for years (blue line in the chart below). The other currencies are the colorful tangle at the bottom of the chart.
What’s hard to see in this chart, but easy to see in the next chart, which holds a magnifying glass over the colorful tangle at the bottom, is that these other currencies, except for the Chinese RMB, have been gaining share, while the dollar has been losing share, and the euro’s share has remained stable. It’s not one currency that’s gaining against the dollar; it’s that a lot of “nontraditional reserve currencies,” as the IMF calls them, are gaining share.
The rise of the “nontraditional reserve currencies.”
The chart below shows the other currencies magnified. And their shares of the total have been rising over the years.
The exception is the Chinese RMB. China is the second largest economy in the world, yet its currency plays only a small and declining role as a reserve currency. When the IMF, in 2016, added the RMB to its basket of currencies backing the Special Drawing Rights (SDR), many had thought that the RMB would quickly become a threat to the dominance of the USD as global reserve currency. But that has turned out to be not the case.
Depicted in the chart below, by their % share of total foreign exchange reserves in Q1 2024:
Japanese yen, 5.7%, third largest reserve currency behind USD and EUR (purple). British pound, 4.9%, fourth largest reserve currency (blue). “All other currencies” combined, 3.8% (yellow). The RMB used to be part of this group. But in 2016, when the RMB joined the SDR basket, the IMF began showing it separately, and as a result of the separation, the share of “other currencies” dropped by the RMB’s share. After that separation, “all other currencies” without the RMB had a share of 2%. This has grown to 3.8% by Q1. Canadian dollar, 2.6% (green). Chinese renminbi, 2.1%, lowest since Q2 2020, 8th quarter in a row of declines (red), amid capital controls, convertibility issues, and other issues. Central banks appear to be leery of holding RMB-denominated assets. Australian dollar, 2.2% (brown). Swiss franc, 0.2% (blue).
The IMF found in a 2022 paper that there were 46 “active diversifiers” – countries that have at least 5% of their foreign exchange reserves in “nontraditional reserve currencies.” The list includes major advanced economies and emerging markets, including most of the G20 economies.
The IMF thought that two major factors contributed to the rise of the “nontraditional reserve currencies”:
The growing liquidity of markets in those currencies, which makes it easier to trade those assets. Chasing higher yielding assets elsewhere during the 0%-era in the US and Europe.
The rise of gold as central bank reserve asset.
Gold bullion is not included in “foreign exchange reserves” of central banks – the data above.
But bullion holdings are in the overall “reserve assets” of central banks. And central banks, after spending decades shedding their holdings, have been rebuilding them for the past decade. According to the IMF, they’re currently at 1.16 billion troy ounces – roughly $2.7 trillion, compared to $12.3 trillion in foreign exchange reserves (chart via the IMF):
This election year, several critical issues dominate voter concerns. Illegal immigration across unsecured borders by migrants, criminals, sex traffickers, and terrorists. Anti-police policies, reduced prosecution of criminals and rising crime. Unprecedented prices for food, clothing, housing, and other necessities.
Parental roles in education and sex changes for children. Threats to our republic and democracy from unelected, unaccountable bureaucrats who use their powers to persecute, prosecute, silence, and imprison opponents and control our lives.
And control overenergy – the lifeblood of our civilization, jobs, health, and prosperity.
Will America shut down coal, gas and nuclear electricity generation before it has sufficient reliable replacements? Will we have electricity when we need it, or only when it’s available, especially after we’re forced to convert gas cars, stoves, furnaces and water heaters to electric models?
What will families pay for that electricity and everything we eat, drink, build and use? Where will we get plastics, paints, pharmaceuticals, and thousands of other products made from oil and gas they want to lock in the ground? What will happen to our jobs, health, living standards – and personal choices about where we live, what we eat, what car we can drive and how far, whether we can fly for vacation?
We’re told a great energy and economic transformation is underway – and is essential to prevent a “climate crisis.” In reality, the crisis exists in computer models, headlines and politicized science, but not in actual temperature and weather records.
In reality, there is no energy transformation. In 2023, wind and solar power generated 2.7% of the world’s primary energy; 81.5% came from fossil fuels. Between 1965 and 2023, North America and Europe cut their fossil fuel consumption almost in half; but over the same period, the rest of the world consumed seven times more than those two regions reduced their use. Emissions increased even more, because China, India, and other developing countries require minimal pollution controls on power plants and vehicles.
In reality, a transition to an all-electric economy with no fossil fuels means millions of acres of America’s wild, scenic, and agricultural lands would be covered with wind turbines, solar panels, transmission lines, and warehouses filled with batteries that can spontaneously erupt in flames.
In reality, we don’t know whether there are enough accessible metal and mineral deposits on Planet Earth to extract all the raw materials required to manufacture the turbines, panels, batteries, transmission lines, electric vehicles, transformers, and other equipment the energy transformation would require – just for the United States, much less for the entire world.
We don’t know how many billions of tons of rock would have to be mined, processed, and disposed of; how many millions of acres would be impacted; how many millions of tons of toxic air and water pollution would be emitted; what human rights would be violated to get those metals and minerals.
One of the most basic and vital metals for the energy transformation is copper. Average worldwide ore concentrations (0.04%) mean miners would have to remove some 40,000,000 tons of overlying rock and extract, crush, and process nearly 25,000,000 tons of ore to get 110,000 tons of copper – enough for just the first 30,000 megawatts of President Biden’s offshore wind plan.
Worse, mining is essentially banned in the United States – and the Biden Administration has vetoed world-class mines that could have met US needs for copper (and other metals) for decades to come. And the problem isn’t just President Biden or the Biden Administration. It’s governors like Gavin Newsom and Gretchen Whitmer, and countless activists and mostly Democrat politicians who support these policies.
A 2022 International Energy Agency report examines the need for essential metals and minerals in energy transitions. Onshore wind installations, the report says, require nine times more materials than combined-cycle gas-generating plants, to produce the same amount of electricity. Offshore wind installations require fourteen times more. (These IEA numbers do not include materials for transmission lines or backup power for windless-sunless periods.)
The IEA says its projections are “highly dependent” on how quickly and stringently the world actually tries to reach zero greenhouse gas emissions in power generation and all energy uses; on which wind, solar, battery and other technologies dominate; and on whether countries also try to utilize low-carbon (natural gas) or no-carbon (batteries) equipment in mining, materials processing, manufacturing and transporting wind turbines, solar panels, batteries, vehicles and other technologies.
However, the IEA calculates, demand for aluminum, copper, cobalt, graphite, iron, nickel, lithium, rare earths and other “green” energy materials is expected to skyrocket by 6, 20, 40, 51, or more times current global requirement by 2040.
The Agency says numerous “challenges” to actually acquiring those materials include actually finding producible deposits, plus land use, water scarcity and pollution, air pollution, toxic mining waste management, corruption and bribery, worker and nearby resident health and safety, and child labor.
Meeting these challenges, the IEA says, will require “systematic approaches,” the “development of institutions and the rule of law,” “inclusive legal frameworks,” “responsible” and “robust” pollution and waste management frameworks, “sustainable practices,” “international coordination,” “capacity building and knowledge sharing,” greater “transparency” and, ultimately, “international minerals governance.”
These actions will all help foster “sustainable and responsible supply chains that contribute to a low-carbon economy” worldwide, the IEA assures us.
Will these wishful terms survive collisions with the real world? Developing nations view coal, oil, and gas as the key to jobs, modernity, and prosperity. China, Russia, and their allies perceive the West’s fixation on climate change and green energy as opportunities to control US and EU supply chains, geo-political options, and military-economic capabilities.
The biggest wind energy project in the USA will soon blanket 1,600 square miles (1.25 times Delaware) of New Mexico, to generate 3,500 MW about 30% of the year. The Palo Verde nuclear plant in Arizona generates 4,200 MW from 6 square miles almost 24/7/365.
How can we head this economy-and-environment-killing craziness off at the past?
Wise decisions at the ballot box are essential, of course. But state and local governments should enact laws requiring that utilities explain how they will generate wind and solar replacement power on windless winter nights, before they shut down a single coal, gas, or nuclear power plant – or get approval for a single wind or solar project.
They should also demand full details on where raw materials will come from, and at what dollar, human rights and environmental costs – to state and local communities … and our planet.
America’s jobs, health, living standards, and right to choose our homes, cars and food depend on it.
Paul Driessen is a senior policy analyst for the Committee For A Constructive Tomorrow (www.CFACT.org), and author of articles and books on environmental, climate, and human rights issues.
Michael points out that the Democrats are remaining flat on wind and solar, but Republicans have dropped their support on wind and solar by 20% to 30%.
One of the most striking things about the explosion of renewable power that’s happening in the US is that much of it is going on in states governed by politicians who don’t believe in the problem wind and solar are meant to address. Acceptance of the evidence for climate change tends to be lowest among Republicans, yet many of the states where renewable power has boomed—wind in Wyoming and Iowa, solar in Texas—are governed by Republicans.
That’s partly because, up until about 2020, there was a strong bipartisan consensus in favor of expanding wind and solar power, with support above 75 percent among both parties. Since then, however, support among Republicans has dropped dramatically, approaching 50 percent, according to polling data released this week.
Renewables enjoyed solid Republican support until recently.
To a certain extent, none of this should be surprising. The current leader of the Republican Party has been saying that wind turbines cause cancer and offshore wind is killing whales. And conservative-backed groups have been spreading misinformation in order to drum up opposition to solar power facilities.
Meanwhile, since 2022, the Inflation Reduction Act has been promoted as one of the Biden administration’s signature accomplishments and has driven significant investments in renewable power, much of it in red states. Negative partisanship is undoubtedly contributing to this drop in support.
One striking thing about the new polling data, gathered by the Pew Research Center, is how dramatically it skews with age. When given a choice between expanding fossil fuel production or expanding renewable power, Republicans under the age of 30 favored renewables by a 2-to-1 margin. Republicans over 30, in contrast, favored fossil fuels by margins that increased with age, topping out at a three-to-one margin in favor of fossil fuels among those in the 65-and-over age group. The decline in support occurred in those over 50 starting in 2020; support held steady among younger groups until 2024, when the 30–49 age group started moving in favor of fossil fuels.
Among younger Republicans, support for renewable energy remains high.
Democrats, by contrast, break in favor of renewables by 75 points, with little difference across age groups and no indication of significant change over time. They’re also twice as likely to think a solar farm will help the local economy than Republicans are.
Similar differences were apparent when Pew asked about policies meant to encourage the sale of electric vehicles, with 83 percent of Republicans opposed to having half of cars sold be electric in 2032. By contrast, nearly two-thirds of Democrats favored this policy.
There’s also a rural/urban divide apparent (consistent with Republicans getting more support from rural voters). Forty percent of urban residents felt that a solar farm would improve the local economy; only 25 percent of rural residents agreed. Rural residents were also more likely to say solar farms made the landscape unattractive and take up too much space. (Suburban participants were consistently in between rural and urban participants.)
What’s behind these changes? The single biggest factor appears to be negative partisanship combined with the election of Joe Biden.
For Republicans, 2020 represented an inflection point in terms of support for different types of energy. That wasn’t true for Democrats.
Among Republicans, support for every single form of power started to change in 2020—fossil fuels, renewables, and nuclear. Among Democrats, that’s largely untrue. Their high level of support for renewable power and aversion to fossil fuels remained largely unchanged. The lone exception is nuclear power, where support rose among both Democrats and Republicans (the Biden administration has adopted a number of pro-nuclear policies).
This isn’t to say that non-political factors are playing no role. The rapid expansion of renewable power means that many more people are seeing facilities open near them, and viewing that as an indication of a changing society. Some degree of backlash was almost inevitable and, in this case, the close ties between conservative lobbyists and fossil fuel interests were ready to take advantage of it.
This is absolutely a huge win for consumers. This helps eliminate the deep state tool for Legislation through Regulations by putting the responsibility back on Congress to write better laws. Before, if there were any ambiguities or questions, the Chevron defense forced the courts to side with the agencies, and that typically went towards more government controls and fewer freedoms for US citizens. Appellate courts can now overturn poorly written regulations that go against the US Constitution or other laws.
Washington — The Supreme Court on Friday overturned a landmark 40-year-old decision that gave federal agencies broad regulatory power, upending their authority to issue regulations unless Congress has spoken clearly.
The court split along ideological lines in the dispute, with Chief Justice John Roberts writing for the conservative majority. Justices Elena Kagan, Sonia Sotomayor and Ketanji Brown Jackson were in dissent. Kagan read portions of her dissent from the bench.
The court’s ruling in a pair of related cases is a significant victory for the conservative legal movement, which has long aimed to unwind or weaken the 1984 decision in Chevron v. National Resources Defense Council. Critics of that landmark ruling, which involved a challenge to a regulation enacted by the Environmental Protection Agency under the Clean Air Act, have said the so-called Chevron doctrine gives unelected federal bureaucrats too much power in crafting regulations that touch on major areas of American life, such as the workplace, the environment and health care.
“Chevron is overruled. Courts must exercise their independent judgment in deciding whether an agency has acted within its statutory authority, as the [Administrative Procedure Act] requires,” Roberts wrote for the court. The chief justice called the earlier decision a “judicial invention that required judges to disregard their statutory duties.”
The framework required courts to defer to an agency’s interpretation of laws passed by Congress if it is reasonable. Calls for it to be overturned came from not only conservative legal scholars, but some of the justices themselves who have said courts are abdicating their responsibility to interpret the law.
“In one fell swoop, the majority today gives itself exclusive power over every open issue — no matter how expertise-driven or policy-laden — involving the meaning of regulatory law,” Kagan wrote in a dissent joined by Sotomayor and Jackson. “As if it did not have enough on its plate, the majority turns itself into the country’s administrative czar.”
The challenge to Chevron deference
The dispute that led to the court’s reevaluation of the Chevron doctrine stemmed from a 2020 federal regulation that required owners of vessels in the Atlantic herring fishery to pay for monitors while they’re at sea.
These at-sea monitors, who collect data and oversee fishing operations, can cost more than $700 per day, according to court filings.
The National Marine Fisheries Service implemented the rule under a 1976 law, arguing that the measure allows it to require fishing vessels to cover the cost of the monitors. But companies that operate boats in New Jersey and Rhode Island challenged the regulation in two different federal courts, claiming the fisheries service lacked the authority to mandate industry-funded monitoring.
The federal government prevailed in both challenges, and the fishing companies asked the Supreme Court to step in and overrule Chevron.
The industry-monitored fishing program was suspended in April 2023 because of a lack of federal funding, and the fishermen were reimbursed for associated costs. Jackson recused herself from one of the two Chevron cases before the court.
Concerns about a ruling
While the conservative legal movement decried the growth of the so-called administrative state, the Supreme Court’s decision to reconsider the Chevron ruling sparked concerns that unwinding or even limiting the framework would threaten the ability of federal agencies to craft regulations on issues like the environment, nuclear energy or health care.
Proponents of the doctrine have argued that agencies have the expertise and experience to address gaps in the laws enacted by Congress, especially when it comes to administering programs that serve broad swaths of the population. Overturning Chevron would make it more difficult for the federal government to implement the laws passed by Congress, its backers warned.
Kagan, in dissent, accused the conservative majority of usurping the power the legislative branch gave to agencies to make policy decisions and putting judges in the center of the administrative process on all manner of subjects.
“What actions can be taken to address climate change or other environmental challenges? What will the nation’s health-care system look like in the coming decades? Or the financial or transportation systems? What rules are going to constrain the development of A.I.?” she wrote. “In every sphere of current or future federal regulation, expect courts from now on to play a commanding role.”
The Biden administration urged the Supreme Court to leave Chevron deference intact, calling it a “bedrock principle of administrative law.” Justice Department lawyers argued that the framework allows experts at federal agencies to interpret statutes, and have said they, not judges, are better suited to respond to ambiguities in a law.
Chevron doctrine has been applied by lower courts in thousands of cases. The Supreme Court itself has invoked the framework to uphold agencies’ interpretations of statutes at least 70 times, but not since 2016.
Roberts wrote for the court that its decision reversing Chevron would not call those questions those prior cases. But with Chevron overruled, Kagan warned of new legal challenges to longstanding agency interpretations that had never previously been targeted.
The pair of disputes were among several others that the justices are deciding this term that involve the power of federal agencies. They also weighed the constitutionality of internal legal proceedings at the Securities and Exchange Commission, which threatened to upend the work of administrative law judges in various federal agencies, as well as whether the Bureau of Alcohol, Tobacco, Firearms and Explosives lacked the authority to outlaw bump stocks under a 1934 law that regulated machine guns.
The court ruled in a divided 6-3 decision that the ATF did go too far when it banned bump stocks, invalidating the rule put in place during the Trump administration.