The race for clean energy subsidies has begun

Hello and welcome back to Energy Source.

Here is Amanda, returning from a trip to Washington, where US President Joe Biden’s clean energy tax credits are making headlines. Thousands of foreign investors attended the Commerce Department’s annual summit last week in National Harbor, Maryland, eager to speak with Biden officials and state governors. The financing of the project was the essential theme.

Meanwhile, less than 30 minutes away on Capitol Hill, all eyes are on Biden’s meeting with Republican House Speaker Kevin McCarthy during the debt ceiling crisis. The GOP wants to repeal the tax credits that have generated so much excitement, in order to fund the government. Nearly every Republican in the House voted to support the proposal, despite the fact that the majority of clean energy dollars go to Republican-controlled congressional districts. The proposed repeal is dead on arrival, but it highlights a growing conundrum for the GOP over its views on clean energy and the value of federal spending. I have more on this below.

Also in today’s newsletter: Myles reports on asset managers loading up on oil and gas inventories, and Data Drill has good news for new nuclear advocates (and Oliver Stone): people don’t seem to hate him.

Thanks for reading. —Amanda

Biden officials raise big green subsidy tax

More than 4,000 foreign investors, ambassadors and government officials descended on National Harbor last week to find out how to make the most of new federal subsidies.

SelectUSA, the Commerce Department’s annual summit on foreign investment, saw a record turnout this year, overburdened, analysts say, by Inflation Reduction Act and Chips and Science Act subsidies for clean energy and manufacturing of semiconductors.

“Take some of it or you’re missing out on a huge opportunity,” Don Graves, deputy commerce secretary, told a crowd of investors about the IRA tax credits.

Here are three takeaways from the summit:

1. States are racing to increase Biden’s subsidies

Competition to secure investment is not only the United States against the world; fierce clashes are also taking place between the American states themselves. Representatives from 55 states and territories attended the summit, including a record number of governors.

“I’m trying to bring Oklahoma to the world, bring the world back to Oklahoma,” Governor Kevin Stitt, one of two Republican governors to attend the summit, said in an interview with the Financial Times. While Stitt has expressed tax concerns about the size of Biden’s tax credits, he said they have “absolutely” helped boost investment in his state.

More than $200 billion of investment in the manufacturing sector has been announced since the passage of the IRA and Chips Act. The rush to secure projects has prompted states to implement their own own incentives.

Last month, Oregon approved $210 million in semiconductor subsidies to attract companies. New York, Idaho and Pennsylvania have also offered sweeteners to semiconductor companies. The Illinois state legislature is working to expand tax credits for renewable energy producers.

“It’s a bit like the nuclear arms race: Everyone is in the incentive game,” said Pat Wilson, commissioner for Georgia’s department of economic development. The state awarded Norwegian battery company Freyr $358 million in incentives for its $2.6 billion gigafactory in November, beating out more than two dozen states to secure the project.

2. The US still beats Europe

For months, Europe has accused the United States of drawing investors away from the continent and undermining its manufacturing base.

While tensions have eased since the US eased rules on electric vehicle subsidies and the EU unveiled its rival business plan, firms say the US remains their main market.

The latest is Norway’s Nel, which announced a $400 million hydrogen electrolyser manufacturing project in Michigan at last week’s summit, the largest investment of its kind ever in the United States.

“At the moment it is easier to predict the rapid growth of the hydrogen economy in the United States,” said Nel’s managing director, Håkon Volldal.

Rich Voorberg, president of Siemens Energy North America, echoed the sentiment.

“We encourage [Europe] to go fast. . . We struggle to see anything in reality before 2024, 2025, and this market needs it now,” Voorberg said. Siemens Gamesa, the company’s wind power arm, announced $500 million in February for a spaceships in New York and plans to reopen laid-off factories in Iowa and Kansas.

3. A race for the workers

Investors are worried about the workforce.

“We have all these projects starting at the same time,” said Ajay Kochhar, managing director of battery recycling company Li-Cycle. “How can you make sure you get the job?”

At least 82,000 clean energy and semiconductor manufacturing jobs have been announced since the IRA and Chips Act passed last August, putting pressure on a tight job market and an aging workforce. Associated Builders and Contractors expects the project boom to lead to a shortfall of 500,000 construction jobs this year. (Amanda Chu)

Big asset managers stockpile fossil fuels

Big investment firms are choosing cash over the climate as they load up on oil and gas inventories despite green pledges.

A relationship by Carbon Tracker, a London-based non-profit, found that asset managers including BlackRock, Fidelity and Capital Group – all of which have joined the net zero push – have significantly increased average shares in big oil producers and gas last year.

This, say the report’s authors, runs counter to climate pledges and the groups’ adherence to the Net Zero Asset Managers initiative.

“Wealth managers joining coalitions such as the Net Zero Asset Managers initiative are signaling to the market that they will invest in line with the Paris goal of keeping global warming to 1.5C,” said Maeve O’Connor , analyst at Carbon Tracker. “If they invest in oil and gas companies that aren’t aligned with this goal, they risk their reputation among climate-conscious asset owners.”

“It is difficult to see how asset owners seeking portfolios that are credibly aligned with 1.5C could hold financial interests in companies that are not themselves aligned with 1.5C.”

The report comes amid a growing stalemate over whether asset managers are practicing what they preach about the climate, as they wrestle with competing pressures to offload fossil fuel stockpiles but also elicit returns for investors.

The dilemma has become increasingly political with Republicans in recent months escalating attacks on financial institutions, such as BlackRock, which they say have become hostile to the oil and gas industry.

The report examines the holdings of 25 major asset managers in 15 oil and gas companies it deems “out of alignment” with the goals of the Paris climate accord, including the oil majors and big shale drillers. It notes that BlackRock increased the average size of its stake in the companies it analyzed from 6% to 6.6% last year; Fidelity from 1.3 percent to 1.8; and Capital Group from 3.4% to 4%.

The three companies declined to comment or did not respond to a request for comment. But many large asset managers have pointed out in the past that large oil and gas holdings are often due to significant activity of passive funds, which track indexes that include fossil fuel companies.

The spike in commodity prices last year in the wake of Russia’s full-scale invasion of Ukraine fueled a large rally in oil and gas stocks, giving them higher weightings in many indices and raising the passive investor exposure.

Carbon Tracker acknowledged that some of the increases can be attributed to passive products. But he said this raises questions about the compatibility of such indexed products with the Paris goals.

Vanguard — which owns the largest fossil fuel holdings of the companies analyzed and manages mostly passive funds — he retired from the NZAM in December, saying the alliance’s stance on combating climate change had led to “confusion about the views of individual investment firms”.

A few years ago, when oil and gas stocks were tumbling, green promises and investor returns aligned well for fund managers. Now, with the industry rising again – and making a lot of money – these commitments are being tested. (Myles McCormick)

Data tutorial

Last week’s newsletter featured a interview with Oliver Stone at the release of his new film, Nuclear nowwhich aims to rehabilitate the image of atomic energy.

Stone and other nuclear crusaders will surely appreciate a study of public opinion on nuclear power. Polls conducted by four pro-nuclear think tanks find broad support for new nuclear technologies in developed economies.

However, advanced nuclear weapons still have a long way to go before constituting only a small part of the global energy matrix. Even major developers don’t expect to have an online reactor until the end of the decade. And in this sector, delays are the order of the day.

Strengths

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Energy Source is written and edited by Derek Brower, Myles McCormick, Justin Jacobs, Amanda Chu and Emily Goldberg. Reach us at energy.source@ft.com and follow us on Twitter at @FTEnergy. Retrieve past editions of the newsletter Here.