Insurers such as State Farm and Allstate are leaving fire- and flood-prone areas. Home values could take a hit

Some insurance companies are pulling back coverage from fire- and flood-prone areas, leaving homeowners with limited affordable options. This trend may even affect the property value of American homes, experts say.

The nation’s largest homeowner’s insurance company, State Farm, stopped accepting new applications for policies on property in California in May. Allstate announced in November 2022 that it would “pause new homeowners, condo and commercial insurance policies in California to protect current customers,” the Associated Press reported in June.

This trend will likely continue across the insurance industry, said Jeremy Porter, head of climate implications research at First Street Foundation, a nonprofit research organization that compiles comprehensive climate risk data.

“They know the risk is just too high to be actuarially sound for their business,” he said.

In its announcement, State Farm said too many buildings are being destroyed by climate catastrophes, inflation is making it too expensive to rebuild, and it can’t protect its investments any longer. 

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The problem is not just in California, where wildfires are prevalent. Louisiana and Florida homeowners are also contending with a lack of access to insurance, due to flood risk.  

“Losses are increasingly related to climate risk,” said Sean Kevelighan, president and CEO of the Insurance Information Institute, an insurance industry association. “As that risk increases, so does the cost of insuring those assets that people have on hand.”

Even though there wasn’t an increase in major disasters in 2023, he said, the industry is still expecting to see $50 billion in losses just because of “severe convective issues” such as flash flooding and the implications of heavier everyday storms. 

What happens when a homeowner can’t get insurance

Darlene Tucker and Tom Pinter

Without insurance, many homeowners can find themselves in big financial trouble. 

Darlene Tucker, 66, and Tom Pinter, 68, are longtime homeowners in Sonora, California. The couple bought their “dream home” 18 years ago and have been enjoying their retirement from their respective jobs in manufacturing.

Tucker also cares for her horses and a rescued 100-pound tortoise on the property, and runs a dog day care center to help make ends meet. She said Pinter also works as a delivery driver to help out.

Darlene Tucker and Tom Pinter’s home in Sonora, California.

The couple received a nonrenewal notice from Allstate in November. Tucker told CNBC she has been working with her Allstate agent to find another insurer.

“I had one company step up and said they’d do it for $12,000 a year,” she said — that’s roughly six times her previous annual premium under Allstate of about $2,000.

She said there was no way the couple could afford that new policy, and they would likely have to move. 

Dogs play at Darlene Tucker and Tom Pinter’s home in Sonora, California.

But Tucker and Pinter may find that selling their home also comes with a steep cost.

Porter said First Street Foundation’s research in California concluded that “the moment that an individual gets a non-renewal letter from the private insurance market, they essentially lose 12% of their property value.”

Insurance costs ‘should be an alarm’ for homebuyers

Experts say the insurance landscape in California is particularly tricky because, in addition to the wildfire risk, the state has a law that adds extra approval measures, including board approval and review by the insurance commissioner, if an insurance company wants to raise the rate of insurance by more than 7%. That’s been in effect since the 1980s.

Kevelighan, of the Insurance Information Institute, said that law, called Proposition 103, creates a regulatory environment in California that restricts the industry from adequately including climate risk in its forecasting and is one of the reasons the industry is being forced to pull back coverage in the state.

“Risk management does not come into play until it’s entirely too late when it comes to individual personal property purchasing,” Kevelighan said. “It comes into play when the mortgage provider needs you to go get it.”

“And that’s the first time when a consumer even begins to think about where they’re living and what the risks might be,” he said. “The cost reflects that risk. That should be an alarm to tell them that they’re living in a risky place and then ask themselves: How could I reduce that risk? Or do I need to think about living somewhere else?”

‘Give me something to work with’

With just days remaining until Tucker and Pinter’s Allstate policy expires, on Feb. 15, the couple is still looking for more options. Tucker told CNBC that a recent quote they received was three times what they were originally paying, with a $10,000 deductible.

Of the whole situation, she said she feels frustrated.

Darlene Tucker and Tom Pinter

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We can tackle climate change, jobs, growth and global trade. Here’s what’s stopping us

We must leave behind established modes of thinking and seek creative workable solutions.

Another tumultuous year has confirmed that the global economy is at a turning point. We face four big challenges: the climate transition; the good-jobs problem; an economic-development crisis, and the search for a newer, healthier form of globalization.

To address each, we must leave behind established modes of thinking and seek creative workable solutions, while recognizing that these efforts will be necessarily uncoordinated and experimental.

Climate change is the most daunting challenge, and the one that has been overlooked the longest — at great cost. If we are to avoid condemning humanity to a dystopian future, we must act fast to decarbonize the global economy. We have long known that we must wean ourselves from fossil fuels, develop green alternatives and shore up our defenses against the lasting environmental damage that past inaction has already caused. However, it has become clear that little of this is likely to be achieved through global cooperation or economists’ favored policies.

Instead, individual countries will forge ahead with their own green agendas, implementing policies that best account for their specific political constraints, as the United States, China and the European Union have been doing. The result will be a hodge-podge of emission caps, tax incentives, research and development support, and green industrial policies with little global coherence and occasional costs for other countries. Messy though it may be, an uncoordinated push for climate action may be the best we can realistically hope for.

Inequality, the erosion of the middle class, and labor-market polarization have caused significant damage to our social environment.

But our physical environment is not the only threat we face. Inequality, the erosion of the middle class, and labor-market polarization have caused equally significant damage to our social environment. The consequences are now widely evident. Economic, regional, and cultural gaps within countries are widening, and liberal democracy (and the values that support it) appears to be in decline, reflecting rising support for xenophobic, authoritarian populists and the growing backlash against scientific and technical expertise.

Social transfers and the welfare state can help, but what is most needed is an increase in the supply of good jobs for the less-educated workers who have lost access to them. We need more productive, well-remunerated employment opportunities that can provide dignity and social recognition for those without a college degree. Expanding the supply of such jobs will require not only more investment in education and more robust defense of workers’ rights, but also a new brand of industrial policies for services, where the bulk of future employment will be created.

The disappearance of manufacturing jobs over time reflects both greater automation and stronger global competition. Developing countries have not been immune to either factor. Many have experienced “premature de-industrialization”: their absorption of workers into formal, productive manufacturing firms is now very limited, which means they are precluded from pursuing the kind of export-oriented development strategy that has been so effective in East Asia and a few other countries. Together with the climate challenge, this crisis of growth strategies in low-income countries calls for an entirely new development model.

Governments will have to experiment, combining investment in the green transition with productivity enhancements in labor-absorbing services.

As in the advanced economies, services will be low- and middle-income countries’ main source of employment creation. But most services in these economies are dominated by very small, informal enterprises — often sole proprietorships — and there are essentially no ready-made models of service-led development to emulate. Governments will have to experiment, combining investment in the green transition with productivity enhancements in labor-absorbing services.

Finally, globalization itself must be reinvented. The post-1990 hyper-globalization model has been overtaken by the rise of U.S.-China geopolitical competition, and by the higher priority placed on domestic social, economic, public-health, and environmental concerns. No longer fit for purpose, globalization as we know it will have to be replaced by a new understanding that rebalances national needs and the requirements of a healthy global economy that facilitates international trade and long-term foreign investment.

Most likely, the new globalization model will be less intrusive, acknowledging the needs of all countries (not just major powers) that want greater policy flexibility to address domestic challenges and national-security imperatives. One possibility is that the U.S. or China will take an overly expansive view of its security needs, seeking global primacy (in the U.S. case) or regional domination (China). The result would be a “weaponization” of economic interdependence and significant economic decoupling, with trade and investment treated as a zero-sum game.

The biggest gift major powers can give to the world economy is to manage their own domestic economies well.

But there could also be a more favorable scenario in which both powers keep their geopolitical ambitions in check, recognizing that their competing economic goals are better served through accommodation and cooperation. This scenario might serve the global economy well, even if — or perhaps because — it falls short of hyper-globalization. As the Bretton Woods era showed, a significant expansion of global trade and investment is compatible with a thin model of globalization, wherein countries retain considerable policy autonomy with which to foster social cohesion and economic growth at home. The biggest gift major powers can give to the world economy is to manage their own domestic economies well.

All these challenges call for new ideas and frameworks. We do not need to throw conventional economics out the window. But to remain relevant, economists must learn to apply the tools of their trade to the objectives and constraints of the day. They will have to be open to experimentation, and sympathetic if governments engage in actions that do not conform to the playbooks of the past.

Dani Rodrik, professor of international political economy at Harvard Kennedy School, is president of the International Economic Association and the author of Straight Talk on Trade: Ideas for a Sane World Economy (Princeton University Press, 2017).

This commentary was published with the permission of Project Syndicate — Confronting Our Four Biggest Economic Challenges

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Heat records and climate accords: How did the environment fare in 2023?

From drought in Spain to floods in the Horn of Africa and wildfires in Canada, 2023 was marked by some alarming environmental disasters. However, it wasn’t all bad news – the past few months have seen some significant advances in the fight against climate change.

The hottest year in history

It was hot this year, sometimes very hot – temperatures reached 53°C in Death Valley in the United States, 55°C in Tunisia, and 52°C in China

Even after summer, the mercury did not drop to regular levels with September, October and November all experiencing unusually warm temperatures. The news everyone anticipated finally came in early December: 2023 was the hottest year in recorded history.

For the period from January to November, the average global surface temperature was 1.46°C above the pre-industrial era. It was also 0.13°C above the average of the previous hottest year, 2016. The combined effects of the El Nino climate phenomenon in the Pacific and climate change are to blame.

Oceans suffered from extreme heat

The heat was not confined to land; the planet’s oceans also experienced frighteningly high temperatures. March, April, May, June, July, August, September and October all recorded their hottest maritime temperatures ever.

On July 30, the average global ocean surface temperature reached an unprecedented 20.96°C, according to the European climate monitoring service, the Copernicus Institute. Just a month later, the Mediterranean Sea set its daily heat record, with a median temperature of 28.71°C, according to the main Spanish maritime research centre.

Read moreWorld’s oceans set new temperature record, EU data says

These repeated new records indicate an increasing frequency of marine heatwaves, something that could have dramatic impacts on biodiversity.

Both poles melting at rapid rates

In February, towards the end of the summer in the southern hemisphere, the Antarctic ice sheet reached an alarmingly low level before growing back at an unusually slow pace over the winter.

The ice sheet’s surface in September was 16.96 million km2, the lowest sea ice maximum since measurements began by a wide margin, according to the National Snow and Ice Data Center (NSIDC)

At the other end of the globe, the Arctic experienced its warmest summer on record, with an average temperature of 6.4°C. Both regions are affected by the “polar amplification” phenomenon which mean they warm faster than lower latitudes, partly due to the melting of the ice sheet and ocean warming.

Long periods of drought

The year was also marked by a series of severe droughts. France, for instance, recorded no significant rainfall for the 32 consecutive days between January 21 and February 21 – “the longest period since records began in 1959”, according to the Copernicus Institute.

In Spain, parts of the population had to deal with a lack of rain for more than 100 days, sparking frustration and raising tensions with neighbouring Portugal over water use.

The European Union was far from the only affected territory. In early June, Iran warned that 97% of the country lacked water due to a lack of rain. A historic drought that has had serious consequences for agriculture since 2020 continued in the Horn of Africa.

Unprecedented wildfires

With drought comes fire. Some 6,400 fires burned 18.5 million hectares of Canada’s famous forests – more than twice the previous record of 7.6 million hectares set in 1989 – giving the country its worst fire season ever recorded.

Images of an orange and apocalyptic New York skyline went viral after smoke from the Canadian wildfires made its way south, polluting air and disrupting traffic.

The Statue of Liberty is covered in haze and smoke caused by wildfires in Canada, in New York on June 6, 2023. © Amr Alfiky, Reuters

Across the Atlantic, thousands of tourists had to be evacuated from the Greek island of Rhodes due to forest fires in what was the European country’s largest evacuation operation ever.

Rains intensify

Episodes of drought were followed by intense rains, often causing floods. In early August, a month’s worth of rain fell in less than 24 hours in Slovenia, killing three people and causing an estimated €500 million of damage.

In the Horn of Africa too, drought gave way to torrential rains, killing more than 300 and displacing two million people, according to the UN. 

In Libya, several thousand people died, and tens of thousands were displaced due to floods in the eastern part of the country.

Serious flooding also occurred in the United States, Japan, Nepal, China, and even France, which experienced historic autumn rainfall in the Pas-de-Calais region.

Fossil fuels mentioned in a COP final text

For the first time, a United Nations Climate Conference (COP) – held in early December in Dubai – concluded with a text calling for a “transition away” from the primary driver of climate change, fossil fuels. 

However, the text has been criticised for its many shortcomings by environmental NGOs and activists, notably for favouring carbon capture technologies and presenting gas as a “transitional energy”. 

Renewable energies made headway

Renewable energies advanced at full speed in 2023. Mainly driven by solar and new photovoltaic capacities, renewable energies are expected to produce 4,500 GW of power in 2024, equivalent to the combined electrical production of the United States and China, according to a report by the International Energy Agency.

In the EU, this momentum is expected to be boosted by a new “Renewable Energy Directive” which set a binding target of achieving 42.5% renewable energy by 2030, compared to the current 22%. Following COP28, EU member states also committed to tripling the production of renewable energy.

An EU law on nature restoration and biodiversity

There was also good news for forests, meadows, lakes, rivers, and corals. After months of tension and hours of negotiations, the European Parliament and EU states reached an agreement in November on a nature restoration bill. The stated goal is to restore 20% of the EU’s land and seas by 2030, and all degraded ecosystems by 2050 – representing 80% of total natural habitats.

Watch moreMeeting Dr Jane Goodall: A global champion for the environment

While the text is less ambitious than it was originally supposed to be, especially regarding restoration obligations for agricultural land, it raised hopes at a time of grave biodiversity loss.

The first treaty on the protection of international waters

After 15 years of discussions, in June, the UN officially adopted the High Seas Treaty, a first of its kind aimed at protecting international waters and preserving marine life.

International waters begin where the exclusive economic zones (EEZ) of states end – up to a maximum of 200 nautical miles (370 km) from the coasts – and are therefore not under the jurisdiction of any state. Although they constitute nearly half of the planet and more than 60% of the oceans, international waters have long been ignored in environmental efforts. Today, only about 1% are subject to conservation measures.

The new treaty will facilitate the creation of marine protected areas. The text is expected to come into effect in 2025, at the next UN Ocean Conference in France.

Is a treaty against plastic pollution in the works?

The good news may not end with 2023. Representatives from 175 countries have been developing a legally binding agreement on plastic pollution. This is a significant challenge as plastic, derived from petrochemicals, can be found everywhere – from the depths of the oceans to the tops of our planet’s highest mountains.

Read moreTackling plastic pollution: ‘We can’t recycle our way out of this’

However, there is a divergence of views on plastic pollution. Some are calling for a binding treaty aimed at “restricting and reducing the consumption and production” of plastic, while others argue for a focus on better waste management.

This article was translated from the original in French.

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COP28 nations adopt first-ever climate deal to ‘transition away’ from fossil fuels

The COP28 climate summit on Wednesday approved a deal that would, for the first time, push nations to “transition” from fossil fuels to avert the worst effects of climate change.

  • Biden hails COP28 climate deal as ‘historic milestone’

US President Joe Biden hailed a deal secured on Wednesday at UN climate talks in Dubai as a “historic milestone” in transitioning away from fossil fuels but said there was still work to do.

“Today, at COP28, world leaders reached another historic milestone – committing, for the first time, to transition away from the fossil fuels that jeopardize our planet and our people,” Biden said in a statement. 

“While there is still substantial work ahead of us to keep the 1.5°C goal within reach, today’s outcome puts us one significant step closer.”


THE DEBATE © France 24

 

The deal asks for greater action this decade and recommits to no net greenhouse gas emissions by 2050 in hopes of meeting the increasingly elusive goal of checking warming at 1.5°C (2.7°F) above pre-industrial levels.

The United States is the world’s second biggest greenhouse gas emitter after China.

Biden skipped the Dubai summit and sent Vice President Kamala Harris to attend the start instead.

  • Russia warns against ‘chaotic’ fossil fuels exit

Russia on Wednesday warned against a “chaotic” exit from fossil fuels, while welcoming the “compromise” deal reached at the COP28 summit in Dubai on transitioning away from them.

“We have at every opportunity stressed the consequences of a chaotic exit without the backing of science,” Ruslan Edelgeriyev, Russian President Vladimir Putin‘s special envoy for climate issues, was quoted by TASS news agency as saying.

“We cannot ignore the diverse needs of people around the world, including the need for affordable and reliable energy,” he said.

“The final deal will probably not satisfy everyone but that only shows it is a compromise.”

Russia is one of the main gas, oil and coal producers in the world.

According to many experts, Siberia and the Russian Arctic are some of the regions in the world most affected by climate change.

  • OPEC secretary-general says oil sector in jeopardy without adequate investment

OPEC+‘s Secretary-General Haitham Al Ghais said in a statement on Wednesday that the oil industry is in jeopardy without adequate levels of investment.

He also congratulated the UAE for the positive outcome of COP28.

  • US climate envoy John Kerry addresses COP28 after deal on fossil fuels

US climate envoy John Kerry said that no side can ever achieve everything in negotiations and praised the deal as a sign a war-torn world can come together for the common good.

“I think everyone has to agree this is much stronger and clearer as a call on 1.5(°C) than we have ever heard before, and it clearly reflects what the science says,” Kerry said. “We will continue to press for a more rapid transition.”

“The Paris agreement and the global stock take both stress the importance of developing and updating long-term strategies in order to reduce emissions and enhance resilience,” he added. 

US climate envoy John Kerry at COP28.
US climate envoy John Kerry at COP28. © FRANCE 24

Seeking to avoid the geopolitical tensions that have strained cooperation on other issues, Kerry met ahead of COP28 with his counterpart from China, leading to a joint call by the world’s two largest emitters to step up renewable energy.

  • Almost 200 countries adopt first-ever climate deal on fossil fuels

Nations adopted on Wednesday the first ever UN climate deal that calls for the world to transition away from fossil fuels.

“Together we have set the world in the right direction,” COP28 President Sultan al-Jaber said at the UN climate summit in Dubai, prompting delegates to rise and applaud.

Al-Jaber hailed a the deal approved by almost 200 countries as an “historic package” of measures which offered a “robust plan” to keep the target of 1.5°C within reach.

SCIENCE
SCIENCE © FRANCE 24

 

“We have delivered a paradigm shift that has the potential to redefine our economies,” he said during the closing session of the COP28 summit, shortly after the deal was approved.

He added a note of caution for nations: “An agreement is only as good as its implementation. We are what we do, not what we say.”

UN climate chief Simon Stiell urged countries to turn pledges into action after the agreement was passed.

“Now, all governments and businesses need to turn these pledges into real-economy outcomes without delay,” Stiell told delegates in Dubai.

  • New UN climate draft calls for ‘transitioning away’ from fossil fuels

A draft agreement unveiled early Wednesday in talks in Dubai toughens language by calling for “transitioning away” from fossil fuels, although it does not use the term “phase out”.

The text, released for consideration after another full night of haggling, would also call for “accelerating action” during “this critical decade” – providing more urgency than an earlier proposal widely dismissed by green-minded countries.

The previous draft also drew fire for offering a list of options that “could” be taken to combat the dangerous warming of the planet.


 

The new draft explicitly “calls on” all nations to contribute through a series of actions.

The actions include “transitioning away from fossil fuels in energy systems, in a just, orderly and equitable manner, accelerating action in this critical decade, so as to achieve net zero by 2050 in keeping with the science”, the new draft says.

It calls for phase-downs of “unabated coal power” – meaning that coal with carbon capture technology to reduce emissions, panned by many environmentalists as unrealistic, could continue.

It also calls for “phasing out inefficient fossil fuel subsidies that do not address energy poverty or just transitions, as soon as possible”.

But it does not call for a “phase out” of fossil fuels.

Discussions during the 14 days of talks in Dubai, a metropolis built on oil wealth, had revolved around how far to go and whether to make a historic call to wind down oil, gas and coal, the main culprits in the planet’s rapid warming.

(FRANCE 24 with AFP, AP & Reuters)

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Why automakers are turning to hybrids in the middle of the industry’s EV transition

2023 Prius Prime on display, April 6, 2023.

Scott Mlyn | CNBC

DETROIT — As sales of all-electric vehicles grow more slowly than expected, major automakers are increasingly meeting their customers in the middle.

More and more companies are reconsidering the viability of hybrid cars and trucks to appease consumer demand and avoid costly penalties related to federal fuel economy and emissions standards.

The shifting strategies run counterintuitively to industrywide EV messaging of recent years. Many auto companies have begun to invest billions of dollars in all-electric vehicles, and the Biden administration has made a push to get more EVs on U.S. roadways as quickly as possible.

But hybrid vehicles — those with traditional internal combustion engines combined with EV battery technologies — could help the automotive industry lower fuel consumption and emissions in the short-term, while easing consumers into vehicle electrification.

Sales of traditional hybrid electric vehicles, or HEVs, such as the Toyota Prius, are outpacing those of all-electric vehicles in 2023, according to Edmunds. HEVs accounted for 8.3% of U.S. car sales, about 1.2 million vehicles sold, through November of this year. That share is up 2.8 percentage points compared with total sales last year.

EVs made up 6.9% of sales heading into December, or roughly 976,560 units, up 1.7 percentage points compared with total sales last year. Sales of plug-in hybrid electric vehicles, or PHEVs, accounted for only 1% of U.S. sales through November.

“There’s been so much talk over the past few years about the move toward electrification and sort of forgoing hybrids, but … hybrids are not dead,” said Jessica Caldwell, Edmunds executive director of insights. “There’s a lot of consumers out there that are interested in electrification, maybe not ready to go fully electric.”

Hybrids can also cost less and relieve many concerns typically associated with EVs such as range anxiety and lack of charging infrastructure. The average hybrid this year cost $42,381, according to Edmunds. That’s below the roughly $59,400 average for an EV; $60,700 for a PHEV; and $44,800 for a traditional vehicle.

Morgan Stanley earlier this month said Toyota Motor, Honda Motor and Hyundai Motor, including Kia, account for 9 out of 10 hybrid sales in the U.S. Representatives for those automakers said they are actively attempting to increase production and sales of hybrid vehicles in the U.S.

“While the transition to full battery electric transportation will take time, hybrids and plug-in hybrids will play an equally important role in Kia America’s near and mid-term goals,” Eric Watson, vice president of Kia America sales, said in a statement to CNBC.

And other companies, such as the Detroit automakers, are following suit.

Detroit Three automakers

The Detroit automakers have varying strategies for hybrid vehicles.

Ford Motor offers PHEVs but is leaning into HEVs, announcing plans in September to double sales of the V-6 hybrid model during the 2024 model year to roughly 20% in the U.S. It’s part of Ford CEO Jim Farley’s plans to quadruple the company’s production of gas-electric hybrids.

Ford’s hybrid sales through November of this year are up 23% over the same period in 2022 to more than 121,000 units, or 6.8% of its total sales through that point. In comparison, Ford’s EV sales are up 16.2% to roughly 62,500 units, accounting for 3.5% of its total sales.

Battery breakdown

Both hybrids and plug-in hybrids have a traditional engine combined with EV technologies. A traditional hybrid such as the Toyota Prius has electrified parts, including a small battery, to provide better fuel economy to assist the engine. PHEVs typically have a larger battery to provide for all-electric driving for a certain number of miles until an engine is needed to power the vehicle or electric motors.

Chrysler parent Stellantis, for its part, is leaning on PHEVs for its electrification strategy, before introducing a host of EVs starting next year. The company is the top seller of plug-in hybrid electric vehicles in the U.S., and the vehicles accounted for about 10% of the company’s third-quarter sales, led by Jeep Wrangler and Grand Cherokee SUVs.

But General Motors isn’t ready just yet to alter its EV plans, which include a goal to exclusively offer all-electric vehicles by 2035.

GM led the way for plug-in electric vehicles with the Chevrolet Volt during the 2010s. The company discontinued the vehicle in early 2019, citing demand and cost concerns.

Since then, the automaker has not offered another hybrid vehicle in the U.S. other than the recently launched Chevrolet Corvette E-Ray, a hybrid version of the famed sports car. GM does offer hybrids, including PHEVs, in China.

2024 Chevrolet Corvette E-Ray hybrid sports car

GM

“We still have a plan in place that allows us to be all light-duty vehicles EV by 2035,” GM CEO Mary Barra said Monday during an Automotive Press Association meeting in Detroit. “We’ll adjust based on where the customer is and where demand is. It’s not going to be ‘if we build it they will come.’ We’re going to be led by the customer.”

Her comments come after GM President Mark Reuss told CNBC in August that he was “flexible” regarding hybrids as a way of meeting federal regulations.

“If it means we have to do that by law, then we have to do that by law,” he said. “If there’s regulations that get dealt on us, then we’re going to look at everything in our toolbox to meet them.”

Federal regulations

Major auto companies, including the Detroit automakers, were counting on EVs to assist in offsetting the emissions and low fuel economies of larger SUVs and trucks that can cost them hundreds of millions of dollars in fines by the federal government.

GM and Stellantis were forced to pay a combined $363.8 million in penalties for failing to meet federal fuel-economy standards for cars and trucks they produced in previous years, according to information published by the National Highway Traffic Safety Administration in June.

Such fines would significantly increase under current proposals by the Biden administration to improve fuel efficiency of vehicles and move toward EVs, according to automaker lobbying groups.

The American Automotive Policy Council, a group representing the Detroit Three, earlier this year said the automakers would face more than $14 billion in noncompliance penalties between 2027 and 2032 barring significant changes to their fleets’ overall fuel efficiency. U.S. automakers have separately warned the fines would cost $6.5 billion for GM, $3 billion at Stellantis and $1 billion at Ford, according to Reuters.

NHTSA in July proposed boosting fuel efficiency requirements by 2% per year for passenger cars and 4% per year for pickup trucks and SUVs from 2027 through 2032, resulting in a fleetwide average fuel efficiency of 58 mpg.

With EVs playing a lesser role than anticipated to boost those fleetwide averages, hybrids could save automakers millions.

“Even without electric vehicles, there’s an expectation that electrification of an internal combustion engine is going to be necessary to meet regulations anyway,” said Stephanie Brinley, principal automotive analyst at S&P Global Mobility.

Industry leader

The resurgence of hybrids is especially important for Toyota. The world’s largest automaker is considered the pioneer of traditional hybrids, with the Prius.

The company ironically became a target of environmental groups last year for its strategy to move forward with a mix of hybrids, PHEVs and EVs, which critics viewed as a lack of commitment to an all-electric future.

Toyota’s argument at the time, and still, is that it’s meeting consumer needs and planning for a more gradual global adoption that will naturally include some markets shifting to EVs sooner than others.

The company further says it takes into account the entire environmental impact of producing EVs compared with hybrid electrified vehicles, arguing it can produce eight 40-mile plug-in hybrids for every one 320-mile battery electric vehicle and save up to eight times the carbon emitted into the atmosphere.

“People are finally seeing reality,” Toyota Chairman and former CEO Akio Toyoda, who has been heavily criticized for the slower approach on EVs, said in October regarding EVs, according to The Wall Street Journal.

Toyota CEO Akio Toyoda speaks during a small media roundtable on Sept. 29, 2022 in Las Vegas.

Toyota

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The oil boss, the islander, the ‘ecofeminist’: Five people to watch at COP28

World leaders, scientists and activists gather in Dubai this week for the latest UN-sponsored COP summit aimed at forging a global response to the climate emergency. From the controversial Emirati host Sultan al-Jaber to climate leader and Prime Minister Mia Mottley of Barbados, FRANCE 24 takes a look at some of the likely protagonists of the high-stakes gathering.  

The COP28 climate summit kicks off in the desert metropolis on Thursday, November 30, drawing representatives of almost 200 countries as well as a host of climate experts, activists and lobbyists. Some 70,000 delegates are expected to attend the 13-day gathering, which will be the largest – and, arguably, most controversial – COP to date.  

The high-stakes summit in the oil-rich United Arab Emirates will be closely scrutinised, with tough negotiations on fossil fuels and climate financing on the agenda. A number of high-profile figures will be in the spotlight, none more so than the event’s Emirati president and host, Sultan al-Jaber.   

  • Sultan Al-Jaber, a Trojan horse at the helm?  

Sultan al-Jaber attends a gathering of oil and gas industry workers in Abu Dhabi in 2019. © AFP file photo

News that COP28 would be headed by the host country’s oil supremo immediately sparked a firestorm of criticism. At 50, the Emirati industry minister is an habitué of climate negotiations, having already led his country’s delegations at COP26 in Glasgow and the following gathering in Sharm el-Sheikh. The founder of renewable energies firm Masdar, he likes to tout his credentials as the face of clean energy in the UAE.  

But al-Jaber is also the chief executive of Adnoc, the country’s state oil company – a title many climate activists say disqualifies him from chairing a summit aimed at combating the global warming caused in large part by fossil fuels.   

The COP28 president bristles at accusations that he has a conflict of interest. “I’m someone who spent the majority of his career in sustainability, in sustainable economic development and project management, and renewable energy,” he told AFP in July.  

He has managed to soothe a number of sceptics in the build-up to the summit, including Harjeet Singh of the influential coalition Climate Action Network International, which brings together some 1,900 NGOs.  

“He’s very straightforward, he’s open to listening,” Singh told AFP this week, though cautioning that the pair “agree to disagree” on several issues.  


A first turning point came at a June conference in Bonn, Germany, when al-Jaber described the reduction of fossil fuels as “inevitable” – an unprecedented step for a Gulf official. The next month, the Adnoc CEO reiterated in a letter to COP28 parties that “phasing down demand for, and supply of, all fossil fuels is inevitable and essential”, setting out ambitious targets for renewable energies and climate financing.  

Just days before the summit’s opening, however, al-Jaber’s position was weakened by a BBC report revealing that the UAE planned to use its role as the host of UN climate talks as an opportunity to strike oil and gas deals – allegations he promptly denied.  

“This is exactly the kind of conflict of interest we feared when the CEO of an oil company was appointed to the role,” Greenpeace’s climate policy head Kaisa Kosonen wrote in a post on the social media network X.  

It remains to be seen whether al-Jaber will be able to influence/guide/lead the nearly 200 states taking part in the summit to broker an agreement on an ambitious text. Dozens of countries have already announced their intention to include an explicit call to reduce fossil fuels, something no COP has ever achieved.  

  • Mia Mottley, standing up for the most vulnerable  

La Première ministre de la Barbade, Mia Amor Mottley, s'exprime lors de la cérémonie d'ouverture du Forum de Paris sur la paix au Palais Brongniart à Paris, le 10 novembre 2023.
Barbados Prime Minister Mia Amor Mottley speaks during the opening ceremony of the Paris Peace Forum on November 10, 2023. © Stephane Lecocq, AFP

Mia Mottley’s bold oratory and climate advocacy have catapulted the charismatic leader of tiny Barbados to the forefront of the battle against climate change, making her a champion of the ‘Global South’ nations most vulnerable to the effects of rising seas and global warming.  

A lawyer by training, the Caribbean island’s prime minister shot to prominence in 2021 with an impassioned speech to the UN General Assembly, in which she cited the Bob Marley hit “Get Up, Stand Up” to spur concrete action on climate change.  

“In the words of Robert Nesta Marley … who will get up and stand up for the rights of our people?” she asked.

“Who will stand up in the name of all those who have died because of the climate crisis or will stand up for the small island developing states who need [to keep global warming below] 1.5° Celsius to survive?”  


Her role at COP27 in Glasgow the following year cemented her standing as a world leader on climate change. She notably spearheaded successful efforts to establish a Loss and Damage Fund, designed to provide financial assistance to nations most vulnerable and impacted by the effects of climate change.   

Mottley, 58, also played a key part in a summit held in Paris last June for a new global financial pact. The gathering hosted by French President Emmanuel Macron aimed to achieve greater climate justice by writing off the debt of less-developed countries, setting up a guarantee fund backed by development banks and the International Monetary Fund and taxing the profits of fossil fuel companies.  

Her inspirational advocacy earned her a place on TIME magazine’s list of The 100 Most Influential People of 2022. Writing in the magazine, Ngozi Okonjo-Iweala, director-general of the World Trade Organization, said Mia Mottley “is an embodiment of our conscience, reminding us all to treat our planet and therefore one another with love, dignity, and care”.

Such is Mottley’s rising fame and prestige that her name has reportedly been floated among possible candidates to head the United Nations after Secretary-General Antonio Guterres, whose mandate will come to an end in 2026.  

  • Xie Zhenhua, China’s veteran climate negotiator  

L'envoyé spécial de la Chine pour le climat, Xie Zhenhua, prononce un discours lors de la conférence sur le climat COP27 au Centre international de conventions de Charm el-Cheikh, le 8 novembre 2022.
Veteran climate negotiator Xie Zhenhua represents China at the COP27 summit in Egypt in November 2022. © Ahmad Gharabli, AFP

Known as China’s “Mr Climate”, Xie Zhenhua has represented the world’s top CO2 emitter at every COP since 2007, making him a centrepiece of all recent climate negotiations. He was notably involved in hammering out the landmark Paris climate agreement in 2015.  

An engineer by training, the 74-year-old official has been at the head of the State Environmental Protection Administration since 1993 and is known for his diplomatic skills. In recent years, he has succeeded in forging a close relationship with his American counterpart John Kerry, the US climate envoy, despite the wider context of tense relations between the two superpowers.  

The personal rapport between Xie and Kerry will be all the more important in the absence of the two countries’ presidents, the White House having confirmed on Monday that President Joe Biden will not attend COP28.  

“Xie Zhenhua is a model for future climate diplomats,” former Greenpeace activist Li Shuo, now a researcher at the Asia Society Policy Institute, told AFP. “He is deeply committed to climate action and shows a willingness and ability to bridge the gap between China and the global community.”  

  • Brazil’s Marina Silva, guardian of the Amazon  

La ministre brésilienne de l'environnement, Marina Silva, s'exprime lors d'un séminaire sur l'Amazonie à Belem, dans l'État de Para, au Brésil, le 5 août 2023.
Brazil’s Environment Minister Marina Silva has long been a fierce critic of deforestation in the Amazon. © Evaristo Sa, AFP

A former presidential candidate, Brazil’s Environment Minister Marina Silva is an emblematic figure of the fight against deforestation in the Amazon. After four years of unprecedented destruction of the world’s largest rainforest under former president Jair Bolsonaro, she has made it her mission to save the so-called “lungs of the planet”.  

Silva served as environment minister during President Luiz Inacio Lula da Silva’s first term in office, between 2003 and 2008. She was reappointed to the job in January, following Lula’s defeat of his right-wing predecessor Jair Bolsonaro. Since then, she has secured a European Union commitment to invest €260 million in an Amazon Fund that Bolsonaro’s government had suspended.   

She is expected to push further at COP28, accompanied by Lula, with a proposal to set up a new fund to preserve tropical rainforests in some 80 countries. Speaking at a seminar in the run-up to the summit, Silva said the initiative would involve “a mechanism of payment per standing tree and per hectare of land” to help countries preserve their forests.  

  • Inez Umuhoza Grace, the voice of ‘ecofeminism’ 

Ineza Umuhoza Grace s'exprime lors du sommet Global Citizen NOW au Glasshouse le 28 avril 2023 à New York.
Ineza Umuhoza Grace speaks at the Global Citizen NOW Summit in New York on April 28, 2023. © Noam Galai AFP

Aside from the official country delegations, COP28 will draw a host of civil-society activists determined to weigh on the discussions. They include Ineza Umuhoza Grace, founder of Rwandan NGO The Green Protector, a women-led non-profit that aims to foster environmental awareness among youths. 

Umuhoza Grace, 27, is global coordinator for the Loss and Damage Youth Coalition, which brings together young people from the global South and North to demand action on helping countries most vulnerable to climate change.   

In an interview with the NGO Global Impact, Umuhoza Grace recalled how she first experienced the effects of the climate crisis at an early age when her family home in Rwanda was destroyed due to intensive rainfall and wind. It was only years later that she was able to link this formative experience to the changing climate. 

“I was watching the news one evening and then I saw on the television a particular area in my country where the community was being forced to move because of flooding and erosion,” she said. “On the television you could see that most of the people who were being displaced were women and children. And that reminded me of the powerless feeling that I had back then.”  

Umuhoza Grace studied environmental engineering at the University of Rwanda and describes herself as an “ecofeminist”. Her work focuses on advocacy and training, both petitioning global leaders at international events and sharing the science of climate change at the grassroots level.

“Everyone, everywhere is exposed (to the climate crisis),” she told Global Impact. “Everyone is vulnerable, but the level of vulnerability depends on the level of infrastructure already in place, the educational system, the funds and finance.” 

Her youth coalition plans to present 10 demands at COP28, including the full implementation of the Loss and Damage Fund that Barbados PM Mia Mottley successful pushed for at the COP27 gathering last year. 

This article has been translated from the original in French.

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Why Exxon and Chevron are doubling down on fossil fuel energy with big acquisitions

Prices at a Chevron Corp. gas station in Fontana, California, on Thursday, July 8, 2021.

Kyle Grillot | Bloomberg | Getty Images

On Monday, Chevron announced plans to acquire oil and gas company Hess for $53 billion in stock.

Less than two weeks prior, Exxon Mobil announced it is acquiring oil company Pioneer Natural Resources for $59.5 billion in stock.

On Tuesday, the International Energy Agency released its annual world energy outlook report that projects global demand for coal, oil and natural gas will hit an all-time high by 2030, a prediction the IEA’s executive director Fatih Birol had telegraphed in September.

“The transition to clean energy is happening worldwide and it’s unstoppable. It’s not a question of ‘if,’ it’s just a matter of ‘how soon’ — and the sooner the better for all of us,” Birol said in a written statement published alongside his agency’s world outlook. “Taking into account the ongoing strains and volatility in traditional energy markets today, claims that oil and gas represent safe or secure choices for the world’s energy and climate future look weaker than ever.”

But based on their acquisitions, Chevron and Exxon are seemingly preparing for a different world than the IEA is portending.

“The large companies — nongovernment companies — do not see an end to oil demand any time in the near future. That’s one of the messages you have to take from this. They are committed to the industry, to production, to reserves and to spending,” Larry J. Goldstein, a former president of the Petroleum Industry Research Foundation and a trustee with the not-for-profit Energy Policy Research Foundation, told CNBC in a phone conversation Monday.

“They’re in this in the long haul. They don’t see oil demand declining anytime in the near term. And they see oil demand in fairly large volumes existing for at least the next 20, 25 years,” Goldstein told CNBC. “There’s a major difference between what the big oil companies believe the future of oil is and the governments around the world.”

So, too, says Ben Cahill, a senior fellow in the energy security and climate change program at the bipartisan, nonprofit policy research organization, Center for Strategic and International Studies.

“There are endless debates about when ‘peak demand’ will occur, but at the moment, global oil consumption is near an all-time high. The largest oil and gas producers in the United States see a long pathway for oil demand,” Cahill told CNBC.

Pioneer Natural Resources crude oil storage tanks near Midland, Texas, on Oct. 11, 2023.

Bloomberg | Bloomberg | Getty Images

Africa, Asia driving demand

Globally, momentum behind and investment in clean energy is increasing. In 2023, there will be $2.8 trillion invested in the global energy markets, according to a prediction from the IEA in May, and $1.7 trillion of that is expected to be in clean technologies, the IEA said.

The remainder, a bit more than $1 trillion, will go into fossil fuels, such as coal, gas and oil, the IEA said.

Continued demand for oil and gas despite growing momentum in clean energy is due to population growth around the globe and in particular, growth of populations “ascending the socioeconomic ladder” in Africa, Asia and to some extent Latin America, according to Shon Hiatt, director of the Business of Energy Transition Initiative at the USC Marshall School of Business.

Oil and gas are relatively cheap and easy to move around, particularly in comparison with building new clean energy infrastructure.

“These companies believe in the long-term viability of the oil and gas industry because hydrocarbons remain the most cost-effective and easily transportable and storable energy source,” Hiatt told CNBC. “Their strategy suggests that in emerging economies marked by population and economic expansion, the adoption of low-carbon energy sources may be prohibitively expensive, while hydrocarbon demand in European and North American markets, although potentially reduced, will remain a significant factor.”

Also, while electric vehicles are growing in popularity, they are just one section of the transportation pie, and many of the other sections of the transportation sector will continue to use fossil fuels, said Marianne Kah, senior research scholar and board member at Columbia University’s Center on Global Energy Policy. Kah was previously the chief economist of ConocoPhillips for 25 years.

“While there is a lot of media attention given to the increasing penetration of electric passenger vehicles, global oil demand is still expected to grow in the petrochemical, aviation and heavy-duty trucking sectors,” Kah told CNBC.

Geopolitical pressures also play a role.

Exxon and Chevron are expanding their holdings as European oil and gas majors are more likely to be subject to strict emissions regulations. The U.S. is unlikely to have the political will to force the same kind of stringent regulations on oil and gas companies here.

“One might speculate that Exxon and Chevron are anticipating the European oil majors divesting their global reserves over the next decade due to European policy changes,” Hiatt told CNBC.

“They are also betting domestic politics will not allow the U.S. to take significant new climate policies directed specifically to restrain or limit or ban the level of U.S. oil and gas domestic production,” Amy Myers Jaffe, a research professor at New York University and director of the Energy, Climate Justice and Sustainability Lab at NYU’s School of Professional Studies, told CNBC. 

Goldstein expects the ever-expanding U.S. national debt will eventually put all kinds of government subsidies on the chopping block, which he says will also benefit companies such as Exxon and Chevron.

“All subsidies will be under enormous pressure,” Goldstein said, the intensity of that pressure dependent on which party is in the White House at any given time. “By the way, that means the large financial oil companies will be able to weather that environment better than the smaller companies.”

Also, sanctions of state-controlled oil and gas companies in countries like those in Russia, Venezuela and Iran are providing Exxon and Chevron a geopolitical opening, Jaffe said.

“They likely hope that any geopolitically driven market shortfalls to come can be filled by their own production, even if demand for oil overall is reduced through decarbonization policies around the world,” Jaffe told CNBC. “If you imagine oil like the game of musical chairs, Exxon Mobil and Chevron are betting that other countries will fall out of the game regardless of the number of chairs and that there will be enough chairs left for the American firms to sit down, each time the music stops.”

An oil pumpjack pulls oil from the Permian Basin oil field in Odessa, Texas, on March 14, 2022.

Joe Raedle | Getty Images News | Getty Images

Oil that can be tapped quickly is a priority

Known oil reserves are increasingly valuable as European and American governments look to limit the exploration for new oil and gas reserves, according to Hiatt.

“Notably, both Pioneer and Hess possess attractive, well-established oil and gas reserves that offer the potential for significant expansion and diversification for Exxon and Chevron,” Hiatt told CNBC.

Oil and gas reserves that can be brought to market relatively quickly “are the ideal candidates for production when there is uncertainty about the pace of the energy transition,” Kah told CNBC, which explains Exxon’s acquisition of Pioneer, which gave Exxon more access to “tight oil,” or oil found in shale rock, in the Permian basin.

Shale is a kind of porous rock that can hold natural gas and oil. It’s accessed with hydraulic fracking, which involves shooting water mixed with sand into the ground to release the fossil fuel reserves held therein. Hydrocarbon reserves found in shale can be brought to market between six months and a year, where exploring for new reserves in offshore deep water can take five to seven years to tap, Jaffe told CNBC.

“Chevron and Exxon Mobil are looking to reduce their costs and lower execution risk through increasing the share of short cycle U.S. shale reserves in their portfolio,” Jaffe said. Having reserves that are easier to bring to market gives oil and gas companies increased ability to be responsive to swings in the price of oil and gas. “That flexibility is attractive in today’s volatile price climate,” Jaffe told CNBC.

Chevron’s purchase of Hess also gives Chevron access in Guyana, a country in South America, which Jaffe also says is desirable because it is “a low cost, close to home prolific production region.”

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A big climate change stress test is coming for Amazon sellers and suppliers

As Amazon and other big businesses ramp up efforts to reduce their carbon footprint, they’re putting pressure on their suppliers to do the same, and those who don’t may pay a big price.

Starting in 2024, Amazon will require suppliers to share their emissions data, set emissions goals, and report on their progress, the e-commerce giant said in its recently released sustainability report. With that move, it joins Microsoft, Walmart, Apple, and others in saying that suppliers must step up decarbonization efforts. 

The mandates come as big businesses face more demand than ever to adopt eco-friendly practices. Consumers, investors, regulators, and governments are pushing firms for more progress and transparency.

“The pressure is coming at companies, who are then putting pressure on suppliers,” said Bob Willard, a corporate consultant and author of six books on sustainability. 

And in a cascade, those suppliers are leaning on their suppliers.

Businesses typically track three levels of emissions. Scope 1 come directly from operations. Scope 2 are from purchased energy such as electricity. And scope 3 relate to a company’s activities but come from indirect sources such as supplier emissions and emissions from customers using their products. An analysis of major industries by the non-profit CDP found that, on average, scope 3 accounts for about 75% of all emissions. 

Companies have much more control over their suppliers than many other areas of indirect emissions, says Andrew Winston, author of several sustainability-related business strategy books.

For instance, while a consumer goods company can’t force a detergent buyer to wash in cold water, it can be selective in working with eco-conscious suppliers. 

“The supply chain is where there’s going to be continued rising pressure and transparency because companies have a direct impact over that,” Winston said.  

Decarbonization mandates are getting tougher

Salesforce now requires suppliers to disclose scope 1, 2, and 3 emissions, deliver products and services on a carbon-neutral basis, and fill out a supply scorecard each year. AstraZeneca suppliers are expected to annually report emissions data to the CDP and set science-based goals. 

While Amazon doesn’t include suppliers in its scope 3 accounting, it’s effectively dealing with this in the way many other firms have started doing, by forcing suppliers to report emissions to them and set goals which emissions levels can then be tracked against. “We know that to further drive down emissions, we must ensure those in our supply chain make the operational changes necessary to decarbonize their businesses,” Amazon said in the sustainability report. 

Third-party sellers and suppliers — especially smaller ones — face a paradox as the climate mandates arise and become increasingly tougher. Even if they’re eco-conscious, many say they don’t have the resources to meet the tracking and reporting demands. 

Eight in ten small and medium-sized business owners say reducing emissions is a high priority, yet 63% also say they don’t have the right skills, and 43% say they lack the funds, according to a survey from the non-profit SME Climate Hub. In a survey from Intuit QuickBooks, two-thirds of small business owners said they were taking steps to reduce their environmental impact, such as recycling and using renewable materials. Businesses that weren’t acting cited a lack of money, time, and resources. 

“Tracking emissions data is no easy feat,” says Karen Kerrigan, president and CEO of the Small Business & Entrepreneurship Council. 

She says compliance costs can vary, but upfront expenses can be considerable, which is challenging for the many firms with a tight cash flow.

The information is out there to start getting a handle on the task. Yet, one of the first things that business owners will learn is that it is going to be time consuming, says small-business owner Chaitali Patel, who founded the sustainability advisory firm Evergood. She points to a 152-page document on scope 3 supply chain accounting and reporting from the Greenhouse Gas Protocol, which provides standards for measuring and managing emissions. 

“If you look at the process of data collection and recordkeeping alone to comply with these requirements, it will take up significant resources,” Patel said. 

Small businesses already under economic stress

Amid ongoing fears of recession, higher interest rates cutting into sources of capital, signs of weaker consumer demand, and labor market challenges, small businesses have focused more on employees and their bottom line than sustainability. When asked what issues matter most to them, nearly 40% said jobs and the economy, while 10% said the environment, according to the CNBC|SurveyMonkey Small Business Survey for the third quarter. 

Yet ready or not, suppliers big and small will have to step up soon. “This is coming,” he said. “The procurement arm of the business community is reaching into their supply chains and is starting to ask more pointed questions.”

In addition to the pressure from investors and politicians, another reason big companies will be looking farther down the supply chain is because they are currently coming up short in their emissions reduction goals. Amid the boom in consumer demand and global growth post-pandemic, many of the world’s largest corporations are producing more carbon emissions than they can reduce.

A recent review by the New York Times of climate documents for 20 major food and restaurant companies found that over half have made no progress in reducing emissions or are increasing emissions. The report found, as previous climate accounting has typically shown, that the majority of emissions come from suppliers.

A recent Just Capital report found that more companies than ever before are making carbon reduction commitments, but the results aren’t there yet in the disclosures. Of companies with existing science-based targets, only 26 out of 123 in the Russell 1000 disclosed emissions reductions. Meanwhile, among companies without specific targets — just general net zero targets — emissions have gone up.

Companies that want to retain high-quality suppliers are apt to help partners meet any sustainability requirements, says Mark Baxa, the present and CEO of the Council of Supply Chain Management Professionals.

Corporate giants are offering assistance that ranges from direct funding and better terms to training and access to clean tech.

For its part, Amazon said in its sustainability report that it will use its “scale, investment, and innovation to date to provide our suppliers with products and tools that will help them reach their goals — whether that’s transitioning to renewable energy or having more access to sustainable materials.”

But the retail giant also made clear that there may be consequences for partners that don’t measure up. “We will continue to look for suppliers that help us achieve our decarbonization vision as we select partners for business opportunities,” Amazon said in its report.

Amazon spokespeople declined to comment beyond its publicly available materials.

In the end, it comes down to suppliers choosing what works for their business.

“The suppliers themselves and the suppliers of suppliers have to come to their own independent decision on how they’re going to approach this,” Baxa said.

At the same time, companies have to address scope 3 emissions. “Often, they’ll go with a supplier who can comply,” he said. And for those that don’t, “Eventually, the hard conversation will take place.”

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Why the hydrogen tax credit has become a lightning rod for controversy

A rendering of a hydrogen energy storage gas tank for clean electricity solar and wind turbine facility.3d rendering

Vanit Janthra | Istock | Getty Images

One of the most generous tax credits in Biden’s landmark climate bill, the Inflation Reduction Act, is the production tax credit for making hydrogen, which is worth as much as $100 billion.

When hydrogen is used in a fuel cell to generate electricity, water is the only by-product. Generating energy from hydrogen this way does not create carbon dioxide, one of the primary greenhouse gases that causes global warming. Also, hydrogen is a vehicle for storing energy over long periods of time.

Hydrogen is already produced at scale for use in making fertilizer and in the petrochemical industry. But more recently, hydrogen is being seen as a way to decarbonize industries like maritime shipping, long-haul trucking, steel-making, industrial heating, and aerospace. Also, its capacity as an effective way of storing energy makes it attractive for renewable energy sources, like wind and solar, which are inherently intermittent — wind turbines make energy when the wind blows, and solar panels make energy when the sun shines.

However, the only way hydrogen can be a viable solution for reducing carbon emissions is if it can be produced without releasing greenhouse gas emissions. By and large, that’s not the case today.

The proposed tax credit, 45V, is meant to turbocharge the production of low-emissions hydrogen. It’s now up to the Treasury to figure out how to implement it — and that’s the tricky part. The debate centers around how best to write rules that make sure that the hydrogen produced is actually clean so that it can be used as a climate-mitigation tool.

“The IRA’s section 45V production tax credit is the most generous clean hydrogen subsidy in the world,” Jesse Jenkins, professor of macro-scale energy systems at Princeton University, told CNBC.

“But without proper implementation, 45V could backfire, wasting a tremendous opportunity for the United States to become a global leader in new clean industries and causing a significant increase in domestic emissions that imperil U.S. climate goals.”

An Hydrogen prototype GenH2 truck of the Daimler Truck Holding AG arrives at his destination in Berlin, on September 26, 2023, after completing 1047kms with one liquid hydrogen full tank.

John Macdougall | Afp | Getty Images

The adjudication of the hydrogen tax credit has become about more than just the hydrogen tax credit, too. It could also set important precedents for how the government decides electricity used from the grid is really “clean.”

“The hydrogen debate is at its surface level about defining clean hydrogen production, but more fundamentally it’s about what an individual actor needs to do to credibly claim that their electricity consumption is clean,” Wilson Ricks, who works in Jenkins’ Zero-carbon Energy systems Research and Optimization research lab at Princeton, told CNBC.

“Hydrogen is the first time the US government has been forced to directly address the question of verifying clean electricity inputs, so whatever framework it endorses here could set a very strong example for other emissions accounting systems going forward,” Ricks said.

There’s a lot of money on the line and while the details of the debate get a bit wonky, the debate itself represents a larger and more ideological fault line about how the United States should built its clean economy: One side says we should focus on emissions reductions from the outset, while the other says the foundation should be built and scaled quickly and perfected later.

“We have now entered a new phase in the clean energy transition, whereby new solutions and operational paradigms are necessary to accommodate an increasingly renewable grid and catalyze decarbonization. The clean hydrogen tax credits are a major opportunity, and juncture, to start shaping that new phase in the right way,” Rachel Fakhry, the policy director for emerging technologies at the Natural Resources Defense Council, told CNBC.

How clean is ‘clean,’ and how is that decided?

Hydrogen is the simplest element and the most abundant substance in the universe, but hydrogen atoms do not exist on their own on Earth. Hydrogen atoms are generally stuck to other atoms — like for example in water, H2O — and so creating sources of pure hydrogen on Earth requires energy to break those molecular bonds.

In the energy business, people refer to hydrogen by an array of colors to as shorthand for how it was produced. The different methods produce varying amounts of CO2.

The amount of the hydrogen tax credit, which is available for 10 years, depends on the emissions generated in making hydrogen. If hydrogen is produced without releasing any carbon emissions, the tax credit is maxed out at $3 per kilogram of hydrogen. The tax credit scales down proportionally based on the quantity of emissions released.

One way of making hydrogen is with a process called electrolysis, when electricity is passed through a substance to force a chemical change — in this case, splitting H2O into hydrogen and oxygen. To make hydrogen with electrolysis, hydrogen producers may use electricity from the larger energy grid. The electricity on the grid comes from many sources, some clean, like a solar farm, and some dirty, like from a coal-fired plant. On the electric grid, all that electricity gets mixed together.

So the debate over the 45V tax credit has become acutely focused on accounting for how the electricity hydrogen producers use from the grid is accounted for. If the energy used to make hydrogen is not actually clean, then hydrogen is not really a climate solution.

Some hydrogen industry stakeholders want the Treasury to implement strict electricity accounting standards to maximize the likelihood that the tax credits only go to hydrogen that is produced with the least possible amount of emissions.

Others want the Treasury to implement very flexible standards so the hydrogen industry can grow as fast as possible as quickly as possible, then focus on emissions reduction once it’s scaled.

Energy used from the grid to power electrolysis to make clean, “green hydrogen” must meet three accounting standards in order to ensure that it is actually produced in a clean way, according to Jenkins from Princeton. These standards have become known as the “three pillars:”

  • Additionality. The electricity has to come from newly-built sources of clean electricity, meaning it is additional clean energy being added to the grid for the purpose of making hydrogen.
  • Regional deliverability. The clean electricity added to the grid has to be able to physically travel from the additional clean energy source to the electrolysis facility, meaning it is regionally deliverable electricity.
  • Hourly matching. The additional and deliverable clean electricity that powers electrolyzers has to be accounted for on an hourly basis. If the electricity is accounted for on an annual basis, then electrolyzers used to generate hydrogen could be running when additional clean energy is not regionally available — when the wind isn’t blowing and the sun isn’t shining, for example. That means those electrolyzers could be powered by fossil fuels.

“We call these requirements ‘pillars’ because all three are structurally critical: remove any one and the whole ‘clean’ hydrogen house comes tumbling down,” Jenkins told CNBC.

Peer-reviewed modeling work by our group and follow-up studies by other academics have shown that simply plugging electrolyzers into the grid would produce hydrogen with embodied emissions twice as bad as ‘grey’ hydrogen produced from fossil methane. In fact, even an electrolyzer getting just 2% of its electricity from natural gas plants or less than 1% from coal would violate the strict statutory emissions requirements to claim the $3 per kilogram subsidy,” Jenkins said.

Taking sides

Some companies in the hydrogen industry, including electrolyzer producer Electric Hydrogen, clean energy company Intersect Power, industrial heat and power company Rondo, and grid carbon data provider Singularity have publicly pleaded for the Treasury to adopt these “three pillars” of strict electricity accounting for the 45V hydrogen tax credit.

Digital generated image of wind turbines, solar panels and Hydrogen containers standing on landscape against blue sky.

Andriy Onufriyenko | Moment | Getty Images

Air Products, an 80-year old company that sells gases and chemicals for industrial uses, also supports the three pillars of additionality, regional deliverability and hourly matching for the 45V tax credits. Air Products operates in about 50 countries around the globe, has over 200,000 customers, over 110 production facilities around the globe for hydrogen, and already has over 700 miles of dedicated hydrogen pipelines.

“We’ve been producing, distributing, dispensing hydrogen for over 60 years,” Eric Guter, a vice president of hydrogen production at Air Products, told CNBC in a video interview at the end of August.

“If we don’t deliver on the emissions reduction, we will lose the confidence of society in hydrogen and the energy transition. And as a long-term provider of hydrogen, it’s important to us that we get it right and preserve the integrity of the energy transition and the hydrogen industry.”

Josef Kallo, founder and chief executive officer of H2FLY, beside the HY4 liquid hydrogen powered electric aircraft at Maribor airport in Slovenia, on Thursday, Sept. 7, 2023. The aircraft, developed by H2FLY and partners, uses liquid hydrogen to power a hydrogen-electric fuel cell system.

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Air Products already has two projects under construction that will be compliant with the three-pillars approach. Air Products is part owner of the NEOM Green Hydrogen Company, which is currently building a plant at Oxagon, Saudi Arabia, and which will be three pillars complaint. It’s also part owner of a mega-scale renewable-power-to-hydrogen project in Wilbarger County, Texas.

The European Union will need to import hydrogen, and has already decided to institute the “three pillars” in its hydrogen accounting, Guter told CNBC. So Air Products wants hydrogen produced in the United States to meet international standards.

“Otherwise our products won’t qualify or they will be taxed at the EU border for imports,” Guter said. “We’re talking about a global liftoff, not just U.S. liftoff, of the hydrogen market.”

On the other side of the debate, utility company and energy giant NextEra wants the Treasury to accept annual — as opposed to hourly — matching RECs as sufficiently specific.

“Starting with annual matching would boost green hydrogen investment and lead to greater overall decarbonization potential, allowing the industry to develop the first wave of hydrogen projects and build industry knowledge. If an hourly matching is enacted too early, it will limit U.S. green hydrogen investment, production and the country’s ability to lower emissions, and stifle innovation,” Phil Musser, vice president of federal government affairs at NextEra Energy, told CNBC in a written statement from.   

So, too, does the Clean Hydrogen Future Coalition, which is a trade group representing a diversity of stakeholders from BP to Duke Energy, Exxon Mobile, General Electric, Siemens Energy, American Clean Power, Shell and more. The Clean Hydrogen Future Coalition also says that no additionality should be required for companies looking to produce clean hydrogen, meaning companies do not have to be responsible for putting “additional” clean energy on the grid to get access to the tax credit.

“We’re not suggesting that we should do this indefinitely,” Shannon Angielski, president of the Clean Hydrogen Future Coalition, told CNBC in a video interview at the end of August. “Rather, let the industry start to make investments in that full ecosystem, send signals throughout that supply chain to make investments, and enable an industry to get seeded with the tax credits, and then over time, become more restrictive.”

The Clean Hydrogen Future Coalition proposes becoming more restrictive in those electricity accounting standards starting in 2030. The electricity accounting systems for monitoring electricity usage on a more granular level is not robust and standardized enough on a federal level, Angielski said, for hourly matching electricity accounting to be required.

But technology does exist to allow hourly matching, Wenbo Shi, the CEO of Singularity, told CNBC. His company makes that technology.

“Hourly and even sub-hourly clean energy matching is not only technologically feasible, but it is already being implemented and used by many. The barrier to adoption is not technology, but policy,” Shi told CNBC.

There are also barriers to getting additional sources of clean energy on the electric grid, Angielski told CNBC. For example, interconnection queues, which are the lines power generators have to wait on to apply to get new sources of clean energy connected to the grid, are years long and make the additionality requirement a barrier for the hydrogen industry.

“What we don’t want to do is wait to be able to actually start investing in low-carbon hydrogen,” Angielski said.

But Ricks doesn’t think there needs to be such a rush.

“The ‘order of operations’ for the energy transition has always been a subject of debate in the policy world: should we use our resources to push rapid near-term decarbonization, or instead support scale-up of nascent technologies that we think we’ll need in the future? Supporters of lax rules for hydrogen subsidies have sought to frame the debate in this way, but in this case it is a false choice,” Ricks told CNBC. “The hydrogen subsidies are large enough to support scale-up even with strict rules, and the absence of these rules would likely drive significant excess emissions for decades — hardly a near-term impact.”

Fakhry from the NRDC says it’s very possible that the IRA is going to incentivize more hydrogen than needed for the clean energy transition, especially depending on how the Treasury dictates the rules.

“It’s really hard to say if there will be excess or not. What we can say for sure is if the rules are very, very lax and hydrogen production can happen anywhere without any guardrails, then yes, we will have a lot of hydrogen production that will go to fairly bad end uses,” Fakhry told CNBC.

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Why tornadoes are more destructive than ever in the U.S.

May 22, 2011, began as a beautiful day in Joplin, Missouri. Families and friends gathered outside. Suddenly, the sky changed. Troy Bolander, who grew up in nearby Kansas, noticed the clouds beginning to swirl. He began to prepare his crawl space. Ann Leach, a life coach, was also at home. Tornado sirens blared. Ann took cover on her bathroom floor as a massive EF5 tornado descended upon Joplin. Troy sheltered in his crawl space.

One hundred sixty-one people were killed in the Joplin tornado. Both Troy, a city official, and Ann survived. The May 2011 Joplin tornado left behind almost $3 billion in damage, making it the costliest U.S. tornado on record.

Tornadoes are a billion-dollar problem in the United States. From 2018 to 2023, there have been 17 billion-dollar climate disasters involving tornadoes. And the costs are expected to grow.

Billion-dollar disasters

The U.S. sees about 1,200 tornadoes each year. That’s more than anywhere else in the world.

“Tornadoes are a big problem in the United States,” said Anne Cope, chief engineer at the Insurance Institute for Business & Home Safety.

In 2022 alone, the U.S. experienced two separate billion-dollar tornado outbreaks.

Based on estimated wind speeds and damage, tornadoes can range on a scale from EF0 to EF5.

“This rating scale came to us because wind engineers went out into the field to look at the damage,” Cope said. “And then based on the damage, they were trying to predict what the wind speeds are … so we have developed this system based on how the buildings react.”

That means a tornado’s rating is directly related to the resilience of the buildings in the community it hits.

The powerful EF5 tornado that struck Joplin 12 years ago had estimated winds of 200 miles an hour, according to Joplin city records. It was initially one half mile wide and expanded to three-quarters of a mile wide, traveling on the ground for about 13 miles across the city limits and beyond.

“My place was totally destroyed,” Joplin resident Ann Leach said.

In total, 7,500 residential dwellings in the city were damaged or destroyed. According to the Joplin Area Chamber of Commerce, 553 businesses were destroyed or severely damaged in the tornado.

But Joplin rebuilt.

“It was phenomenal how swiftly the community came together to respond and help their neighbors out,” Leach said.

“Rebuilding is a very long process and it’s one that is arduous,” said FEMA Associate Administrator for Resilience Victoria Salinas. “It oftentimes takes years to be able to rebuild communities, homes, [and] businesses. And it takes communities coming together to really think about the future and what they’re going to do differently to build more resilience into their communities as they move forward.” 

Shifting patterns

The central Great Plains of the U.S., including states like Kansas and Texas, have historically experienced more tornadoes than anywhere else in the nation.

However, experts say tornadoes can occur across the U.S.

“If you were to ask a thousand tornado scientists where Tornado Alley is, they’re all going to give you different definitions,” said Victor Gensini, associate professor in the Department of Earth, Atmosphere and Environment at Northern Illinois University. “The reality is, is that all 50 states, including Alaska and Hawaii, receive tornadoes.”

Places in the Southeast and Midwest have seen an increase in tornado frequency.

“That is really important because we have way more people living east of the Mississippi River,” Gensini said. “And so basically, we have more targets, more exposure, more vulnerability as humans, our built environment, where these tornadoes are happening, and that creates more and more tornado disasters.”

Some cities in these regions include Memphis, Indianapolis and Nashville. 

In March 2020, a deadly tornado hit Nashville, leaving behind over $1.5 billion in damage.

“It’s kind of like this two-sided coin, if you will, where we have this change in probability due to climate. But we also have this increasing footprint and exposure and vulnerability that are going to continue to drive the losses in the future,” Gensini said. “And that’s really how we have to look at this problem. It’s a multifaceted issue.”

Investing in resilience

The U.S. is not helpless when it comes to tornado damage. Engineers know how to build stronger structures that can withstand high winds.

“A lot of tornado damage is preventable,” Cope said. “The EF0 and EF1 portion of the storms, that type of damage can be prevented with strong, resilient building construction. Costs a little bit more than typical building construction, but it’s definitely resilient and it prevents that type of damage.”

The IBHS has some specific recommendations for building resiliently, including having a wind-rated garage door and when reroofing, choosing a stronger option.

In the 2011 Joplin tornado, 84% of deaths resulted from building and structural failures. Missouri does not have a mandatory statewide building code, but in the wake of the massive EF5 tornado, the city of Joplin made some changes to protect its buildings and people from damaging winds. The new codes require anchor bolts every four feet and require hurricane clips to connect the roof to the walls, among other provisions.

“When you’re in an EF5 tornado and the winds are over 200 miles an hour, that system is still going to fail,” said Bolander, Joplin’s director of planning, development, and neighborhood services. “But many of the homes that were on the edge of that zone probably could have been spared if we had that in place.”

Not all communities have building codes in place. As of November 2020, 65% of counties, cities and towns in the U.S. are not covered by modern building codes.

“We should have building codes in all of the places in the United States where the wind can impact us, which is the whole of the United States,” Cope said. “But sadly, only 17 states in the U.S. have a statewide building code and many states that don’t have a statewide building code; it’s a patchwork of counties or local municipalities that might have one and then large unincorporated areas that don’t have one.”

Part of the challenge with building tornado resilience in the U.S. is that building codes are generally a local and a financial decision.

“So we’re talking about counties and municipalities who all have to make a choice or not make a choice,” Cope said. “And these are sometimes tough financial decisions.”

“We didn’t want to increase the cost of housing so much that people couldn’t rebuild or some people couldn’t afford to rebuild,” Bolander said. “So that was a debate amongst ourselves, you know, how far do we want to go with these building code changes?”

Federal resources are also available when it comes to building resiliently. In 2022, FEMA released the FEMA Building Codes Strategy to advance its building code efforts and strengthen resiliency nationwide. The Biden administration has also designated billions of dollars for climate resilience and weatherization through the Bipartisan Infrastructure Law and the Inflation Reduction Act.

Watch the video above to see how the U.S. can work to try and fix its billion-dollar tornado problem.

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