We would like to thank the API for apparently reading all of our research! The proposals announced yesterday, while likely not aggressive enough in their targets for fossil fuel reduction, accurately, in our view, discuss all of the transitionary steps that are needed and advocate carbon capture and use or storage (CCUS) for the production of low carbon fuels as well as blue hydrogen. Implicit in their analysis is the need for further logistic investment in the US in pipelines, either to facilitate more LNG investments or to move CO2 or hydrogen. The document also outlines the basis for a carbon tax (the API calls it a carbon price) and suggests that it should be uncomplicated and broadly administered, flowing through to the end-consumer and impacting all in the carbon production chain. This is something that we agree with also, as it is the most obvious way to create behavioral change – as unpalatable as it may appear in the US, high gasoline taxes in Europe from the 1970s drove the technology to produce higher-powered smaller engines for autos and made them appealing to buyers who wanted to reduce gasoline costs. Also as a consequence, all of Europe has better public transport than the US and public transport is easier to decarbonize, given the ability to run natural gas bus fleets, electric buses, and trains, and eventually, hydrogen-powered buses, trams, and rail.
The NextDecade/Oxy announcement is interesting as it could be the trigger to widespread CCUS in the US. Next Decade will have a competitive edge if it can sell a low-carbon LNG, and it is the closest (proposed) LNG facility to Oxy’s Permian basin operation and about as far as Oxy would want to extend pipelines. Other LNG producers will likely be forced to react, especially in NextDecade can get a premium for the product, and even if they can’t, they could become the preferred incremental supplier (all of the facilities have some surplus “spot” capacity). Cheniere, Freeport, Golden Pass, and others in the planning phase would not be forced to go down the same route, but it might be competitively wise to do so. The 45Q offset would help to make the decision, but the rate-limiting step will be available sequestration locations and the speed at which they can be developed. This move is supportive of what the API report is suggesting and adds further weight to the idea that the pipeline companies may also be beneficiaries.
Why companies' 'net-zero' emissions pledges should trigger a healthy dose of skepticism. We flag the chart below from this article that discusses the importance of voluntary market initiatives to push the globe to net-zero emissions. Outside of compliance emissions markets, which primarily focus on government regulation in the energy sector, voluntary markets create most of the offsets that are used to reach net-zero.
Source: USDOT, EPA, www.phys.org, March 2021
