What will energy look like 5 years after the 'Big Beautiful Bill?' The Energy Gang report from 2030.

19:29So storage is retaining this ITC eligibility. And Amy, you brought it up. That's recognizing that this is one of the only sources we have that can provide us with certain services in the grid and be deployed very quickly because it's so scalable. It's so portable. It can be placed in different parts of the grid and provide different types of services. It's a very flexible type of resource. But within that, the storage component, looking at the supply chain constraints, That's the big issue that y 'all flag in your note. But this goes back to when we say what's going to happen in 2030 and what's going to be really interesting in terms of who's made what bets and where have things gone.

20:04The supply chain gap is really going to be a significant piece of that discussion. The other thing I'll just flag, and you talked about it, natural gas prices rising, turbine availability. What is that going to do? When I talk about, okay, what kind of capacity are we going to be looking at in 2030? I mean, across the board and all the studies I'm looking at, just also in my own back of the envelope, what do I think based on what I've seen over the past 25 years? We're going to see retirement slowed down on existing capacity. We're going to see constraints on how fast that can go forward. It's going to be a combination of availability of turbines, the prices, which y 'all, if you have a magic ball on what's going to happen with gas prices and LNG, please let me know.

20:40But all of this is causing just a ton of pressure in the system. And that's why I'm so focused on what does this mean for capacity availability, replacements, build outs, lifetime extensions, all of that.

20:49Ed Crooks:So here's a question for y 'all. Is it worth it? Can we just dive into what technologies, what groups were affected in what ways and how we think that's going to affect overall dynamics? I'm very curious for y 'all's thoughts. I personally think that the cost of electric vehicles and the number of models coming down is pretty significant. And so maybe the tax credit wasn't motivating, but people who have modeled it say the tax credit was a material factor in how much deployment of cars will mean. And so like Rhodium MIT says that we could be down by 16 to 38 percent, how many EVs are on the road by 2035 now, for example.

21:29And can I just say like high level, and y 'all catch me if I missed anything. This is not a small bill, no pun intended. It's a lot of stuff going on in there. But in terms of the EV affected items, I mean, let's just list them out. So the EV purchase tax credits ending in September 2025. That's seven years early. The charging infrastructure credits is at 30C. We're talking about ending in June 2026. So that's six years earlier than it was going to before. Battery manufacturing credits, they have this restrictive rules of origin piece that we can go into. And then also the CAFE penalties, they've been removed.

22:02Like they're gone. So that's another factor in this. And I'm thinking there's one more. What is it around the EPA's heavy duty EV program? That's resented. That's gone. I mean, so this is what you're talking about when you're talking about headwinds for EVs, correct? Is there anything else I'm missing in there?

22:16Ed Crooks:No, I mean, I think that's a good summary, Melissa. And when you add all those different things up, you know, state of California is going to have to make some concrete decisions about what they're going to do. They're clearly going to wind up in a lawsuit if they stay the course of what they were planning. I think trucks is kind of an interesting area because, you know, you have companies that have doubled down on having sustainable trucking and wanting to shift to different kinds of fuels, whether that's EV trucks versus, you know, local delivery and things like that. So it's really sort of an interesting question.

22:52Ed Crooks:And then, you know, not to harp on my favorite topic, but these EVs, I was reading some articles about some of the features that are in these new Chinese EVs, you know, including that, you know, you could have your kids in the backseat with a full television screen. So like you're taking a road trip, that could be a material thing, right? But they have other really like cool elements. and there was just an article about whether the American manufactured EVs can keep up with these innovations because the Chinese market is so large and you have so many different kinds of buyers that are interested in buying those cars in China.

23:34Ed Crooks:It's just a much more vibrant market. Yeah.

23:37Amy Myers Jaffe:As you say, Amy, the competition from the Chinese car industry is just remarkably impressive at the moment and their push into markets all around the world is a thing to see and is clearly going to be a very important feature of the coming five years and i just wanted to go back melissa something you mentioned which is one of those things i didn't quite believe it when i read it in the bill and the commentaries on the bill but as you say you talk about non enforcement of cafe standards so these these are regulations on fuel economy or is it on regulations on emissions or possibly both, which the regulations are going to stay in place, but under the new law, there's no penalty for breaking them, right?

24:17Amy Myers Jaffe:How does this work? I read it in terms of the fuel economy standards. And, you know, I leave it to the people who have state all the details around it. But it's like, in those standards, I'm wondering what's going to happen with hybrid vehicles. And I know this has been flagged by a few different groups. I was trying to figure out what people are saying about it. I keep finding one sentence, yes, there'll be an impact. I want more people if you're looking at this in detail. But around that, And I mean, we've talked about, right, the material intensity of electric vehicles, of hybrid vehicles, of plug-in hybrid vehicles.

24:43And so that cafe enforcement is a – I think it's a big deal. I mean, because you're looking at, okay, what is that going to do in overall hybrids? Okay, Amy, you're shaking your head. Tell me why you disagree.

24:54Ed Crooks:I'm skeptical. Okay. The reason I'm skeptical is twofold. Number one, car companies make their decisions on the platforms for their cars on a decadal basis. So if you've already committed, it's a big expense to change. And the fine on CAFE, I don't think, was ever really motivating. You would just pay the fine if it was going to be bad for your business to meet these standards, right? So it's really, I think, California, as you know, Melissa, is a big part of the car market. So and right now, one in four cars that gets purchased is either a hybrid or an EV. So the question is, you know, going forward, have they saturated?

25:38Ed Crooks:Because California doesn't need the money for charging stations. So the thing you mentioned about charging stations is significant because if I'm somewhere where there wasn't sufficient infrastructure built out, you know, it's not like a really profitable area for investment, I don't think. And so, you know, does that mean that in different parts of the country that might have gone to more EVs, it's not going to happen? And I think that's, you know, whether there's, you know, who really cares about the CAFE standards? That's why I said maybe we're going to have these car companies, you know, looking for a government bailout in five years because they have they don't have sufficient strategy and sufficient government support to really be successful.

26:25Ed Crooks:now in either direction. Well, I'll say, so this is where I was going with it, Amy, in terms of, let me just pull a couple threads on this real quick, Ed. So around this, when you were talking about, okay, bailout of the auto manufacturers, I'm thinking about how close are manufacturing supply chains? And I'm going back to like tours of the NUMI facility that's now the Tesla facility in the Bay Area in California, you know, and looking through it. So you've got all these manufacturers and you said it on a decadal basis, they're making these strategies, they're investing in these, you know, manufacturing platforms.

26:53And some have made big investments in battery, electric vehicles, and full electric vehicles.

26:58Ed Crooks:I mean, listen, Exxon is investing in lithium. Do you know what I mean? So let's not forget that. And you've got big oil and gas companies that are investing in charging networks that are investing in all of that, too. So I mean, this is all at their gasoline stations, exactly as a strategy, which is very smart, especially if you want to up sales within that, you know, quickie mart where you can buy all your chips and sodas and everything else. But within that, I'm thinking about, okay, when you've made these big battery electric vehicle investments, how quickly can you pivot to other things? Okay, maybe there's actually a tailwind when it comes to hybrids.

27:31But then when you couple it with we're not enforcing CAFE standards, which, Ed, to your point, I don't want to skip it, the impact of not enforcing CAFE standards, I would be surprised if some of my colleagues in the academic realm are not actually publishing the effects on what that does to local air pollution and all of that, not just greenhouse gases, but local air pollution. So don't want to skip that.

27:50Ed Crooks:Definitely in trucks and port areas. For sure. And then I've got a question of how many local port decisions are going to be made, you know, ports that are moving to clean energy. And I'm actually going outside of the US in my mind on this one, but just in California, again, when you're looking at down, you know, in Southern California, what's going to be made there. But I'm wondering how many of these manufacturers will pivot? Will they pivot to hybrids? Will they pivot somewhere else? And then to your point, Amy, those are significant long-term investments. Those are not two-year investments.

28:18Those are long-term investments. And this goes back to a central point. What has this done? This has introduced a lot of uncertainty in the market. Okay, we think we're going this way. And now, no, all these incentives are gone. And they're not gone in kind of a slow rollout way. It's like seven years earlier, six years earlier. Those suckers are gone, those incentives. There's going to be a lot of turmoil. And we're going to see changes in terms of the projections of what happens next.

28:40Amy Myers Jaffe:And again, to the point about where are we in 2030? One thing we'll know we will have in 2030 is a different president, might be a Republican, might be a Democrat, who knows. But if it's a Democrat, and maybe the Democrats retake control of Congress as well, who knows? But even so, it's very clear that there will be a very different direction set for energy policy again, the pendulum will swing right back. And in terms of companies in the auto industry, in any industry trying to plan, trying to make long-term strategic decisions, it's going to be very difficult.

29:12Ed Crooks:I think the automobile industry is particularly vulnerable. I think that the decision about how to adjust to the changing market, I mean, the US market for cars is a relatively small market compared to the global market. I mean, it's not reflected yet, I guess. I'm not seeing these scary stories about their fate. But we have to have a car industry. It's If you think about it, it's a strategic industry.

29:40Amy Myers Jaffe:Yeah, absolutely. Just a little factoid to throw in there, which is that the US is no longer the world's largest manufacturer of vehicles. It's lost that position to China. And this is the first time the US has not been the world's largest manufacturer of vehicles since the 1940s, when number one position was Germany. We are talking about EVs. We're saying, OK, that's hard to say. I'll go with you, Amy. I think that's a very strongly hit, the automobile industry, very strongly hit area. Within that related, I would say the next one is storage. And this is like, I'm not going to say good or bad.

30:14Everyone's got different perspectives on what good and bad look like. But it's just, this was a changing and evolving story as the spill evolved. And now we've got the text. We know what's going on. And high level, I would say, okay, so there's recognition for the value of storage and storage in the system. We already mentioned it earlier. One of the only things we can deploy really fast in lots of different scales and lots of different places to support the overall resiliency, reliability, and flexibility of the power grid in particular, but also in our individual homes. I mean, there's lots of knock-on effects.

30:42This is across the board. Can we talk about FIAC, Foreign Entities of Concern?

30:47Amy Myers Jaffe:Yeah, unfortunately, we really have to, because I think this is very important. And as you say, very much goes to this question of the storage industry. Because as you say, the headline about the tax credits is, broadly speaking, good news for storage. That tax credit has been left alone, the industry can still claim it at the full rate up to 2033, and it then phases out after that. And compare that to tax credits for wind and solar, which are phasing out around 26, 27. That's really good news for storage. Very encouraging. But as you say, the fiat rules are a very, very significant, complicating factor in that.

31:26Amy Myers Jaffe:Just in case anyone has not been following this debate closely and has not heard us talk at length about this on previous shows. FIOC, foreign entities of concern, the idea is it's to stop individuals and businesses and organisations from four particular countries, China, Russia, North Korea and Iran, benefiting from tax credits and other provisions intended to support low carbon energy. So this kind of concept and the rules have been around for a while but the way they are defined in the new legislation seems much more restrictive much more punitive much more complex to administer by all accounts and certainly i think potentially could have a very big impact on some sectors and storage probably the biggest sector that could be affected because of chinese dominance of the battery value chain and actually doing anything in batteries that doesn't involve buying something from a Chinese supplier, using Chinese cells, using Chinese technology, maybe taking investment from some company that's connected to China, using raw materials that have been processed in China, all of those kind of things mean that I think if you're in that storage business in the US, you stand a very high chance of falling foul of those fiat rules and not actually being able to claim the tax credits after all do you think that's right melissa is that your concern there i think it's right i'm going to flag three quick things one those who don't live breathe and eat energy storage and battery supply chains um there's a gentleman named tom warren how does at columbia university where i used to work who does a lot of work on battery supply chains excellent work but there's also the podcast i did when i was a professor ed which you know the big switch.

33:13We did a whole season on where these things come from. So within that, you know, it breaks down what you're talking about. Okay. Every step of a process from the raw thing getting pulled out of the earth to it being refined and then created into the thing we actually want that's delivered to our home business or other. It's complex, but certain steps are dominated by individual countries or regions, including China in particular around this. So I would say, you FIAC, let's just go with the numbers. The compliance threshold starts at 55 % in 2026, 75 % by 2030, which is the future place we're supposed to be in.

33:47So my question is, what does that do? What it does in the very short term is it provides a huge incentives for safe harboring as many things as possible. And we mentioned that briefly in passing earlier. So how many pieces of equipment can get in in 2025? Those will not be subject to these compliance thresholds from my read of this work, that's a big deal. But then from 2026, 2030, a lot of it is in the next couple of years, okay, what does that enforcement look like? What are the definitions of how that's measured look like? And that's one I'm watching really closely. And I think a lot of us are.

34:21Amy Myers Jaffe:Yeah. And I don't know if you saw the president's executive order just a few days ago, where he was calling on the Treasury Secretary Scott Bessent to come up with rules for the implementation of those FIOC regulations within 45 days. And clearly very much kind of leaning on the Treasury to say, look, we want the most restrictive definition possible. You know, as far as we are permitted under the law, we want to stop companies being able to claim these credits.

34:49Ed Crooks:So Ed, we talked about this a lot at ACOR, right? And you might recall, I asked different people, should we do a Band-Aid rip on the supply chains, yes or no? And we got mixed reaction. In other words, not everybody said, no, we need a three-year runway. It has to be implemented slowly. And so you could argue that making it clear that you are supposed to diversify your supply chain could help the manufacturing, given the fact that the tax incentives for batteries are still there, and the manufacturing plants are still there. Could one argue that if Treasury were to be really fast and have put out the regulations, not like the Biden team in two years, but actually in 45 days, could it be constructive?

35:43Amy Myers Jaffe:Yeah, I think that's right. That's an interesting idea, Yes, certainly. And as you say, there is an enormous amount of activity around investing in new battery manufacturing capacity in the US. So that seems great. And as you say, maybe the industry will be able to shift its supply chain away from reliance on China. A couple of issues with that, though. One is that, depending on exactly how the rules are administered, a lot of these factories being built in the US might have some Chinese involvement, maybe there's some relation to Chinese technology maybe they're using some Chinese components or raw materials which would still be an issue and the other thing is that in terms of the economics of the battery industry in general it's driven by EVs that in terms of just the numbers of batteries that are needed the economics of battery manufacturing have always been based on the idea that the big demand is going to be from the EV industry and the demand for grid storage, stationary batteries to back up renewables and so on, is going to be significantly smaller, certainly, and is just going to be a kind of a nice add-on to the main event, which is EVs.

37:03Amy Myers Jaffe:And so if the EVs aren't happening, and we are going to see significantly slower growth there because of support being withdrawn and the various other challenges in that industry as well, you've got to wonder how much of this supposed purported battery capacity investment is actually going to come.

37:24Ed Crooks:Well, hear me out, okay? Because number one, maybe it's just that the battery capacity that would remain would feed into whatever is the EV market size the United States has so we wouldn't be importing. Number two, you could export the batteries the way the Chinese do. So I don't know if that's necessarily a limitation. If what we're saying is true, and we're going to go to, you know, this is sort of the global long-term outlook, to the extent that the U.S. industry can export the batteries, that would still be a good thing. So Melissa, I think this really sort of comes down to some of your expertise, which is, are there critical components to the batteries that the United States would try to manufacture where it's almost impossible to get away from buying some piece or particle from China?

38:14Ed Crooks:Did the bill leave any possibility of quote-unquote exceptions or waivers? So, I mean, I think a lot of it comes back to the guidance as far as I've seen. I mean, if y 'all see something different, let me know. But 45 days from now, I think we'll have a lot more clarity. I'd love to revisit the topic, actually. Because at that point, it's like, okay, is restrictive possible? Is that, I mean, what does that mean in practice? Because these practicalities are going to come into it where, okay, you've got certain steps in the supply chain where more than 90 % is in China. That is, that's a lot. And these facilities aren't things that you build overnight.

38:47To your point, Ed, about like batteries, one thing that I always heard from EV companies when I was talking to them about supply chains when I was working at Columbia was we're not going to flip suppliers on a dime because that means recalls. That means issues in our system. We have to really trust who's ever producing these cells, these components are putting into our cars. Or else you're not talking about one facility that needs a retrofit, 10 facilities that need a retrofit. You're talking about thousands, millions over time cars running around on the road that you will need to do these very expensive fixes on if it goes wrong.

39:21And so when you have a trusted relationship with a supplier who's giving you high quality things, it is not a small deal to just move to someone else in the battery industry. That's the feedback they gave me consistently across the board.

39:32Amy Myers Jaffe:Yeah, that is a very good point. Now, I raised the subject of wind and solar a little while back, and we didn't get to talk about it, but I do just want to address it now. So I made the claim that it's the sector that's being worst hit, or these are the sectors that are being worst hit by the bill. I think, Amy, you very persuasively make the case that actually it's EVs that are the worst affected, but perhaps wind and solar kind of second after that. And it's very clear if you see statements from the president and other people in the Republican Party, they are strongly opposed to wind and solar power.

40:06Amy Myers Jaffe:They talk about unreliable sources of energy. They talk about wind and solar as actually making the grid weaker and less reliable and more prone to blackouts and so on. And they, I think, have a sort of a model of wind and solar squeezing baseload power, if you want to call it that, out of the grid by undermining its economics and therefore both driving up costs and increasing the risk of blackouts. What do you think its effect is going to be? I mean, as I say, my sense of it is that, yes, they will slow its growth, but there will still be quite a bit of investment still. And they're absolutely not going to kill the industry altogether.

40:48Amy Myers Jaffe:What's your expectation? I mean, I'll say all the numbers I see from sources I trust who've modeled this out. Yeah, it's the same thing. I mean, y 'all, I think, have your headwinds case. But, I mean, you can look through Robbie Orbis' work. You can look through Rhodium Group's work. You know, across the board, it's one of those. we're in a fundamentally different place than we were 10, 15 years ago when it comes to the price of these technologies. A lot will deploy. But you're seeing drops on projections of, okay, it was projected to go here. It's going to be 15, 20, 25 % lower. That's still growth.

41:18It's still quite significant. There's still lots of installations going on. I wonder if, like with batteries, we're going to see a lot of activity this year as folks try to slide right under the closing door, and then slower than projected before growth. That's probably true at a national level. I will say in some subnational regions, I think we're still going to see incredible growth. So it will be not even across the United States, but I'm just putting that out there. I'm curious what y 'all are seeing.

41:47Ed Crooks:I think it's a very difficult question. I definitely make the comment that there were marginal projects that are in the queue that are going to have to drop out. they're not going to be able to have the rate of return that they were expecting. And so therefore those projects are going to go by the wayside. So that raises the question, does that just clean up the queue? Or do we have a long-term problem of the pipeline of new projects that can pencil out? I think that, you know, like Melissa's saying, that might really depend on particular locations. I still think that there are going to be states that want it to pencil out.

42:32Ed Crooks:They've got targets. And so you're going to have PPAs and you're going to have developers trying to put together projects and think about what works. And I think that it's not just the tax credits. I think that what the rules are for capacity markets could turn out to be a significant feature, now that the tax credits are off the table past a certain time, how much we're paying in capacity markets and what we're paying in those capacity markets for certain resources might be a material factor going forward. And I should have just said, just to put this into the conversation, like Ed, I see things very different from solar onshore wind and offshore offshore wind.

43:17Offshore wind was really vulnerable. And when we look at this, I don't, I mean, that's headwinds on steroids for it. I mean, it's a lot. Onshore wind, we've got tons of stuff that is under construction, you know, is kind of past that threshold that will still be, I assume in most cases, I would believe they will still be completed and will fall under kind of older rules that they've crossed those thresholds. So I just want to differentiate between that two in this conversation because we mix all three together. It's not a clear picture.

43:48Amy Myers Jaffe:Yeah, I think that's a really good point. And as you say, I think perhaps particularly in solar, we would expect a real rush of projects and a kind of a mini boom this year and perhaps into next a bit as well as companies seek to get their projects under the wire to be able to qualify for the existing levels of tax credits, it seems a bit uncertain exactly what you're going to have to do. I think there's a complex system of rules in the legislation about you have to enter service by the end of 27 or start construction by July the 4th, 26. And then there's a real question about what the definition of having started construction is.

44:32Amy Myers Jaffe:And I don't know if you saw again in this executive order that came out from president trump this week he said you can be deemed to have started construction only if a substantial amount of work has been done on the project already that you can't just sort of clear a bit of ground or put one bit of steel in the ground or something you have to or even just purchase the equipment you have to have actually got a lot built but then how much do you have to get built and so on so real uncertainty there about how that's going to play out. But definitely, I think we will see at least for a while, that real rush of people getting in under the wire, as I say, getting their projects safe harbored, so that they can continue to get the credits.

45:15Amy Myers Jaffe:And so whatever the longer term picture is, things are going to be very active for a little while. Yeah, and I agree with you. Those projects for solar and also wind that have their permits, that already have that momentum, that are moving forward, they seem like they're in a good place when it comes to meeting those deadlines or to save Harvard the project, etc. It's the ones that are on the cusp. And I think, Amy, you just mentioned the things in the pipeline, the queues, like what's going to get through, what's not. It's a question mark. So Ed, real quick before we transition, nuclear and geothermal.

45:52Y 'all know I follow both of these. Geothermal in particular has been one that I keep my eye on and I'm real curious to see how it goes. But I think it's a pretty clean story on how they went through. But that one, just want to mention it. We can't leave it out of the conversation.

46:05Amy Myers Jaffe:Yeah, as you say, geothermal, certainly very interesting. It's a technology that the Energy Secretary Chris Wright has been involved in and is a big supporter of. certainly want to watch in terms of delivering clean, firm power, dispatchable baseload power with zero emissions. It's something we're looking at. Our sibling podcast, The Interchange Recharged, has an episode focusing on geothermal coming up next, and I think it's in its next episode. So do listen out for that. And within that, I'll say I'm curious to see not only how much is deploying, how many projects get under construction, but also how the domestic supply chain around those to technologies develops.

46:43This will be really interesting for me. So I look forward to listening to that episode.

46:47Ed Crooks:And let me say on nuclear, there's a big effort afoot. There's a little bit of competition. People are stealing each other's people because, you know, we have a limited workforce in the nuclear area. And there's a lot of combination of financial weight and existing SMR companies that are thinking about, could there be consolidation in the industry to create like a winning player. And so I do think people are trying to think creatively about how to get a real good consortium together to get nuclear and SMR to move forward more rapidly.

47:25Amy Myers Jaffe:Yeah, I think that's really interesting. And certainly it is the case that nuclear was relatively a winner from this new legislation. And actually, if you look back at earlier versions, as it was making its way through Congress. Earlier on, there were actually pretty big cuts to the tax credits for nuclear, both for existing plants and for new innovative plants. Those tax credits have been restored. They do still have to meet those FIAC rules, but just in general terms, the tax credits are there. So that's a big boost to the nuclear industry. I do still have this concern though about all the usual concerns about the nuclear industry, which is about the cost and the time it takes to build.

48:09Amy Myers Jaffe:And when we're thinking about power demand growing rapidly over the next few years, when we're thinking about where we are in 2030, that's one prediction I'm going to make is that nuclear will not be making a significant difference, if any difference at all, to the generation mix in 2030. I guess we may have one or two old existing nuclear power plants that had been shut down are going to be brought back into service. I think that's great, excellent that that can happen. That is something you can do quickly. But there aren't that many power plants in that position out there. And you can stop plants that are currently running from shutting down as well.

48:45Amy Myers Jaffe:And that's going to happen. And that will also play a role. But in terms of actually getting new power plants built, not going to see any of that by 2030. I think we'll be lucky if we see any of that by 2035. Probably 2040 more realistically is when we might actually see some significant impact from that. And I want to talk about it from a climate perspective, actually, Ed, which, you know, we're going to talk about here in a second, related to this nuclear conversation and geothermal, but I'm thinking nuclear is all the stuff that happened in the bill around green hydrogen and also CCS. Like, I think there will be big impacts here, but I'm thinking about them through a climate lens predominantly around this.

49:24So maybe we can talk about that as we go forward in that piece.

49:28Amy Myers Jaffe:Yeah, well, let's just touch on those two technologies first then maybe. So hydrogen, as you say, green hydrogen has been affected by having the eligibility for tax credits restricted in terms of you have to bring your project on faster. By 2027, instead of I think it was 2032. So you're pulling it in by five, six years.

49:49Ed Crooks:And people say that's going to put a lot of projects at risk.

49:52Amy Myers Jaffe:Yeah, exactly. I think our estimate is something like 75 % of all the hydrogen projects that are currently being thought about or looked at in the US are unlikely to be eligible for the tax credit on that basis. And if you're not eligible for the tax credit, I think it's very, very hard to go ahead. To be honest, for green hydrogen, even the projects that are claiming the tax credits are going to be pretty marginal. There's a big problem in the US and actually elsewhere in the world of people just not wanting to pay the cost to buy low carbon hydrogen. So that industry had a lot of problems but definitely the bill is going to add to those problems in the US.

50:31Amy Myers Jaffe:Carbon capture is interesting though in the sense that tax credits have actually been made slightly more generous. You're going to be able to claim an increased credit relative to what was in the Inflation Reduction Act for carbon dioxide that you find a use for or use for enhanced oil recovery rather than just injecting into a rock formation in the ground. So that might encourage a bit more CCUS to happen. And certainly just for all the CCUS projects that have been underway already, things are not getting any worse for them. So to the extent that industry was making progress before, probably going to continue to make progress from here on.

51:15So you all know green, blue, this dynamic with CCS and CCUS is really interesting. So when we look at those two colors and hydrogens are produced with electrolysis or produced in a process, we're actually capturing the gases. It seems like we're doing a really heavy bet for just processes that take captured carbon, use them, and also just carbon capture even with permanent geological storage. I mean, that's – I believe in y 'all's note you said that the CCUS developers can now breathe a sigh of relief. I thought that sums it up pretty well. And so that dynamic is going to affect how these different fuels deploy between the different colors of hydrogen and also CCS, CCUS development when it comes to other processes, whether it's natural gas for power generation or an industry in different points.

52:00It's going to affect the industry, I think, quite significantly. The fact that it wasn't repealed, it wasn't pulled back, it was ultimately expanded in the ways that you just outlined. But Amy, I'm curious for your thoughts.

52:09Ed Crooks:Well, I mean, I think this is kind of interesting. I mean, a lot of hydrogen projects seem to be biting the dust recently. And so the U.S., I think, is in line with sort of the trend on green hydrogen. But I was doing research for another project, and Morocco was really kind of locking down on it. So you have a couple of places, Chile, Morocco, that are trying to get an advantage in green hydrogen. The question, I think, really becomes over time, what will the market look like? And I think your point on end-use takers, the whole end-use taker question was already a problem for the hydrogen hubs.

52:52Ed Crooks:The California hydrogen hub was set up a little bit better because you kind of knew who the customers were going to be. But I've had some recent conversations with hyperscalers where they're saying that the numbers for using green hydrogen are still too high for them compared to some of their other options. So those would have been the players I thought might be more price insensitive. And so I do think there's a lot more of a question mark, I think, hanging over green hydrogen, not only in the United States, but beyond.

53:30Amy Myers Jaffe:Yeah, I do agree with that. So let's talk about climate and talk about climate impacts. I mean, perhaps I should just quote a colleague who said to me, oh, this is obviously very bad for the climate. This means that we must be on a pathway towards significantly increased levels of global warming, a much worse pathway than we were on before. I'm not so sure about that. But I'm interested in your views. What do you think?

53:59Ed Crooks:Well, I think that having the United States pull out of efforts definitely means that it's hard to keep momentum. And, you know, we have to worry about what I call the copycat effect. But there is also this sense that the United States, you know, pulls out and doesn't pull out, pulls out and doesn't pull out. And like we've been discussing the whole show, not everything is dead. And so I always hearken back to these other things, you know, like the IMO. Well, maybe it'll get killed now, but the IMO trying to have a global tax and having carbon taxes moving forward in a lot of different markets.

54:38Ed Crooks:I think the interesting thing is, apparently, somebody did the calculation and the United States industry is much more carbon friendly in terms of its emissions than China. And so you still have this bill or idea of a bill floating around in the Congress about having a border adjustment that would benefit U.S. industry. So I don't think it's dead. I do think that I would rephrase it in a slightly different way than the way you framed it, Ed. What we really needed to do was accelerate from where we were, right? Because we really do need to try to arrest climate change. And we can talk about what the economic and physical manifestations of not doing that in a minute.

55:23Ed Crooks:But we needed to be accelerating our efforts, not decelerating our efforts. So even if it's just that the United States decelerates and everybody else stays with the same momentum, that could be a best case scenario. We're not accelerating. We're not in this big, you're not hearing anybody talking about, you know, the next COP meeting or the COP meeting after that. We're at a stage where we're supposed to be everybody increasing their national commitments and you're not hearing any talk about that. Sometimes when people talk about it, they talk about it as a big step backwards. So I'm not sure I believe it's a giant step backwards.

56:01Ed Crooks:We still have the technologies. Other countries are driving those technologies and putting them in the international market, where I think it is that we're losing the possibility of accelerating, which is what we really need to do, our efforts. And that lack of acceleration still keeps us on a pretty dangerous trajectory. And so I would just sort of reframe it in that way. And I know around all this, so just from a baseline on greenhouse gas emissions, total cumulative emissions. We know we care about cumulative, not just instant in time. So I'm going to pause the discussion on, okay, in the longer term, so post 2030, how these different mechanisms may help or hurt or not things past 2030.

56:40But in the next five years, if we are slowing down, it seems like there's consensus around that increasing the total amount of emissions that go into the air, which means we have that contribution to climate change. And so around that, what it highlights for me is the need to put even more pressure on adaptation measures, thinking about the resiliency and reliability of the overall energy system, where are we investing things? And then also, yeah, the question is, what are we going to do after 2030 in the United States? I agree with you, Amy. There could be those knock-on effects that's to be seen in other countries.

57:11But if we just isolate it and say this is an impact in the U.S., you know, just assume everybody else keeps going the course. There could also be the place where other countries see an opportunity and step into it and go faster. There is that outcome, too, that could happen. But bottom line is we're probably seeing more emissions going out, which probably means temperature changes and projections of that changing and not a great direction for public health. And so the result is, OK, what are we going to be doing both in terms of mitigation after 2030 or after the next few years and then also adaptation because more will be needed.

57:43Ed Crooks:So listen, the health effect, you mentioned that, Melissa, and that is not small. There was an academic study that was just released that said numbers in the thousands of people who have died from the heat in Europe in the recent heat waves. So we're talking about huge impacts. I looked up some of the work Swiss Re has done in this area because it's really pretty interesting, even in terms of economic losses. So I think the interesting thing is that these economic losses of weather perils are starting to add up. And Swiss Re last year did a ranking of the countries that are going to be most affected by all weather perils in terms of loss of GDP.

58:26Ed Crooks:and the Philippines tops the list. But I was really surprised to see the United States is number two in terms of economic losses and loss of GDP that happens as major weather perils affect different places. And then, you know, I've been a broken record on this topic, but, you know, Swiss Reade did this big study on the long-term economics of climate change. And let's say a lot of scientists believe, and like you say, Melissa, getting off track for a year or two is not the metric because we're talking about trying to hit something like one and a half degrees or two degrees over a multi-year period.

59:08Ed Crooks:We're not saying that because this year we got to a certain temperature, we hit it. But according to Swiss Re, in what they call their severe scenario, so let's remember scientists are saying that under the current scenario, not taking into account what's happened in the last three months, we were kind of slated to hit about 2.7 degree warming by the end of the century. Swiss Re says their severe case was that we hit 3.2 C. For the world, that would be an 18 % less GDP growth by 2050. And for Asia and Pacific, it would be 27 % less economic growth, China would be among the hardest hit countries in the same genre, like 25 to 30 percent less GDP.

59:55Ed Crooks:So they have a lot at stake. Same with the countries in the Middle East and Africa, down almost 30 percent of GDP in 2050 if we start to creep above three degrees. And so I think that this tradeoff right now, populations are focused on the fact that doing climate policy is expensive. We already have inflation and multiple kinds of supply chains between the wars and also different climate policies. There's this perception that somehow electricity prices are too high, and that is the fault of different factors, one of the factors being trying to shift to all these targets. And so that's the current sort of narrative that seems to be dominating in political circles.

1:00:45Ed Crooks:You have divisions, but that seems to be like the voter-winning narrative right now. But as we hit worse storms and tragedies like the tragedy we saw in the hill country of Texas, like the heat wave deaths that we've seen in Europe and elsewhere, as those kind of events become much more prominent, it's hard to imagine that voter sentiment wouldn't be swayed by the fact that the need to do something would seem more important to people's pocketbooks. and to people's health than the expense of doing something, which is coming down because of technological breakthrough. Yeah, I think, Amy, it's really, it's an important thing that we've talked about before on the show, which is that climate change is happening.

1:01:35It's already affecting our health. It's already affecting our energy systems. It's already affecting the reliability and resiliency of our supply chains. And within this, you know, one big question I have coming out of this bill is, okay, as we go into 2030, what's that gap going to look like in supply chains? And are we going to affect some of the diversity of supply issues around that? How are we going to have a more resilient system in the United States, but also a whole supply chain that is more resilient? And the evidence is clear around climate change that we're seeing more extreme events that are affecting communities and all of our energy infrastructure.

1:02:06And as we look into the future, the idea of contributing more to cumulative emissions or not has real implications for what those risks continue to look like in the future. They're increasing risks over time, but how much they're increasing and in what regions really, really matters, especially when we have concentrated supply chains we talked about in batteries. You know, they're just in certain parts of the world.

1:02:26Amy Myers Jaffe:I think we should leave it there, unfortunately, just about. But just before we go, time for our free electrons, personal items that we've brought in. Amy, do you want to go first?

1:02:37Ed Crooks:Yes. So I know you and Melissa love books, and I've never come forward with a book. I don't know if I'm going to mention a book that Melissa hasn't read yet. But when Sarah Kaepnick was on the show, which is a wonderful episode, if you're a listener today and you haven't heard the Sarah Kaepnick episode on climate adaptation, please listen. But she recommended a book by a man named Ethan Mollick, who wrote a book called Co-Intelligence, Living and Working with AI.

1:03:05Amy Myers Jaffe:Oh, so I just bought that book because she'd recommended it. So go on, tell us about it.

1:03:09Ed Crooks:So hear me out. So I read the book. It's a super interesting book about his journey on using AI as a thought partner and, you know, for his work. And he is, like myself, a professor. And so I'm teaching a class. My summer seminar this year is on AI and energy. And I assigned this book as the first reading. And then we did an exercise in class. So I want to share this with the listeners because it was such a hilarious outcome. Okay. So one of the points of the book is that this AI at this point is not very reliable and that it has biases embedded in it and that how you prompt it can really change the outcome.

1:03:54Ed Crooks:And so and then he talks about, you know, some of the dangers of going forward in terms of security and just people's inability to like learn properly. But it was really an interesting read. And so I have the students read it. And then we do an exercise in class where I tell everybody in the class to do the same prompt on their computer, which is what is the main takeaway? This is the question we ask. You know, I think we all use chat GPT. What is the main takeaway from this book, Co-Intelligence? We all gave the exact same prompt. And I wasn't sure what it would do. I mean, in my mind, you know, the way they present it, it's objective.

1:04:36Ed Crooks:and so it should give us all the same exact answer, correct?

1:04:41Amy Myers Jaffe:You would think?

1:04:42Ed Crooks:Every student and myself had different answers about what the takeaway, and none of the takeaways were what I thought the takeaway of the book was, okay? And so we were all shocked. The class was like, it stimulated incredible discussion about how we think we're asking this machine or however you want to describe it, this algorithm, a question that's going to give you the right answer. And part of the class is not just to learn about the applications for energy, which we're going to do, but part of it for me is also pedagogical, which I'm going to help these students learn to use chat and some of these other programs more effectively, because you have to check its work.

1:05:24Ed Crooks:And that was one of the points that Ethan, you know, makes is you can't just rely on it, you have to then go back and see, you know, you can even ask it, what's your source for that material, right? Blah, blah, blah. So I'm thinking it's going to be like a great course, which I hopefully the students, I think they think so too. And so we're all like shocked. And we try some other exercises, we try changing the wording. So now I leave class, and I accuse my son-in-law, who's a big proponent of AI. I say, hey, listen, you're always telling us to use this. You talk my husband into doing it. He says every time he uses it, it's super, super helpful, but he doesn't even explain why because he says it's always wrong as a matter of the law, right?

1:06:12Ed Crooks:So like, what's the usefulness of this thing? I don't understand. And my son-in-law explains to me that I need to learn to do quote unquote prompt engineering, which apparently is a field now, right? And so he gives me the suggestion, which I do at the next class, where I tell the class we're going to do the same exercise again, but we're going to tell the machine slash algorithm slash our co-intelligence partner that it has to give us the answer to this takeaway question based on quotations or appearances by Ethan Mollick.

1:06:47Amy Myers Jaffe:What does he say is the main takeaway of his book. Yeah, nice idea, yeah.

1:06:53Ed Crooks:Okay, and then we got more, not completely the same, but more consistent response.

1:06:59Amy Myers Jaffe:Okay, so this is really fascinating. It's a great story and really interesting in, as you say, this technology, the way it's evolving, the way people think about it. It has reminded me, talk about prompting. It's prompted me, I'm definitely gonna have to go and read that book now. And I'll be interested to see whether I agree with ChatGPT or your answer in terms of what the core message actually is. Melissa, what's yours? Okay, don't laugh too hard. Can I sneak in a couple? Oh, no. You're typical. I'll do it fast. I'll do it fast. Of course. But your book comment made me think of another book.

1:07:34I'll come there in a second. So I've been going down the rabbit hole on copper.

1:07:38Amy Myers Jaffe:Oh, yeah. And you're not surprised by this. Very interesting. Something to come back to in a different discussion, but around this tariff that's been announced about a potential 50 % tariff on copper. So copper, there's this announcement from the Trump administration, President Trump saying, I'm going to put a 50 % tariff on copper. And there's this date that's now been flagged around that'll come in and be implemented 1st of August. So I'm just following it really deeply. In that, I rediscovered some writing that came out of CSIS, the Center for Strategic International Studies. We have Joseph Meshkut, who comes on the show quite frequently.

1:08:12We've had some good discussions with him. But some of his colleagues have written about the world's copper stronghold, Latin America. And then also they had a recent podcast where they talked about the impacts of the bill we've been talking about this whole time on different types of critical minerals and materials, including copper. And so that's one that just if y 'all are not following this tariff discussion, just would encourage you. And also to go to CSIS. They've written a lot about copper, and I find that interesting. But the shout out I wanted to give before all of those, and when I knew we were having this discussion, I got a free electron I wanted to give before all the copper excitement started, is actually to flag a book by my former colleague, Eddie Fishman, called Choke Points, American Power in the Age of Economic Warfare.

1:08:54I've talked a little bit about Eddie's work before on the show, I think. But effectively, he's one of the sanctions experts at Columbia University. And he was teaching this class on sanctions and how they impact supply chains and how they influence markets and just how they affect when it comes to overall diplomatic efforts. And he figured out when he was teaching his class that he didn't have a good book to teach with. He needed a manual, a primer, an explanation. Like, what have we learned over time? We keep implementing these sanctions. What do they do? So no one else wrote it. So he wrote it.

1:09:23And it was an instant New York Times bestseller. I'm so thrilled because I was with Eddie when he told me about the idea. And then as he was writing it, huge lift. And I just was thrilled to see it. So I'll just mention Choke Points as a really interesting book. And congratulations, Eddie, really well deserved. I've been with you in rooms when you've discussed this topic. And I'm just thrilled to see the book do so well. So congrats.

1:09:46Amy Myers Jaffe:Yeah, that does sound fascinating. Excellent. Another one for the reading list. So also, Melissa, you were just talking about metals, critical minerals that's the thing that i wanted to raise we've been quite critical of some of the measures taken by the administration and some things in the big beautiful bill over the course of this episode i wanted to give um 100 uh praise and endorsement to something they've done which is act to support uh rare earths production in the us and i don't know if you've seen this so this is something the um the big beautiful bill does include um some extra money for critical mineral stockpiles but the thing the administration's done that is really valuable i think is they have signed this agreement with mp minerals which is the company that owns the mountain pass rare earths mine in california which i don't know if you've followed this story if you've followed the rare earths industry at all it has a very long and troubled history over many decades essentially it's been very difficult to keep it commercially viable and to get sustained production from that site, which has been essentially the only significant rare earth production site in the US.

1:11:04Amy Myers Jaffe:And what the administration has done is it's both investing in the company that owns the mine, investing$400 million, and crucially, it's agreed a contract, which is a price floor commitment essentially saying that if the price of neodymium and pricedydymium products drops below a certain level we will pay that amount and we can take these materials which are used to make magnets either we'll take them into storage or we can sell them on and the impact of that is that it gives security of revenues for the company and much more stability to the business. And the classic cycle that we've seen in the rare earth industry down the years, down the decades has been when producers outside China try to get established, make investments, increase production, then Chinese suppliers increase, the price collapses, is these companies go out of business, they stop producing, and then Chinese suppliers are able to ramp up prices again and maintain their dominance.

1:12:15Amy Myers Jaffe:This commitment from the government is a way of breaking that cycle and guaranteeing there will be US production of, I'll say, neodymium, prisedemium, which are very important for a lot of military applications they used in jet aircraft, drones, missiles, radar arrays, but also have lots of civil applications as well in EVs, in wind turbines, and so on. And as we've been saying, Amin, very much going back to your point about the importance of building non-Chinese supply chains in these areas, it clearly is a good idea to develop supplies in the US and in other friendly countries where possible.

1:13:02Amy Myers Jaffe:So as I say, that's exactly what needed to happen, I think, is for US and other governments to sign this kind of contract to guarantee the price floor, to keep these companies in business. And so it's very good to see that that's what's happening. And I've got to vote, as much as my vote is worth. In 50 to 60 days or so, I would love it if you would go deep on this topic. Like once we get some treasury like guidance once we figure out what's going on with copper once we have more projections that have been run about the impacts of the bill like in terms of those pieces you're highlighting i i would love a discussion on that it's so important um and it affects across the board how this this system's going to develop not just our you know where are things going to be in 2030 but beyond that as well these are big projects so there's my vote for what it's worth it's a great topic yeah great idea they go uh i think motion carried i can't wait to listen to Do you not think Amy?

1:13:57Amy Myers Jaffe:I think that's a great subject.

1:13:58Ed Crooks:Oh yeah, I think we definitely need to do a deeper dive on that topic.

1:14:02Amy Myers Jaffe:For now, we should definitely let this go. We do really have to end it here. It's been fantastic talking to you. Many thanks, Amy.

1:14:10Ed Crooks:Thank you, Ed. Melissa, great to see you on the show as opposed to just at the sidelines of some conference.

1:14:15Amy Myers Jaffe:Yeah, many thanks, Melissa.

1:14:17Ed Crooks:Yeah, I've really enjoyed it. Let's do this again soon, y 'all. I really miss these discussions. Let's do it again soon. Exactly.

1:14:23Amy Myers Jaffe:we won't leave it so long next time i think in fact melissa we're seeing you again very soon aren't we we have you back on another show imminently thanks to our producer toby big and skill chris and above all many thanks to all of you for listening we really do value your feedback so please do keep it coming uh leave us a review get in touch with us on social media however you want to do that and we'll be back in two weeks with all the latest news and views on the energy transition until then goodbye

1:14:54Thank you.