Powell’s Testimony to Congress Revealed A Lot

Image Credit: C-Span (YouTube)

Is the Fed Doing Too Much, Not Enough, or Just Right?

The Fed Reserve Chair Jerome Powell has an ongoing credibility problem. The problem is that markets, economists, and now Congress find him extremely credible. So credible that they have already declared him a winner fighting inflation, or of more pertinence, the economy a loser because Powell and the Fed policymakers have been so resolute in their fight against the rising cost of goods and services that soon there will be an abundance of newly unemployed, businesses will falter, and the stock market will be left in tatters. This view that he has already done too much and that the economy has been overkilled, even while it shows remarkable strength, was echoed many times during his visit to Capital Hill for his twice a year testimony.

“As of the end of December, there were 1.9 job openings for each unemployed individual, close to the all-time peak recorded last March, while unemployment insurance claims have remained near historic lows.” – Federal Reserve Chair Jay Powell (March 8, 2023).

Powell’s Address

Perhaps the most influential individual on financial markets in the U.S. and around the world, Fed Chair Powell continued his hawkish (inflation fighter, interest rate hiker) tone at his Senate and House testimonies. The overall message was; inflation is bad, inflation has been persistent, we will continue on the path to bring it down, also employment is incredibly strong, the employment situation is such that we can do more, we will do more to protect the U.S. economy from the ravages of inflation.

Powell began, “My colleagues and I are acutely aware that high inflation is causing significant hardship, and we are strongly committed to returning inflation to our 2 percent goal.” Powell discussed the forceful actions taken to date and added, “we have more work to do. Our policy actions are guided by our dual mandate to promote maximum employment and stable prices. Without price stability, the economy does not work for anyone. In particular, without price stability, we will not achieve a sustained period of labor market conditions that benefit all.”

Powell discussed the slowed growth last year; there were two periods of negative GDP growth reported during the first two quarters. He mentioned how the once red-hot housing sector is weakening under higher interest rates and that “Higher interest rates and slower output growth also appear to be weighing on business fixed investment.” He then discussed the impact on labor markets, “Despite the slowdown in growth, the labor market remains extremely tight. The unemployment rate was 3.4 percent in January, its lowest level since 1969. Job gains remained very strong in January, while the supply of labor has continued to lag.1 As of the end of December, there were 1.9 job openings for each unemployed individual, close to the all-time peak recorded last March, while unemployment insurance claims have remained near historic lows.”

On the subject of monetary policy, the head of the Federal Reserve mentioned that the target of 2% inflation has not been met and that recent numbers have it moving in the wrong direction. Powell also discussed that the Fed had raised short-term interest rates by adding 4.50%. He suggested that recent economic numbers require that an increase to where the sufficient height of fed funds peaks is likely higher than previously thought. All the while, he added, “we are continuing the process of significantly reducing the size of our balance sheet.”

Powell acknowledged some headway, “We are seeing the effects of our policy actions on demand in the most interest-sensitive sectors of the economy. It will take time, however, for the full effects of monetary restraint to be realized, especially on inflation. In light of the cumulative tightening of monetary policy and the lags with which monetary policy affects economic activity and inflation, the Committee slowed the pace of interest rate increases over its past two meetings.” Powell added, “We will continue to make our decisions meeting by meeting, taking into account the totality of incoming data and their implications for the outlook for economic activity and inflation.”

Questions and Answers

Congressmen both in the Senate and the House use the Semiannual Monetary Policy Report to Congress (formerly known as Humphrey Hawkins Testimony) to ask questions of the person with the most economic insight in Washington. Often their questions have already been covered in the Chair’s opening address, but Congresspeople will ask anyway to show their constituents at home that they are looking after them.

Elizabeth Warren is on the Senate Banking Committee; her math concluded the result of even a 1% increase in unemployment is a two million-worker job loss. Warren asked Powell, “Do you call laying off two million people this year not a sharp increase in unemployment?” “Explain that to the two million families who are going to be out of work.” In his response, Powell went back to historical numbers and reminded the Senator that an increase in unemployment would still rank the current economy above what Americans have lived through in most of our lifetimes, “We’re not, again, we’re not targeting any of that. But I would say even 4.5 percent unemployment is well better than most of the time for the last, you know, 75 years,” Chair Powell answered.

U.S. House Financial Services Committee on Wednesday heard Congressman Frank Lucas concerned about the pressure for the Fed to include climate concerns as an additional Fed mandate. Lucas from Oklahoma asked,  “How careful are you in ensuring that the Fed does not place itself into the climate debate, and how can Congress ensure that the Fed’s regulatory tool kit is not warped into creating policy outcomes?” Powell answered that the Fed has a narrow but real role involving bank supervision. It’s important that individual banks understand and can manage over time their risks from any climate change and it’s impact on business and the economy. He wants to make sure the Fed never assumes a role where they are becoming a climate policymaker.

Other non-policy questions included Central Bank Digital Currencies. House Congressman Steven Lynch showed concerns that the Fed was experimenting with digital currencies. His question concerned receiving a public update on where they are with their partnership with MIT, their testing, and what they are trying to accomplish. Powell’s response seemed to satisfy the Congressman. “we engage with the public on an ongoing basis, we are also doing research on policy, and also technology,” said Powell. Follow-up questions on the architecture of a CBDC, were met with responses that indicated that the Fed, they are not at the stage of making decisions, instead, they are experimenting and learning. “How would this work, does it work, what is the best technology, what’s the most efficient.” Powell emphasized that the U.S. Federal Reserve is at an early stage, but making technological progress. They have not decided from a policy perspective if this is something that the country needs or desires.

Issues at Stake

As it relates to the stock and bond markets, the Fed has been holding overnight interest rates at a level that is more than one percentage point below the rate of inflation. The reality of this situation is that investors and savers that are earning near the Fed Funds rate on their deposits are losing buying power to the erosive effects of inflation. Those that are investing farther out on the yield curve are earning even less than overnight money. The impact here could be worse if inflation remains at current levels or higher, or better if the locked-in yields out longer on the curve are met with inflation coming down early on.

The Fed Chair indicated at the two testimony before both Houses of Congress that inflation has been surprisingly sticky. He also indicated that they might increase their expected stopping point on tightening credit. Interest rates out in the periods are actually lower than they had been in recent days and as much as 0.25% lower than they were last Fall. The lower market rates and inverted yield curve suggest the market thinks the Fed has already won and has likely gone too far. This thought process has made it difficult for the Fed Chair and others at the Fed that discuss a further need to throw cold water on an overheated economy. Fed Tightening has not led to an equal amount of upward movement out on the yield curve. This trust or expectation that the Fed has inflation under control would seem to be undermining the Fed’s efforts. With this, the Fed is likely to have to move even further to get the reaction it desires. The risk of an unwanted negative impact on the economy is heightened by the trust the bond market gives to Powell that he has this under control and may have already won.

Powell’s words are that the Fed has lost ground and has much more work to do.

Take Away

At his semiannual testimony to Congress, an important message was sent to the markets. The Fed has the right tools to do the job of bringing inflation down to the 2% range, but those tools operate on the demand side. In the U.S. we are fortunate to have two jobs open for every person seeking employment. While this is inflationary, it provides policy with more options.

As of the reporting of January economic numbers, a trend may be beginning indicating the Fed is losing its fight against inflation. It is likely that it will have to do more, but the Fed stands willing to do what it takes. Powell ended his prepared address by saying, “Everything we do is in service to our public mission. We at the Federal Reserve will do everything we can to achieve our maximum-employment and price-stability goals.”

Paul Hoffman

Managing Director, Channelchek

Sources

https://www.federalreserve.gov/newsevents/testimony.htm

What Mining and Metals Investors Learned from Tesla’s “Investor Day”

Source: Tesla (YouTube)

Tesla’s “Investor Day” Reveals that Opportunities Exist in Ancillary EV Businesses  

Investors may have absorbed more ideas from Elon Musk at Tesla’s Investor Day about related opportunities outside of Telsa (TSLA) than in the company itself. The founder was not as forthcoming as expected; however, he did confirm Tesla’s plans to build a fifth car assembly plant in Mexico. He also made reference to a next-gen vehicle and rolled out a $ 1-a-day subscription for owners in some regions for unlimited charging. Autonomous driving updates along with safety numbers were revealed, and how and why Tesla is going to solidify its supply chain and provide itself uninterrupted battery-grade lithium was of particular interest to investors in the metals and mining industries.

Musk on Metals and Mines

It was thought that both those attending in person and those streaming would be treated to a Tesla plan to acquire a mining operation in North or South America amid rampant demand for the material crucial to battery EVs. To respond to the speculation, Musk said the EV manufacturer is “mulling” the takeover of a miner. The miner most often discussed in relation to Tesla is Sigma Lithium Corp. (SGML).

What was more concrete on the battery manufacturing supply chain issue, is it was made clear Tesla is more focused on refining lithium than on mining it. The CEO of the most valuable car company in the world said the “limiting factor” is refining lithium, not actually finding it, as no country has a monopoly on deposits.

Not all investors and analysts can make it to the PDAC Mineral Exploration and Mining Conference in Toronto. In order for our subscribers to stay in the loop, Noble Capital Markets will be attending PDAC conference meetings and then interviewing select executives. This will be captured on video for the exclusive benefit of Channelchek subscribers (no cost). Learn more about the Channelchek Takeaway Series at PDAC.

Tesla has already broken ground on what will be a lithium refinery in Texas, it plans to start output within 12 months. According to a presentation by Drew Baglino, SVP of Tesla’s Powertrain and Energy Engineering department, the EV giant wants to process lithium concentrates into battery-grade lithium chemicals at the refinery in Texas.

As for the EV battery metal nickel, it’s only needed for “aircraft, long-range cars or trucks,” Musk said. “The vast majority of heavy lifting” of EV batteries will be iron-based batteries, and there’s plenty of iron in the world, he said.

The EV Industry Unfolding

Automakers are increasingly pushing into partnerships and ownership of the mining of commodities needed for their end product. Those that vertically integrate early will have their pick among the miners that are a better fit – and potentially priced before demand accelerates. Recently the car company Stellantis took a 14% stake in a subsidiary of McEwen Mining (MUX) that produces copper. And General Motors is said to be negotiating a stake in Vale SA’s base metals unit. In January, GM conditionally okayed a $650-million pact with Lithium Americas (LACCA) to develop a US lithium deposit.

Take Away

Telsa’s Investor Day included updates on autonomous cars and presentations that showed off the company executives, but it didn’t leave a buzz in the EV industry.

It was confirmed that EV manufacturers are eying companies that produce the ingredients they need for their cars to have power. Investors may want to explore producers of lithium, copper, cobalt, and nickel. Especially those closest to EV battery manufacturing facilities.

Paul Hoffman

Managing Editor, Channelchek

Sources

https://livestream.tesla.com/

https://www.barrons.com/livecoverage/tesla-investor-day/card/tesla-will-offer-30-a-month-home-charging-to-some-customers-OUnvtbeNsJwqN5PuBYTZ

https://www.miningweekly.com/article/musk-tamps-down-speculation-that-tesla-will-mine-lithium-2023-03-02

https://www.prnewswire.com/news-releases/sigma-lithium-commences-trading-on-nasdaq-301375052.html

https://www.opb.org/article/2023/02/01/gm-lithium-americas-thacker-pass-investment/#:~:text=Feb.,of%20lithium%20in%20the%20U.S.

Is the Best Investment Play for the EV Revolution Mining Companies?

Source: Jeep.com

Stellantis Invests in Mine to Satisfy Increasing Demand for Copper

Stellantis is the latest car company to invest in a mining company to help avoid any hiccups on its road to being carbon-free by 2038. The company just announced it acquired a 14.2% stake in McEwen Copper. Partnering with or securing a large stake in a mining company or projects has been a growing trend among car companies as they secure raw materials needed to assemble the next generation of vehicles. Stellantis, the world’s third-largest automaker, owns brands such as Chrysler, Jeep, Fiat, and Peugeot. It says it wants 100% of its European cars and 50% of its US cars and light trucks to be battery electric by 2030.

Source: Koyfin

A Growing Trend

As automakers move to expand EV production, access to an uninterrupted source of raw materials such as lithium, cobalt, nickel, and copper is a concern that needs to be planned for. Some car companies have developed strategies to to directly sourcing raw materials from mines. And others are likely to follow. This year, Tesla (TSLA),  Ford (F), and General Motors (GM) are all expected to be better represented than in the past at the top mining conferences being held over the next two weeks. These include the Global Metals and Mining Conference in South Florida (Feb. 27 – Mar. 1) and the Mineral Exploration & Mining Convention in Toronto (Mar. 5 – Mar. 8).

Because not all investors can make it to Toronto, analysts from Noble Capital Markets will be attending PDAC conference meetings and then interviewing select executives. This will be captured on video for the exclusive benefit of Channelchek subscribers (no cost). Learn more about the Channelchek Takeaway Series at PDAC.

The Stellantis Purchase

The $155 million investment in a project located in Argentina, is expected to make what the press release called, “a major contribution to the company’s plan to become carbon net zero by 2038.”  It represents a 14.2% equity stake in McEwen Copper, a subsidiary of Canadian mining company McEwen Mining (MUX), which owns the Los Azules project in Argentina and the Elder Creek project in Nevada.

The large stake makes Stellantis McEwen Copper’s second-largest shareholder, along with Rio Tinto, through its copper leaching technology venture, Nuton. Los Azules plans to produce 100,000 tons per year of cathode copper at 99.9% purity starting in 2027 and the resources can secure the operation for at least 33 years.

“Stellantis intends to lead the industry with the commitment to be carbon net zero by 2038 – a goal that requires innovation and a complete redefinition of the entire business,” said Carlos Tavares, Stellantis CEO. “We are taking important steps in Argentina and Brazil, with the aim of decarbonizing mobility and ensuring strategic supplies of raw materials necessary for the success of the Company’s global electrification plans,” he said.

“Copper is a strategic raw material for the future of electric mobility, and it is estimated that global demand for the conductive metal will triple in the coming years. By making an investment in one of the top 10 international projects in the development of this commodity, Stellantis should be able to supply some of the projected copper demand starting in 2027,” said Carlos Tavares.

Take Away

The move to electric cars presents a number of opportunities to investors beyond picking which car company perform best, or even survive. Looking forward to areas of increased demand from the EV business, lithium is the mineral spoken about most. But copper is not only important in its use throughout the vehicle, it is also critical to distribute electricity to charging stations. It wouldn’t be a surprise to hear announcements by other car companies that they are also enhancing their vertical integration by partnering with or purchasing mining operations.

Channelchek is a great resource for information on small and microcap mining companies. For an extensive listing of companies involved in copper mining, including description, data, and stock price history,  click here.  

Paul Hoffman

Managing Editor, Channelchek

Source

https://www.stellantis.com/en/news/press-releases/2023/february/stellantis-announces-strategic-copper-investment-in-argentina-reinforcing-commitment-to-reaching-carbon-net-zero-by-2038

https://www.miningweekly.com/article/tesla-gm-among-carmakers-flocking-to-mining-events-amid-battery-metals-scramble-2023-02-27#:~:text=Car%20companies%20are%20making%20inroads,%2C%20deal%2Dhungry%20metals%20producers.https://www.npr.org/2022/03/11/1085670133/automakers-partner-with-mines-as-electric-cars-rely-on-raw-materials-for-batteri#:~:text=Press-,Automakers%20partner%20with%20mines%20as%20electric%20cars%20rely%20on%20raw,sourcing%20raw%20materials%20from%20mines

Lithium Stocks are Depressed, Might They Be a Buy?

Image: Silver Peak Lithium Mine, Nevada – Ken Lund (Flickr)

The Lithium Dip May Be Worth Exploring

Lithium (Li) was once synonymous with treating depression. Today the mineral is more often discussed as part of the subject of sustainable energy storage, specifically batteries. So it’s ironic that the recent stock price movement of a number of companies tied to lithium may have depressed some investors, as February has seen a sudden depression in values. The primary reason for the decline in lithium stocks may actually be a net plus for miners and others tied to production. This thinking is outlined below.  

Many companies involved in Li exploration and/or production were up on the year along with the overall market. Late last week and carrying over to today, many of these stocks have fallen dramatically. The reason for the sudden decline coincided with the largest EV battery manufacturer, Contemporary Amperex Technology’s (CATL) announcement that it will cut the price it charges for Li-ion batteries.

As seen in the chart below, Shares of the larger lithium miners Albemarle ALB (ALB), SQM (SQM), Livent (LTHM), Piedmont Lithium (PLL), and Lithium Americas (LAC) are down between 7% and 14% with much of that drop coming in the past few trading days. Smaller lithium mining operations like LithiumBank Resources Corp. (LBNKF), and Century Lithium Corp. (CYDVF) fared much better, outperforming the more established larger companies.

Source: Koyfin

Did Traders Get this Wrong?

CATL seems to have aimed to maintain or grow its market share as a battery manufacturer. Any price war they may have started is likely to have a direct impact on competitors. Even car manufacturers that are involved in battery sales may shed some profitability, but is it necessarily a negative for companies involved in mining or refining?

CATL plans on pricing its batteries on a lithium-price-linked calculation. With this, 50% of each battery will benchmark to lithium carbonate, which would largely embed the price of lithium in its Li-ion product. The rest of the batteries will key off of the spot market for lithium carbonate.

Spot prices for lithium carbonate are up about ninefold over the past few years as the growth in EV demand and other battery-operated products has stressed the global lithium supply chain. So while CATL has decided to discount batteries, the production costs are unlikely to fall. The move may instead place greater demand on lithium carbonate. If production doesn’t keep up with, what should spark greater demand for Li-ion batteries, miners may benefit. If correct, this could suggest the declines in mining stock prices related to CATL’s new pricing policy, may be considered as an entry point for investors that had been looking for a price dip.

As for battery makers, this may have more permanently drained value. CATL is about 68% of the mainland Chinese EV battery manufacturing industry. Other battery producers may have to similarly adjust their pricing models to compete. This group includes Panasonic, LG Energy, Samsung, and SK Innovations that also tumbled this month.

Take Away

Mining analysts discuss supply and demand, or deficit and surplus, when adjusting forecasts. If demand grows as a result of the large battery manufacturer CATL discounting prices, and this discounting causes others to follow, the result could be a larger lithium deficit that could raise the price of the mineral per USD/metric-ton. Time will tell.

Paul Hoffman

Managing Editor, Channelchek

Sources

https://www.uptodate.com/contents/unipolar-depression-in-adults-treatment-with-lithium/print#:~:text=In%20addition%2C%20lithium%20is%20used,mid%2D1800s%20%5B2%5D.

https://www.barrons.com/articles/lithium-stocks-tesla-ev-battery-shares-40aa53d0?mod=hp_columnists

https://www.barrons.com/articles/tesla-stock-price-graphite-battery-magnis-bc0dad59?mod=hp_LATEST

Flight Plan to Net-Zero Sustainable Aviation Fuels

Image Credit: RaymondClarkeImages (Flickr)

The Future of Flight in a Net-Zero Carbon World: 9 Scenarios, Abundant Sustainable Biofuel

Several major airlines have pledged to reach net-zero carbon emissions by midcentury to fight climate change. It’s an ambitious goal that will require an enormous ramp-up in sustainable aviation fuels, but that alone won’t be enough, latest research shows.

The idea of jetliners running solely on fuel made from used cooking oil from restaurants or corn stalks might seem futuristic, but it’s not that far away.

Airlines are already experimenting with sustainable aviation fuels. These include biofuels made from agriculture residues, trees, corn and used cooking oil. Other fuels are synthetic, made by combining captured carbon from the air and green hydrogen, made with renewable energy. Often, they can go straight into existing aircraft fuel tanks that normally hold fossil jet fuel.

United Airlines, which has been using a blend of used oil or waste fat and fossil fuels on some flights from Los Angeles and Amsterdam, announced in February 2023 that it had formed a partnership with biofuel companies to power 50,000 flights a year between its Chicago and Denver hubs using ethanol-based sustainable aviation fuels by 2028.

This article was republished with permission from The Conversation, a news site dedicated to sharing ideas from academic experts. It represents the research-based findings and thoughts of, Candelaria Bergero, Ph.D. Student in Earth System Science, University of California, Irvine, Steve Davis Professor of Earth System Science, University of California, Irvine.

In a new study, we examined different options for aviation to reach net-zero emissions and assessed how air travel could continue without contributing to climate change.

The bottom line: Each pathway has important trade-offs and hurdles. Replacing fossil jet fuel with sustainable aviation fuels will be crucial, but the industry will still need to invest in direct-air carbon capture and storage to offset emissions that can’t be cut.

Scenarios for the Future

Before the pandemic, in 2019, aviation accounted for about 3.1% of total global CO₂ emissions from fossil fuel combustion, and the number of passenger miles traveled each year was rising. If aviation emissions were a country, that would make it the sixth-largest emitter, closely following Japan.

In addition to releasing carbon emissions, burning jet fuel produces soot and water vapor, known as contrails, that contribute to warming, and these are not avoided by switching to sustainable aviation fuels

Aviation is also one of the hardest-to-decarbonize sectors of the economy. Small electric and hydrogen-powered planes are being developed, but long-haul flights with lots of passengers are likely decades away.

We developed and analyzed nine scenarios spanning a range of projected passenger and freight demand, energy intensity and carbon intensity of aviation to explore how the industry might get to net-zero emissions by 2050.

Nine scenarios illustrate how much carbon offsets would be required to reach net-zero emissions, depending on choices made about demand and energy and carbon intensity. Each starts with 2021’s emissions (1.2 gigatons of carbon dioxide equivalent). With rising demand and no improvement in carbon intensity, a large amount of carbon capture will be necessary. Less fossil fuel use and slower demand growth reduce offset needs. Candelaria Bergero

We found that as much as 19.8 exajoules of sustainable aviation fuels could be needed for the entire sector to reach net-zero CO₂ emissions. With other efficiency improvements, that could be reduced to as little as 3 exajoules. To put that into context, 3 exajoules is almost equivalent to all biofuels produced in 2019 and far surpasses the 0.005 exajoules of bio-based jet fuel produced in 2019. An exajoule is a measure of energy.

Flying less and improving airplanes’ energy efficiency, such as using more efficient “glide” landings that allow airlines to approach the airport with engines at near idle, can help reduce the amount of fuel needed. But even in our rosiest scenarios – where demand grows at 1% per year, compared to the historical average of 4% per year, and energy efficiency improves by 4% per year rather than 1% – aviation would still need about 3 exajoules of sustainable aviation fuels.

Why Offsets are Still Necessary

A rapid expansion in biofuel sustainable aviation fuels is easier said than done. It could require as much as 1.2 million square miles (300 million hectares) of dedicated land to grow crops to turn into fuel – roughly 19% of global cropland today.

Another challenge is cost. The global average price of fossil jet fuel is about about US$3 per gallon ($0.80 per liter), while the cost to produce bio-based jet fuels is often twice as much. The cheapest, HEFA, which uses fats, oils and greases, ranges in cost from $2.95 to $8.67 per gallon ($0.78 to $2.29 per liter), but it depends on the availability of waste oil.

Fischer-Tropsch biofuels, produced by a chemical reaction that converts carbon monoxide and hydrogen into liquid hydrocarbons, range from $3.79 to $8.71 per gallon ($1 to $2.30 per liter). And synthetic fuels are from $4.92 to $17.79 per gallon ($1.30 to $4.70 per liter).

Realistically, reaching net-zero emissions will likely also rely on carbon dioxide removal.

In a future with similar airline use as today, as much as 3.4 gigatons of carbon dioxide would have to be captured from the air and locked away – pumped underground, for example – for aviation to reach net-zero. That could cost trillions of dollars.

For these offsets to be effective, the carbon removal would also have to follow a robust eligibility criteria and be effectively permanent. This is not happening today in airline offsetting programs, where airlines are mostly buying cheap, nonpermanent offsets, such as those involving forest conservation and management projects.

Some caveats apply to our findings, which could increase the need for offsets even more.

Our assessment assumes sustainable aviation fuels to be net-zero carbon emissions. However, the feedstocks for these fuels currently have life-cycle emissions, including from fertilizer, farming and transportation. The American Society for Testing Materials also currently has a maximum blend limit: up to 50% sustainable fuels can be blended into conventional jet fuel for aviation in the U.S., though airlines have been testing 100% blends in Europe.

How to Overcome the Final Hurdles

To meet the climate goals the world has set, emissions in all sectors must decrease – including aviation.

While reductions in demand would help reduce reliance on sustainable aviation fuels, it’s more likely that more and more people will fly in the future, as more people become wealthier. Efficiency improvements will help decrease the amount of energy needed to power aviation, but it won’t eliminate it.

Scaling up sustainable aviation fuel production could decrease its costs. Quotas, such as those introduced in the European Union’s “Fit for 55” plan, subsidies and tax credits, like those in the U.S. Inflation Reduction Act signed in 2022, and a carbon tax or other price on carbon, can all help achieve this.

Additionally, given the role that capturing carbon from the atmosphere will play in achieving net-zero emissions, a more robust accounting system is needed internationally to ensure that the offsets are compensating for aviation’s non-CO₂ impacts. If these hurdles are overcome, the aviation sector could achieve net-zero emissions by 2050.

The Bullish ESG Investment Fund Trend Reversed Recently

Image Credit: Marco Verch (Flickr)

Will ESG Investing be Able to Recycle Itself in 2023?

Investment trends run in cycles. As a new trend is recognized, it attracts new money, which drives up prices, until there isn’t as much additional money left to keep the trend going strong. At some point, investors may feel there is a more profitable use for their capital, and the old trend then falls out of favor. Over the decades, sustainable and social investing have had several up cycles, followed by a hiatus and then a new incarnation. Where is ESG investing in its cycle in 2023?

Background

Environmental, social, and governance (ESG) holds as an underlying promise that companies and those that invest in them can do well by doing good. Just a couple of years back, investors trillions of dollars into ESG strategies. This had the effect of causing many businesses to alter their business model in ways that would conform to an unofficial ESG designation(s).

Investment companies aimed to fill the demand by creating new ESG funds, at the same time the business of creating ESG profile rankings also grew. Professionally managed assets with ESG mandates surged to an astronomical $46 trillion globally in 2021. According to Deloitte’s Center for Financial Services, assets, ESG funds represented nearly 40% of all assets under management.

The first couple of years this decade were riddled with black swan events, investment assets swelled on many fronts. Investors in ESG have recently stepped back and moved the most money out of U.S. sustainable funds in more than five years (4Q). The fund industry experienced nearly $6.2 billion pulled from professionally managed funds catering to environmental, social, and governance strategies. As compared to the trillions in the funds, this is not overly significant. What is significant is the reversal of what had been a strong trend of inflows.

Sustainable funds overall netted more than $3 billion in positive flows for all of 2022 – traditional U.S. funds experienced more than $370 billion in withdrawals during the year. A lower percentage but still significant as it was the first calendar year of net outflows since Morningstar began tracking data in 1983.

According to a new report from Morningstar, flows of money into U.S. sustainable mutual funds and ETFs has declined since its record high in the first quarter of 2021. The withdrawal of money comes as many companies are improving their ESG scores. The decline in 4Q 2022 came as a myriad of factors soured investors on many market sectors.

Political Winds Changing

But stock market sentiment may only be part of the story. There are louder and louder voices that are questioning the purity of this newer incarnation of social investing. They ask if it provide for what is good and best overall? There is even some confusion by investors that remember the older versions of social and environmental investing that specifically excluded things like nuclear power. Today many ESG scores view carbonless nuclear generation as clean.

Where there is money, there is also politics. This is part of what originally helped the trend pick up steam. Now opposing political voices are causing some second looks at the overall benefits. The most recent examples include the person who moved the electric vehicle (EV) movement out so far into the spotlight that the car company he founded is the most valuable in the world (market cap). Elon Musk made one of his negative ESG comments as a tweet responding to self-described “Hero of the Environment” and author, Michael Shellenberger.

Image: Twitter (@elonmusk)

Less political, but perhaps more important, Federal Reserve Chair Jerome Powell made his official position clear during a conference titled Central Bank Independence and the Mandate—Evolving Views. Standing before an international audience in Stockholm, Sweden, Powell said, “we resist the temptation to broaden our scope to address other important social issues of the day. Taking on new goals, however worthy, without a clear statutory mandate would undermine the case for our independence.”

The New York Times ran the following headline:

Image: NYT Headline January 10, 2023

Performance

Sustainable funds lagged behind the broader market in performance. Remember, there was an increasing supply of names that were attaining ESG status. Also their lack of exposure to the top-performing oil and gas sector and its 66% gain during the year hurt performance.

The drag in the last quarter of 2022 was even more pronounced as it was the first period in more than three years that U.S. sustainable funds had a lower organic growth rate than the total U.S. fund market. During the fourth quarter, sustainable funds shrank by 2.2% compared with an 0.8% shrinkage in the overall U.S. landscape.

Morningstar’s sustainable fund universe encompasses mutual funds and ETFs “that, by prospectus or other regulatory filings, claim to focus on sustainability; impact; or environmental, social, and governance factors.”

Take Away

Last year while the overall markets were gloomier, ESG investors slowed and then reversed their piling into ESG funds. These funds had attracted 40% of fund assets, so it is no surprise they paused. However last quarter was the first decline since 1983. Part of the issue is the normal cyclicality of investment trends. Make no mistake; sustainable investing is not dying, but it suffers from a lack of clarity as to how companies are scored, and who is doing the scoring.

Investors that wish to keep the entire universe of opportunities open to their portfolios can still invest in stocks that suit their appetite for many factors, including environmental, social, or corporate governance. A little digging through analyst research reports ought to provide enough information to steer one clear of companies individuals would rather not be part of, and those they feel especially good about owning.

Paul Hoffman

Managing Editor, Channelchek

Sources

https://www.morningstar.com/products/esg-investing

https://www.yahoo.com/now/musk-rips-satanic-esg-world-233742968.html

https://www.barrons.com/articles/esg-investing-big-test-reckoning-51650041442

https://www.barrons.com/articles/us-esg-sustainable-funds-outflows-51674767507?mod=hp_LEAD_5

https://www2.deloitte.com/us/en/insights/environmental-social-governance.html?icid=top_environmental-social-governance

Who Gets to Decide the Future of Seafloor Mining?

Deep sea sponges and other creatures live on and among valuable manganese nodules like this one that could be mined from the seafloor. (GEOMAR)

Deep Seabed Mining Plans Pit Renewable Energy Demand Against Ocean Life in a Largely Unexplored Frontier

As companies race to expand renewable energy and the batteries to store it, finding sufficient amounts of rare earth metals to build the technology is no easy feat. That’s leading mining companies to take a closer look at a largely unexplored frontier – the deep ocean seabed.

A wealth of these metals can be found in manganese nodules that look like cobblestones scattered across wide areas of deep ocean seabed. But the fragile ecosystems deep in the oceans are little understood, and the mining codes to sustainably mine these areas are in their infancy.

A fierce debate is now playing out as a Canadian company makes plans to launch the first commercial deep sea mining operation in the Pacific Ocean.

The Metals Company completed an exploratory project in the Pacific Ocean in fall 2022. Under a treaty governing the deep sea floor, the international agency overseeing these areas could be forced to approve provisional mining there as soon as spring 2023, but several countries and companies are urging a delay until more research can be done. France and New Zealand have called for a ban on deep sea mining.

As scholars who have long focused on the economic, political and legal challenges posed by deep seabed mining, we have each studied and written on this economic frontier with concern for the regulatory and ecological challenges it poses.

Manganese nodules on the seafloor in the Clarion-Clipperton Zone, between Hawaii and Mexico, . (GEOMAR)

What’s Down There, and Why Should We Care?

A curious journey began in the summer of 1974. Sailing from Long Beach, California, a revolutionary ship funded by eccentric billionaire Howard Hughes set course for the Pacific to open a new frontier — deep seabed mining.

Widespread media coverage of the expedition helped to focus the attention of businesses and policymakers on the promise of deep seabed mining, which is notable given that the expedition was actually an elaborate cover for a CIA operation.

The real target was a Soviet ballistic missile submarine that had sunk in 1968 with all hands and what was believed to be a treasure trove of Soviet state secrets and tech onboard.

The expedition, called Project Azorian by the CIA, recovered at least part of the submarine – and it also brought up several manganese nodules from the seafloor.

Manganese nodules are roughly the size of potatoes and can be found across vast areas of seafloor in parts of the Pacific and Indian oceans and deep abyssal plains in the Atlantic. They are valuable because they are exceptionally rich in 37 metals, including nickel, cobalt and copper, which are essential for most large batteries and several renewable energy technologies.

Manganese nodules form as metals accumulate around a shell or part of another nodule. (GEOMAR)

These nodules form over millennia as metals nucleate around shells or broken nodules. The Clarion-Clipperton Zone, between Mexico and Hawaii in the Pacific Ocean, where the mining test took place, has been estimated to have over 21 billion metric tons of nodules that could provide twice as much nickel and three times more cobalt than all the reserves on land.

Mining in the Clarion-Clipperton Zone could be some 10 times richer than comparable mineral deposits on land. All told, estimates place the value of this new industry at some US$30 billion annually by 2030. It could be instrumental in feeding the surging global demand for cobalt that lies at the heart of lithium-ion batteries.

Yet, as several scientists have noted, we still know more about the surface of the moon than what lies at the bottom of the deep seabed.

Deep Seabed Ecology

Less than 10% of the deep seabed has been mapped thoroughly enough to understand even the basic features of the structure and contents of the ocean floor, let alone the life and ecosystems therein.

Even the most thoroughly studied region, the Clarion-Clipperton Zone, is still best characterized by the persistent novelty of what is found there.

Brightly colored sea cucumbers and many other unusual deep sea creatures live among the nodules in the Clarion-Clipperton Zone (GEOMAR)

Brightly colored sea cucumbers and many other unusual deep sea creatures live among the nodules in the Clarion-Clipperton Zone. (GEOMAR)

Between 70% and 90% of living things collected in the Clarion-Clipperton Zone have never been seen before, leaving scientists to speculate about what percentage of all living species in the region has never been seen or collected. Exploratory expeditions regularly return with images or samples of creatures that would richly animate science fiction stories, like a 6-foot-long bioluminescent shark.

Also unknown is the impact that deep sea mining would have on these creatures.

An experiment in 2021 in water about 3 miles (5 kilometers) deep off Mexico found that seabed mining equipment created sediment plumes of up to about 6.5 feet (2 meters) high. But the project authors stressed that they didn’t study the ecological impact. A similar earlier experiment was conducted off Peru in 1989. When scientists returned to that site in 2015, they found some species still hadn’t fully recovered.

Environmentalists have questioned whether seafloor creatures could be smothered by sediment plumes and whether the sediment in the water column could effect island communities that rely on healthy oceanic ecosystems. The Metals Company has argued that its impact is less than terrestrial mining.

Given humanity’s lack of knowledge of the ocean, it is not currently possible to set environmental baselines for oceanic health that could be used to weigh the economic benefits against the environmental harms of seabed mining.

Scarcity and the Economic Case for Mining

The economic case for deep seabed mining reflects both possibility and uncertainty.

On the positive side, it could displace some highly destructive terrestrial mining and augment the global supply of minerals used in clean energy sources such as wind turbines, photovoltaic cells and electric vehicles.

Terrestrial mining imposes significant environmental damage and costs to human health of both the miners themselves and the surrounding communities. Additionally, mines are sometimes located in politically unstable regions. The Democratic Republic of Congo produces 60% of the global supply of cobalt, for example, and China owns or finances 80% of industrial mines in that country. China also accounts for 60% of the global supply of rare earth element production and much of its processing. Having one nation able to exert such control over a critical resource has raised concerns.

Deep seabed mining comes with significant uncertainties, however, particularly given the technology’s relatively early state.

First are the risks associated with commercializing a new technology. Until deep sea mining technology is demonstrated, discoveries cannot be listed as “reserves” in firms’ asset valuations. Without that value defined, it can be difficult to line up the significant financing needed to build mining infrastructure, which lessens the first-mover advantage and incentivizes firms to wait for someone else to take the lead.

Commodity prices are also difficult to predict. Technology innovation can reduce or even eliminate the projected demand for a mineral. New mineral deposits on land can also boost supply: Sweden announced in January 2023 that it had just discovered the largest deposit of rare earth oxides in Europe.

In all, embarking on deep seabed mining involves sinking significant costs into new technology for uncertain returns, while posing risks to a natural environment that is likely to rise in value.

Who Gets to Decide the Future of Seafloor Mining?

The United Nations Convention on the Law of the Sea, which came into force in the early 1990s, provides the basic rules for ocean resources.

It allows countries to control economic activities, including any mining, within 200 miles of their coastlines, accounting for approximately 35% of the ocean. Beyond national waters, countries around the world established the International Seabed Authority, or ISA, based in Jamaica, to regulate deep seabed mining.

Critically, the ISA framework calls for some of the profits derived from commercial mining to be shared with the international community. In this way, even countries that did not have the resources to mine the deep seabed could share in its benefits. This part of the ISA’s mandate was controversial, and it was one reason that the United States did not join the Convention on the Law of the Sea.

Where large numbers of manganese nodules are found. The areas with the greatest concentrations are circled. (GEOMAR)

Where large numbers of manganese nodules are found. The areas with the greatest concentrations are circled. (GEOMAR)

With little public attention, the ISA worked slowly for several decades to develop regulations for exploration of undersea minerals, and those rules still aren’t completed. More than a dozen companies and countries have received exploration contracts, including The Metals Company’s work under the sponsorship of the island nation of Nauru.

ISA’s work has started to draw criticism as companies have sought to initiate commercial mining. A recent New York Times investigation of internal ISA documents suggested the agency’s leadership has downplayed environmental concerns and shared confidential information with some of the companies that would be involved in seabed mining. The ISA hasn’t finalized environmental rules for mining.

Much of the coverage of deep seabed mining has been framed to highlight the climate benefits. But this overlooks the dangers this activity could pose for the Earth’s largest pristine ecology – the deep sea. We believe it would be wise to better understand this existing, fragile ecosystem better before rushing to mine it.

A Dirty Challenge for Autonomous Vehicle Designers

Image Credit: Christine Daniloff (MIT)

Computers that Power Self-Driving Cars Could be a Huge Driver of Global Carbon Emissions

Adam Zewe | MIT News Office

In the future, the energy needed to run the powerful computers on board a global fleet of autonomous vehicles could generate as many greenhouse gas emissions as all the data centers in the world today.

That is one key finding of a new study from MIT researchers that explored the potential energy consumption and related carbon emissions if autonomous vehicles are widely adopted.

The data centers that house the physical computing infrastructure used for running applications are widely known for their large carbon footprint: They currently account for about 0.3 percent of global greenhouse gas emissions, or about as much carbon as the country of Argentina produces annually, according to the International Energy Agency. Realizing that less attention has been paid to the potential footprint of autonomous vehicles, MIT researchers built a statistical model to study the problem. They determined that 1 billion autonomous vehicles, each driving for one hour per day with a computer consuming 840 watts, would consume enough energy to generate about the same amount of emissions as data centers currently do.

The researchers also found that in over 90 percent of modeled scenarios, to keep autonomous vehicle emissions from zooming past current data center emissions, each vehicle must use less than 1.2 kilowatts of power for computing, which would require more efficient hardware. In one scenario — where 95 percent of the global fleet of vehicles is autonomous in 2050, computational workloads double every three years, and the world continues to decarbonize at the current rate — they found that hardware efficiency would need to double faster than every 1.1 years to keep emissions under those levels.

“If we just keep the business-as-usual trends in decarbonization and the current rate of hardware efficiency improvements, it doesn’t seem like it is going to be enough to constrain the emissions from computing onboard autonomous vehicles. This has the potential to become an enormous problem. But if we get ahead of it, we could design more efficient autonomous vehicles that have a smaller carbon footprint from the start,” says first author Soumya Sudhakar, a graduate student in aeronautics and astronautics.

Sudhakar wrote the paper with her co-advisors Vivienne Sze, associate professor in the Department of Electrical Engineering and Computer Science (EECS) and a member of the Research Laboratory of Electronics (RLE); and Sertac Karaman, associate professor of aeronautics and astronautics and director of the Laboratory for Information and Decision Systems (LIDS). The research appears today in the January-February issue of IEEE Micro.

Modeling Emissions

The researchers built a framework to explore the operational emissions from computers on board a global fleet of electric vehicles that are fully autonomous, meaning they don’t require a backup human driver.

The model is a function of the number of vehicles in the global fleet, the power of each computer on each vehicle, the hours driven by each vehicle, and the carbon intensity of the electricity powering each computer.

“On its own, that looks like a deceptively simple equation. But each of those variables contains a lot of uncertainty because we are considering an emerging application that is not here yet,” Sudhakar says.

For instance, some research suggests that the amount of time driven in autonomous vehicles might increase because people can multitask while driving, and the young and the elderly could drive more. But other research suggests that time spent driving might decrease because algorithms could find optimal routes that get people to their destinations faster.

In addition to considering these uncertainties, the researchers also needed to model advanced computing hardware and software that didn’t exist yet.

To accomplish that, they modeled the workload of a popular algorithm for autonomous vehicles, known as a multitask deep neural network, because it can perform many tasks at once. They explored how much energy this deep neural network would consume if it were processing many high-resolution inputs from many cameras with high frame rates simultaneously.

When they used the probabilistic model to explore different scenarios, Sudhakar was surprised by how quickly the algorithms’ workload added up.

For example, if an autonomous vehicle has 10 deep neural networks processing images from 10 cameras, and that vehicle drives for one hour a day, it will make 21.6 million inferences each day. One billion vehicles would make 21.6 quadrillion inferences. To put that into perspective, all of Facebook’s data centers worldwide make a few trillion inferences each day (1 quadrillion is 1,000 trillion).

“After seeing the results, this makes a lot of sense, but it is not something that is on a lot of people’s radar. These vehicles could actually be using a ton of computer power. They have a 360-degree view of the world, so while we have two eyes, they may have 20 eyes, looking all over the place and trying to understand all the things that are happening at the same time,” Karaman says.

Autonomous vehicles would be used for moving goods, as well as people, so there could be a massive amount of computing power distributed along global supply chains, he says. And their model only considers computing — it doesn’t take into account the energy consumed by vehicle sensors or the emissions generated during manufacturing.

Keeping Emissions in Check

To keep emissions from spiraling out of control, the researchers found that each autonomous vehicle needs to consume less than 1.2 kilowatts of energy for computing. For that to be possible, computing hardware must become more efficient at a significantly faster pace, doubling in efficiency about every 1.1 years.

One way to boost that efficiency could be to use more specialized hardware, which is designed to run specific driving algorithms. Because researchers know the navigation and perception tasks required for autonomous driving, it could be easier to design specialized hardware for those tasks, Sudhakar says. But vehicles tend to have 10- or 20-year lifespans, so one challenge in developing specialized hardware would be to “future-proof” it so it can run new algorithms.

In the future, researchers could also make the algorithms more efficient, so they would need less computing power. However, this is also challenging because trading off some accuracy for more efficiency could hamper vehicle safety.

Now that they have demonstrated this framework, the researchers want to continue exploring hardware efficiency and algorithm improvements. In addition, they say their model can be enhanced by characterizing embodied carbon from autonomous vehicles — the carbon emissions generated when a car is manufactured — and emissions from a vehicle’s sensors.

While there are still many scenarios to explore, the researchers hope that this work sheds light on a potential problem people may not have considered.

“We are hoping that people will think of emissions and carbon efficiency as important metrics to consider in their designs. The energy consumption of an autonomous vehicle is really critical, not just for extending the battery life, but also for sustainability,” says Sze.

Reprinted with permission of MIT News” (http://news.mit.edu/)

Powell Just Insisted, “We are not, and will not be, a climate policymaker”

Source: Riksbank Sweden (Bloomberg)

Fed Chair Jerome Powell made three strong points during the panel on “Central Bank Independence and the Mandate—Evolving Views,” which just took place in Stockholm. These points include the role of elected representatives and unelected agency officials, the transparency of a central bank’s intents and actions while remaining independent of political agendas, and not becoming sidetracked from the established mandates.

Continued Independence and Transparency

Powell reminded the international audience, which included central bankers, that the purpose of monetary policy independence is the benefits allowed the policymakers. This independence can insulate policy decisions from short-term political considerations. “Price stability is the bedrock of a healthy economy and provides the public with immeasurable benefits over time. But restoring price stability when inflation is high can require measures that are not popular in the short term as we raise interest rates to slow the economy,” said Powell. The head of the US central bank then explained the absence of politics over central bank decisions provides for less conflicted decision-making in light of short-lived political considerations.

While speaking from a US point of view, Powell said that in a “well-functioning democracy, important public policy decisions should be made, in almost all cases, by the elected branches of government.”  He explained that agencies trusted to act independently, such as the Federal Reserve, should have a narrow and explicitly defined mission that protects the agency from fleeting political considerations.

Within this kind of independence in a representative democracy, including transparency that allows for oversight, the Fed and other agencies find legitimacy. Powell said about of the current makeup of the Fed, “We are tightly focused on achieving our statutory mandate and on providing useful and appropriate transparency.”

Focus on Mandates

Climate change is not part of the US central bank’s statutory goals and authority. On the subject of climate, Powell added, “we resist the temptation to broaden our scope to address other important social issues of the day. Taking on new goals, however worthy, without a clear statutory mandate would undermine the case for our independence.”

In the area of bank regulation, Powell told the audience that independence helps ensure that the public can be confident that the overseer’s supervisory decisions are not influenced by political considerations. In response to his own hypothetical question about whether it is wise to incorporate into bank supervision the perceived risks associated with climate change, consistent with existing mandates, Powell sounded strongly opposed. “Addressing climate change seems likely to require policies that would have significant distributional and other effects on companies, industries, regions, and nations. Decisions about policies to directly address climate change should be made by the elected branches of government and thus reflect the public’s will as expressed through elections.”

He did, however, share his view that any climate-related financial risks that pose material risks to the banking system are the Fed’s responsibility and under their supervision. “But without explicit congressional legislation, it would be inappropriate for us to use our monetary policy or supervisory tools to promote a greener economy or to achieve other climate-based goals. We are not, and will not be, a “climate policymaker.”

Take Away

On January 10th, the head of the US central bank participated in an international symposium to mark the end of Stefan Ingves’ time as governor of Sweden’s central bank. Senior central bank officials and prominent academics participate in four panels that address central bank independence from various angles – climate, payments, mandates, and global policy coordination. Fed Chair Powell stood determined and resolute that the Fed’s mandate is narrow, well-defined, and should not be clouded with short-term political goals.

There has been pressure on the Fed to adopt additional mandates that include social reforms and climate concerns. His talk before a world audience may be the first time Jerome Powell has publicly addressed this pressure. The US House of Representatives has just shifted its balance to a more conservative power base; this may have had an empowering impact on Powell’s open remarks.

Paul Hoffman

Managing Editor, Channelchek

Sources

https://www.federalreserve.gov/newsevents/speech/powell20230110a.htm

https://www.riksbank.se/globalassets/media/konferenser/2022/riksbank-organises-international-symposium-on-central-bank-independence.pdf

https://www.reuters.com/markets/us/powell-fed-needs-independence-fight-inflation-should-avoid-climate-policy-2023-01-10/

The Pros, Cons, and Many Definitions of ‘Gig’ Work

Image Credit: Stock Catalog

What’s a ‘Gig’ Job? How it’s Legally Defined Affects Workers’ Rights and Protections

The “gig” economy has captured the attention of technology futurists, journalists, academics and policymakers.

“Future of work” discussions tend toward two extremes: breathless excitement at the brave new world that provides greater flexibility, mobility and entrepreneurial energy, or dire accounts of its immiserating impacts on the workers who labor beneath the gig economy’s yoke.

This article was republished with permission from The Conversation, a news site dedicated to sharing ideas from academic experts. It represents the research-based findings and thoughts of David Weil, Visiting Senior Faculty Fellow, Ash Center for Democracy Harvard Kennedy School / Professor, Heller School for Social Policy and Management, Brandeis University.

These widely diverging views may be partly due to the many definitions of what constitutes “gig work” and the resulting difficulties in measuring its prevalence. As an academic who has studied workplace laws for decades and ran the federal agency that enforces workplace protections during the Obama administration, I know the way we define, measure and treat gig workers under the law has significant consequences for workers. That’s particularly true for those lacking leverage in the labor market.

While there are benefits for workers for this emerging model of employment, there are pitfalls as well. Confusion over the meaning and size of the gig workforce – at times the intentional work of companies with a vested economic interest – can obscure the problems gig status can have on workers’ earnings, workplace conditions and opportunities.

Defining Gig Work

Many trace the phrase “gig economy” to a 2009 essay in which editor and author Tina Brown proclaimed: “No one I know has a job anymore. They’ve got Gigs.”

Although Brown focused on professional and semiprofessional workers chasing short-term work, the term soon applied to a variety of jobs in low-paid occupations and industries. Several years later, the rapid ascent of Uber, Lyft and DoorDash led the term gig to be associated with platform and digital business models. More recently, the pandemic linked gig work to a broader set of jobs associated with high turnover, limited career prospects, volatile wages and exposure to COVID-19 uncertainties.

The imprecision of gig, therefore, connotes different things: Some uses focus on the temporary or “contingent” nature of the work, such as jobs that may be terminated at any time, usually at the discretion of the employer. Other definitions focus on the unpredictability of work in terms of earnings, scheduling, hours provided in a workweek or location. Still other depictions focus on the business structure through which work is engaged – a staffing agency, digital platform, contractor or other intermediary. Further complicating the definition of gig is whether the focus is on a worker’s primary source of income or on side work meant to supplement income.

Measuring Gig Work

These differing definitions of gig work have led to widely varying estimates of its prevalence.

A conservative estimate from the Bureau of Labor Statistics household-based survey of “alternative work arrangements” suggests that gig workers “in non-standard categories” account for about 10% of employment. Alternatively, other researchers estimate the prevalence as three times as common, or 32.5%, using a Federal Reserve survey that broadly defines gig work to include any work that is temporary and variable in nature as either a primary or secondary source of earnings. And when freelancing platform Upworks and consulting firm McKinsey & Co. use a broader concept of “independent work,” they report rates as high as 36% of employed respondents.

No consensus definition or measurement approach has emerged, despite many attempts, including a 2020 panel report by the National Academies of Sciences, Engineering, and Medicine. Various estimates do suggest several common themes, however: Gig work is sizable, present in both traditional and digital workplaces, and draws upon workers across the age, education, demographic and skill spectrum.

Why it Matters

As the above indicates, gig workers can range from high-paid professionals working on a project-to-project basis to low-wage workers whose earnings are highly variable, who work in nonprofessional or semiprofessional occupations and who accept – by choice or necessity – volatile hours and a short-term time commitment from the organization paying for that work.

Regardless of their professional status, many workers operating in gig arrangements are classified as independent contractors rather than employees. As independent contractors, workers lose rights to a minimum wage, overtime and a safe and healthy work environment as well as protections against discrimination and harassment. Independent contractors also lose access to unemployment insurance, workers’ compensation and paid sick leave now required in many states.

Federal and state laws differ in the factors they draw on to make that call. A key concept underlying that determination is how “economically dependent” the worker is on the employer or contracting party. Greater economic independence – for example, the ability to determine price of service, how and where tasks are done and opportunities for expanding or contracting that work based on the individual’s own skills, abilities and enterprise – suggest a role as an independent contractor.

In contrast, if the hiring party basically calls the shots – for example, controlling what the individual does, how they do their work and when they do it, what they are permitted to do and not do, and what performance is deemed acceptable – this suggests employee status. That’s because workplace laws are generally geared toward employees and seek to protect workers who have unequal bargaining leverage in the labor market, a concept based on long-standing Supreme Court precedent.

Making Work More Precarious

Over the past few decades, a growing number of low-wage workers find themselves in gig work situations – everything from platform drivers and delivery personnel to construction laborers, distribution workers, short-haul truck drivers and home health aides. Taken together, the grouping could easily exceed 20 million workers.

Many companies have incentives to classify these workers as independent contractors in order to reduce costs and risks, not because of a truly transformed nature of work where those so classified are real entrepreneurs or self-standing businesses.

Since gig work tends to be volatile and contingent, losing employment protections amplifies the precariousness of work. A business using misclassified workers can gain cost advantages over competitors who treat their workers as employees as required by the law. This competitive dynamic can spread misclassification to new companies, industries and occupations – a problem we addressed directly, for example, in construction cases when I led the Wage and Hour Division and more recently in several health care cases.

The future of work is not governed by immutable technological forces but involves volitional private and public choices. Navigating to that future requires weighing the benefits gig work can provide some workers with greater economic independence against the continuing need to protect and bestow rights for the many workers who will continue to play on a very uneven playing field in the labor market.

Battery Power From EV to the Grid Could Open a Fast Lane to a Net-Zero Future.

Source: MIT News

Reversing the Charge – Energy Storage on Wheels

Leda Zimmerman | MIT Energy Initiative

Owners of electric vehicles (EVs) are accustomed to plugging into charging stations at home and at work and filling up their batteries with electricity from the power grid. But someday soon, when these drivers plug in, their cars will also have the capacity to reverse the flow and send electrons back to the grid. As the number of EVs climbs, the fleet’s batteries could serve as a cost-effective, large-scale energy source, with potentially dramatic impacts on the energy transition, according to a new paper published by an MIT team in the journal Energy Advances.

“At scale, vehicle-to-grid (V2G) can boost renewable energy growth, displacing the need for stationary energy storage and decreasing reliance on firm [always-on] generators, such as natural gas, that are traditionally used to balance wind and solar intermittency,” says Jim Owens, lead author and a doctoral student in the MIT Department of Chemical Engineering. Additional authors include Emre Gençer, a principal research scientist at the MIT Energy Initiative (MITEI), and Ian Miller, a research specialist for MITEI at the time of the study.

The group’s work is the first comprehensive, systems-based analysis of future power systems, drawing on a novel mix of computational models integrating such factors as carbon emission goals, variable renewable energy (VRE) generation, and costs of building energy storage, production, and transmission infrastructure.

“We explored not just how EVs could provide service back to the grid — thinking of these vehicles almost like energy storage on wheels — but also the value of V2G applications to the entire energy system and if EVs could reduce the cost of decarbonizing the power system,” says Gençer. “The results were surprising; I personally didn’t believe we’d have so much potential here.”

Displacing New Infrastructure

As the United States and other nations pursue stringent goals to limit carbon emissions, electrification of transportation has taken off, with the rate of EV adoption rapidly accelerating. (Some projections show EVs supplanting internal combustion vehicles over the next 30 years.) With the rise of emission-free driving, though, there will be increased demand for energy. “The challenge is ensuring both that there’s enough electricity to charge the vehicles and that this electricity is coming from renewable sources,” says Gençer.

But solar and wind energy is intermittent. Without adequate backup for these sources, such as stationary energy storage facilities using lithium-ion batteries, for instance, or large-scale, natural gas- or hydrogen-fueled power plants, achieving clean energy goals will prove elusive. More vexing, costs for building the necessary new energy infrastructure runs to the hundreds of billions.

This is precisely where V2G can play a critical, and welcome, role, the researchers reported. In their case study of a theoretical New England power system meeting strict carbon constraints, for instance, the team found that participation from just 13.9 percent of the region’s 8 million light-duty (passenger) EVs displaced 14.7 gigawatts of stationary energy storage. This added up to $700 million in savings — the anticipated costs of building new storage capacity.

Their paper also described the role EV batteries could play at times of peak demand, such as hot summer days. “V2G technology has the ability to inject electricity back into the system to cover these episodes, so we don’t need to install or invest in additional natural gas turbines,” says Owens. “The way that EVs and V2G can influence the future of our power systems is one of the most exciting and novel aspects of our study.”

Modeling Power

To investigate the impacts of V2G on their hypothetical New England power system, the researchers integrated their EV travel and V2G service models with two of MITEI’s existing modeling tools: the Sustainable Energy System Analysis Modeling Environment (SESAME) to project vehicle fleet and electricity demand growth, and GenX, which models the investment and operation costs of electricity generation, storage, and transmission systems. They incorporated such inputs as different EV participation rates, costs of generation for conventional and renewable power suppliers, charging infrastructure upgrades, travel demand for vehicles, changes in electricity demand, and EV battery costs.

Their analysis found benefits from V2G applications in power systems (in terms of displacing energy storage and firm generation) at all levels of carbon emission restrictions, including one with no emissions caps at all. However, their models suggest that V2G delivers the greatest value to the power system when carbon constraints are most aggressive — at 10 grams of carbon dioxide per kilowatt hour load. Total system savings from V2G ranged from $183 million to $1,326 million, reflecting EV participation rates between 5 percent and 80 percent.

“Our study has begun to uncover the inherent value V2G has for a future power system, demonstrating that there is a lot of money we can save that would otherwise be spent on storage and firm generation,” says Owens.

Harnessing V2G

For scientists seeking ways to decarbonize the economy, the vision of millions of EVs parked in garages or in office spaces and plugged into the grid for 90 percent of their operating lives proves an irresistible provocation. “There is all this storage sitting right there, a huge available capacity that will only grow, and it is wasted unless we take full advantage of it,” says Gençer.

This is not a distant prospect. Startup companies are currently testing software that would allow two-way communication between EVs and grid operators or other entities. With the right algorithms, EVs would charge from and dispatch energy to the grid according to profiles tailored to each car owner’s needs, never depleting the battery and endangering a commute.

“We don’t assume all vehicles will be available to send energy back to the grid at the same time, at 6 p.m. for instance, when most commuters return home in the early evening,” says Gençer. He believes that the vastly varied schedules of EV drivers will make enough battery power available to cover spikes in electricity use over an average 24-hour period. And there are other potential sources of battery power down the road, such as electric school buses that are employed only for short stints during the day and then sit idle.

The MIT team acknowledges the challenges of V2G consumer buy-in. While EV owners relish a clean, green drive, they may not be as enthusiastic handing over access to their car’s battery to a utility or an aggregator working with power system operators. Policies and incentives would help.

“Since you’re providing a service to the grid, much as solar panel users do, you could be paid for your participation, and paid at a premium when electricity prices are very high,” says Gençer.

“People may not be willing to participate ’round the clock, but if we have blackout scenarios like in Texas last year, or hot-day congestion on transmission lines, maybe we can turn on these vehicles for 24 to 48 hours, sending energy back to the system,” adds Owens. “If there’s a power outage and people wave a bunch of money at you, you might be willing to talk.”

“Basically, I think this comes back to all of us being in this together, right?” says Gençer. “As you contribute to society by giving this service to the grid, you will get the full benefit of reducing system costs, and also help to decarbonize the system faster and to a greater extent.”

Actionable Insights

Owens, who is building his dissertation on V2G research, is now investigating the potential impact of heavy-duty electric vehicles in decarbonizing the power system. “The last-mile delivery trucks of companies like Amazon and FedEx are likely to be the earliest adopters of EVs,” Owen says. “They are appealing because they have regularly scheduled routes during the day and go back to the depot at night, which makes them very useful for providing electricity and balancing services in the power system.”

Owens is committed to “providing insights that are actionable by system planners, operators, and to a certain extent, investors,” he says. His work might come into play in determining what kind of charging infrastructure should be built, and where.

“Our analysis is really timely because the EV market has not yet been developed,” says Gençer. “This means we can share our insights with vehicle manufacturers and system operators — potentially influencing them to invest in V2G technologies, avoiding the costs of building utility-scale storage, and enabling the transition to a cleaner future. It’s a huge win, within our grasp.”

The research for this study was funded by MITEI’s Future Energy Systems Center.

Reprinted with permission of MIT News” (http://news.mit.edu/)

Russia-Related Supply Issues Delay Gates/Buffett Nuclear Plant

Image: Rendering of Natrium Reactor (TerraPower)

Nuclear Power Plant Start Will be Delayed as Reliable US Fuel Production Needs to Improve

The energy and fuel shortages stemming from the Russia/Ukraine war extend beyond oil and gas. A sharp impact is also being felt in the nuclear energy world as uranium is less available for new and existing plants. In the US, TerraPower’s natrium reactor completion date is now estimated at least two years beyond the original plan. This is because of problems securing the proper fuel. TerraPower is a start-up co-founded by Bill Gates with support from Warren Buffett to revolutionize nuclear reactor design and methods. The natrium reactor being built as a test of the technology is being built in  Kemmerer, Wyoming, which is considered a coal town. The original completion date was 2028.

 What is Now Expected

The company expects the natrium demonstration reactor operation to be delayed by at least two years because there will not be sufficient commercial capacity to produce high-assay low-enriched uranium fuel to test come the original 2028 in-service date.

TerraPower’s CEO and President Chris Levesque said Russia’s invasion of Ukraine earlier this year caused “the only commercial source of HALEU fuel” to no longer be a viable part of the supply chain. The company is now working with the US Department of Energy (DOE), Congress, and project stakeholders to explore potential alternative sources. Levesque said, “while we are working now with Congress to urge the inclusion of $2.1 billion to support HALEU in the end-of-year government funding package, it has become clear that domestic and allied HALEU manufacturing options will not reach commercial capacity in time to meet the proposed 2028 in-service date for the Natrium demonstration plant.”

The company has not provided a new schedule but expects to in 2023, when there may be more clarity of what will be available and when. “But given the lack of fuel availability now and that there has been no construction started on new fuel enrichment facilities, TerraPower is anticipating a minimum of a two-year delay to being able to bring the Natrium reactor into operation,” Levesque warned.

About the Plant and its Fuel

Kemmerer in Wyoming was selected in 2021 as the preferred site for the Natrium demonstration project, featuring a 345 MWe sodium-cooled fast reactor with a molten salt-based energy storage system. TerraPower remains fully committed to the project and is “moving full steam ahead” on the construction of the plant, licensing applications and engineering and design work, Levesque added. Work scheduled to begin in Spring 2023 on the large sodium facility will continue as planned, and TerraPower expects “minimal disruption” to the current projected start-of-construction date.

HALEU fuel is enriched to between 5% and 20% uranium-235, and is the fuel type which will fuel most of the next-generation reactor designs. The DOE has projected a national need for more than 40 tonnes of HALEU before the end of the decade to support the current administration’s goal of 100% clean electricity by 2035.

Funding the Construction

Gates helped found TerraPower in 2006 and has been the company’s chairman. TerraPower’s goal is to provide more affordable, secure, and environmentally friendly nuclear energy globally. The plant is expected to cost $4 billion. To date, $1.6 billion has been appropriated by Congress, and private funding of $830 has been raised by TerraPower.

Wyoming US Senator John Barrasso responded to the announcement saying the US  ” must reestablish itself as the global leader in nuclear energy. Instead of relying on our adversaries like Russia for uranium, the United States must produce its own supply of advanced nuclear fuel.” He said he has sent a letter to Energy and Natural Resources Chairman Joe Manchin requesting an oversight hearing early next year to ensure that DOE is “working aggressively” to make HALEU available for the USA’s first advanced reactors. He also said he has written to Secretary of Energy Jennifer Granholm today “blasting DOE for not moving fast enough to ensure a domestic supply of HALEU”.

Take Away

The Natrium project by Bill Gate’s company, with support from US tax dollars and Warren Buffett, is being constructed as a test. One thing the test bore out is that securing a reliable fuel supply needs a good deal more work.

Natrium plants are smaller and use current technology. These plants are expected to be built faster and cheaper than a traditional large-scale nuclear power plant. When first announced last year, Gates and Buffett said that once successfully demonstrated, the plant could be quickly expanded or replicated elsewhere.

Paul Hoffman

Managing Editor, Channelchek

Sources

https://natriumpower.com/

https://www.world-nuclear-news.org/Articles/HALEU-fuel-availability-delays-Natrium-reactor-pro

https://www.cnbc.com/2021/11/17/bill-gates-terrapower-builds-its-first-nuclear-reactor-in-a-coal-town.html

Has Trading in Carbon Credits Been Profitable in 2022?

Image Credit: IPCC (Flickr)

Carbon Credit Market Performance, the Other, Other Market

Has trading in carbon credits increased?

Carbon credits, also known as carbon offsets, are permits developed in 1997 by the United Nations’ Intergovernmental Panel on Climate Change (IPCC). They allow the owner to emit a certain amount of carbon dioxide or other greenhouse gases. One credit permits the emission of one ton of carbon dioxide or the equivalent in other greenhouse gases. They exist to create a monetary incentive for companies to reduce their carbon emissions. Those that cannot easily reduce emissions can still operate, however, at a higher financial cost.

As the carbon credit market matured another year, transactions for carbon credits are averaging at the same pace as 2021. But higher prices have been received on projects that are seen as more effective in reducing greenhouse-gas emissions. Some say this is a sign that the market has become more accepted and is functioning with increased comfort and understanding.

Transaction and Price Data

Nearly 172 million credits were purchased and retired by final buyers through Dec. 9th. Exchange-traded volumes were steady at 108 million credits through November, near the same level of 112 million during the same period last year, according to data from Xpansiv, an exchange for carbon offsets.

The price for credits rose to $7.50 during 2022, up from $6.10 last year. However, they are off their highs of the year. This is the result of carbon-credit prices having fallen in sympathy with other markets after traders sold credits in March as rising inflation and energy prices squeezed corporate profits.

The market was valued at $2 billion in 2021, substantially up from about $520 million in 2020. Each credit is equivalent to a ton of carbon dioxide prevented from being released into the atmosphere. Credits can change hands several times before being retired, which means they are removed from circulation and counted against companies’ emissions.

Carbon Neutrality Standards

There was some criticism hurting the market based on the knowledge that the transfer of credits doesn’t reduce carbon emissions because the projects they fund are not effective. This is because it was found that some buyers of the credits could then claim to be carbon neutral despite emitting large amounts of greenhouse gases. While this is how the transfer of carbon credits is intended to prevent excessive greenhouse gases, the understanding still does not sit well with some.

Concerns about standards continue to cloud the unregulated market. This has prompted U.S. regulators and lawmakers to investigate. The Securities and Exchange Commission (SEC) proposed in March of this year designed to make the market more transparent. In October, seven U.S. senators urged the Commodity Futures Trading Commission (CFTC) to “develop qualifying standards for carbon offsets that effectively reduce greenhouse gas emissions.”

What is Impacting Carbon Credit Market and Sectors?

Governments of countries with some of the largest projects halted credit production during 2022. The reduction of supply added to the markets has caused some traders to pause as they determine how events impact their market.

As quoted in The Wall Street Journal, “There’s a perfect storm of activities,” according to Saskia Feast, managing director of global climate solutions at Climate Impact Partners, a carbon consulting and finance firm. “Ultimately, if these initiatives are successful, it will help deliver scale and confidence in the market. But the risk is delaying action and delaying finance because all these things are coming into the market and creating paralysis.”

Some Climate Impact Partners clients have adjusted their offsetting approach and now focus on credits that are created by projects protecting and replenishing forests and newer credits produced in the past few years, according to Ms. Feast.

This is reflected in the data. Average prices for forestry and land-use projects trading on exchanges jumped 55% to nearly $9. Trading volumes for credits created since 2020 jumped while they declined for most older credits, which are viewed as being less rigorous. Nature-based carbon credits, which include those from projects preventing deforestation and reforesting, trade at premiums.

Take Away

Carbon credit trading, while around since 1997, is still discovering itself. It is not yet regulated, and value and price discovery is less effective than other more mature markets.

The early stages of any market is where speculative investors either do extremely well, or more statistically likely, tie up money for long periods of time. If the volume of trading (liquidity) increases, there could be strong upward price momentum.

Carbon-credit issuance seems to value newer and presumably greener projects higher than older, less strict credits. For investors that are not trading credits for business reasons, this would seem to have a decaying effect on credits, even if the overall market is up.

Paul Hoffman

Managing Editor, Channelchek

Sources

https://www.wsj.com/articles/carbon-credit-investors-start-to-pay-up-for-quality-11671155725?mod=hp_lead_pos11

https://www.investopedia.com/terms/c/carbon_credit.asp

https://trove-research.com/webinar/demystifying-the-use-of-carbon-credits-for-corporate-climate-targets/

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