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How Venezuela’s future will help determine US diesel and trucking costs

Joseph Webster — Mon, 12 Jan 2026 16:38:47 +0000

The US intervention in Venezuela to arrest President Nicolás Maduro has sown uncertainty in energy markets. As the United States navigates this uncertainty, it’s worth applying the tripartite framework that Imdat Oner of Florida International University provided for the post-Maduro political era in Venezuela. With outcomes framed as “the good, the bad, and the ugly,” Oner’s political scenarios are useful for structuring thinking about Venezuela’s oil future—and its resulting implications for US diesel and trucking markets.

In the good scenario, Delcy Rodríguez, the new leader of the Chavismo regime, serves as a transitional figure on Venezuela’s path to democracy, capitalism, the rule of law—and prosperity largely financed from the country’s substantial oil reserves. In this scenario, Secretary of State Marco Rubio’s apparent plan of stabilization, recovery, and transition succeeds. In tandem, Venezuelan oil production and exports would rise sharply. Still, most analysts hold that oil production challenges will persist even in this best-case scenario.

In the ugly variant, the Chavismo regime largely stays in power but undertakes policies meant to bolster oil production, in line with Washington’s preferences. Markets seem to view this modified status quo as most likely: crude oil prices have modestly fallen while share prices for pure-downstream players like Valero—which could process more heavy crude volumes—have risen. Indeed, if the raid quickly leads to political stability and other supportive conditions, Venezuelan oil production could rise. Still, a renaissance for Venezuelan oil and gas will be difficult to achieve. Even if Washington maintains a single-minded focus on oil extraction, political risks and uncertainty will remain acute, likely ensuring that US companies will remain deeply reluctant to commit huge amounts of capital for “decadal projects.”

Alternatively, in a bad scenario, the raid could trigger significant convulsion in Venezuelan politics and foreshadow a longer and larger military intervention, which would likely send Venezuela’s crude oil production sharply lower. In this case, the loss of Venezuelan crude oil—which is highly suitable for middle distillates like diesel—could reverberate throughout global and US energy and food prices. The data suggest that, in the United States, the trucking sector and rural areas are disproportionately exposed to diesel markets and will face affordability pressures if a large-scale military intervention doesn’t go well. While the Trump administration’s seizure of 30 million to 50 million barrels of Venezuelan oil (equivalent to about one to two months of Venezuela’s crude oil exports) will provide some buffer against short-term disruptions, long-duration outages could prove damaging.

As we’ve written previously, Venezuela is less influential in global crude oil markets than it used to be due to declining production, but it nevertheless retains a somewhat more important role in diesel markets. That’s because Venezuela (and Colombia, where the conflict could escalate horizontally) exports heavier crude oil grades that are highly suitable for diesel, while US Gulf Coast complex refineries are configured to process these grades.

The diesel “crack spread”—the difference in price between crude and diesel—indicates that while crude oil prices currently account for 41 percent of diesel prices, other factors also matter, like suitable crude grade availability. The energy consultancy RBN finds that diesel crack spreads are rising to their highest level since early 2024. Internationally, the International Energy Agency reports that global middle distillate markets are already facing price pressure on limited supplies. Accordingly, persistent disruptions to Venezuelan (and potentially Colombian) oil could hold significant impacts for US diesel and trucking markets.

Who will feel the pinch

Given the potential for a diesel price uptick and its effects on the affordability crisis, it’s worth examining how the fuel is consumed. In the United States, diesel consumption is overwhelmingly tilted to transportation, which accounted for over 75 percent of US middle distillate consumption in 2023, by volume.

Sources: Energy Information Administration, Author’s Calculations.

Accordingly, the more than 3.5 million professional truck drivers would be disproportionately impacted if diesel prices rise. Unsurprisingly, this market and workforce skew away from metropolitan areas, as about 48 percent of truck vehicle miles traveled occur in rural areas.

But rural areas wouldn’t be the only places affected. A jump in diesel prices would also be felt across much of the United States. State-level distillate fuel oil consumption correlates with population and energy consumption. Texas is the largest distillate fuel oil consumer in absolute terms, followed by California, New York, Pennsylvania, and Florida.

Viewed through the lens of per capita consumption, or distillate intensity, Wyoming’s was the highest at about 983 gallons (assuming that every barrel of distillate holds about 42 gallons). Other distillate-intensive states include North Dakota, Alaska, Nebraska, and New Mexico. While these states do not directly import crude oil from Venezuela (or Colombia), they will nevertheless be impacted if shortages propagate through diesel markets.

Some of the most distillate-intensive states are surprising. Some reasons for their elevated diesel consumption include their geographic scale, coupled with large rural areas and large industrial sectors. Other reasons relate to fuel economy: diesel consumption, especially on trucks, can rise due to winter weather, high cross-winds, or hilly terrain.

Accordingly, if distillate prices rise due to major, sustained outages in Latin America arising from the US intervention in Venezuela, diesel-reliant states, trucking markets, and rural areas will face disproportionate costs. The initial raid against Maduro was an undeniable tactical success, but the economic costs and strategic tradeoffs of a long-duration and large-scale military intervention in Latin America could prove high.

Joseph Webster is a senior fellow at the Atlantic Council Global Energy Center and the Indo-Pacific Security Initiative; he also edits the independent China-Russia Report. This article represents his own personal views.

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How geothermal could enhance US energy security—if prioritized

Paul Stahle — Tue, 25 Nov 2025 22:09:49 +0000

Electricity demand in the United States is rising—along with prices. After nearly a decade of flat growth, the US Energy Information Administration projects that annual demand across the United States will grow 2.4 percent in 2025 and 2.6 percent in 2026. Meeting that demand affordably poses a formidable challenge. Oil and gas markets are volatile, while renewables have intermittency challenges and vulnerable supply chains. In this environment, accelerating the development of geothermal energy could help reduce exposure to these risks.

Compared to solar, wind, or battery storage, geothermal power relies relatively less on critical minerals like cobalt and lithium. And, unlike oil and gas generation, geothermal requires no fuel. As a result, geothermal can provide round-the-clock baseload power with lower exposure to disruptions in global supply chains.

As the cost of enhanced geothermal technologies continues to decrease and their geographic reach expands, now is the time for policymakers, especially in the United States, to take a serious look at geothermal as a key part of their energy security strategy.

The value of geothermal

Geothermal energy taps the earth’s internal heat for electricity and heating. A traditional geothermal well accesses natural steam and hot water, while an enhanced geothermal system (EGS) fractures hot rock and circulates fluid to absorb subsurface heat. This heat produces steam, which returns to the surface to spin turbines that generate electricity. Traditionally, geothermal energy production was limited to tectonic boundaries or hotspots where the earth’s crust is thin and subterranean heat is at its highest. However, technological advances, including drilling techniques borrowed from the oil and gas sector, have now made geothermal commercially viable in a broader range of locations.

In terms of energy security, geothermal offers two major advantages compared to other sources.

First, it can provide 24/7 baseload power without the need for fuel. Insulated from volatile global commodity markets, geothermal can offer the energy resilience necessary to achieve US energy policy priorities, like independently powering domestic and overseas US military bases and the fast-growing US data center industry. In fact, a growing number of tech giants are signing offtake agreements with geothermal companies to power artificial intelligence (AI) operations, including Meta’s agreements for 150 megawatts (MW) each from Sage Geosystems and XGS Energy, and Google’s agreements with Fervo Energy and NV Energy for 115 MW.

Second, geothermal is not as reliant on vulnerable supply chains as wind and solar are. China controls a high percentage of the global supplies of many minerals that are essential to the manufacture of wind and solar components and systems, especially in midstream refining. According to the International Energy Agency (IEA), for 19 out of 20 strategic minerals, China is the leading refiner, with an average market share of 70 percent. China refines 91 percent of rare earths, 77 percent of cobalt, 70 percent of lithium, 44 percent of copper, and 42 percent of chromium. According to International Aluminum data, it also consistently accounts for around 60 percent of aluminum production.

While geothermal technology uses more chromium than wind and solar, it uses less of other critical minerals, especially when battery storage is added to a system. Geothermal requires less copper and aluminum than solar photovoltaics, and less copper, rare earth minerals, and zinc compared to wind. Adding battery storage to intermittent wind and solar dramatically increases the need for chromium, cobalt, lithium, and rare earths even further for these technologies.

Downstream, the IEA estimates that China’s share in key solar panel manufacturing stages exceeds 80 percent. In terms of wind development, the IEA in its Energy Technology Perspectives 2023 also estimated China accounts for 70 to 80 percent of global blade manufacturing, 45 to 50 percent of tower production, and around 70 percent [SJ8] [PS9] of nacelle (turbine covers) assembly capacity. While geothermal still relies on global markets for standard components like turbines, steel, and piping, its ability to leverage the existing assets and technologies of the US oil and gas sector—primarily for drilling—significantly reduces its exposure to risks in the supply chain.

Geothermal also offers another major advantage: Multiple projects for lithium extraction from geothermal brine in California’s Salton Sea, as well in the Smackover Formation in Arkansas and the Upper Rhine Graben in Europe, show how geothermal could even become a net producer of critical minerals.

Renewed US interest in geothermal

Recent support from President Trump and Energy Secretary Chris Wright places geothermal firmly among the administration’s pillars for securing US energy dominance. In a speech in March 2025, Wright suggested that although geothermal “hasn’t achieved liftoff yet, it should and it can,” adding it “could help enable AI, manufacturing, reshoring, and stop the rise of our electricity prices.” Meanwhile, Trump’s executive orders, as recently as July, have consistently identified geothermal as a key resource to be developed and allowed expedited permitting.

This renewed enthusiasm has highlighted key areas for White House and Congressional cooperation:

Permitting reform: Establishing more streamlined permitting processes, including ensuring better interagency coordination and adequate resources would reduce uncertainty and project timelines, directly increasing their bankability.

Categorical exclusions (CXs): The Bureau of Land Management’s (BLM) could expand on its April 2024 and January 2025 adoption of CXs that exempt certain low-impact, early-stage activities from separate environmental reviews. The US Department of Energy (DOE) estimates that the January 2025 CX alone could shorten the geothermal permitting process by up to a year. Expanding CXs for other early-stage, low-impact activities and allowing concurrent environmental reviews for different phases of the same project would further shorten project timelines, boosting investor appeal.

Interagency cooperation: Designating one agency to conduct a single, unified review could further accelerate project timelines. Currently, developers must often complete a full environmental review with the BLM and then a second, separate review with the US Forest Service.

Sufficient staffing: Expeditious permitting also requires adequate staff to process requests, a factor for policymakers to consider amid proposed reductions to the workforce, including in key state offices responsible for federal licensing.

Continued tax credits and research and development (R&D) support:

Tax credits: The Trump administration’s maintenance of the Inflation Reduction Act’s (IRA) tax credits for geothermal is a win for the sector. Based on National Renewable Energy Laboratory data, the Center for Strategic and International Studies reported that the IRA’s tax credits could lead to the levelized cost of electricity from EGS to drop by nearly 85 percent, to $60 to $70 per megawatt-hour, making it competitive with other firm and intermittent energy sources.

Federal R&D support: The DOE’s Geothermal Technologies Office has helped advance drilling and reservoir techniques at the Frontier Observatory for Research in Geothermal Energy (FORGE) demonstration laboratory in Utah, but more research is needed. Challenges for EGS include drilling into hot rock, which represents over half the project’s budget and destroys standard equipment. This is compounded by the uncertainty of whether a viable underground fracture network can be successfully engineered to circulate water and extract heat without causing issues like induced seismic disturbances. Sustained federal support for testbeds like FORGE will help overcome these challenges, catalyze advances, reduce costs, and enable the scaling of traditional geothermal and EGS across the United States.

By prioritizing the rapid development of geothermal, policymakers could help the United States build a unique path to energy security—one that delivers reliable power 24/7, insulated from global hydrocarbon markets and vulnerable supply chains.

Paul Stahle is a senior energy advisor and government relations expert with over 18 years of U.S. government experience. His work spans energy and technology policy in Washington, D.C., China, Europe, India, and the Asia-Pacific.

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Operationalizing the National Defense Industrial Strategy for great power competition

Lt. Col. Jahara "Franky" Matisek and Morgan D. Bazilian — Tue, 18 Nov 2025 18:14:40 +0000

Russian President Vladimir Putin recently ordered his government to produce a national roadmap for rare-earth extraction and processing. This move wasn’t another mining policy; he was defining national power. The Kremlin’s move follows China’s two-decade lead in dominating global mining, refining, and permanent-magnet and battery production.

China’s weaponization of supply chains has already left industries across the United States and Europe scrambling, since these materials quietly underpin every digital-age economy, not to mention every munition and weapon system. Such actions by Moscow and Beijing to secure their own mineral supply chains signal that despite the growing prominence of digital-age economies in the 21st century, economic and military capabilities are still constrained by industrial capacity. We described this as the rise of mineral powers in a recent essay.

The United States, by contrast, remains an innovator without a foundation. It designs world-class systems but depends on others for the materials that make them work—although that is changing now with a new “muscular” approach to financing projects. While the Pentagon’s 2023 National Defense Industrial Strategy (NDIS) identifies supply-chain resilience as a national priority, Washington still lacks a basic performance metric for its own industrial base. For instance, the Department of Defense does not use a single “readiness-per-dollar” measure for industrial-base investments. Readiness is tracked at the platform level (i.e., mission-capable rates, supply availability, repair cycle times), while industrial-base actions remain fragmented across programs such as Industrial Base Analysis and Sustainment (IBAS), Defense Production Act Title III, and Department of Defense Manufacturing Technology(ManTech). This hodgepodge approach results in bureaucracies spending billions on “resilience” without any standard way to assess what each dollar actually buys in surge or recovery capacity.

This strategic planning shortfall matters because adversaries understand that economic growth and technological advancements pair with military effectiveness. It’s just now becoming more obvious that controlling the entire material process (e.g., mines, foundries, refineries, and specialized fabrication plants), is what enables an economy and military to gain a comparative advantage in an era of strategic competition. China’s 2023 export controls on gallium and germanium were less about markets than about leverage; they showed how quickly strategic materials could become tools of coercion. Russia’s rare-earth roadmap fits the same pattern: hardening its economy for prolonged confrontation with the West. If the United States wants the NDIS to mean something beyond PowerPoints and Congressional briefings, it must translate industrial ambition into measurable readiness, bankable financing, and built-in redundancy.

Operationalizing the NDIS requires a playbook with three lines of effort: measurement, financing, and doctrine.

First, the Pentagon needs better measurement metrics. We propose three industrial-readiness metrics: Lead-time reduction (how long until a critical subcomponent is delivered under normal conditions), time-to-recovery (how many weeks production bounces back after a disruption), and platform elasticity (how a 10-20 percent supply-chain shock maps into mission-capable rates). These metrics provide the basis for a “readiness per dollar” calculus that Congress and the Pentagon can use to compare investments, monitor progress and link industrial policy to warfighting outcomes.

Second, there needs to be financial incentives for midstream manufacturers. Due to market risks and low profit margins, many businesses struggle to find capital to fund and run magnet plants, alloy melters, and rare-earth separation, because demand is difficult to predict, especially as China essentially runs a mineral cartel, making costs, supply, and demand murky in global markets. Fortunately, existing authorities suffice: Title III of the Defense Production Act allows offtake commitments and price floors; the IBAS program funds workforce and facility scale-up; the Office of Strategic Capital (OSC) provides low-interest loans and credit guarantees for private investment. When layered together, we get what the energy sector uses: demand signal, patient capital, and private scale. Domestic deals, such as the billions pledged by the Pentagon and private sector companies to MP Materials to build a US magnet manufacturing facility, illustrate how such a stack works. But these deals cannot remain ad-hoc.

Third, there needs to be a defense industrial base doctrine that guides decisions through the acquisitions process of weapon systems and munitions. Supply-chain resilience must be treated like combat logistics; it’ s an operational imperative, not an administrative nuisance to be solved by an acquisitions officer. We recommend concentration-threshold triggers. For example, if 40 percent of any key material processing is sourced from a single country or firm, a domestic or allied alternative must be activated. Dual-qualified supply lines—one domestic, one allied—provide wartime options and peacetime flexibility. Allies are not just optional; they are force multipliers. America must embed cooperation frameworks like the Minerals Security Partnership and the US–Japan Critical Minerals Framework into its defense industrial base doctrine. Such surge playbooks should coordinate Australia’s rare-earth separation, Canada’s graphite and nickel capacity, and Japan’s magnet finishing. These materials, and many other import-dependent minerals and metals, are vital to American weapon systems and munitions. Such coordination avoids parallel buildouts, aligns subsidies with strategy, and leverages allied industrial bases instead of competing with them.

These three playbook approaches might seem bureaucratic compared with stealth fighters or warships, but the real surprise in any conflict will be the factory that couldn’t deliver—not the plane that couldn’t fly. As China’s 2025 export controls on medium and heavy rare earths demonstrated, the ability to choke US supply chains is already operationalized.

Deterrence depends less on “who builds the biggest bomber” and more like “who can re-qualify their magnet line in weeks when a competitor shuts ours down.” The alloys, magnets, and refining capacity of tomorrow will define whether the United States can mobilize and sustain its industrial base for the next crisis and conflict. Modern warfare begins in the furnaces and finishing rooms of allied industrial bases, not at an airbase or seaport.

Lt. Col. Jahara “FRANKY” Matisek is a US Air Force command pilot, nonresident research fellow at the US Naval War College and the Payne Institute for Public Policy, and a visiting scholar at Northwestern University. He has published over one hundred articles on strategy and warfare.

Morgan D. Bazilian is the director of the Payne Institute for Public Policy and professor at the Colorado School of Mines. Previously, he was lead energy specialist at the World Bank and has over two decades of experience in energy security, natural resources, national security, energy poverty, and international affairs.

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How climate funding from governments and MDBs can scale private investment

Ken Berlin, George Frampton — Mon, 17 Nov 2025 18:41:27 +0000

In a previous article, we highlighted key takeaways from the recently released COP30 Circle of Finance Ministers report, which called for efficient financing to meet the Paris agreement targets and outlined the best pathways to get there. The need for investment is huge. At last year’s COP29 in Baku, Azerbaijan, developed countries pledged to increase their funding commitment to emerging markets and developing economies (EMDEs) from $100 billion to $300 billion per year by 2035 with an aspirational goal of $1.3 trillion. But much more—over $2 trillion—is needed for climate mitigation investments in energy transition and nature-based solutions.

Most of this additional investment will have to come from the private sector, but existing approaches to use public funds to generate multiples in private investment—“blended finance”—have resulted in only marginal progress toward the funding levels needed. On average, a dollar of public money across all development finance still manages to “crowd in” only about half a dollar of private money. It will take a broad spectrum of financial structures and institutions to meet the pledges made in Baku including reform of multilateral development banks (MDBs), enhanced securitization, innovative insurance products, improvements in the integrity of private voluntary carbon markets, and new green bond structures. Of these approaches, we believe none are as effective as guarantees, which, if scaled significantly and effectively, could leverage public capital to attract significant multiples of private investment.

Guarantees are a critical solution and can be implemented at a global scale

A consensus has begun to form in the climate investment community that innovative guarantee structures are likely to be particularly effective—perhaps the most effective—mechanisms to leverage private capital. Only a small percentage of the guaranteed private investment must be contributed in cash, amounting to a conservative estimate of expected loss—as long as the tail risk is adequately protected by other sources.

In the lead-up to COP30 and in recognition of the potential for guarantee mechanisms to scale climate finance, several public-private coalitions and governmental task forces including the Sustainable Business (SBCOP30) initiative and a team formed by the Brazilian Development Bank (BNDES) have formulated several new guarantee proposals for investments in Brazil. Smaller guarantee structures underwritten by private sources like the Green Guarantee Fund and iTrust, as well as several new guarantee proposals backed by the balance sheets of MDBs or a single sovereign entity, have recently launched. These include Inter-American Development Bank and BNDES guarantees, Norwegian Agency for Development Cooperation and Swedish funds, a newly proposed fund in the BRICS multilateral bank (representing emerging economies Brazil, Russia, India, China, South Africa, and five additional members), and the World Bank’s plan to streamline and triple its offering of guarantees. But these existing guarantee initiatives are also much too small to begin to address the challenge of scaling up new private investment to the levels required.

To help close the financing gap, we have worked in conjunction with partners and a global advisory committee over the past two years to develop a proposal originated by UK climate investment expert Ian Callaghan to establish an ambitious, innovative, multilateral global guarantee facility to be backed in part by wealthy countries through both cash contributions and their sovereign balance sheets. The facility would offer qualifying private investors who agree to standards of investment, due diligence, and key performance indicators (KPIs) the opportunity to use the facility’s near-comprehensive guarantees to assemble portfolios or funds for climate mitigation investment in EMDEs. The facility would not require the double or triple diligence typically performed in blended finance transactions nor a prior guarantee from the domestic country’s government. We call this proposal the Emerging Market Climate Investment Compact (EMCIC).

The EMCIC facility embodies five necessary elements for the successful de-risking of debt investments for climate mitigation by private investors in EMDEs on the scale required to meet the capital needs pledged in Baku. They are:

A streamlined structure. The structure must offer big global investors an environment that is more familiar and attractive to their customary practice, which means reducing overlapping bureaucracies in dealing with governments and MDBs, reducing time delays, streamlining the investment process, and contemplating guarantees of portfolios or funds rather than applying a multi-level review of every project investment.
High leverage. Because cash contributions to capitalize the facility need only be made in the amount of anticipated losses, the cash can be highly leveraged so long as the tail risks are covered at least in part by developed-country sovereign balance sheets, possibly supplemented by a combination of insurance and mezzanine financing.
Due diligence standards. The guarantees should be extended to pre-qualified investors and managers who agree to consistent environmental and due diligence standards and also sign up to KPIs that will deepen their involvement in EMDEs over time (the “Compact” element of the facility’s title).
Additional debt avoidance. To be attractive to EMDEs, the facility must not require backup guarantees on the part of the host EMDE governments, many of whom cannot afford additional sovereign debt.
Risk coverage. The facility must provide enough risk coverage so that the investor can secure an “investment grade” rating or one sufficient to meet the fund’s risk/return ratio. Devoting a substantial portion of their concessionary financing or low-interest loans to such a facility should be greatly attractive to developed-country investors, since it would multiply and leverage the total amount of investment generated toward the Baku goal.

Beyond Belém: Taking guarantees on the road to COP31

Guarantees may be critical and desperately needed for a variety of financial structures, including new portfolios by major infrastructure investors, securitization and public sale of portions of MDB portfolios, green bond funds, and debt for nature swaps.

Given the consensus among academia, proliferating proposals for new guarantee products, and the steep challenge to reach new levels of funding needed, COP30 and the climate finance community should prioritize the development and growth of both existing and more ambitious new guarantee products and facilities.

Moreover, developing countries should challenge wealthy governments to organize a guarantee facility or several regional facilities that use their cash and balance sheets in the most effective possible way. Acting on this step should be an important deliverable for next year’s COP31.

Ken Berlin is a nonresident senior fellow at the Atlantic Council Global Energy Center.

George Frampton is a distinguished senior fellow at the Atlantic Council Global Energy Center.

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Ken Berlin

Distinguished Senior Fellow

Chinese Climate Change & Climate Action

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George Frampton

Energy & Environment Energy Transitions

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Key takeaways from the COP30 Circle of Finance Minister’s report

Ken Berlin, George Frampton — Thu, 13 Nov 2025 16:29:59 +0000

As countries convene for the thirtieth UN Climate Change Conference (COP30) in Belém, Brazil, the world still faces a severe shortfall in climate finance, despite past pledges by developed countries to scale up investments. Without adequate funding for clean energy and nature-based projects in emerging markets and developing economies (EMDEs), the climate goals set by the Paris agreement will not be met, according to the United Nations.

Complicating any plan to meet financing goals, there is disagreement over how much funding is needed, what financial tools are most effective, and what the impact would be of such investment on the world economy. A report just published by the COP 30 Circle of Finance Ministers, however, provides authoritative answers to resolve many of these questions.

The Brazilian Ministry of Finance prepared the report with input from finance ministries in dozens of countries, international financial institutions, banks, industry, think tanks, environmental organizations, and many other groups. This comprehensive and rigorous review provides the most complete and reliable assessment to date of the issues facing climate finance.

Key takeaways from the report are below:

The vast majority of global financial flows goes to developed countries.

“Global climate finance flows for all countries hit an all-time high of USD 1 trillion in 2023, more than doubling in three years, but only around 10% goes to Emerging Markets and Developing Countries (EMDCs), while less than 5% goes to adaptation. The lower bound of global estimated climate finance needs – USD 6 trillion – is still 3 times more than current flows.” (Page 9 of the report)

The developed world must massively scale up financial flows to EMDEs.

“According to the third report of the Independent High-Level Expert Group on Climate Finance, EMDEs will need to invest at least USD 2.4 trillion per year by 2030 and USD 3.3 trillion per year by 2035 to meet their needs for the clean energy transition, adaptation and resilience, response to loss and damage, natural capital, and just transition. This would amount to a five-fold increase by 2030 and a six-fold increase by 2035. These estimates reflect total investment needs from all sources, both public and private, and include domestic and international finance.” (Page 9)

Investments in nature-based solutions (NbS) remain far below what is needed:

“The UNEP State of Finance for Nature (2023) estimates that annual financing for NbS must more than double, from about USD 200 billion today to over USD 400 billion by 20305, to align with global climate, biodiversity and land restoration goals.” (Page 10)

Investments in adaptation and resilience also need to be scaled up significantly.

“Well-designed adaptation investments deliver a “triple dividend”: they avoid future losses, generate positive economic returns, and create broader social benefits. Yet the adaptation finance gap remains stark. Global adaptation needs are estimated at USD 215–387 billion annually by 2030, while international public flows reached only USD 28 billion in 2022.” (Page 10)

Clean technologies are cheaper than fossil fuels

“According to IEA and IRENA analyses, clean technologies are now cheaper than fossil fuels in most regions—91% of new renewable projects in 2024 outcompeted new fossil fuel alternatives, with onshore wind and solar PV leading the way. That year alone, renewable generation displaced coal and gas that would otherwise have been burned to meet the same electricity demand, saving power systems around USD 467 billion in fuel purchases and confirming renewables as the lowest-cost source of new power, with battery prices down nearly 90%.” (Page 10)

Investment in the energy transition will power the world economy

“While outcomes will vary by country and sector, especially in the short term, many studies suggest that, over the long-term, clean investment tends to outperform business-as-usual. Boosting green investment rates by 1–2% of GDP in developed economies, and 3–5% in EMDCs can spur global growth, strengthen energy security dependence, and unlock millions of decent jobs. Accelerated climate action is the foundation for a new era of sustainable, inclusive growth. Countries that lead will thrive, shaping the industries and jobs of the future; those that delay will bear the greatest costs. The imperative is clear: act now, act together, act at scale.” (Page 11)

Failure to act will have a severe impact on the world economy

“The Network for Greening the Financial System long-term scenarios suggest that, under current climate policies, global GDP could be up to 15% lower by 2050 compared to a world without climate change, undermining the achievement of development objectives and poverty reduction. Under a scenario where global temperatures are 3°C above pre-industrial levels, which many experts see as increasingly plausible by the end of the century, projected losses could reach 30% of GDP by 2100… The macroeconomic fallout would dwarf recent crises: the only two modern episodes of global GDP contraction, in 2009 and 2020, saw one-year drops of 1.3% and 2.8% respectively.”(Page 11)

Severe impacts are happening now

“According to Munich Re (2025), climate-related disasters caused economic losses of USD 320 billion globally in 2024 – part of a continuing upward trend – of which around USD 140 billion were insured. Price stability is also already under threat: climate and nature impacts are driving inflation (Page 12)…These (climate) shocks would erode financial stability, strain public and private balance sheets, and suppress long-term investment, creating a chronic drag on growth and sustainable development. The European Central Bank found ~€70 billion in losses for just 41 banks under short-term disorderly transition and acute physical-risk scenarios— figures that may be underestimated given methodological limitations —while the Bank of England’s CBES projects late action could add ~£110 billion in credit losses and cut bank and insurer profits by 10–15% annually.” (Page 13)

Among the many financial instruments highlighted in the report, guarantees appear repeatedly. In part two of this article series, we take a closer look at why the Circle of Finance Ministers’ report identifies guarantees as one of the most powerful tools to unlock and massively scale up climate investment in EMDEs.

Ken Berlin is a nonresident senior fellow at the Global Energy Center.

George Frampton is a distinguished senior fellow at the Global Energy Center.

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Ken Berlin

Distinguished Senior Fellow

Chinese Climate Change & Climate Action

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George Frampton

Energy & Environment Energy Transitions

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The energy conversation has changed—so must COP30

Charles Hendry — Mon, 10 Nov 2025 17:41:59 +0000

As international leaders, with notable exceptions, gather in Brazil for COP30, the world is at a turning point in global energy policies.

US Energy Secretary Chris Wright summed it up well when he said that energy should make societies richer by driving economic growth, rather than making them poorer, through high prices.

In spite of the tensions in today’s energy debates, global leaders need to re-establish a common ground around energy and climate and recognize that the friction does not in fact represent a choice between decarbonization or affordability—we can still strive for both. This becomes all the more important in light of the rapidly growing demand for energy—and especially of electricity—to meet society’s needs, before even considering the rising power demand of artificial intelligence (AI) and data centers.

Reframing the energy and emission conversation

Finding this common ground again means moving on from the term “net zero.” The court of public opinion has made up its mind: net zero is now more associated with higher energy costs than delivering a desirable goal.

And the target is too absolute. The final 10 percent of the journey to net zero could be as expensive as the first 90 percent, which cannot be a sensible use of limited resources. Achieving 90 percent would still be an extraordinary achievement, and any target needs to be credible to be accepted, with a clear pathway for delivering it.

The old talk of an energy trilemma—balancing security, affordability and decarbonization—is evolving. The conversation now also needs to include sovereignty—those resources within a country’s jurisdiction—and abundance—that which is most abundant should be more affordable. Just as this has led the United States to a policy focused on its vast gas resources, in the United Kingdom and Europe more generally, it means a continuing role for the most affordable renewables.

A new approach to energy and climate needs to start with a set of clear principles, which determines priorities, values and what leaders are looking to achieve.

These can be summarized as follows:

Global leaders should prioritize secure and sovereign sources of energy to reduce dependence on others.
Lawmakers should craft energy policy to help drive economic growth, reduce electricity bills, and make countries more competitive.
Industry leaders should champion new technologies that address these challenges.
Public and private actors should ensure that the transition happens in a way that fairly delivers more choice to consumers and empowers them to be part of the solution.

Celebrating and building on achievements

The conversation should also champion what has already been achieved. The UK, for example, in 2022 became the first major economy to reduce its carbon emissions by half (compared to 1990 levels) while still growing the economy by 80 percent; the first major economy to end coal-powered generation; and the country that led the creation of a new global energy industry—offshore wind—in little more than a decade.

These achievements resonate with the public. Polling shows over 60 percent of the public support such policies—far and away the most popular policies of the last Conservative Government. However, it is also clear that people want to secure these achievements in a way that is much more affordable.

Accomplishing this goal has to start from facts—and the facts are promising. Many countries, including some of largest like Brazil and Kenya, get well over 80 to 90 percent of their power from clean resources. Solar generation doubled in the past three years, with China installing more solar power in one month this year than the United States did in the whole of the 2024. And most of the European countries that have lower energy prices than the UK use more renewables. These facts contradict the argument that there is no need for countries like the UK to reduce its emissions if other countries aren’t doing anything—because many are.

Rather than discarding what has been successful, leaders need to look at how energy systems should evolve in a new era and become more affordable.

Taking time to enact common sense policies

It is clear now that gas will have a long-term role to play in the energy transition in the UK and elsewhere. It thus does not make sense, as US President Donald Trump has reminded us, to prematurely close the North Sea with all the job losses that would entail. If gas is to be part of the mix, then it makes sense to maximize the recoveries from the UK’s own offshore fields.

A clean, affordable future also means more nuclear, despite setbacks. For a nation that led the world in civil nuclear power, the UK for one seems to have lost its way. Hinkley Point C, initially promised for 2018, will be fifteen years late and significantly over budget. The United States has had similar experiences. That does not mean nuclear isn’t worth the investment, but that leaders need to learn how to build it better and faster. It means more standardization of design and a regulatory approach that learns more actively from other countries.

COP30: A chance to reset global thinking on energy and climate

These considerations point back to what can be done at COP30. The news from the conference is likely to be disappointing, but it gives those leaders attending the chance to set out a new way of thinking, which shows that they don’t need to choose between energy security, decarbonization, and keeping bills low. Investors need clarity and long-term thinking. We need to see more of that in evidence over the coming days.

Charles Hendry is a distinguished fellow at the Global Energy Center.

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Europe’s energy operating system: P-TEC as the North Star in a European maze

Michał Kurtyka — Thu, 06 Nov 2025 01:18:09 +0000

What was meant to be Europe’s coherent transformation toward sustainability has, in practice, become a maze of overlapping regulations, conflicting objectives, and competing national interests. This has led the energy system in Europe today to become extremely complex. Confusing the system even further is the reduction of Russian gas and hydrocarbons, which has redrawn the map of dependencies and rewritten the rules of engagement. Investors and partners who still see opportunity in Europe often struggle to interpret what exactly needs to be done to find their place in this market.

That is where the Partnership for Transatlantic Energy Cooperation (P-TEC), taking place in Athens today and tomorrow, has proven its unique value. P-TEC is an annual gathering of public and private energy leaders held by the US Department of Energy in partnership with Central and Eastern European countries and the Atlantic Council. It is more than just a forum for exchange—it is becoming a compass. On a continent governed by directives and evolving standards, P-TEC can serve as a guide through the labyrinth, helping partners understand not only the current rules but also how these rules might evolve.

Europe’s current regulatory architecture often reflects good intentions undermined by practical contradictions. The European Investment Bank, for instance, no longer finances natural gas projects, even in places like Moldova or the Western Balkans—regions still heavily dependent on Russian supply. This leaves them in a geopolitical dead end, precisely when diversification should be a top priority. 

The European Union’s Methane Emissions Regulation (MER) illustrates how the EU’s well-intended climate ambition can sometimes create operational uncertainty. Approved in 2024, MER includes measures to reduce methane emissions from fossil fuel operations. Even large and experienced companies, however, struggle to interpret what compliance with the policy means in practice—from methane reporting and certification to national implementation pathways. This experience has shown that Europe’s energy transition is not only about technology, but also about regulatory literacy. Understanding the system has become as critical as investing in it.

Similarly, the EU’s inconsistent treatment of nuclear power—recognized as a zero-carbon source, yet excluded by some from green financing frameworks—continues to divide member states and deter investors.

Such contradictions do not make Europe greener; they make it more fragile. They illustrate the gap between ambition and execution—between a decarbonization agenda that aspires to lead the world and a market reality that too often punishes pragmatism.

P-TEC’s mission, therefore, should be twofold. 

First, it should continue to act as a translator—helping US and regional partners understand the dense network of European rules, taxonomies, and climate instruments. Second, and more importantly, it should evolve into an architect of the next stage: a space where transatlantic cooperation contributes to a more coherent, realistic, and resilient European framework.

This evolution requires a shared strategic vision focused on connectivity. The North–South energy corridor, linking the Baltic, Adriatic, and Black Seas, remains the backbone of regional resilience. Expanding interconnections and ensuring market interoperability are not just technical goals but instruments of sovereignty. Here, the United States can add real value through investment and project expertise that turn political declarations into results.

At the same time, P-TEC can help demonstrate that much can already be achieved within the existing system. The recent success in enabling gas deliveries to Moldova under EU market principles showed that rules can be instruments of empowerment, not paralysis. The rules are changing, but not quickly or deeply enough: gas infrastructure and new nuclear builds remain trapped in a slow evolution.  

P-TEC provides an opportunity for Europe to accelerate needed change and create momentum with an eye toward the 2026 Three Seas Initiative Summit in Croatia. This shift requires the recognition that the real opportunity lies not in creating new institutions but in enhancing interoperability among those that already exist, including P-TEC and the Three Seas Initiative. These critical platforms share the same DNA: regional integration, diversification, and partnership with the United States. Together, they can become Europe’s version of a transatlantic “operating system”—a modular architecture that balances climate ambition with competitiveness and security.

To achieve this, both sides of the Atlantic must invest in more than infrastructure. They must invest in regulatory literacy—the ability to navigate, interpret, and align policy frameworks that increasingly define who can build what and where. This is not a bureaucratic detail; it is a strategic necessity. 

Europe’s future energy landscape will be shaped not only by new technologies, but also by new understandings. P-TEC stands at the intersection of both. It can guide the evolution of Europe’s energy operating system—one that is pragmatic, open to innovation, and resilient enough to serve both sides of the Atlantic. In a continent of rules, that may produce the most valuable export of all: clarity.

Michał Kurtyka is a distinguished fellow with the Atlantic Council Global Energy Center.

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A unified call for G7 cooperation on energy security

David L. Goldwyn, Lee Beck — Thu, 30 Oct 2025 13:43:24 +0000

Just ahead of today’s Group of Seven (G7) energy and environment ministerial meeting in Toronto, the Atlantic Council, in partnership with Natural Resources Canada and the Munk School of Global Affairs and Public Policy, convened leaders from government, civil society, and industry to discuss energy security, and the financing and technologies needed to achieve resilient systems. At the Summit on the Future of Energy Security, speakers explored solutions to meet rising energy demand, secure critical energy supply chains, and scale new energy infrastructure.

Atlantic Council experts David Goldwyn and Lee Beck, who participated in the summit, lend their insights:

Energy leaders showed remarkable alignment, optimism, and unwavering commitment to a sustainable, energy-secure future

The summit revealed a high degree of consensus around what an energy-secure world should look like. Nearly every energy supplier and financier focused on the importance of using all forms of energy—an “all of the above” approach—to meet demand, the need for durable regulatory frameworks, and fewer pendulum swings in government policy.

We heard optimism about the future of energy demand, including from new defense procurement and deployment needs. Likewise, we heard optimism on the availability of energy supply—from new nuclear plants, to expanded supplies of oil and gas, to the potential of renewable power and batteries to meet the heterogeneous needs of different energy buyers. Hyperscalers and oil sands and gas providers emphasized their continuing commitment to emissions reduction and increased process efficiency.

We also heard a call for government to help mitigate the risks involved in scaling up power supply quickly. For nuclear proponents, there was a call for financial support to mitigate cost risks. For other suppliers, this would mean more stability in fiscal frameworks (such as through the Inflation Reduction Act and the One Big Beautiful Bill Act) and regulatory frameworks to reduce their project risks.

Finally, there was a coded call for more collaboration and less confrontation among G7 nations. While companies did not directly call out US tariffs as a serious headwind, the consistent hopes for closer integration, for greater resilience, and for collaboration were a reminder that the future of energy security lies in greater—not less—cooperation among G7 innovators, capital providers, and entrepreneurs.

David Goldwyn is chairman of the Atlantic Council’s Energy Advisory Group and a former special envoy for international energy affairs at the US Department of State and assistant secretary of energy for international affairs.

Competitiveness has spurred major energy policy shifts, but new solutions are needed to ensure long-term resilience

With increasing global competition on technology, innovation, and supply chains, corporate leaders are calling on G7 policymakers to act with long-term strategic perspective to deliver regulatory and policy clarity.

At the Atlantic Council’s Future of Energy Security summit, leaders recalled that about eighteen months ago at the last G7 energy and environment ministerial under Italy’s presidency, the focus in Torino was on the Draghi report—a wake-up call for Europe to face its waning competitiveness. While that same pressure is still on—now applying to the whole of G7—it has translated into action, catalyzing three major shifts: the nuclear energy renaissance to meet artificial intelligence (AI)-driven energy demand growth; the exploration of new industrial policy tools in the manufacturing and critical minerals arenas; and the formation of new partnerships to harvest existing assets and innovative technologies to propel economic growth and energy security in the medium term.

Still, corporate leaders at the summit pleaded for the G7 to heed the sense of urgency for additional action. That includes meeting technology innovation with speedy policy innovation in areas such as permitting, public funding, along with long-term planning and industrial policy. As one panelist put it: “We need new models of collaboration and coordination that prevent a new Achilles heel and instead enable standardization, simplification, and sequencing.”

Notably, advancing emissions reductions and climate action only entered the conversation toward the end of the summit. However, private sector leaders insist this imperative hasn’t fallen off the agenda. In fact, some never “felt more optimistic” on the ability to advance carbon-free technologies due to the focus on action, and, for others, climate mitigation still remains “the north star.”

Lee Beck is a nonresident senior fellow at the Atlantic Council Global Energy Center.

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David Goldwyn and Andrea Clabough: The Russian oil sanctions signal a major shift, but critical questions remain

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How the new US sanctions on Russian oil will impact energy markets

Andrea Clabough, David L. Goldwyn, Ellen Wald, Andrei Covatariu — Thu, 23 Oct 2025 21:25:59 +0000

The Trump administration has taken decisive action to leverage its considerable sanctions authorities and increase pressure on the Russian government and its war machine. The latest US sanctions, targeting the major Russian oil and gas producers Rosneft and Lukoil, bring the United States into much closer alignment with both the United Kingdom (which issued similar sanctions last week) and the European Union, which has just finalized its own fresh package of sanctions including a complete phase out of Russian natural gas imports into the bloc. What this will ultimately mean for global energy markets depends on several factors.

Atlantic Council experts provide their takes:

Click to jump to expert analysis

Ellen Wald: Enforcement could mean higher oil prices—but the lack thereof risks failure

Andrei Covatariu: From discounts to disconnect: US sanctions and the potential changing geography of Russian oil demand

The Russian oil sanctions signal a major shift, but critical questions remain

Designating Rosneft and Lukoil is the most effective step of the Trump administration has taken to pressure Russia during its second term so far. Between them, these companies export 3.1 million barrels of oil per day—overwhelmingly to buyers in East and South Asia who have thus far remained willing to purchase Russian crude oil.

However, that may now be changing. Indeed, the Treasury announcement came with the explicit warning that secondary sanctions—targeting those buyers of Russian crude oil from these companies that continue to do so—could be considered in the near future. This threat is arguably as powerful, if not more so, than the concrete actions already taken. The threat of secondary sanctions will have an immediate and powerful effect on India and Turkey, two of the three largest consumers of Russian crude. Meanwhile, Chinese state oil companies PetroChina Sinopec, CNOOC, and Zhenhua Oil have announced that they will no longer deal in seaborne Russian crude oil supplies at least for the short term. It is thus a real possibility that two to three million barrels of oil could be taken off the global markets with no major buyers available to take them.

That said, a critical question remains: enforcement. It is unclear yet whether the United States will match the threat of secondary sanctions with actual enforcement of the new sanctions measures it has already enacted. The shadow fleet remains vast and elusive, and although the recent tranche of UK and EU sanctions continues to file away at the fleet’s available vessels, the willingness of the United States to meaningfully support sanctions enforcement will make all the difference in how much crude actually comes offline, and to what extent Russian crude production must be shut in for lack of anywhere to go.

Chinese refiners are already well practiced in evading US sanctions, for their part, and can usually find workarounds if they still want these Russian cargoes at bargain-basement prices. Importantly, the approximately 900,000 barrels per day (bpd) of Russian crude oil that China imports via pipeline will be unaffected by these new sanctions, and independent refiners may likewise hedge their bets and resume Russian imports faster than the larger national refiners. In either scenario, the actual volumes of crude oil taken off markets may be significantly less than initial estimates but still very material.

Ultimately, however, the price impacts are another matter and what will matter most to the White House. OPEC could replace displaced supply, a topic likely to be on Trump’s agenda with Saudi Crown Prince Mohammed bin Salman in November. Undoubtedly, these new sanctions will be on the agenda for the Xi-Trump Summit, and a major consideration for ongoing US-India trade talks as well.

Andrea Clabough is a nonresident fellow with the Atlantic Council Global Energy Center

Enforcement could mean higher oil prices—but the lack thereof risks failure

The Trump administration has painted the sanctions as a significant development in the ongoing conflict between Russia and Ukraine. In combination with similar sanctions from the United Kingdom and the European Union, the sanctions could potentially hit Russia’s oil revenue in a significant way, but, as with all sanctions, the effect depends on implementation and enforcement.

Global markets will likely see some disruption in Russian oil flows to China and India as the financial implications of the sanctions become clear. For example, China’s state-owned oil companies suspended new seaborne purchases of Russian oil, for now. Most of the companies that buy crude oil from Rosneft and Lukoil already do so through intermediaries, and it is likely that new companies will be set up to subvert financial connections between Russian oil suppliers and customers. Many Indian refiners are also reviewing whether their Russian oil purchases can be directly linked to Rosneft, Lukoil, or any of the subsidiaries named in the recently sanctions. It is expected that they will also pause purchases until the impact of the sanctions becomes clear.

The impact of these sanctions on both the global oil market and on Russia’s economy will depend entirely on how the United States, UK, and EU enforce the sanctions. If these western powers show that they will swiftly and severely punish entities that transact with Russian oil companies, then sufficient fear may be instilled in Russia’s crude oil customers to cut back on seaborne Russian oil imports. The Trump administration’s best bet is to make a few high-profile examples of sanctions’ enforcement, while simultaneously promising China and India that they will not be cut off from Russian oil for very long—if Putin comes to the negotiating table. Such a move would cause global oil prices to rise, potentially to $80 or higher, but given the abundance of oil currently on the global market and spare capacity from producers like Saudi Arabia, the impact on consumers would not be economically disastrous.On the other hand, if the Trump administration doesn’t follow these sanctions with a show of force, they will simply become another blip on an oil price graph.

Ellen Wald is a nonresident senior fellow with the Atlantic Council Global Energy Center

From discounts to disconnect: US sanctions and the potential changing geography of Russian oil demand

The latest US sanctions on Russia’s two main oil producers, Lukoil and Rosneft (though notably not on Novatek), mark a new stage in the economic pressure campaign against Moscow. Sanctions are typically designed to target specific sectors and countries while avoiding major shocks to global markets—and, by that definition, this package seems relatively well-calibrated. While no sanctions regime is perfect, some are better timed and structured than others, but its reinforcement represents a sine qua non condition for achieving the intended impact.

However, duration will also be a critical factor influencing oil markets in the months ahead. Although these sanctions aim to pressure Putin toward negotiations, they could also trigger long-term disruptions in Asian crude flows—even beyond any potential agreement between Russia, the United States, and Ukraine. Asian refiners may increasingly turn to alternative suppliers, gradually moving away from discounted Russian barrels. To this end, the ongoing US–India trade discussions suggest that a reduction in tariffs, combined with stricter enforcement of oil sanctions, could finally drive India back toward Middle Eastern oil suppliers. This and how OPEC responds to market dynamics after sanctions will be a key topic for the US-Saudi dialogue this November.

Together, with the United Kingdom’s similar sanction measures and the European Union’s accelerating phase-out of Russian LNG, this coordinated Western effort could further squeeze the Kremlin’s revenue stream. Whether it proves sufficient will depend not only on how long these sanctions last, but also on whether markets make decisions that permanently alter Russia’s own perception of its long-term crude supply and export capacity.

Andrei Covatariu is a nonresident senior fellow at the Atlantic Council Global Energy Center

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The China-Russia natural gas deal is a distraction from LNG sanctions evasion

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If Russian gas returns to Europe, it must go through Ukraine

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The resumption of Russian gas supplies to Europe as part of a potential cease-fire agreement in Ukraine is under discussion, but any such flows would need to transit through Ukraine rather than Nord Stream or other routes. To safeguard regional stability, the EU, Ukraine, and the US must enforce strict safeguards to avoid renewed dependency and prevent Russia from once again weaponizing its energy exports.

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Data centers aren’t grid villains—they’re allies

Nate Mason — Wed, 22 Oct 2025 20:06:35 +0000

As residential electricity rates tick up, artificial intelligence (AI) data centers are increasingly being painted as villains. In Virginia, home to the world’s largest concentration of data centers, the leading candidate for governor has argued the industry is not paying its “fair share” of electricity costs.

If this public perception hardens into conventional wisdom, data centers could find themselves in a losing battle with residential customers for a scarce resource. But contrary to this perception, data centers could be a major part of the solution to the problems of rising demand, insufficient generation, and inefficient demand management faced by electricity grids.

Welcome to the neighborhood

AI data centers are positioned to become core parts of regional grids as they increasingly rely on large co-located generation assets. The more AI data centers can avoid competing with residential ratepayers as innovation catches up with demand, the better. For example, numerous new data centers are planned in Texas that intend to supply all of their own electricity from co-located natural gas turbines. These generation assets will likely produce more power than their associated data centers consume, and could flex that supply to the grid, to the benefit of local consumers if they connect in the future. Data centers are also likely to be large-scale customers for clean energy technologies like small modular reactors (SMRs) and battery energy storage system (BESS) installations, providing market demand regardless of changing subsidy regimes.

Data centers, however, do not necessarily need to provide 100 percent of their own power to mitigate stress on the grid. Those with partial, co-located backup power can seriously reduce systemwide demand spikes by flexing down their demand on the grid by relatively small amounts.

Facilitating co-located generation

That said, to avoid long interconnection queues and time-consuming regulatory requirements for connecting to the grid, some data centers will prefer to go it alone, remaining off the grid and powering themselves exclusively with co-located generation. New Hampshire has gone so far as to simply exempt power users from grid permitting requirements if they remain off grid and to investigate withdrawal from the regional grid Independent System Operator “ISO New England.” Ideally, they would connect to the grid in the future to provide additional generation capacity and demand flexibility, so clear interconnection requirements even in the absence of required permits would help facilitate connections in the future. Of course, even power plants not connected to a grid must meet safety and construction standards, but they are spared the grid standards needed to ensure the entire grid remains balanced and adequately supplied.

Facilitating the rapid construction of new generation capacity by private companies has the added benefit of avoiding stranded asset risk to utilities. If demand fails to materialize and generation infrastructure is overbuilt, the private companies that built it will be on the hook rather than utilities and their ratepayers.

Time-of-use pricing

In addition to co-located generation, pricing mechanisms that reflect real-time electricity use offer another avenue for supporting grid stability. Time-of-use (TOU) pricing—charging different rates for electricity depending on demand—is particularly well suited for data centers that have the capacity to flex grid demand. Implementing TOU pricing for these data centers would encourage them not only to flex their demands on the grid, but also to shift that demand geographically. Building or leasing additional fiber capacity can be a cost- and time-effective alternative to laying additional transmission lines for data centers. A stronger price signal could encourage firms to use these fiber-optic cables to shift lower priority workloads to other data centers where electricity is cheaper.

AI could also make TOU pricing clear and simple for residential consumers to lower their bills. Residential TOU exists but is not widely implemented. It tends either to fail to incentivize consumers to shift their electricity use, or incentivize and create new demand peaks at the lowest-priced use times. AI could automate the system, smoothing the demand curve without forcing consumers to make complex calculations or shift all their affected use to a specific new time. It could allow residential consumers to determine how much of a trade-off between cost and convenience they are willing to accept and set their smart meter accordingly. A greater tolerance for reducing heating, air cooling, and other electricity use would result in lower bills. For example, a budget-minded consumer who set a preference to “lowest cost” would likely notice household temperature fluctuations as the system responded to real-time demand spikes. A less price-conscious consumer might allow only modest energy reductions, or none at all. Such a system could make TOU easy and intuitive to consumers while responding to real-time prices rather than average demand cycles.

TOU has already demonstrated the ability to shift demand from peak to off-peak times by several percentage points even when poorly implemented. In a state like New York, where peak demand reaches 34,000 megawatts (MW), shifting even 5 percent of peak demand to off-peak times would exceed the entire capacity of a brand new transmission line. The systemwide efficiencies gained from effective TOU pricing facilitated by AI could drive down peak electricity rates for both data centers and residential consumers. TOU pricing is especially effective at minimizing rates because it lowers the capacity clearing price paid and reserve margin of generation supply maintained by utilities to manage demand spikes.

Value-based pricing

Another systemwide reform that could help prevent a potential electricity consumer backlash against data centers is 24/7 value-based pricing. It would speed the addition of generation capacity to grids for use by both data centers and residential consumers. Pricing power by its value to the grid rather than its cost to produce makes it easier for grid operators to integrate new generation capacity. Solar and wind have a near-zero marginal cost of production, but integrating large volumes of intermittent power complicates grid balancing and threatens the commercial viability of much-needed dispatchable generators.

Requiring intermittent producers to price in the cost of battery back-up would create a competition on total value rather than marginal cost of production. This would prevent intermittent generation from bankrupting dispatchable power plants without being able to replace their generation capacity when the wind doesn’t blow or the sun doesn’t shine. These dispatchable producers rely on selling power consistently, not just when solar and wind are inactive. Value-based pricing would encourage investment in clean technologies like SMRs, BESS, and geothermal while easing pressure on dispatchable power producers that are key to balancing the grid.

Industry needs to drive reform

Both political parties have incentives to reform grid regulation, as it is needed to support the AI industry specifically and US industry generally, as well as to increase the use of clean power. Despite that, regulatory reform has consistently proved elusive. Large AI providers as well as data center operators are the only market players with enough clout to make reform happen.

Failure to push reforms through risks an electricity shortage and consumer backlash that deprives the AI industry of the energy that is essential for its growth. If the firms at the forefront of the AI revolution want to continue to innovate, they need to win friends and allies within their shared energy system.

Nate Mason is an energy advisor and government relations expert with twenty years of experience that includes service in the US Departments of State, Energy, and Commerce, as well as the US Embassies in Kyiv and Tripoli.

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Solving the US military’s gallium dilemma requires turning trash into treasure

Wed, 15 Oct 2025 13:00:00 +0000

In July 2023, China announced export licensing for gallium and germanium, sharply restricting flows and creating immediate friction across global supply chains. Spot prices for gallium spiked by more than 40 percent in Europe, leading to longer lead times andforcing chip fabs to draw down inventories and prioritize critical programs. Shipments could not leave China until licenses were approved, forcing sellers to wait, and some buyers to tap into stockpiles.

This event rattled more than just commodity markets; it exposed a fault line in the US defense industrial base.

Gallium has an outsized yet overlooked strategic value. Embedded in radars, missile seekers, secure radio frequency links, and satellite solar cells, this obscure metal is crucial for advanced electronic warfare systems. The United States produces no domestic gallium and lacks a government stockpile to cushion against Chinese weaponization.

This is the gallium dilemma: a small metal with huge consequences for US war readiness. Solving it does not mean new mines or scouring the globe for deposits. Instead, the United States must proactively recover gallium already flowing through the domestic industrial system—before it slips away as waste.

Gallium’s strategic stakes

Gallium is not a bulk commodity like copper or steel. The United States consumes only about 20 tons per year, enough to fit on a single flatbed truck. Yet that small volume anchors the entire US defense industrial base. Gallium is critical for the electronics supply chain and is needed for many advanced US weapon systems and satellites.

The irony is that gallium is both everywhere and nowhere. It exists in trace amounts in US ores processed daily, such as alumina, zinc, and coal residues. However, without a deliberate recovery strategy, gallium vanishes into waste products. China commands nearly 99 percent of primary output not because it discovered richer deposits, but because Beijing made the choice decades ago to recover gallium during aluminum production.

Export limitations should be treated as an opportunity to act before the next crisis. If an adversary can weaponize a couple dozen tons of gallium, then the United States’ economic, military, and technological edge is more at risk than most policymakers realize.

The supply dilemma

The United States cannot mine its way out of the gallium dilemma. Gallium rarely concentrates beyond a few parts per million, substituting invisibly into aluminum and zinc ores. Unlike lithium or copper, no ore deposit has been discovered in high enough grades to anchor a mine. The one historical exception was the Apex Mine in Utah, reopened in the 1980s to extract gallium and germanium from a uniquely enriched deposit. It shuttered within two years due to dipping commodity prices, ore quality issues, and costly metallurgy. Apex showed that primary gallium mining is not sustainable.

Apex’s closure left the United States wholly dependent on imports. Today, nearly all low-purity gallium originates in China, and only a single facility in New York upgrades imported feedstock and semiconductor scrap into high-purity metal. It is a critical capability, but far too limited to insulate war materiel supply chains from shocks. When China imposed export licenses, US buyers had no fallback beyond drawing down what little stock they held.

Other countries manage the risk differently. Japan and South Korea maintain government reserves of gallium as part of their broader critical minerals strategies. China is widely believed to hold state stockpiles, although quantities remain undisclosed. The United States, by contrast, does not include gallium in the Defense Logistics Agency’s Annual Materials Plan, nor is it present in the National Defense Stockpile.

Gallium is abundant in theory but inaccessible in practice. Every ton of alumina or zinc refined in the United States carries trace gallium. Capturing just 1 percent of that byproduct could meet US demand. But without dedicated recovery units, gallium disappears into red mud, slags, or smoke stacks.

US gallium security will not come from new mines; it requires policy choices that treat trace gallium recovery as seriously as any weapons program, especially before the next supply shock strikes.

From trash to treasure

The only path forward is to capture gallium where it already flows: existing industrial processes. A “waste to gallium” approach leverages infrastructure that already processes millions of tons of alumina, zinc, coal residues, and semiconductor scrap. The chemistry is proven. Now Washington must encourage industry to scale, qualify, and sustain output at the purity military materiel requires.

There are five ways for the United States to increase domestic supplies of gallium.

First, alumina refining offers the quickest way to increase the gallium stockpile. In aluminum production, most of the gallium dissolves into the caustic liquor, with the rest bound up in red mud waste. China’s decision to install capture units turned its aluminum refineries into a strategic asset. The United States has no such capacity today, though pilots are emerging. ElementUS, for instance, has 30 million tons of red mud in Louisiana and is testing flowsheets that recover gallium alongside iron, alumina, and scandium. The project underscores that, while gallium recovery rarely makes economic sense alone, it can be viable when folded into multiproduct strategies.

Second, zinc smelters can diversify sources and methods for gallium extraction, improving supply chain resilience. Gallium tends to concentrate in residues like jarosite and goethite, which can be leached and refined. Nyrstar, operating a major facility in Tennessee, has floated plans for a gallium-germanium recovery circuit capable of covering a significant share of US demand. The chemistry process is relatively straightforward and validated by National Laboratory tests, but financing remains elusive. Without targeted support, promising projects like this will never leave the drawing board.

Third, there is a need to secure gallium supplies through allies and partners. In 2025, Rio Tinto and Indium Corporation demonstrated gallium recovery at the Vaudreuil alumina refinery in Quebec, with pilot steps carried out in New York. European pilots like RemovAL are testing red mud leaching, while Japan and South Korea are investing in recovery processes. The pattern is unmistakable; countries that anticipate future scarcity are embedding gallium capture into their industrial ecosystems. US policymakers should encourage gallium recovery integration with allies and partners to maximize options.

Fourth, coal-based waste offers another gallium capture option. Fly ash and acid-mine drainage contain low concentrations of gallium. The Department of Energy has piloted mild-acid leach processes originally designed for rare earth elements that can be adapted to recover gallium. The economics depend on co-recovering other critical minerals, but the prospect of transforming waste piles into strategic feedstock shows the versatility of the approach.

Finally, the most overlooked—yet easiest—gallium recovery pathway is semiconductor scrap. A single US refiner in New York already upgrades scrap into high-purity gallium. While modest in scale, this capability provides military-grade material through shorter supply chains and clear traceability—advantageous for defense buyers who need secure, auditable sources. The United States should seek to increase the number of refineries recycling semiconductor scrap to build a high-purity gallium stockpile.

Three policy levelers for US gallium security

Recovering gallium from waste streams is not a scientific gamble; this chemistry has been proven for decades. What is needed are deliberate policy decisions to turn waste into war-ready gallium. Achieving this will require US financing, qualification, and stockpiling. Absent these choices, America’s industrial base will remain exposed to Beijing’s weaponization.

The first priority is qualification-first funding. For military applications, purity and delivery cadence matter as much as volume. Producing a few kilograms in a lab means little if the material cannot sustain continuous production at 99.999 percent purity or higher. The Department of Energy’s TRACE-Ga initiative, which requires 50 kilograms from a fourteen-day continuous run, is a step in the right direction. This model should be expanded, with defense agencies directly engaged to ensure outputs meet actual military needs.

The second lever is de-risking first-of-a-kind flowsheets. Banks rarely finance recovery circuits that have never operated at scale in the United States. Federal tools can fill the gap, including Loan Programs Office guarantees, cost-sharing through the Office of Clean Energy Demonstrations, and Defense Production Act offtake agreements calibrated in kilograms per month, not speculative tons per year. The Department of Energy has signaled nearly $1 billion in forthcoming funding opportunities across critical minerals, including byproduct recovery and processing. Targeted commitments would give investors confidence while avoiding stranded capacity.

Finally, Washington must establish a modest gallium stockpile. A reserve of at least 1,000 kilograms would buy time during licensing delays or supply shocks. Japan and South Korea already follow this gallium stockpiling playbook; the United States must now do the same.

As strategic competition deepens and global supply chains decouple, national power will hinge on securing the chemicals and materials that keep modern economies and militaries running. China’s export restrictions are a reminder that military success can depend on just a few kilograms of gallium. If Washington lets gallium slip into its waste streams, this hands Beijing more leverage.

The choice is clear. America must turn trash into treasure—or let rivals weaponize scarcity.

Macdonald Amoah is a communications associate at the Payne Institute for Public Policy where he conducts research on topics bordering on critical minerals and general mining issues.

Morgan D. Bazilian is the director of the Payne Institute for Public Policy and professor at the Colorado School of Mines. Previously, he was lead energy specialist at the World Bank and has over two decades of experience in energy security, natural resources, national security, energy poverty, and international affairs.

Col. Katrina Schweiker is a US Air Force physicist and military fellow with the Defense and Security Department at the Center for Strategic and International Studies. She has spent a decade working at the intersection of science and technology and military strategy.

The views expressed are those of the authors and do not reflect the official position of the US Naval War College, US Air Force, or Department of Defense.

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EU enlargement could redefine its energy geopolitics

Andrei Covatariu — Thu, 09 Oct 2025 15:54:44 +0000

Russia’s full-scale invasion exposed fundamental weaknesses in Europe’s energy infrastructure, especially within Central and Eastern Europe (CEE). Yet, after these vulnerabilities were exposed, CEE leveraged its strengths—building new liquefied natural gas (LNG) infrastructure, boosting renewable deployment, and expanding cross-border interconnections—to enhance energy security and reduce Europe’s dependence on Russia. These steps placed CEE at the center of Europe’s energy metamorphosis.

Now, as the European Union (EU) prepares for its next enlargement wave, involving several CEE candidate countries, it must carefully consider how to incorporate energy security and energy transition priorities in the process. Enlargement could either become a catalyst for competitiveness, energy security, and geopolitical influence, or it could deepen internal divisions and create geopolitical vulnerabilities.

Enlargement should drive energy and industrial strategy

The upcoming seven-year EU budget, the Multiannual Financial Framework (MFF), provides Brussels a rare opportunity to strategically fund additional cross-border energy infrastructure, including with EU membership candidates. These investments—interconnections, transmission grids, and storage facilities—are prerequisites for a resilient, integrated European energy market that can ensure secure and affordable energy, enhance competitiveness, and better absorb market or geopolitical shocks. In the current budget cycle, the EU has already channeled some funds through instruments such as the Connecting Europe Facility (CEF) and the Recovery and Resilience Facility (RRF) to upgrade grids, expand LNG capacity, and strengthen cross-border links. Yet, despite these steps, it remains unclear whether the next MFF will place an increased strategic emphasis on energy security investments, particularly in CEE and candidate countries, given the heightened challenges of recent years.

By prioritizing energy security in the MFF, Brussels could create a positive spillover effect that strengthens supply chains, accelerates market integration, and lowers systemic risks for candidate economies. Without such dedicated focus, candidate countries will remain structurally vulnerable to energy disruptions, supply shortages, and geopolitical shocks.

Supporting energy security infrastructure in candidate countries isn’t just about resilience—it’s about revitalizing EU competitiveness, especially in CEE. That is because high energy costs—compared to the United States and other global competitors—combined with limited grid interconnections and aging infrastructure undermine CEE competitiveness and keep regional prices persistently above the EU average.

Additionally, as the EU plans for Ukraine’s accession in particular, it must accelerate the country’s energy integration, which will support broader energy security and competitiveness imperatives. The war has destroyed much of Ukraine’s energy infrastructure, but rebuilding it offers the chance to embed clean technologies, decentralized grids, and critical interconnections from the outset. Ukraine’s gas storage infrastructure can bolster regional energy security, while rebuilding its systems and adding new components—manufactured in Europe with US partners—offers a chance to create jobs and drive innovation, with benefits extending across the CEE region.

This process must be transatlantic by design. US innovation in nuclear technologies—especially small modular reactors—as well as financing mechanisms for potential critical raw material or geothermal projects, could accelerate Ukraine’s integration into the EU’s energy architecture. Moreover, anchoring Ukraine’s accession within a broader energy reconstruction framework aligns geopolitical and economic incentives for both Brussels and Washington.

The 2040 test

In parallel with energy integration of candidate countries, EU enlargement also warrants consideration for how this integration will impact its emissions-reduction strategy. The EU’s recently proposed 2040 climate target to reduce emissions 90 percent from 1990 levels will reshape Europe’s energy sector and economy over the next two decades. This target, however, will be finalized before candidate countries join, leaving candidates to face a “take it or leave it” scenario: They will have to adopt highly ambitious, resource-intensive commitments without the ability to negotiate.

This approach risks undermining cohesion and creating political backlash in both candidate and current member states. To avoid this outcome, prospective members must be brought into these negotiations early to ensure that 2040 targets are achievable.

The diverse energy starting points of prospective member states—many still heavily reliant on fossil fuels or constrained by outdated infrastructure—raise critical questions about the EU’s ability to meet its 2040 targets while ensuring fair transitions that do not compromise either these countries’ economic development or the bloc’s collective climate goals.

The EU must consider the role of enlargement in shaping its climate and energy objectives—both internally and externally. Integrating new members into target-setting processes not only strengthens policy credibility internally, it also signals externally that Europe is pursuing a coordinated, continent-wide transformation.

Brussels’ geopolitical moment

In August, former Italian prime minister Mario Draghi issued a stark warning that Europe’s illusion that its economic size brings geopolitical influence has “evaporated.” Without coordinated action, he argued, Europe risks falling behind in industrial competitiveness, energy security, and global influence.

EU enlargement, if strategically tied to CEE energy security, offers Brussels a way back into the geopolitical game. By integrating candidate countries into its energy systems, investing in their infrastructure, and aligning transatlantic objectives, the EU can turn vulnerability into strength.

Europe stands at a crossroads. CEE has already proven its resilience in the face of historic energy shocks, but its future—and Europe’s geopolitical relevance—depends on how enlargement is managed. Investing in candidate countries’ energy security, embedding transatlantic partnerships, and negotiating fair climate commitments are not side issues; they are the foundation of Europe’s competitive, secure, and sustainable future.

Andrei Covatariu is a nonresident senior fellow with the Atlantic Council Global Energy Center.

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Why are major economies choosing the same electricity sources?

Joseph Webster and Hansika Nath — Mon, 06 Oct 2025 13:51:34 +0000

Brazil, China, India, Saudi Arabia, and the United States are all major economies and have distinct levels of economic development, resource endowments, and climate and energy security goals. Despite their differences, however, all five countries are overwhelmingly building the same energy sources for their new electricity capacity needs. Countries across every continent are turning to solar and wind because of their powerful economic and security benefits.

_{Sources: Ministry of Energy, Brazil; Ministry of Renewable Energy, India (2); National Energy Administration, China (2); General Authority for Statistics, Saudi Arabia; Federal Energy Regulatory Commission, United States}

_{Sources: Ministry of Energy, Brazil; Ministry of Renewable Energy India (2); National Energy Administration, China (2); General Authority for Statistics, Saudi Arabia; Federal Energy Regulatory Commission, United States}

New capacity by country and energy source

Brazil added only non-fossil power in 2024, with solar and wind comprising 97 percent of new additions. Despite Brazil’s abundant hydropower resources, the cheapest capacity additions are typically solar photovoltaics and wind turbines; these technologies also require no water and enable Brazil to hedge against droughts that have become increasingly frequent.

In 2024, India built 27.9 gigawatts (GW) of solar and wind, in addition to coal and nuclear energy. Despite new coal additions, almost 90 percent of India’s 2024 additions were from non-fossil sources, a clear direction of travel as the country bids to become a global solar hub.

China is taking an all-of-the-above approach to energy, installing more solar, wind, hydropower, nuclear, natural gas, and coal generation capacity than any other economy. Still, solar and wind accounted for 84 percent of capacity expansion.

The United States also predominantly built solar, wind, and natural gas capacity in 2024, as it continues to move beyond coal plant construction. Solar and wind will remain important elements in determining the United States’ durable competitiveness, as our colleagues David Goldwyn and Andrea Clabough write.

But Saudi Arabia’s turn to solar and wind may be the most surprising of all. In 2024 itself, Saudi Arabia imported 17 GW of solar panels from China and its 3.6 GW of solar capacity installations accounted for all new electricity capacity installed that year. Under the renewable strategy submitted by the Ministry of Energy to the UNFCCC, Saudi targets about 130 GW of renewable capacity by 2030. Saudi Arabia’s turn to low-carbon energy sources could also hold significant implications for global oil markets, as the Kingdom still uses oil for about a third of electricity generation—and up to 1.4 million barrels per day in the summer. As solar, wind, and batteries (and natural gas) displace domestic power burn, it will free up more barrels for exports.

Economic and energy security imperatives—not climate—are spurring renewables boom

These five economies include the world’s largest polluter (China) and the world’s largest crude oil exporter (Saudi Arabia). All are turning to solar and wind not out of climate idealism, but because it benefits their economic and energy security interests in the near-term. Indeed, most of the identified countries do not have net-zero targets or are currently not on pace to achieve their targeted net-zero emissions by 2060 or 2070—a decade or two after Western European countries plan to achieve their climate targets.

_{Sources: Climate Action Tracker, Brazil First NDC, India LT-LEDS, China UNFCCC, US UNFCCC, Saudi Green Initiative}

Global momentum favoring solar and wind will only continue to grow

Despite these countries’ lack of climate ambition, or even their outright reliance on fossil fuel exports, they are overwhelmingly turning to solar and wind for new capacity installations.

Solar and wind resources are deployed globally by disparate actors because of their clear economic and national security benefits. These technologies are inexpensive and modular, require no fuel, can be constructed rapidly, and reduce energy import dependencies. Once installed, and assuming proper cybersecurity precautions, they can operate without interference.

While solar and wind dominate new capacity, they alone cannot guarantee secure and affordable power. Other forms of energy, including nuclear, hydro, natural gas, and geothermal power, remain critical for balancing the grid. Still, solar and wind are dominating incremental electricity installations because they are simply cheaper and more useful for the artificial intelligence race than alternatives.

Other forms of energy have their purposes, but any country that flatly rejects solar and wind will find itself poorer and weaker.

Joseph Webster is a senior fellow at the Atlantic Council’s Global Energy Center and the Indo-Pacific Security Initiative; he also edits the independent China-Russia Report.

Hansika Nath is a young global professional at the Global Energy Center.

This analysis reflects their own personal opinions.

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Is grid resilience possible in the hyperscale era?

Andy Bochman — Fri, 19 Sep 2025 19:59:33 +0000

The US grid has been left to deteriorate. This year, a leading engineering society graded the country’s energy system a D+; 70 percent of transmission lines are more than 25 years old, 55 percent of transformers are near end of life, and the average lead time for new transformers is over a year. On top of all that, hotter and more frequent heat waves are degrading the grid.

Despite these deficiencies, new demands are being made of the system, from massive new “hyperscale” data centers and more electric vehicle charging stations to the onshoring of manufacturing. Additionally, as temperatures rise and cyberattacks boosted by artificial intelligence (AI) become more potent, the United States needs to invest in a more resilient grid—or risk an energy insecure future.

Past and future risks to grid reliability

Threats to electricity systems include many new and evolving digital and physical risks to companies, cities, and individuals, including disruptions to technological and communications services. On the physical side, floods, fires, and extreme heat events, which are increasingly posing physical threats to energy infrastructure. Digital threats come in the form of ransomware and other cyberattacks, and sometimes arise simply out of the enormous complexity of today’s systems. For example, the 2024 CrowdStrike disruption—which was caused by a faulty software update that crashed Windows systems worldwide—affected US Department of Energysystems as well as those at a number of electric utilities, and stranded or otherwise impacted 1.3 million airline passengers.

When these events occur, disruptions to commerce and society follow and highlight the obligations that infrastructure planners and defenders have to limit harm from such incidents—obligations that simply cannot be deferred.

And yet, upgrades to some of the most important parts of US critical infrastructure are being deferred. Today, on average, large US grid transformers, which are essential to electricity reliability, are past their designed lifespan, and the backlog for replacements is often three years or more. Grid operators—and all who depend on the grid—are forced to rely on this old equipment. Meanwhile, rising temperatures are aging grid components faster by increasing chemical and mechanical stress on them, which leads to reduced efficiency, faster degradation, and increased failure rates.

In addition to these long-standing challenges, three major trends have recently emerged that place additional pressure on the electric system: electricity-hungry, AI-powering data centers; the increasing number of electric vehicles and charging stations; and the electrification of everything, perhaps best represented by heat pumpsreplacing oil and gas-burning furnaces.

At the same time, the nation is confronted with operational risks and constraints that US grid managers are struggling mightily to manage, such as how to handle increasing shares of non-dispatchable renewable generation as well as rapid policy changes like executive orders to keep coal plants running and restart shuttered nuclear plants.

Disruption drives agile solutions

There is a way forward, inspired by past grid failures and wartime emergencies. When challenged with disruptions, grid operators have not only responded with agility but also applied lessons learned to greatly reduce the potential for future cascades.

The Northeastern blackout of 2003, for example, provided a major wake-up call. It affected 50 million people and cost about $6 billion. While numerous improvements followed, three in particular did much to improve the US grid’s resilience posture via enhanced communications: the installation by the Nuclear Energy Regulatory Committee (NERC) of a new conference bridge to greatly enhance communications during crises; the creation of a new set of procedures and protocols for reliability coordinator hotline calls; and enhancements to the decentralized system data exchange network with automated hourly uploads of outage data.

Another example—a far more devastating one—is Russia’s targeting of energy infrastructure in Ukraine. Under heavy attacks aimed at knocking out civilian infrastructure, Ukrainians, in a show of unity, deployed backup generators and battery packs in unprecedented numbers, adhered to strict schedules for electricity usage set by the utilities, and—as much as possible—decentralized power generation. Although the United States is not at war, the impacts of climate change and cyberattacks could have similar effects on infrastructure and require similar solutions. To address the growing demand for electricity, the United States must generate and deliver much greater quantities of electricity reliably, safely, and securely, all while limiting emissions. Enhanced demand management, as practiced with precision in Ukraine, is one tool that may help.

Anticipating future challenges

The truth is that the US electric system is not operating the way it was designed. That’s because its developers did not anticipate the arrival of such dynamism. Meeting new challenges will require leadership and collective will, and for society to make itself more resilient by preparing in advance for more and longer-duration outages with backup generators and microgrids.

To meet the challenges of a future where energy demand keeps rising, warming temperatures place new pressures on critical infrastructure, and cyber criminals threaten to cause massive disruption, the United States must leverage its collective imagination to rally its businesses and citizens to prepare for a less reliable grid. This is accomplished, in part, by full-scale exercises like NERC’s biennial GridEx series, as well as through regional resilience summits.

The property of resilience isn’t required until there is scarcity, a stressor, or other forms of adversity. It comes into play when an entity doesn’t have all that it needs or is under assault, but, by prior preparation, is not defeated.

Andy Bochman is the senior grid strategist for Idaho National Laboratory’s National and Homeland Security directorate.

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Jet fuel, China, and lanthanum: a hidden risk to US military power projection

Macdonald Amoah, Morgan Bazilian, and Jahara Matisek — Mon, 15 Sep 2025 17:31:50 +0000

The US military runs on JP-8 jet fuel. Besides powering bombers, fighters, and helicopters it also fuels most US Army vehicles like M1 Abrams tanks and even the tactical generators that keep forward operating bases alive. Most engines on US Navy vessels can also use JP-8, if needed. All of NATO uses the same fuel for its aviation assets, meaning JP-8 is the lifeblood of modern military power.

What few realize is that producing jet fuel at scale depends on a little-known rare earth element: lanthanum. It does not go into jet fuel itself, but lanthanum enables the refining process that creates JP-8. In Fluid Catalytic Cracking (FCC) units—the workhorse of a refinery—lanthanum stabilizes catalysts, keeps them from breaking down under high heat, enabling refineries to make jet fuel efficiently and flexibly. Without lanthanum, surging American jet fuel production becomes slower, costlier, and riskier.

Unfortunately, China controls most of the supply of this rare earth. Beijing has already weaponized minerals and materials, restricting exports of rare earths, critical metals, and chemicals to the United States. In a future crisis, China could easily restrict the flow of lanthanum into global supply chains, constraining America’s ability to make the fuel its armed forces need for warfighting.

If Washington is serious about tackling strategic mineral chokepoints, then lanthanum must be treated with the same urgency as semiconductors, batteries, and munitions. The questions are clear: Why does this obscure mineral matter so much for JP-8 production? And what steps can the United States take now to reduce its vulnerability and secure a reliable supply?

Why lanthanum matters

Producing jet fuel is more than just pumping crude oil into a refinery to get JP-8. Refineries depend on a series of high-temperature processes to break heavy hydrocarbons into lighter products like gasoline, diesel, and jet fuel. Lanthanum does not enter the fuel itself, but is embedded in a catalyst called zeolite Y to allow FCC units to run hotter, longer, and more efficiently. Thus, lanthanum gives refineries the flexibility to shift output toward jet-fuel range specifications when demand rises.

Without lanthanum, refineries can still make jet fuel, but there is a major trade-off: Catalysts wear out faster, output quality drops, and costs rise. Without lanthanum, it means less hydrocracking flexibility when the Pentagon or NATO allies need to surge JP-8 production. This may look like a minor chemistry problem, but it becomes a major upstream supply chain problem in a crisis, with economic and military readiness ramifications.

A supply chain exposed

Think of the lanthanum supply chain as four basic links: (1) lanthanum salts (usually carbonate or chloride), (2) catalyst producers who incorporate lanthanum-stabilized zeolite Y into finished FCC catalysts, (3) US refineries that run FCC units, and (4) the resulting product slate, including jet-fuel blending components. Recent industrial progress has added a domestic node at the first link: rare earths company MP Materials now produces lanthanum carbonate designed for FCC catalysts, with technical data showing its circuits meet FCC specifications. This is welcome progress because it diversifies supply inside the United States.

Yet the bigger picture remains sobering. Even with new US capacity, a large share of FCC-grade lanthanum is still imported, including Chinese-origin streams. If US–China tensions flare over tariffs, Taiwan, or the South China Sea, lanthanum could easily be added to Beijing’s export-control list.

The flexibility channel

A lanthanum shortage would not ground US military operations overnight. Refineries and catalyst vendors have various workarounds. But the effect would be insidious: it would erode operational flexibility and raise costs precisely when fuel markets are already tight.

One lever is to reduce rare-earth zeolite content or shift to lanthanum-lean formulations. Industry guidance is clear about the trade-off: reducing rare earth on the zeolite tends to reduce activity (at a given zeolite content and matrix activity) and can shift product qualities (i.e., octane/gasoline olefinicity on the gasoline side). These effects must be compensated by refiners through operating changes or additives, but those adjustments cost money, sacrifice performance, and take time.

The immediate impact of a lanthanum squeeze would show up as higher catalyst costs, shorter catalyst lifetimes, and modest penalties in efficiency—especially in FCC units run at high severity. The broader refinery can still meet jet and distillate targets by leaning more on hydrocracking and hydrotreating, but at the cost of hydrogen, severity, and potentially throughput changes. Accordingly, lanthanum exposure is more appropriately conceptualized not as a singular point of failure but as a parameter of operational flexibility and cost, marginal at the unit level yet consequential in aggregate across platforms.

A US plan for mitigation

The good news is that the United States is not powerless against this jet fuel production vulnerability. Unlike some rare earths used in advanced electronics, lanthanum’s role is concentrated in bulk catalyst production. That means three steps must be taken by US policymakers to improve economic and military resilience.

First, treat lanthanum as a strategic input. Just as the military pre-positions fuel and munitions, refineries supplying JP-8 should maintain small but reliable buffers of lanthanum-bearing catalysts. Catalyst change-outs can be aligned with supply visibility, so units are never caught short during a crisis.

Second, pre-qualify catalyst alternatives. Refiners can and should work with catalyst vendors to test lanthanum-lean or substitute formulations now. Research grants should also be provided to scientists trying to identify more efficient FCC processes with cheaper and better alternative materials. If those options become feasible, switching becomes an administrative choice instead of an improvised experiment when China imposes a stress test.

Third, expand domestic production. Companies like MP Materials are bringing new lanthanum products to market, but scale matters. Clear demand signals from the Pentagon—whether through the Defense Production Act, long-term contracts, or National Defense Stockpile purchases—can encourage investment and ensure at least two suppliers can meet US needs.

Lanthanum may be obscure, but it is a pressure point in the United States’ fuel lifeline. Without it, refineries lose the flexibility to surge JP-8 production—the single fuel that powers weapons systems across the joint force. China’s control over most of the world’s supply makes this a vulnerability that cannot be ignored.

Strategic competition is not only about missiles, ships, and bases. It is also about the hidden enablers that make joint warfighting effective. US leaders must scrutinize every step of its supply chains, from minerals to munitions, and ask where adversaries could exploit a dependency. Lanthanum is one such chokepoint. Addressing it now is far cheaper than discovering in a crisis that China holds the key to America’s fuel supply.

Macdonald Amoah is a communications associate at the Payne Institute for Public Policy at the Colorado School of Mines.

Morgan Bazilian is the director of the Payne Institute for Public Policy at the Colorado School of Mines and a former lead energy specialist at the World Bank.

Jahara “FRANKY” Matisek is a US Air Force command pilot, a fellow at the US Naval War College, and a fellow at the Payne Institute for Public Policy at the Colorado School of Mines. The views in this article are his own and not the official position of the US Naval War College, US Air Force, Department of Defense, or any part of the US government.

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Geoffrey Pyatt: Europe’s ‘independence moment’: a strong signal for continued transatlantic energy cooperation

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What von der Leyen’s call to ‘fight’ means for European energy and climate goals

Atlantic Council experts — Thu, 11 Sep 2025 18:33:38 +0000

European Commission President Ursula von der Leyen’s 2025 State of the Union speech called for Europe to fight for its security and economic prosperity. At the center of this “fight” is reliable, affordable, and resilient energy. The president explicitly tied energy access and security to quality of life, defense capabilities, and geopolitical standing.

Will this speech—aimed to set the political priorities for the year ahead—inspire European nations to align country policies and investments towards a unified energy front? Will they work toward completing energy market and infrastructure integration across borders, forging investment-friendly markets and political certainty? Ordo the competing applause and cackles signal deepening fragmentation in vision and priorities across Europe?

Atlantic Council experts provide their takes:

Click to jump to experts analysis:

Michal Kurtyka: The right message must be followed by real action

András Simonyi: What von der Leyen’s speech did—and did not—say

Andrei Covatariu: Europe’s energy balancing act: nuclear power recognition, softer climate rhetoric

Joseph Webster: Boosting European batteries is a start

Uliana Certan: Europe’s call for greater energy security could be met through the Black Sea region

Lisa Basquel: The road ahead for European energy security

Elena Benaim: ‘Made in Europe’ approach will strengthen both EU energy security and its alliance with the US

Europe’s ‘independence moment’: a strong signal for continued transatlantic energy cooperation

Reading President Ursula von der Leyen’s State of the Union amid the biggest wave of air strikes since the start of Russia’s full-scale invasion of Ukraine, it’s deeply inspiring to hear her description of Europe’s “independence moment.”

Importantly, she highlights dependence on Russian fossil fuels as a central element of this campaign. This European determination to end Russian energy imports and embrace reliable and much cleaner American LNG represents a success for several decades of transatlantic energy diplomacy.

Also notable is her focus on Europe’s commitment to energy transition, including a 30 percent reduction in emissions by 2030. At a moment when both Europe and the United States are focused on reducing China’s domination of clean energy supply chains, this is an obvious area for continuing transatlantic commercial cooperation. For instance, von der Leyen’s battery booster initiative should build naturally on what the United States has already been doing through the Minerals Security Partnership. Similarly, her strong endorsement of nuclear power as part of Europe’s strategy for energy independence suggests this as a priority focus for American companies working on next-generation nuclear and small modular reactor technologies.

– Geoffrey Pyatt is a distinguished fellow with the Atlantic Council Global Energy Center.

The right message must be followed by real action

European sovereignty. Greater unity. Strategic autonomy. Yes, yes, and yes. These were the key—if recycled—lines adopted by European Commission President Ursula von der Leyen in her “State of the Union” annual speech at the European Parliament yesterday. Europe is encircled and needs to take care of itself—that is the message…again. But will the words be followed with action?

This time, they truly must, as every day brings worrisome proof that the global context is deteriorating. The same morning von der Leyen was delivering her speech, Russian drones for the first time penetrated the European Union—in this case, across the Polish border. Internal social maneuverability and political leadership are worsening across the continent. Also on this 10th of September, French trade unions engaged in a general strike, which coincides with a motion of no-confidence for the François Bayrou government.

And in terms of energy sovereignty, which has become increasingly critical, there has been not much progress but quite a lot of deception. Northvolt, the only European hope to match Asian batteries, has collapsed. The Iberian blackout exposed a major weakness in grid management and, by necessity, led to a ramp up of dispatchable sources. Neither Enrico Letta’s nor Mario Draghi’s report recommendations from 2024 were implemented even though everybody largely agreed with them. The past year only proved once again a hard truth: wishing for different outcomes without imagining different inputs is doomed to fail.

Europe continues to be squeezed between the necessity of importing hydrocarbons and the desire to move forward the energy transition that fuels Asian manufacturing. It now not only depends on Chinese panels and batteries, but also its wind turbines and cars—both electric and conventional. These industries, of which Europeans were once proud, are now subject to a dangerous slowdown. High energy prices and their volatility discourage new investment and harm the profitability of existing industries. If Europe wants to pass from words to action, it needs to develop an independent vision of energy sovereignty and make it an operational issue not only subject to majestic speeches.

– Michal Kurtyka is a distinguished fellow with the Atlantic Council Global Energy Center.

What von der Leyen’s speech did—and did not—say

Von der Leyen’s State of the Union speech was an attempt to appease diverse political audiences, a goal that had her walking a very fine line. It was a wartime speech, which was powerful on the front end, focusing on continued support for Ukraine and surrendering to pressure from the left on Gaza. But the speech became muddled toward the end, as it morphed into a mere checklist and lost track of priorities.

To von der Leyen’s credit, she made an effort to again warn about the challenges Europe faces in an increasingly competitive and hostile global environment, while acknowledging that the Commission has been slow to act.

On energy, her statement that “it’s time to get rid of dirty Russian fossil fuels completely” was a clear rebuke to those who have been advocating a return to cheap Russian oil and gas. Also remarkable was her mention of nuclear as baseload power for more homegrown renewables, breaking with the past Commission consensus that it remain neutral on nuclear energy.

Her strong statement defending the trade agreement with the United States reflects growing criticism of the deal.

The speech, although valiantly delivered, still does not reflect a sense of urgency for Europe, but it does reflect the limits of the power of the Commission president in the face of a very divided Europe. While von der Leyen raised the famous Draghi report, European analyses timed for the speech note that only a small portion of the proposals in the Draghi report has been implemented.

– Andras Simonyi is a nonresident senior fellow with the Atlantic Council Global Energy Center.

Europe’s energy balancing act: nuclear power recognition, softer climate rhetoric

In her State of the Union address, President Ursula von der Leyen struck a notably pragmatic tone, prioritizing Europe’s competitiveness, defense, and strategic autonomy over major new climate announcements.

Transatlantic cooperation remained central to her message. Von der Leyen highlighted the EU-US deal, underlining its importance for protecting European jobs and portraying it as a stronger outcome than what others managed to secure—signaling both the strategic and economic weight of this partnership.

Nuclear power was explicitly acknowledged as part of Europe’s clean energy pathway, reflecting Brussels’ growing openness, influenced by France’s demands for greater recognition in the 2040 climate targets or by the US interest in nuclear projects, particularly in Central and Eastern Europe. Enlargement, too, was emphasized, reaffirming the European future of the Western Balkans, Moldova, and Ukraine—a development that must drive a deeper debate on energy security in these regions.

Notably, “green” and “climate” were mentioned only five times, compared to eighteen mentions in the last State of the Union in 2023, with the 2040 targets briefly referenced amid ongoing heated negotiations in Brussels. Energy affordability, however, remained a central theme of the address.

Despite drawing clear lines between friends and foes, von der Leyen underscored that Europe must remain “open to the world and choose partnerships with allies—old and new,” a statement that may reflect an evolving view of a multipolar global order.

– Andrei Covatariu is a nonresident senior fellow with the Atlantic Council Global Energy Center.

Boosting European batteries is a start

President von der Leyen’s “battery booster package” is a start, but the €1.8 billion for equity to boost production in Europe pales in comparison to over $230 billion in subsidies China lavished on electric vehicles (EVs) and batteries from 2009 to 2023—and even the United States continues to invest tens of billions of dollars in its battery/EV complex despite a less favorable policy environment. Europe risks being left behind in this cutting-edge technology.

It doesn’t have to be this way. Germany’s removal of the debt brake could prioritize battery and EV investment, while other northern European countries enjoy fiscal space that must be balanced against inflation risks. There’s also an urgent need to build on embryonic Europe-US cooperation in advanced batteries.

Finally, advanced batteries hold important security implications for European countries—especially Ukraine. Next-generation, Western-made batteries, with greater energy density, would enable Western forces to outrange Russian drones powered by Chinese batteries. With battery-powered, first-person view (FPV) drones changing battlefield tactics in Ukraine, the EU should prioritize battery investment.

Given batteries’ relevancy for Europe’s military, economic, and climate objectives, the Commission and Member States must build on the battery booster package.

– Joseph Webster is a senior fellow at the Atlantic Council’s Global Energy Center and the Indo-Pacific Security Initiative; he also edits the independent China-Russia Report. This analysis represents his own personal opinion.

Europe’s call for greater energy security could be met through the Black Sea region

Von der Leyen’s urgent call to rewire Europe’s energy map positions the Black Sea region as a key element in reducing dependence on Russian fossil fuels faster and advancing European energy independence. The “Energy Highways” initiative and upcoming Grids Package target persistent gaps in cross-border infrastructure in Central Europe. By prioritizing grid upgrades, new interconnectors, and faster permitting, the Commission signals that Black Sea offshore wind, nuclear capacity, and other clean energy projects can be integrated quickly if they are backed by committed investment and political will.

Von der Leyen’s reference to “crucial stability in our relations with the US” also has implications for regional energy security. Stable EU-US trade relations prevent tariff shocks that could disrupt important infrastructure development. The planned Vertical Gas Corridor would channel US and other non-Russian LNG into the Black Sea region, diversifying essential natural gas routes. In addition, US partnerships on nuclear energy, especially small modular reactors and Cernavodă modernization in Romania, would provide long-term, low-emissions power. These transatlantic links and EU initiatives collectively support the Black Sea’s development into an energy hub that is critical to Europe’s clean energy transition and strategic independence.

– Uliana Certan is a program assistant with AC Romania.

The road ahead for European energy security

Von der Leyen’s emphasis on energy infrastructure in the State of the European Union marks a positive step forward for European energy security and competitiveness. This suggests the Commission is responding to last year’s Draghi report warnings about permitting delays and grid constraints.

However, the slow pace so far in advancing European competitiveness raises doubts about how much this agenda will be acted upon. The Commission’s pledge earlier this year to phase out Russian fossil fuels by 2028 was long overdue, albeit a welcome rhetorical shift. But without proper diversification of energy sources, the EU risks replacing one dependency with another, shifting from Russian gas to increased US liquefied natural gas imports, and ultimately falling short of delivering the strategic autonomy that von der Leyen emphasized throughout her address.

Her call to double down on homegrown renewables, with nuclear as a baseload, and to modernize and invest in infrastructure and interconnectors is a promising step forward. For Central and Eastern Europe in particular, this could further accelerate progress toward meeting the EU’s 2030 climate targets while enhancing long-term energy security. Yet without national buy-in—as seen in Hungary and Slovakia’s resistance to the fossil fuel phase-out, and Austria’s recent legal opposition to nuclear settled by the court this week—these proposals risk becoming at best, slow moving, and at worst, more rhetoric than reality.

– Lisa Basquel is a program assistant with the Atlantic Council Global Energy Center.

‘Made in Europe’ approach will strengthen both EU energy security and its alliance with the US

Europe has learned the hard way that dependency can be weaponized. Ursula von der Leyen’s speech made this point clear by placing competitiveness at the heart of the European agenda. Safeguarding Europe’s economy and future requires urgent action.

From equity support for battery production to ensuring startups can scale with European—not foreign—investments, the State of the Union highlighted long-overdue measures that many in Brussels have been championing for years. If Europe wants to secure industrial leadership, its businesses need to flourish. For this reason, the introduction of Made in Europe criteria in public procurement—although considered controversial by many—should be considered an important tool to create the market signals needed to incentivize investments in domestic strategic clean technologies.

But building a stronger, more independent Europe does not mean building a protectionist one. Europe cannot afford ideology; pragmatism must prevail. The Trump administration forced this reality check upon the bloc.

Under a transatlantic lens, a more competitive Europe is not a US rival but a stronger ally. That should be the spirit guiding the EU and United States as they build on the recently announced trade deal. Von der Leyen is right: It’s not great, but it is the best deal possible, as Europe could not risk a trade war with its most important partner in a moment of deep geopolitical turmoil. Washington should welcome a Europe determined to stand on its own feet, because a resilient, autonomous partner for the United States means a transatlantic alliance capable of driving change together.

– Elena Benaim is a nonresident fellow with the Atlantic Council Global Energy Center

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The China-Russia natural gas deal is a distraction from LNG sanctions evasion

Olga Khakova — Thu, 04 Sep 2025 19:18:48 +0000

Russia’s full-scale invasion of Ukraine injected new urgency into the Kremlin’s push to reduce dependence on European buyers, after Putin’s failed gamble to weaponize gas supplies did not coerce Europe into abandoning Ukraine. With limited alternatives for West Siberian gas, geography, geopolitics, and market size point squarely to China.

Years of negotiations over the Russia–Mongolia–China Power of Siberia 2 pipeline culminated in a splashy memorandum of understanding (MOU) signed during Putin’s visit to China. Yet the obstacles to realizing what Gazprom’s Alexei Miller recently described as “the world’s biggest and most capital-intensive gas project” have only multiplied over the past three and a half years.

This geopolitical theater, however, should not distract the United States and Europe from a far more urgent priority: curbing Russian evasion of liquefied natural gas (LNG) sanctions and placing additional sanctions on remaining projects and volumes. Every loophole leaks funds that sustain Russia’s daily atrocities in Ukraine.

The Power of Siberia 2 won’t outpower economics

The potential economic benefits Russia aims to achieve through the gas deal remain highly uncertain. China’s gas demand is tapering, and long-term pipeline contracts lack the fungibility of LNG, which can be shipped globally. Most importantly, Russia’s war spending has drained its capacity to fund large non-military projects. Moscow needs this deal far more than Beijing, giving China the ultimate upper hand in dictating terms. Unsurprisingly, the MOU omitted timelines, budgets, and details on who would finance the pipeline. Moreover, even if Power of Siberia 2 comes online, Its full 50 bcm capacity would cover less than half of the piped exports Russia has lost through its self-inflicted gas cutoff to Europe.

That said, these are unprecedented times in energy security, and projects have advanced at record speed when fueled by geopolitical ambition. Should China pursue an aggressive energy-hungry artificial intelligence (AI) strategy, discounted Russian fuel could balance and complement robust renewable energy growth. For Beijing, this “optionality bonus” comes at little cost; for Moscow, however, the financial upside would remain meager—undercut by steep discounts, unfavorable loans, and flexible purchase terms shaped by China’s tough negotiating position. The only viable path forward would be if the project proved overwhelmingly beneficial for Beijing, with Russia motivated simply to avoid flaring or venting stranded gas.

This Pyrrhic MOU posturing is strategically timed: a challenge to the West’s resolve to apply additional pressure on Russia amid US efforts to broker a lasting peace, ongoing US–China trade negotiations, and the North Korea-China-Russia meeting.

New gas pipelines: A mirage while Russian LNG ships across the world

While this public relations stunt grabbed headlines, Russian liquefied natural gas and Russia’s efforts to triple exports in the next five years—not another empty pipeline—remains the financial lever for aggression and geopolitical leverage that calls for urgent measures. The Arctic LNG 2 sanctions have been a case study in effective sanctions statecraft: slowing development, delaying exports by at least a year, and adding significant costs to Russia’s ambitions to expand its LNG market. But sanctions are only as strong as their enforcement. History makes clear that Russia will inevitably resort to evasion, which is why every sanctions package must be followed by a crackdown and, if necessary, escalation through secondary sanctions.

Response from the West is crucial

China and Russia aim to sell the deal—and the alliance of aggressors it represents—as a decline of Western relevance and power; however, the United States and Europe have smart options on how to respond. The immediate potency of sanctions on Russia’s crumbling economy don’t require $400 billion in investments and decades to complete, unlike Power of Siberia 2. Sanctioning the Arctic 2 LNG exports to China and enforcing existing vessel and project sanctions, sanctioning Russian oil, and cracking down on parts and chemicals essential for the industry is precisely the kind of response China and Russia are hoping the United States will not deploy. Such a bold response would create leverage in establishing a just peace in Ukraine by choking off already dwindling funding for Russia’s aggression and forge transparency around global LNG trade, whether it’s for carbon accounting, maritime safety, or sanction compliance.

The United States and Europe hold the economic leverage. The question is: will they deploy the full pressure campaign needed to forge a safer, more energy-secure, and resilient world—or allow the China-Russia authoritarian narrative of Western decline to prevail?

Olga Khakova is a deputy director at the Global Energy Center

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Overheated and underbuilt: How to fortify the US grid in the face of heat waves

Frank Willey — Thu, 28 Aug 2025 14:05:47 +0000

Summer heat makes cooling a top priority, but it’s getting harder—and more expensive—to supply the electricity needed. Cooling and data centers are growing US electricity demand substantially, but the installation of new generation is not keeping pace, threatening both reliability and affordability.

Utilities and system operators must identify and implement short-term solutions that can maintain reliability and keep prices down while new infrastructure projects are built. A closer look at the Mid-Atlantic’s PJM Interconnection—which is struggling to meet heat and technology-driven demand increases—illustrates the challenges and opportunities for US transmission operators to build durable and affordable energy systems, even in the face of increasingly hot summers.

Rising prices in the US Mid-Atlantic

The PJM Interconnection—which serves 67 million people across thirteen states and the District of Columbia—completed its base residual auction for the year 2026–27, the first of several auctions designed to help ensure it has enough generating capacity to meet variable demand. Because electricity demand fluctuates throughout the year, consumers typically pay not only for the energy they use, but also to ensure there is adequate supply when demand spikes.

The auction clearing price reached a record high for the second year in a row—$329.17 per megawatt (MW)-day—equal to the cap imposed by the Federal Energy Regulatory Commission following a lawsuit led by Pennsylvania. Last year, the system-wide clearing price was $269.92, compared to $28.92 the year before. The massive price jump was driven by growing demand from data centers, changes to generator eligibility for the auction, interconnection delays, and grid constraints.

This spike hit consumers hard—in Washington, DC, for example, residents’ bills increased by an average of $21 in June 2025, nearly half of which is attributed to the capacity market. PJM estimates that this year’s auction will further increase bills by an additional 1.5 to 5 percent. Meanwhile, the operator is struggling to bring enough supply onto the grid to meet heat-related demand. PJM has issued several emergency maximum generation and load management alerts this summer, encouraging utilities and power generators to defer planned maintenance and maximize production, while advising customers to reduce consumption. In June, wholesale hourly real-time energy prices skyrocketed as high as $1,334 per megawatt-hour —110 times higher than PJM’s 2024 average.

Making PJM especially vulnerable to price increases is its high capacity of data centers in the country. The consultancy ICF predicts that PJM’s average electricity rates could skyrocket up to 40 percent within five years. PJM estimates that data centers will drive more than 90 percent of new power demand by 2030—therefore, finding short-term solutions to ensure adequate supply is critical.

Aging plants, few additions, and rising costs

PJM desperately needs additional capacity. Existing generators are retiring faster than new ones can replace them. The vast majority (72.1 percent) of retirements are aging, uneconomical coal plants, whereas new generators are almost entirely renewable projects. But because wind and solar electricity is intermittent, it requires greater capacity to replace dispatchable thermal generators. In its 2024 energy transition report, PJM projected that 41 gigawatts (GW) of retiring fossil fuel generation would need to be replaced with 84 GW of wind, solar, storage, and hybrid resources in a scenario accounting for existing state and federal policies through 2035.

However, PJM’s supply bottleneck is caused primarily by a long interconnection queue and drawn-out permitting processes, rather than a problem with capacity market pricing. Even when projects are built, stumbling blocks remain—in 2024, PJM built 4,500 MW of solar, 290 MW of wind, and 42.5 MW of storage, but 46,000 MW of generation capacity that cleared PJM’s interconnection queue remains nonoperational because projects face local opposition, supply chain problems, or financing issues.

The vast majority of newly proposed, planned, and constructed generators are renewable and do not receive a large share of the payments for having capacity available during peak demand hours. Wind and solar accounted for just 1 and 3 percent, respectively, of the generation that was committed in the auction and thus eligible for capacity payments, versus 45 percent natural gas, 21 percent nuclear, and 22 percent coal. Renewable resources receive revenue primarily from the energy market—the real-time price of power—because they are the most cost-competitive generation technologies. Generation resources of any kind can help address supply-demand imbalances, but these generation units are not being built at the pace required.

The capacity market provides revenue certainty to mostly dispatchable generation resources like nuclear and fossil fuels that typically generate electricity at a higher cost than renewables but are needed to buttress the grid and meet demand when it spikes. But the capacity auction has not yet sufficiently accelerated the buildout of new generation to meet system needs. As data center demand for constant power increases, so too will the cost of providing steady, baseload power. PJM’s market monitor estimates that data centers accounted for 63 percent of the price increase in the 2025/2026 auction—equivalent to $9.3 billion in additional costs that will be recovered from customers across the interconnection. Without proper management and diverse energy solutions, the growing costs attributable directly to data centers will be footed by households, rather than by data center owners, developers, the tech industry, and possibly public taxpayer funding.

Short and long-term solutions

PJM can take several actions to enhance grid reliability and affordability in the short term, including by expanding demand response programs, improving energy efficiency, installing grid enhancing technologies, continuing to expedite interconnection, and implementing artificial intelligence (AI) into grid operations. It must also devise new pricing strategies—a recent PJM proposal would exclude certain large-load customers from the capacity auction in exchange for being first to be curtailed if supply falls short, while Dominion Energy proposes creating a new customer class for data centers. Long-term, PJM must accelerate bringing new generators online, expand transmission infrastructure, and engage in long-term, coordinated, regional system planning.

Demand response and energy efficiency investments can help reduce peak demand pressures by incentivizing energy conservation with time-of-use rates. These programs may require the installation of new metering and billing systems so that both utilities and consumers can monitor and adjust usage in near-real time, as well as greater consumer awareness.

The most critical need is to upgrade existing transmission infrastructure and build additional lines to reduce congestion, deliver cheap power from neighboring systems, and improve reliability. Grid-enhancing technologies are the best short-term option, as they can vastly expand capacity for new generators and provide system operators with more flexibility, visibility, and control over the grid. Transmission line upgrades and expansions can enable the retirement of uneconomical energy assets by unlocking new or expanded points of connection for more affordable generators. Without an efficient process to connect additional generation capacity, federal officials can justify delaying coal and oil-fired plant retirements at a high cost to consumers on the basis of reliability.

Though data centers are a major driving force of the problem, AI tools can also be part of the solution by enhancing grid operators’ capabilities in tasks such as demand forecasting, fault detection, predictive maintenance, grid optimization, renewable integration, energy trading, customer analytics, cybersecurity, storage management, and automation.

Permitting reform and coordinated system planning are central to enabling the buildout of energy infrastructure and have gained bipartisan support. Utilities should deepen their regional collaboration on system planning in the short term to unlock mutual benefits. National efforts like the Department of Energy’s national transmission needs and planning studies should expand in line with the need for grid expansion in the longer term.

Finally, utilities should carefully consider cost allocation for new transmission projects when the benefits are nearly exclusive to data centers. An Institute for Energy Economics and Financial Analysis report found that West Virginia consumers were paying for grid upgrades that would benefit only new data center capacity, which is antithetical to the principles of the rate-making process.

Challenges ahead

In a region home to 67 million people and the most data center capacity in the United States, PJM’s inability to bring sufficient new generation online will threaten the reliability of the electricity system. But these issues are not exclusive to PJM.

The prospects for price relief are poor across the United States. The increasingly diverse energy mix, obstacles to new builds, and skyrocketing data center demand are compounded by a lack of federal support for the most competitive technologies. In addition to existing grid development and cost challenges, Energy Innovation estimates that the One Big Beautiful Bill will cause electricity rates paid by consumers across the United States to increase by 9 to 18 percent by 2035 and household energy costs to increase $170 annually by 2035.

Policymakers, utilities, businesses, and consumers must collaborate to implement both immediate and long-term solutions. Short-term actions like expanding demand response, adopting grid-enhancing technologies, and expediting interconnection processes can help bridge the gap while more substantial investments in generation and transmission come online. In the long term, accelerating the pace of generator installation and coordinated grid expansion will be essential to meet future demand, manage costs, and ensure the reliability of the electricity system.

Frank Willey is an assistant director at the Global Energy Center.

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US military readiness in the Pacific requires strengthening Guam’s power grid

Emma Sampson — Thu, 14 Aug 2025 19:28:35 +0000

Guam is a key logistics hub for US military posture in the Pacific. Located 4,000 miles west of Hawaii, Guam is twice as close to Beijing as Honolulu. As a US territory, Guam provides forward positioning from which the military can organize and launch missions without requiring host-nation approval, a distinct advantage over other overseas bases. This makes Guam vital to US defense strategy in a region shaped by rising tensions in the South China Sea and Taiwan Strait.

As five thousand Marines relocate from Okinawa to Guam, the island’s energy infrastructure, already strained from frequent outages and limited redundancy, faces increased load requirements due to new operational demands. To maintain uninterrupted power and ensure mission readiness, the Department of Defense (DOD) must fortify Guam’s energy infrastructure against cyber, natural, and kinetic threats.

The DOD in Guam

Guam hosts several vital military assets across all service branches. Naval Base Guam hosts Submarine Squadron 15’s five nuclear-powered fast-attack submarines and the Navy’s only two forward-deployed submarine tenders, which support vessels in the 5th and 7th Fleet areas. Guam’s Navy Munitions Command plays a critical role as a Tomahawk missile loading site, enabling submarine strike capabilities in the Pacific.

Andersen Air Force base hosts key resupply efforts, boosting the largest munitions stockpile in the Air Force and refueling aircraft like B2s and F-35s. Andersen also serves as a primary site for joint exercises with Pacific allies, including the annual Cope North trilateral exercise with Japan and Australia.

These mission-critical operations depend on a secure energy supply. A disruption of power on Guam’s military bases could delay fueling and maintenance operations, interfere with DOD cargo unloading on the island, and inhibit communications and radar.

Guam’s energy portfolio

Guam’s military installations rely primarily on Guam Power Authority (GPA), a public utility and the island’s only power company. While the military maintains some backup generation capacity such as the Navy’s 18 megawatt (MW) Orote Point plant, the DOD depends on GPA assets in Guam. Ninety percent (395 MW) of Guam’s energy generation comes from petroleum-fired power plants, which Guam is fully import reliant on. The rest of GPA’s power comes from renewables, primarily its two solar farms.

GPA describes a “critical shortfall” of power generation supply in Guam due to aging infrastructure and setbacks in opening a new power plant due to typhoon damage. GPA’s two largest capacity generator units, Cabras 1 and 2, are fifty years old. Concerns about Guam’s energy security were cited in a report accompanying the National Defense Authorization Act for fiscal year (FY) 2025, in which Congress noted concerns about weekly outages at Navy submarine piers. In addition to shortfalls in power generation, Guam’s energy infrastructure is prone to cyber, natural disaster, and physical threats.

Threats to Guam’s energy infrastructure

Cyberattacks

Guam’s geostrategic location makes its infrastructure a prime target for adversarial threats. Chinese state-sponsored cyber groups known as Volt Typhoon and Salt Typhoon have already demonstrated they can access military and critical infrastructure systems in Guam and the continental United States.

In 2023, Microsoft disclosed that Volt Typhoon had targeted critical infrastructure organizations in Guam through stealthy “living-off-the-land” techniques that aim to disguise malicious activity as routine network traffic. These attacks allowed Volt Typhoon to potentially disrupt key water and energy controls, and in some cases, the hackers were able to access camera surveillance systems at facilities. Chinese cyber groups were also responsible for breaches of California’s grid operator and a small Massachusetts power utility.

The director of the National Security Agency’s Cybersecurity Collaboration Center confirmed that Volt Typhoon focuses on targets in the Indo-Pacific region, indicating that cyber threats to Guam’s infrastructure are likely to continue as part of a broader attempt to weaken the United States’ ability to respond to potential conflict in the Pacific.

Natural disasters

Guam’s location in the Pacific’s “typhoon alley” makes its energy system vulnerable to natural disasters. In 2023, Typhoon Marwar struck the island, leaving 98 percent of the island without power, including at Andersen Air Force Base. Restoring power to the entire island—including repairing damaged transmission lines, substations, and other infrastructure—cost GPA $33 million and took nearly two months to complete.

Guam’s infrastructure remains insufficiently hardened against severe weather. Although GPA has made efforts to replace wooden utility poles with concrete and steel, overhead lines continue to be vulnerable. With only 22 percent of transmission lines and 19 percent of distribution lines buried underground, most of Guam’s grid remains exposed to high winds and storm debris, increasing the risk of outages.

Physical attacks

Power infrastructure is increasingly being targeted with physical sabotage, a vulnerability that could be exploited to disrupt power supply to key military installations. Attacks in the mainland United States, such as the 2022 substation shooting in North Carolina, demonstrate how low-tech methods can cause significant disruptions. Modified commercial drones have also been used to attack substations in Pennsylvania and Tennessee.

As emerging physical threats continue to evolve, Guam’s energy infrastructure must adapt to address them. Most of GPA’s substations are secured by chain-link fencing instead of concrete barriers, a vulnerability that could be exploited by threat actors to damage substations or the grid. Key facilities like the Piti power plant are located near major public roads, creating additional sabotage risk.

How to secure Guam’s energy system

The DOD, in partnership with GPA, should focus not only on increasing generation capacity, but also on protecting current assets from cyberattacks, natural disasters, and physical sabotage threats.

In 2024, GPA submitted a request for federal funding through the Federal Emergency Management Agency to support the One Guam Comprehensive Infrastructure Resiliency Plan, which would bury transmission lines and harden substations. Full funding has not yet been provided in FY 2025. Considering the importance of GPA’s resilience to US military operations, the DOD should coordinate with GPA to implement high-priority components of the One Guam plan, particularly those serving military installations. This includes reinforcing perimeter security by replacing standard fencing with concrete barriers to guard against physical threats, putting remaining overhead transmission lines underground, and relocating key substations to hardened indoor facilities to minimize exposure to storm damage and sabotage.

Given the persistent threats to Guam’s energy infrastructure, hardening cyber and physical defenses must go hand in hand with transforming the DOD-GPA relationship into a more integrated contingency response framework. Joint response and coordination plans from GPA and DOD for a cyberattack breach can be tested during regular coordination meetings or embedded into larger military training exercises. Military training such as the Air Force’s Resolute Force Pacific (REFORPAC) logistics and contingency response exercise could be expanded to include simulated cyberattacks on civilian infrastructure, such as GPA’s grid.

Similar training exercises have taken place at bases in the continental United States. Colorado’s Fort Carson partners with the local power utility to conduct an annual “black start” drill, simulating a power outage affecting both the base and the surrounding grid. Implementing similar field-based training exercises in Guam would allow DOD units and GPA to practice real-time coordination and refine response procedures before an actual incident occurs.

As Guam’s role in Indo-Pacific defense continues to evolve, the security of its energy infrastructure must keep pace to effectively counter emerging threats. In a region marked by rising geopolitical competition, the island’s ability to support forward-deployed forces gives the US a critical strategic advantage. Failure to secure the island’s energy infrastructure could prevent US forces from responding to military threats rapidly and decisively—undermining one of the key advantages Guam offers to defense strategy.

Emma Sampson is a former intern with the Atlantic Council Global Energy Center and a graduate student at Johns Hopkins University School of Advanced International Studies.

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Energy is key to Romania’s trade resilience

Uliana Certan — Wed, 06 Aug 2025 13:51:59 +0000

The recent US-European Union (EU) trade agreement will not have a uniform impact across Europe. In Paris and Berlin, the accord received a lukewarm reception, and, in some instances, sharp criticism. For Romania, in particular, the picture is more complex. It is an industrialized economy with significant technological advancement and economic complexity, but it is particularly vulnerable to external shocks. While the deal poses certain risks, however, this moment of disruption creates an opportunity for Romania to leverage its unique energy profile to increase competitiveness, advance its industrial development and defense sector, and grow its regional influence.

Details of the deal

The deal, which succeeded in easing trade tensions and averted a tariff war, places a 15 percent base tariff on most EU goods entering the United States, while select goods that Romania trades in (including aircraft, chemicals, pharmaceuticals, and semiconductor equipment) fall under a zero-for-zero tariff agreement or revert to pre-January tariff levels. In return, the EU has agreed to buy US products—including $750 billion worth of energy—and invest $600 billion in the United States. The terms have led many in Europe to worry that they disproportionately favor US interests, disadvantage EU industry, and expose member states to economic risks from reduced export competitiveness, price pressures, and increased US competition within the EU market.

For Romania, the risks from the deal lie less in the direct exposure of its firms to the US market and more from the country’s deep integration within European supply chains. The United States accounts for less than 2 percent of Romania’s total trade, while over 70 percent is with EU partners. Key Romanian exports, including electrical and electronic equipment, vehicles and machinery, depend heavily on close ties with major Western European manufacturers. If increased US tariffs cause EU exporters lose ground in the US market, Western European firms may be forced to cut back production or rethink their sourcing strategies, and Romanian inputs could be displaced from regional networks. Moreover, EU firms could face additional pressure if US producers outcompete them in the single market due to fewer tariffs and regulatory hurdles.

To make matters trickier, EU producers are still grappling with high energy prices, which impact their ability to remain competitive in energy-intensive industries. Liquefied natural gas (LNG) costs significantly more than pipeline gas, and it now accounts for over 50 percent of total EU gas imports, compared to just 23 percent in 2021. Moreover, US LNG, which is generally more expensive than LNG from any other supplier, accounts for 55 percent of EU LNG imports. Energy-intensive sectors in the EU face a clear competitive disadvantage against their US counterparts, which benefit from access to cheaper domestically produced natural gas.

However, Romania can turn these challenges into advantages to stabilize and protect its economy and capitalize on growing demand for new opportunities in transatlantic trade.

Leveraging Romanian energy

With Romanian supply chains vulnerable to shifting global trade dynamics, Romania has a clear incentive to double down on developing its energy sector to buffer its economy against potential disruptions.

The EU’s $750 billion energy commitment under the trade deal underscores the importance of energy for both sides, as well as the urgent need for reliable and affordable energy in Europe as it moves away from Russian supply. The various zero-for-zero tariffs also encourage restructuring supply chains in energy-intensive industries, such as semiconductors, defense, aerospace, and critical minerals, which are central to strategic competition in the 21st century. These sectors will rely on both more efficient and modernized fossil fuel systems as well as domestically generated clean energy to enhance long-term competitiveness and resilience and meet EU climate and diversification goals.

Romania is well positioned to meet these needs and to protect its own economic stability with its unique mix of energy assets and its location at the crossroads of key European energy routes. Its significant access to Black Sea gas reserves can complement US-sourced LNG imports from the United States and other suppliers that could link to EU markets through the Vertical Gas Corridor. Even as clean energy technology is developed to support the long-term goal of net-zero emissions, natural gas will continue to serve as a transition fuel that supports hard-to-abate heavy industry, strengthens energy security, and maintains industrial competitiveness. By investing in efficiency upgrades and affordable solutions for the supply, transportation, and infrastructure development of natural gas, Romania can expand its role in the energy market and stabilize its economy in the process.

Moreover, Romania is expanding its nuclear capacity with new conventional and small modular reactors, with support from US Export-Import Bank financing, US Trade and Development Agency grants, and partnerships with US firms. This approach aligns closely with the trade deal’s focus on nuclear technology within the EU energy purchase pledge and signals significant opportunities for Romania to deepen transatlantic cooperation and accelerate its nuclear development moving forward.

Further capitalizing on its energy resources, Romania is expanding its renewable capacity in hydropower, solar, wind, and green hydrogen, positioning itself to access EU financial support through the Green Deal and REPowerEU. This approach, which aims to surpass the EU target of 40 percent renewable energy consumption by 2030, promotes economic growth and job creation, modernizes its energy infrastructure, and develops integrated grids to support future electrification.

By leveraging its abundant energy resources and potential, Romania can play a critical role both domestically and within the EU, with far reaching impacts. By driving energy access, development, and security, Romania can boost overall production capacity and strengthen regional supply chains. It can also provide a sustainable foundation for growing its domestic energy-intensive sectors, especially its defense industry, a strategic priority given Romania’s role on NATO’s eastern flank. This would attract additional US and EU investment in Romanian military production, modernization, and mobility, which would further sustain the country’s economic stability.

Romania as a strategic energy hub

The US-EU trade deal reshapes the transatlantic economic playing field, and Romania must act decisively to turn expected challenges into long-term advantages. Increased competition and shifting supply chains within the EU present real risks. In response, Romania, with the EU’s support, should leverage its unique energy assets and strategic location, which offer a way to stabilize and grow its economy at a time of increased demand for reliable, regionally sourced, and clean energy. With a focused and proactive hybrid strategy for advancing nuclear, fossil, and renewable energy, Romania can transform this moment of uncertainty into a catalyst for sustainable growth as a multisource energy producer and exporter as well as a strategic energy transit hub.

Uliana Certan is a Program Assistant at the Atlantic Council Global Energy Center

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Hungary’s Russian oil deal threatens EU solidarity

By Sergiy Makogon

By striking a deal to resume Russian oil transit through Ukraine, Hungarian oil and gas company MOL undermines Europe’s collective action against Russia. The European Union must respond quickly and decisively with solidarity to close sanctions loopholes.

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Atlantic Council expands global presence with a new regional office in Bucharest

BUCHAREST, ROMANIA – JUNE 30, 2025 – The Atlantic Council, one of the most influential and globally active think tanks in the United States, announced today the opening of a new regional office in Bucharest. This new office will foster bilateral and transatlantic cooperation on key priorities including energy, security, infrastructure, economics, and advanced technology, […]

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What a new nuclear deal with Hungary means for US influence in Europe

Jennifer T. Gordon — Mon, 04 Aug 2025 15:31:48 +0000

Last week, Hunatom (Hungary’s nuclear energy development firm) and Synthos Green Energy (a private project developer in Poland) signed a letter of intent to support the construction of up to ten BWRX-300 small modular nuclear reactors, or SMRs. The BWRX-300 is a 300-megawatt SMR designed by US company GE Vernova, which has an agreement with Synthos Green Energy to sell reactors throughout the Central and Eastern European region.* Hungary joins a list of European countries that have indicated their intent to deploy these reactors, including Poland and Estonia.

Beyond its boost to the region’s energy production, the deal could have broader geopolitical effects. For one, it sets the stage for the European Union (EU) to spend more money on US energy imports, helping Europe fulfill the terms of the trade deal struck with President Donald Trump last week. It may also open the door to a closer relationship between Hungary and the United States, which could in turn strengthen transatlantic unity against Vladimir Putin’s Russia.

Until now, Hungary has shown little interest in US nuclear energy technologies. Although an EU member state, Hungary has also grown closer to Russia in recent years. This civil nuclear cooperation agreement might signal a policy shift, suggesting Hungary is looking away from Russia and toward the EU and United States. Nuclear energy agreements set up a one-hundred-year relationship between the countries involved, assuming ten years for project construction, eighty years for the life of the reactor, and another ten years for decommissioning.

The timing of Hungary’s SMR announcement coincided with news of the US-EU trade agreement, under which the EU pledged to buy $750 billion in US oil and gas by the end of Trump’s presidential term. The terms of the agreement also include “key US energy technology investments . . . notably in the nuclear sector for conventional and small modular reactors.” Although some experts have argued that the EU will have a hard time purchasing $750 billion in oil and gas from the United States, Hungary’s intent to buy up to ten GE reactors could represent a significant step toward fulfilling the EU’s trade pledge.

It’s important to note that Hungary still has a civil nuclear partnership with Russia. Hungary operates four VVER-440 reactors at its Paks nuclear power plant, which are Russian-origin technology, and which currently generate nearly half of Hungary’s electricity. Construction has started recently on VVER-1200 reactors, of which two units will be built at Paks II. Hungary and other EU member states, including Germany and Austria, have sparred over Hungary’s plans to build the two VVER-1200 reactors. In contrast, the Trump administration recently lifted US sanctions on the Hungarian project to upgrade the Paks nuclear power plant. Hungary’s apparent intention to continue its dependence on Russian technologies may indicate that it is merely hedging its bets and walking a fine line between its EU membership on the one hand, and Russia’s influence on the other.

The US Government has signaled its openness to increasing cooperation with Hungary in fields beyond nuclear energy, including defense, commerce, space, and other energy sources. Efforts in these fields will likely build on the nuclear energy deal and may encourage Hungary to build a closer relationship with the US and possibly move away from Russia’s influence.

Ultimately, whether this letter of intent indicates that Hungary is seeking a closer relationship with the United States—and perhaps even starting to turn away from Russian influence and energy dependence—remains to be seen. Regardless, this announcement is a step toward bringing Hungary closer to Poland and the EU more broadly.

Jennifer T. Gordon is the director of the Nuclear Energy Policy Initiative at the Atlantic Council Global Energy Center.

*GE Vernova and Orlen Synthos Green Energy are donors to the Atlantic Council Global Energy Center. The views expressed in this article are the author’s own.

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Ground-zero for the US AI energy challenge: A state-level case study

Andrea Clabough — Fri, 18 Jul 2025 13:00:00 +0000

AI growth, the advent of “hyperscalers”, and plans for new power-hungry data centers dotting the country from coast to coast have overturned previous assumptions of a stable US energy demand growth outlook. One state in particular is at the epicenter of America’s AI revolution: In 2024 alone, Virginia connected fifteen new data centers and anticipates adding another fifteen by the end of 2025. These are not isolated occurrences: already an established hub for US data centers, a recent WoodMackenzie report showed that Virginia lags only Texas as the top destination for newly announced data centers since January 2023 (boasting over 23,000 MW of capacity in the pipeline). Much of this development has been driven by Northern Virginia’s long-standing “Data Center Alley” concentrated around Washington, DC. Meanwhile, the state’s primary utility company, Dominion Energy, has suggested that the average Virginia ratepayer could see their power bills increase by 50 percent over the next fifteen years driven largely by power-hungry new data centers coming online.

As the Commonwealth considers the anticipated wave of new centers, its policymakers have an unmissable opportunity to lead the state toward a clear-eyed, viable path forward to reap economic benefits while ensuring both the affordability and sustainability of its energy system. None of these issues will be resolved quickly or easily but should be front and center as Virginia voters decide on their new governor this year and a new legislature.

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Past meets present

Virginia is hardly unfamiliar with the prospect of adding new energy generation capacity to support data center growth. In addition to being a technology hotspot, the state is already a major destination for energy investment abetted by state and local governments’ decarbonization and clean energy targets. In 2019, then-Governor Ralph Northam (a Democrat) signed an executive order prioritizing clean energy expansion across the state, including goals for Virginia’s power system to achieve 30 percent renewable energy resources by 2030 and 100 percent by 2050. The next year, the Virginia state legislature formalized these commitments in the Virginia Clean Economy Act, which remains in force.

These policies have borne fruit. One analysis found that Virginia ranks fifth of all US states in percent increase in renewable energy generation over the last decade, led by growth in solar generation capacity sufficient to power 750,000 Virginia residences. Next year, a 2.6 GW offshore wind project is scheduled to come online. Notably, Virginia’s clean energy growth record and long-term aspirations have been maintained under the state’s current Republican leadership.

Expectation vs. reality

Virginia’s renewable and clean energy goals, however, were developed before generative AI was widely commercialized and Virginia became a key destination for data centers.

A report from Virginia’s Joint Legislative Audit and Review Commission describes the growing challenge: while acknowledging that new data centers will benefit Virginia in employment and revenues, it warns that “unconstrained demand for power in Virginia would double within the next ten years, with the data center industry being the main driver.” Moreover, “[b]uilding enough infrastructure to meet unconstrained energy demand will be very difficult to achieve.” The fiscal implications of making necessary investments are potentially enormous with enormous implications for Virginians energy prices and power costs.

Virginia faces a herculean task to meet incoming demand growth via conventional or any other fuels—let alone address it in a manner that leads to net-zero emissions by midcentury.

Adding natural gas infrastructure, which currently supplies about half of the state’s electricity, faces two major barriers even apart from decarbonization considerations. First, the availability of new natural gas generation equipment, especially turbines, is sharply limited by supply chain bottlenecks (a situation complicated by uncertainty around the US international tariff slate). Second, constructing new natural gas power plants would likely entail expanding the network of associated infrastructure and interstate pipelines, which are time-consuming endeavors and can ignite local opposition (as the recent saga of the Mountain Valley Pipeline illustrates).

Similarly, renewables infrastructure can theoretically come online quickly but would entail a massive expansion of transmission, distribution, and long-duration battery storage capacity. Adding renewables also requires community buy-in, which is not always assured.

The way forward

Ample consideration must be given to how data centers are managed within Virginia—specifically in terms of regulations and requirements for new builds. Lawmakers debated a comprehensive state-wide AI regulatory proposal that was ultimately vetoed by Governor Glenn Youngkin (a Republican), but it is still possible to address specific energy infrastructure challenges through careful planning. Virginia officials should consider an approach that puts more responsibility on the hyperscalers themselves but also enables a constructive partnership between project developers, investors, policymakers, and local stakeholders:

The role of state officials

State officials could prioritize or incentivize new builds that can bring (and finance) their own on-site energy sources—ideally with abated, low, or zero emissions—to avoid straining the local grid system. They could also encourage new facilities in parts of the state with plentiful water resources such that the generators do not further strain areas vulnerable to water stress. Officials could adopt efficiency requirements for new builds (such as for technologies like advanced conductors) based on existing Power Usage Effectiveness (PUE) criteria, and establish guidance for continuous improvements (similar to the Energy Star model) suitable for this generation of AI.

Local and municipal leaders’ role

Local and municipal policymakers can take leadership in facilitating shared efficiency and mitigation strategies in high-concentration regions for new builds (such as Northern Virginia). Shared infrastructure (e.g., a distribution system built for a grouping of new centers) can mitigate costs and environmental impacts of new equipment.

Investor collaboration

Similarly, multiple investor stakeholders working together could procure, prepare, and operate less commercialized fuel sources like small modular reactors, or develop local carbon sequestration and other abatement options. They could also establish a community fund supported by local project developers to provide monies for areas like local transmission and distribution upgrades, regional transmission and upgrades in cases where imported power from other states is necessary. Such measures can help to reduce inflationary pressure for regular ratepayers and could be managed by city/regional officials and be subject to public oversight.

When to say ‘no”

Importantly, there are likely to be instances where the potential economic benefits associated with certain proposals must be carefully balanced against wider societal impacts—such as the impact of a project on energy access, affordability, and the state’s decarbonization objectives. In cases where proposed data centers fail to meet certain requirements, officials should consider placing them lower in the interconnection queue for review and connection to external power sources. Likewise, new projects may simply be forced to wait regardless of their merits in order to shore up critical infrastructure for constituents who already rely on it. For those developers determined to operationalize as fast as possible, creative solutions or a heightened burden on said developer may be necessary. Policymakers should decide their criteria for “Yes,” “Maybe,” and even “No” since time is of the essence. They should also prepare to coordinate on those policy choices with relevant leadership at other levels of government.

The here and now

Virginia faces a tremendous task ahead: balancing its energy and climate aspirations with a rapidly changing techno-economic context impacting the entire state is no small feat. Thoughtful consideration of both the immediate benefits and long-term implications of today’s decisions is essential, as is a careful eye to energy insecurity and affordability problems percolating throughout the state as matters stand already. To be sure, the AI revolution shows few signs of slowing down. Appropriate policies to smooth the bumpy road ahead should be prepared here and now.

Andrea Clabough is a nonresident fellow with the Atlantic Council Global Energy Center

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Europe has a heating strategy—now it needs one for cooling

Andrei Covatariu — Mon, 14 Jul 2025 13:12:41 +0000

For decades, European policymakers have defined energy security primarily as maintaining heat during winter. From strategic gas reserves to household subsidies, systemic, top-down responses have shaped the continent’s heating strategy.

But a new threat is emerging. The record-breaking heat wave sweeping across Europe is disrupting daily life, energy systems, and health services, exposing how unprepared Europe remains for summer extremes that are becoming longer, hotter, and more frequent.

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A haphazard approach takes its toll

Unlike heating, Europe’s approach to cooling has been chaotic, fragmented, and inequitable. Air conditioning has spread rapidly, but mostly in wealthier households or commercial spaces. Many of these systems are inefficient, poorly maintained, and installed in under-insulated buildings, adding strain to the grid.

Cooling was never a strategic priority for Europe. Whereas the continent has coordinated heating networks, subsidies for fuels like natural gas, and extensive regulatory frameworks that ensured broad-based access to heat, cooling emerged largely in response to individual discomfort. It arrived household by household and office by office, not through systemic planning. As a result, the systems that serve Europe’s cooling needs are largely unregulated, technologically outdated, and inequitably distributed.

Confounding variables deepen the energy trilemma

Cooling is emerging as a more complex challenge than heating. Electricity demand during heat waves doesn’t just spike for a few hours—it stays high for days, or even weeks. Meanwhile, droughts reduce hydropower generation, while both low flows and warm river water can’t cool nuclear reactors—recently hampering output in France and Switzerland. Heat waves can also disrupt coal or gas; in Germany, low river levels left coal ships stranded, severing fuel supply to power plants.

Grid infrastructure is affected too. Wildfires have damaged grid components, and when transformers and cables overheat, maintenance becomes more difficult, making blackouts more likely.

These are not isolated events; they are part of a growing pattern of compounding risks triggered by extreme heat. Such systemic shocks impact not only energy security, but also the remaining two dimensions of the energy trilemma.

On affordability, prolonged high demand for electricity drives up power prices. That hurts low-income households the most—especially those who can’t afford efficient cooling systems or are stuck in energy-leaking buildings. Meanwhile, businesses incur mounting operational costs, adding economic friction during peak summer activity. Energy poverty, once viewed mainly through the lens of winter heating, is now a summer concern too.

On sustainability, the picture is equally bleak. During heat waves, renewable generation alone is insufficient to meet increased demand, so utilities fall back on coal and gas. For some European Union (EU) countries, this means Russian fossil fuels—precisely the dependency the bloc is trying to escape. The rise in summer gas-fired power generation also coincides with the period when EU member states are replenishing their gas storages for winter, creating a double strain on gas markets and upward pressure on prices. The environmental costs stack up in a vicious cycle: higher temperatures drive power demand, fossil generation meets it, and emissions climb.

Policy gaps leave serious risks unaddressed

Despite the clear and growing risks, the EU lacks a comprehensive strategy to address cooling. The recent European Clean Industrial Deal doesn’t recognize the distinct challenges posed by rising cooling demand. Its associated Action Plan for Affordable Energy does make reference to a heating and cooling strategy that aims to increase energy efficiency and decarbonize the sector, but nothing specific is mentioned on how to ensure clean, reliable, and affordable cooling across Europe.

However, the EU has taken initial steps to integrate cooling into its building policies. The recently revised Energy Performance of Buildings Directive, adopted in 2024, includes provisions that recognize the growing importance of cooling. While these elements are welcome, they remain largely embedded in the broader framework of building renovation and energy efficiency—still falling short of a dedicated, systemic strategy to address cooling as a pillar of energy security.

This policy gap is particularly dangerous given Europe’s industrial ambitions. The EU wants to lead in cleantech, reshoring production and building strategic autonomy in energy-intensive sectors. But cooling affects industrial competitiveness as well. Extreme heat disrupts manufacturing and supply chains, burdens logistics, and exposes companies to volatile power prices. Without resilient cooling infrastructure and reliable energy supplies, Europe’s industrial transition risks stalling.

The absence of a cooling strategy is also a missed opportunity for innovation. Smarter, cleaner alternatives already exist: district cooling networks, passive building design, heat-resilient urban planning, and next-generation thermal storage. These technologies can reduce peak electricity demand, cut emissions, and improve equity, but they require regulatory support and investment. Market forces alone won’t drive their adoption quickly or at scale. Keeping Europeans cool without driving up costs will require a balanced mix of smart policy, efficient technology, and public awareness.

A coordinated approach requires multi-level financing

Financing these solutions remains a challenge. Because cooling has cross-cutting impacts across electricity generation, grid stability, building standards, and public health, funding responses must be multilayered and coordinated. At the EU level, accelerated support for electricity grid infrastructure and clean, reliable generation remains essential. Equally important, member states will need to mobilize both public and private capital to rapidly improve energy efficiency, particularly in older buildings. New developments should be supported by planning frameworks that encourage district and building-level cooling systems from the outset. At the same time, funding—whether from existing or new EU mechanisms—must also help replace outdated and inefficient air conditioning units with modern, climate-friendly alternatives. Finally, consumer-led initiatives and digital tools that empower households and businesses to monitor, manage, and reduce their cooling consumption will be critical to ensure systemwide resilience.

Europe must act decisively, just as it has systematized its approach to heating. That means setting binding energy efficiency standards for both equipment and buildings, accelerating the deployment of building-integrated solutions over room-by-room fixes, and directing targeted investment into grid modernization and climate-resilient energy infrastructure. It also means embedding cooling into broader adaptation strategies, treating it not as an auxiliary issue but as a frontline energy security matter.

Cooling is not a privilege. It is fast becoming a cornerstone of public health, economic stability, and geopolitical security. A Europe that fails to prepare for extreme heat will find itself in crisis after crisis—burning more fuel, spending more money, and drifting further from its climate and energy goals.

Andrei Covatariu is a nonresident senior fellow with the Atlantic Council Global Energy Center.

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Strong currents, stronger alliances: Reinforcing the EU’s Black Sea energy strategy through transatlantic collaboration

Andrei Covatariu — Fri, 27 Jun 2025 18:57:40 +0000

The Black Sea region serves as a geostrategic crossroads for great power competition, acting as an intersection for Europe, the Caucasus, Central Asia, and the Middle East. In response to Russia’s 2022 full-scale invasion of Ukraine and its subsequent ramifications, the European Union has reaffirmed the region’s significance and recently issued a joint communication outlining its strategic approach for the Black Sea basin.

The document, though not exhaustive, establishes a strategic framework for the region, characterizing it as a “hub of security, stability, and prosperity.” Central to this dynamic is the region’s role in broader European energy security, which Russian aggression has demonstrated is essential to national security. What the plan fails to recognize, however, is the significance of the transatlantic partnership in empowering Black Sea nations—home to major energy infrastructure and untapped gas and renewables resources—to maximize their capacity in this role.

Despite the current challenges in EU–US relations, the number of strategic partnerships and international alliances in the Black Sea region demands a thorough evaluation of how transatlantic cooperation could enhance regional and broader European energy security.

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Bridge over troubled water – Why the transatlantic partnership matters more than ever

The Black Sea region stands at the convergence of multiple geopolitical and economic blocs, including NATO, the European Union, and the Energy Community (for prospective EU member states). The region also serves as a battleground for great power competition, characterized by Russia’s persistent use of hybrid tactics, China’s growing interest as an entry point to the EU markets, the EU’s ambitions for an expanding and unified single market, and the US’s emphasis on strategic partnerships.

Figure 1. Three geopolitical and economic blocs converge in an extended region around the Black Sea

The collaboration between the European Union and its transatlantic partners is essential for improving energy security preparedness and the resilience of critical infrastructure. Although Brussels and Washington may currently have differing perspectives on various matters, the strategic energy significance of the Black Sea region, particularly in light of current security and geopolitical challenges, cannot be overlooked.

Similarly, the region’s resources present a significant opportunity for Black Sea nations (specifically EU member states) to leverage energy diplomacy. The win-set between the EU’s energy targets and the United States’ energy policy goals, though arguably limited, achieves an optimal equilibrium in the region, with objectives serving as either joint EU-US priorities (e.g., infrastructure and connectivity, geothermal, clean manufacturing technologies) or being tacitly endorsed by them (e.g., nuclear development, gas explorations in the Black Sea).

The successful implementation of the EU’s new Black Sea strategy, which leverages a diverse range of internal mechanisms, will significantly hinge on proficient transatlantic coordination. The United States and NATO provide essential resources, strategic weight, and credibility to a region where robust energy infrastructure resilience is critical for national security.

Collaboration with transatlantic allies is essential for reinforcing the EU’s initiatives in energy infrastructure protection, which includes maritime safety, cybersecurity, and hybrid threats preparedness. NATO members in the region already play frontline roles, and the recent NATO summit’s increased attention on dual-use civilian and military applications corresponds with the EU’s initiative for improved mobility, energy connectivity, and infrastructure resilience in the area. Furthermore, evaluating (and later auditing) dual-use investments and their expected contribution to the 5 percent defense spending goal relies on recognizing synergies between the European Union and the North Atlantic alliance. Strategically aligned investments in rail, ports, and energy infrastructures that facilitate logistics and defense goals will be essential. In this context, collaboration between the EU’s mechanism and other US-supported platforms, such as the Three Seas Initiative, would bolster the region’s strategic priorities, rather than increasing the risk of redundant investments.

Transatlantic alignment would also enable the EU’s other energy security objectives. It would facilitate the bloc’s development of energy transmission lines, including a green energy corridor through the Black Sea. Leveraging US expertise in critical infrastructure would expedite the deployment of cross-border capacities. Collaborative strategic planning—particularly in Moldova, Georgia, and even more so in Ukraine—would enhance supply diversification and strengthen regional resilience against energy weaponization. Furthermore, the United States’ leading expertise in nuclear energy and its regional partnerships would substantially enhance the European Union’s energy security while complying with the EU’s 2050 climate neutrality objectives. Similarly, offshore gas explorations in the Black Sea would guarantee the stability of supply security in the short to medium term, facilitating the transition to cleaner energy by 2050.

Ultimately, Turkey’s intricate status as a NATO ally and EU partner (and long-term candidate) highlights the necessity of transatlantic unity. Turkey’s roles in Black Sea security, its significant position as an EU partner for energy security, and its regional diplomatic capabilities render it an essential ally; thus, alignment between Brussels and Washington is crucial to foster constructive engagement while addressing geopolitical sensitivities.

Uncharted territories

The EU’s enlargement, including Ukraine’s reconstruction, is another essential factor in its energy landscape and demands substantial collaboration between the EU and its member states on the one hand and the US on the other. The process is evolving into a strategic tool for enhancing energy security and regional resilience in the Black Sea, transcending mere political alignment—it facilitates the integration of vital partners into the EU’s energy market structure, climate efforts, and energy security frameworks. Prospective members’ energy systems face considerable technical and environmental obstacles; thus, transatlantic support is crucial to expedite energy investments in alignment with the EU’s 2040 and 2050 energy and climate goals.

The reconstruction of Ukraine will serve as a pivotal case study: revitalizing its energy infrastructure with an emphasis on cross-border connectivity and clean energy technologies, while harnessing the nation’s vast onshore and offshore resources, will not only facilitate its integration into the EU but also enhance regional energy stability and promote decarbonization.

In this context, the transatlantic partnership is indispensable. Financial and technical support from the United States—through public and private collaborations—would help mitigate risks tied to investments in grid modernization, resource exploration, and cross-border infrastructure in Ukraine, as well as in neighboring countries contributing to the reconstruction process. Furthermore, collaborative EU-US support can guarantee that reconstruction adheres to European regulatory standards and overarching strategic interests, establishing a foundation for a more robust and integrated Black Sea energy sector.

Andrei Covatariu is a nonresident senior fellow with the Atlantic Council Global Energy Center.

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Power Africa can help boost American energy dominance

Molly Moran — Fri, 27 Jun 2025 13:50:59 +0000

The Trump administration recently paused funding for Power Africa, an initiative to facilitate investment to expand electricity access, to reconsider if it aligns with US interests.

At a time when the administration is focused on national security interests and economic opportunities, investing in African energy infrastructure may seem like a diversion of resources. But, on the contrary, it strengthens US supply chains, reduces Chinese market control, and opens profitable avenues for American firms. In this context, Power Africa should be repositioned not as foreign aid, but as a strategic investment in this administration’s energy dominance agenda. By reimagining key projects, prioritizing strategic energy partnerships, and enabling American business expansion, Power Africa can bolster US supply chain security and counter Chinese influence in Africa.

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Successes in US-Africa energy collaboration

Started in 2013, Power Africa aimed to double electricity access in sub-Saharan Africa by leveraging US aid dollars to de-risk private investment. In just a decade, $7 billion in US funding catalyzed more than $80 billion in commitments from African governments, the private sector, and multilateral development banks. The initiative was part of a broader strategy to increase US influence in Africa, where China’s Belt and Road Initiative has a significant presence. During its tenure, Power Africa added 14.3 gigawatts of electricity across Africa and engaged over one hundred US companies to market opportunities in Africa.

These accomplishments demonstrate how US public-private collaboration through Power Africa has opened new markets for American firms while simultaneously challenging China’s dominance in Africa’s energy development.

US Energy Secretary Chris Wright reaffirmed the US commitment to the continent at the Powering Africa Summit in Washington, DC, on March 7, despite Power Africa’s projects ceasing in late February. Wright stated that Africa needs “more energy of all kinds”—from oil and gas to renewables—and said the US government would prioritize mutually beneficial partnerships but without a “top-down grand plan” to make that happen. However, Power Africa projects currently remain frozen.

Increasing African energy access is in the US’ interest

Power Africa is not just about energy access—it promotes US business. Africa’s energy sector is among the fastest growing in the world. During Power Africa’s tenure, US firms engaged in over $26.4 billion worth of deals in generation, transmission, and off-grid systems. Through a redesigned Power Africa, American firms could provide gas turbines, microgrids, and modular energy systems to Africa. This would strengthen US energy companies, which in turn aligns with the administration’s energy dominance strategy.

If the Trump administration decides to cease all or most Power Africa projects, US businesses could face reduced access to emerging African energy markets. Ending Power Africa creates an opening for China, Russia, or even the European Union to offer financing and infrastructure support instead, strengthening their geopolitical influence and substantially limiting the opportunity for US investment in the region. In other words, Power Africa is not aid, it is a pipeline for American exports and a mechanism to strengthen US export competitiveness in global energy geopolitics.

Africa can bolster US supply chain security

Increased US-Africa collaboration has the potential to support more secure and diversified supply chains for US manufacturing. As automakers and other industries actively seek to reduce dependence on China for critical minerals, African countries are emerging as important partners in the global battery material supply chain.

Access to stable, affordable electricity is foundational for scaling mining and mineral processing operations. While increased access to power at mining and processing sites in Africa does not guarantee investment will flow, it lays the essential infrastructure that makes development possible. US support to upgrade underdeveloped grid infrastructure and invest in new power generation can help meet the energy demands of mineral production and help the United States secure a stable supply for domestic battery and electric vehicle production. Programs like Power Africa can offer miners an alternative to the Chinese financing that dominates the sector, expanding US access to ongoing operations. For example, financing solar microgrids as a cost-effective and scalable power solution for remote mining operations in the Democratic Republic of the Congo would simultaneously boost Congolese mining productivity, support US supply chain resilience, and ensure reliable access to essential battery materials outside of China’s control.

Countering China

China has a growing presence in Africa, becoming the largest investor in renewable energy on the continent. Chinese entities are also expanding their control over grid infrastructure and mineral extraction, raising concerns about Beijing’s geopolitical influence. Power Africa provides an opportunity for the United States to counter China’s power in Africa by offering alternative partnerships that promote transparency and sustainable development.

From 2000–22, China provided $52.4 billion in loans to Africa’s energy sector, with over half allocated to fossil fuel projects. This significant investment positions China as the dominant player in Africa’s energy landscape. Without continued engagement through initiatives like Power Africa, the United States risks ceding the limited foothold it had established, allowing China to further consolidate its influence through state-backed financing, large-scale infrastructure deals, and favorable trade deals. Without a credible alternative to Chinese financing like Power Africa, Chinese state-owned enterprises will continue to outmaneuver US firms and lock in resource access critical to global energy markets.

Reenvisioning Power Africa for an era of US energy dominance

Wright is justified in recommitting to Africa, as partnerships across the continent can further US interests. The National Energy Dominance Council, of which Wright serves as vice chair, aims to make the United States a global leader in energy production—that requires not just fossil fuel production, but also securing critical minerals needed for new energy technologies in an all-of-the-above energy strategy.

Critics—including those in Africa—have argued that Power Africa has been too focused on renewables. The program should indeed cast a wide net, as Wright noted. In fact, Power Africa has also invested in gas, and was “never a climate initiative,” according to its former deputy director, Katie Auth. It was “always a project backed by US firms and driven by US economic viability.”

Under a new administration focused on US energy dominance, Power Africa should be seen as an enabler of that agenda, rather than a hindrance. Power Africa doesn’t contradict the America First doctrine; it advances it. Power Africa enhances US energy security by enabling critical minerals development, expanding US firms participation and business in energy projects, supporting American jobs and technologies, and securing long-term geopolitical influence and competitiveness—all of which are core pillars of energy dominance and the administration’s goals more broadly. If the Trump administration doesn’t act, China will.

Molly Moran is a former young global professional at the Atlantic Council Global Energy Center.

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Energy security is only achievable through global partnerships

Elena Benaim, Paddy Ryan — Thu, 19 Jun 2025 00:48:48 +0000

What transatlantic energy cooperation looks like under America First

The panel “Partnership for prosperity: Can the US and Europe both win in the America First era?” addressed the evolving landscape of transatlantic relations, focusing on both the challenges and opportunities that lie ahead. The discussion was moderated by Olga Khakova, deputy director for European energy security at the Global Energy Center (GEC), panelists included Amb. Richard Morningstar, founding chairman of the GEC and former US ambassador to the European Union (EU), Torgrim Reitan, chief financial officer of Equinor, Toby Rice, president and chief executive officer (CEO) of EQT, and Klaus Wiener, member of the German Bundestag.

A central theme throughout the conversation was the enduring connection and shared values between the EU and the United States, grounded in a long-standing alliance. Wiener affirmed “we are very strong allies,” while Reitan added, “we belong together.” These comments underscored the historical and strategic ties between the United States and Europe.

While acknowledging the relationship’s current difficulties, all panelists agreed on the need to find common ground and foster a forward-looking agenda rooted in mutual interests. The panelists raised liquefied natural gas (LNG) as a focal point of transatlantic cooperation. “Europe needs security and flexibility and US LNG can provide for that,” said Rice, highlighting LNG as a central issue in US-EU negotiations.

Morningstar emphasized that other energy technologies, including nuclear and fusion, should also be considered. He noted that the development and deployment of these technologies will depend not only on political will but also on private sector engagement. When asked about the future, Reitan responded, “we need to build predictability and overcome barriers.”

Nuclear energy has global momentum. What’s next?

Jennifer T. Gordon, director of the GEC’s Nuclear Energy Policy Initiative, moderated “The role of nuclear energy in global energy security,” a discussion featuring Sama Bilbao y León, director general of the World Nuclear Association, Aleshia Duncan, deputy assistant secretary for international cooperation at the US Department of Energy’s Office of Nuclear Energy, Amb. Georgette Mosbacher, co-chair for Three Seas programming at the Atlantic Council Europe Center and former US ambassador to Poland, Jeremy Pocklington CB, permanent secretary at the United Kingdom’s Department of Energy Security and Net Zero, and Robert Rudich, chief business development officer of Synthos Green Energy.

Gordon began by highlighting that the conversation takes place at an exciting time for nuclear both globally and in the United States, where four recent nuclear power-focused executive orders demonstrate “an ambitious agenda for civil nuclear partnerships.” Duncan detailed US government efforts to ensure those partnerships succeed. Nuclear power is “a 100-year relationship,” Duncan said, noting the pitfalls inherent with such timescales.

Bilbao y León provided a global tour of the nuclear sector’s momentum, citing reversals of opposition to nuclear power in European states and at the World Bank, a long list of projects underway across the Global South, and efforts to lead in the technology by both the United States and China. Bilbao y León lauded the progress of a 31-nation “coalition of the ambitious,” which is mobilizing to realize the COP28 objective of tripling global nuclear capacity by 2050.

Pocklington focused on the United Kingdom, which is building new conventional and advanced reactor capacity in addition to prolonging and maximizing existing nuclear power generation. “The single greatest challenge,” he said, “is figuring out what we can do to speed up the process,” citing financial innovations that the country is pioneering to make projects a reality.

The next two panelists discussed US nuclear partnerships in Poland and Central Europe. Mosbacher praised Poland’s foresight in reducing its reliance on Russian gas even before the full-scale invasion of Ukraine. Today, she argued, US policymakers must exercise similar foresight in fostering partnerships to keep pace with nuclear-exporting adversaries in Russia and China: “if we don’t scale up fast, we will be left behind.” Rudich offered a private sector perspective, elaborating on Polish firm Synthos Green Energy’s efforts with North American partners to build advanced reactors that will eventually “go beyond Poland and construct the Green Wall.” This zone, stretching from the Baltic states to the Black Sea, would use nuclear power to eliminate dependency on Russian energy. Helping to enact this ambitious plan, Rudich argued, is profoundly in the US national interest: “energy dominance,” he said, “means exports.”

Gordon concluded the conversation by asking what participants would like to see changed in nuclear energy before the 2026 Global Energy Forum. As stakeholders increasingly realize “energy security is national security,” Duncan suggested, “we should fund it as such.” Duncan and Bilbao y León both emphasized the importance of leadership for the deployment of reactors at scale. Rudich concluded by stressing the need for funding to translate into action: “we need to start doing projects and move away from talking about doing projects.”

Can quick wins in critical minerals reduce reliance on China?

The final panel of the Global Energy Forum, “Critical minerals, critical decisions: Quick wins in critical mineral supply chain partnerships,” was moderated by Audrey Hruby, Atlantic Council Africa Center senior advisor, and featured Helaina Matza, chief strategic development officer of TechMet, Stephen Rowland, head of North America copper at Glencore, Reggie Singh, director of the US Department of State Bureau of Energy Resources’ Critical Minerals and Energy Technology Office, and Imad Toumi, chairman and CEO of Managem.

Hruby began by elucidating the central goal of the conversation: “in a long-term sector like mining, we want to look for quick wins.” The fundamental challenge? “We rely too much on one major player for all our critical minerals: China,” continued Singh, who elaborated on how the US government is working to initiate international partnerships that diversify supply while meeting rapidly rising minerals demand.

Matza, delivering a financial sector view of government initiatives, commended bipartisan efforts to “operate a little more like US Government, Inc.,” and make use of unique capabilities among partners to bring more supplies to market. Toumi, who runs a Moroccan minerals company, shared an African perspective: “we no longer want to export raw materials; we need to refine.” He provided an overview of his company’s efforts to work with African partners to build holistic supply chains able to compete with China.

Rowland zeroed in one key mineral—copper—which is faced with spiking demand from electrification and data centers. Despite this challenge, Rowland suggested resource availability is not the issue: “it’s hard to say if the bottleneck is copper or power,” pointing out the inadequate scale of extraction.

Hruby concluded by posing a rapid-fire question to the panel: “what can we achieve in 24 months rather than five-to-ten years?” Participants responded with measures such as pushing forward shovel-ready projects, fostering innovation and recycling, and legislative changes in the United States and globally to fast-track development.

Equinor and EQT are sponsors of the Atlantic Council’s Global Energy Forum. Managem is a sponsor of the Atlantic Council’s Africa Center. More information on Forum sponsors can be found here. 

Elena Benaim is a nonresident fellow with the Atlantic Council Global Energy Center.

Paddy Ryan is a former assistant director with the Atlantic Council Global Energy Center. He is a senior writer/editor at the University of California Institute on Global Conflict and Cooperation.

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The energy system is more complex than ever: Navigating AI, competitiveness, and growth

Elena Benaim, Paddy Ryan — Wed, 18 Jun 2025 03:37:11 +0000

On AI and energy: ‘Infrastructure is destiny‘

In the first panel of the Forum, “Thinking big and building bigger,” Global Energy Center (GEC) Senior Director and Morningstar Chair Landon Derentz led a conversation on meeting the energy demands needed to power AI. The discussion featured Mariam Almheiri, group chief executive officer of 2PointZero and chair of the international affairs office of the Presidential Court of the United Arab Emirates (UAE); Chris James, founder, chief investment officer, and chairman of Engine No. 1; Chris Lehane, OpenAI’s chief policy officer and vice president of global affairs; and Chase Lochmiller, co-founder, chief executive officer (CEO), and chairman of Crusoe.

“AI and energy are inextricably linked,” began Derentz, outlining the challenge that industry and policymakers face in needing to “smash through the bottlenecks” to enable technological progress. Lehane reflected on the energy-related challenges OpenAI grappled with as it became the fastest digital platform in history to reach 100 million users. On lessons learned, Lehane stated that “infrastructure is destiny,” and that AI breakthroughs can only happen when providers are able to bring together “chips, data, talent, and energy” to facilitate this game-changing technology. Lochmiller suggested that AI can help unlock a “new era of abundance”—but before material abundance can be reached, energy abundance is needed to make that a reality.

James continued by defining the obstacles in meeting AI’s energy demands. “Energy is a fairly linear system, but the demand for compute is exponential.” James advised that if policymakers and industry can overcome bottlenecks such as project permitting, outdated regulations, and credit availability, they can foster “an enormous amount of reindustrialization across the United States.”

Almehri then contextualized the international trends that preceding speakers had identified. “When I think of creating AI clusters, there are certain elements that regions have to combine,” she said, ranging from their ability to channel strategic investments to having adequate infrastructure and energy. Citing the UAE’s relevant advantages, Almehri counseled that “for this AI megatransition, we need a transformation on the energy side”—to do that, she continued, requires partnerships.

Derentz continued by asking panelists about the timelines, regulatory hurdles, and geopolitics associated with AI growth. “The age of intelligence is incredibly resource intensive,” noted Lehane, “and this resource intensity is where we’re seeing bottlenecks.” Lochmiller cited Crusoe’s work in Texas as showing not only that “every aspect of the economy is required,” to realize AI’s potential, but that “every aspect of the economy will benefit.” Regarding international AI rivalry, Almehri highlighted that while the UAE has “made it clear to everyone that we are partnering with the United States,” it is important for major players to cooperate on global tech governance and “work together to build standards.”

Derentz concluded by asking participants the top of the policy wish list. They identified regulatory adaptability, innovative capital solutions, public-private partnerships, and international collaboration. Most fundamentally for the future of AI, is a change in perspective. “It’s a mindset,” said James. “This country is at its best when it thinks big, acts big, and builds big: we need to get back to that.”

Pathways to industrial competitiveness and trade

The panel “Pathways to industrial competitiveness and trade,” moderated by Saphina Waters, director of stakeholder engagement and communication at the Oil and Gas Decarbonization Charter (OGDC), explored the complex intersection of trade, competitiveness, and climate policy—something panelists described as a puzzle with one thousand pieces.

Emphasizing the urgent need to reshore US manufacturing, Sarah Stewart, CEO of Silverado Policy Accelerator, called for an aggressive agenda to “build, protect, and promote” that aligns policy tools with clear construction objectives.

Sasha Mackler, senior vice president and head of strategic policy at ExxonMobil Low Carbon Solutions, noted that the company is focused on strengthening domestic manufacturing and expanding energy exports. He stressed that climate policy must evolve from being just a matter of regulation to one integral to business models.

Participants criticized the absence of a clear, concise, and universally accepted carbon accounting system. Without that system, panelists said international collaboration is hindered and domestic implementation becomes more challenging and that a harmonized, interoperable framework would help simplify climate-related policy and economic planning.

On the European Union’s Carbon Border Adjustment Mechanism (CBAM), Stewart expressed concerns about potential discriminatory effects. She argued that while identical systems are not necessary, interoperability is essential to ensure fairness and global cooperation.

The panelists argued that creating a level playing field for US manufacturers is not just a climate issue—it is a matter of national and economic security. They held that ensuring American industries are not unfairly disadvantaged must be a policy priority.

The makings of a manufacturing powerhouse

The panel “The makings of a manufacturing powerhouse: Legacy strength and new frontiers,” moderated by Neil Brown, nonresident senior fellow at the GEC and managing director of KKR Global, explored how manufacturers are navigating today’s complex geopolitical landscape, focusing on capital flows, project financing, and talent development.

One of the central topics of discussion was the strategic role of emissions accounting. Karthik Ramanna, co-founder and principal investigator at the E-Liability Institute, suggested that when carbon accounting is viewed merely as a reporting requirement, it tends to become a burden. He argued, however, if reframed as a tool for product differentiation, it can become a source of value creation. Brandon Spencer, president of the motion business area at ABB, added that using emissions data in a strategic—not just operational—way can become a real competitive advantage for companies.

Catherine Hunt Ryan, president of manufacturing and technology at Bechtel, presented a two-part framework for managing complexity: “what to continue” and “what to consider.” Companies should prioritize core competencies, she said, particularly in engineering and subject-matter expertise, while also identifying and managing critical supply chains and building data-driven execution models. At the same time, organizations must consider their ability to embrace change in a dynamic global environment.

Looking ahead to the next decade, the panel discussed which regions are likely to emerge as manufacturing leaders in this new geopolitical context. Julian Mylchreest, executive vice chairman at Bank of America, remarked that the United States is well positioned to be among the winners.

Leveling the global playing field

In a leadership spotlight moderated by Dan Brouillette, former US secretary of energy, Sen. Bill Cassidy (R-LA) emphasized that the world must adapt to new geopolitical realities. China has gained a competitive edge by not enforcing environmental or pollution standards, allowing it to strengthen both its economy and military. Meanwhile, the United States and European Union have adopted stringent climate regulations, putting their industries at a relative disadvantage. Cassidy also argued that differing regulatory regimes have created an unfair global marketplace. He proposed leveling the playing field with a US version of CBAM: a foreign pollution fee. This fee would apply to imports from countries that do not adhere to US environmental standards, helping to protect domestic industry and workers.

Cassidy highlighted the strategic importance of producing natural gas domestically. He noted that natural gas supports manufacturing, replacing coal and thereby reducing emissions. Moreover, argued Cassidy, by producing gas domestically, the United States can support economic policies, which supports US working families.

Unlocking energy abundance to enable equitable access

To wrap the first day’s panels, Phillip Cornell, GEC nonresident senior fellow and principal at the Economist Impact, moderated a discussion on creating abundant, affordable, and reliable energy to sustain economic growth, foster innovation, and promote national security. The panel featured Jude Kearney, member of the board of advisors at the African Energy Chamber; Tarik Hamane, CEO of Morocco’s National Office of Electricity and Drinking Water; Thomas R. Hardy, acting director of the US Trade and Development Agency (USTDA); and Bob Pérez, Baker Hughes’ vice president for strategic projects.

Cornell framed achieving abundance as “one of the most consequential energy questions of our time.” With 800 million people across the globe still lacking access to electricity while technology-related demand grows rapidly, Cornell said it is crucial to “build systems that can deliver energy abundantly, equitably, and affordably.”

Hardy discussed USTDA’s role in fostering energy abundance through international partnerships. While administrations change, Hardy noted, USTDA continues to work on projects that contribute to US security and prosperity, “working with our partners and meeting them where they are” to grow different forms of energy supply.

Next, Kearney elaborated on Africa’s role in achieving abundance. Advising that access is key, he highlighted the need for an “abundance of thoughtfulness and good governance.” Pérez, offering a private sector view, added that the formula for abundance, ultimately, is rather simple: “I’ve never seen a good project not get money,” he said, “the question is how you get to a good project.”

Finally, Hamane expanded on the theme of partnerships by sharing lessons from Morocco. The country has achieved near-universal rural electricity access, up from less than a quarter only three decades ago. As Morocco looks to build infrastructure that can connect its growing renewable production to new markets in Europe and Africa, Cornell concluded by lauding these projects as a “a physical manifestation of the integration needed to achieve abundance.”

2PointZero, ABB, Baker Hughes, Bank of America and ExxonMobil are sponsors of the Atlantic Council’s Global Energy Forum. More information on Forum sponsors can be found here.

Elena Benaim is a nonresident fellow with the Atlantic Council Global Energy Center.

Paddy Ryan is a former assistant director with the Atlantic Council Global Energy Center. He is a senior writer/editor at the University of California Institute on Global Conflict and Cooperation.

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US global leadership in the age of electricity

Robert F. Ichord, Jr. — Mon, 16 Jun 2025 12:00:00 +0000

The international system is experiencing a period of significant realignment, shaped by shifting geopolitical relationships, economic tensions, and evolving security challenges. Within the broader context of global uncertainty, President Donald Trump’s initial foreign policy actions during his second term, for example on trade, support for Ukraine, and foreign assistance, have contributed to questions among allies about the future trajectory of US global leadership and engagement.

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This shake-up has important implications for global energy security, which has come into sharp focus since the full-scale Russian invasion of Ukraine. Considering the Trump administration’s renewed focus on an “energy dominance” agenda, including an emphasis on furthering US oil and gas production and exports, one should not overlook the equally important geopolitical aspects of the electricity sector. Increasingly relevant to global affairs, the electricity sector has experienced rapid global demand growth of 4 percent per year—often placing new energy systems at the heart of geopolitics.

As the world enters an “age of electricity,” decisions made during this second Trump administration will have far-reaching consequences impacting the future of international conflict, competition, and cooperation around the world.

Security, growth, and innovation

A dominant geopolitical feature impacting the electricity landscape is Russia’s military aggression against Ukraine, which has sharpened the confrontation between the West and a coalition of authoritarian states that have in various ways supported Russia’s war effort, including China, Iran, and North Korea. The conflict has illustrated and heightened the priority of electricity security, as the executive director of the International Energy Agency (IEA) recently emphasized to European Union (EU) leaders. The EU, with major help from US liquefied natural gas (LNG) exports, reduced its dependence on Russian gas for electricity, ramped up renewable energy to 47 percent of total generation, began to replace Russian nuclear fuels with Western sources, and disconnected the Baltic states from the Russian power grid.

Meanwhile, outside of the EU, the rest of the world saw record levels of electricity demand growth in 2024, especially in Asia, with China accounting for about half of the increase. Although the International Monetary Fund (IMF) forecasts slower world economic growth given the impact of uncertainty given ongoing trade pressure from Trump’s tariff strategy, the IEA still projects substantial electricity growth over the next three years.

Partly fueling this expected rise in demand is the explosion of digital information, along with the artificial intelligence (AI) systems to analyze this data. This trend is revolutionizing the electricity sector and creating growing demands for reliable, flexible, secure, and resilient electricity supplies for data centers and in other key civilian and military spheres. More complex and interconnected national and regional electricity grids are growing in almost all regions of the world. But these large digital systems are increasingly vulnerable to cyberattacks, especially from malign actors such as China and its Volt, Flax, and Salt Typhoon threat teams. Electricity security is therefore a vital component to national security in this new age.

This growing demand has set off a race to innovate and deploy new energy technologies. One critical strategic area is the development of advanced nuclear power systems, with designs under development to meet needs for electricity, industrial heat, desalination, military systems, district heating, data centers, hydrogen production, and shipping. There has been a resurgence of interest in nuclear power around the world—at COP28, leading countries pledged a tripling of nuclear power by 2050 from 2020 levels.

Competition for electricity markets

Against this complex backdrop, the Trump administration’s expanded use of tariffs has added new dimensions to global economic competition that is affecting relationships both allies and opponents alike. These measures have also introduced added strain on already fragile electricity supply chains, including those of power transformers, switchgear, and meters. This added pressure for the West and Western-aligned countries gives China, the world’s largest exporter of electric power equipment and electronics, an opportunity to expand further its global market presence, especially in emerging markets and developing economies (EMDEs). EMDEs generate about two thirds of the world’s power and are projected to account for 85 percent of global electricity growth over the next three years.

Moreover, over the past decade as the costs of solar and wind have dropped, EMDEs have pursued a transition to renewable energy. Although renewables supplied only 26 percent of EMDE generation in 2023, they now provide over 75 percent of new EMDE generation capacity outside of China. China’s dominance in renewables gives it significant market—and geopolitical—influence. Global installed solar photovoltaic (PV) capacity increased by 30 percent in 2024, and Chinese companies are poised to continue flooding the market with solar PV systems and components.

EMDE natural gas demand for power, which can complement intermittent renewables and improve grid reliability, and for industry is also growing. This creates space in EMDE electricity markets for a growing US role. As the world’s largest LNG exporter, the United States is looking to increase export capacity and access markets in India, Southeast Asia, and other EMDEs. Some countries may commit to increasing US LNG imports in their trade negotiations with the Trump administration to address trade imbalances and reduce tariffs. In 2024, US volumes went to 20 EMDEs and represented about 30 percent of total US LNG exports.

In the past five or so years, the United States has made significant progress in the development of advanced nuclear power systems, some of which are now beginning construction. This has placed the United States in a strong position to compete for new nuclear contracts in EMDEs, particularly to build small and micro reactors. These systems offer the prospect of lower total capital costs, faster construction times, and more appropriate sizes for the smaller grids in many of these countries than large 1000-MW reactors. Russia has dominated the international new-build market with Rosatom constructing large VVER 1000/1200 reactors in India, Bangladesh, Egypt, Turkey, Iran, and China and beginning a small modular reactor (SMR) project in Uzbekistan. China has the largest number of reactors under construction (30 domestically) and is working to expand exports of its Hualong I large reactor beyond the completed units in Pakistan as well as developing several types of SMR systems. South Korean, European, and Canadian companies are also eyeing foreign markets and nuclear supply chains for new reactors are linking companies from these regions.

Recognizing the critical role nuclear can play in meeting US electricity demand growth, the Trump administration, with bipartisan cooperation, is supporting advanced reactor development and demonstration as well as domestic uranium mining, enrichment, and fuel production efforts. Trump recently signed an executive order targeting an increase in US nuclear capacity from 100 to 400 gigawatts by 2050. Domestic growth in the sector would enable the administration to export both large AP-1000s and SMRs, with at least a dozen projects and cooperation in the works not only in advanced economies, like the United Kingdom, Canada, Poland, Romania, Bulgaria, but also with EMDEs like Ukraine, India, Ghana, Kenya, the Philippines, Indonesia, and Vietnam. Interest in SMRs is at play in most of these countries and US companies could achieve of a sizeable share of the IEA’s projected SMR global market of 120 GW by 2050.

National security and global engagement

Given its broad-based excellence in the electricity sector and emerging digital and AI technologies, the United States is well positioned to engage with allies on the adoption of technologies that advance grid reliability, flexibility, and resilience. US involvement in these growing overseas markets, valued at over $2 trillion annually, is vital to its commercial, technological, and national security interests and to restoring trust and confidence in the United States as a reliable partner.

In this effort, the United States should leverage its strengths as the largest producer of both natural gas and nuclear power to help other countries build out firm, baseload, and peaking power, helping reduce dependence on Chinese solar and battery systems in an age of electricity. But US investment both at home and abroad in renewables, energy efficiency, carbon capture, hydrogen, and other technologies is also critical to US influence in the world.

As the Trump administration reconfigures US foreign policy, it is important to forge a new partnership with industry to enhance US energy leadership and coordinate deployment of key diplomatic and economic tools—including technology and commercial agreements, policy and regulatory assistance, capital allocation, and trade and investment promotion—in a package that can be tailored to the energy needs of individual countries. In addition to bilateral efforts, successful US global leadership will require close cooperation with allies in supporting sound multilateral financial and technology cooperation mechanisms, Western-oriented regional electricity markets, and secure supply chains.

The age of electricity is coming. Will the United States step up and recognize that being a global leader in this sector is critical to its national security?

Robert F. Ichord Jr. is a nonresident senior fellow at the Atlantic Council Global Energy Center.

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The strategic reserve and the Israel-Iran conflict

Joseph Webster, Landon Derentz — Fri, 13 Jun 2025 21:29:31 +0000

Note: This is an update to a New Atlanticist article from October 2024 on the US Strategic Petroleum Reserve. Given the policy urgency surrounding Israel’s strikes on Iran, the authors have updated the previously-published work with the latest data and developments.

The US Strategic Petroleum Reserve (SPR) of crude oil is well-stocked, expanding policymakers’ optionality in the crisis in the Middle East.

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After accounting for fifty-two-week averages of imports and exports, as well as current inventory levels, the SPR’s net import cover is historically high, holding 23.8 weeks’ worth compared to the 17.1-week average since 2009. Over 107 million barrels from the SPR could be released without falling below post-2009 historical levels of net import cover. Fatih Birol, Executive Director of the International Energy Agency (IEA), issued a statement noting there are over 1.2 billion barrels of emergency oil stocks in the IEA oil security system.

The United States’ SPR has shifted since the early 2010s, when it held nearly 730 million barrels, covering roughly 11.5 weeks of crude net import demand, at fifty-two-week averages. With rising US oil production and exports, the SPR’s net import cover gradually increased over the early and mid-2010s.

As the United States rapidly became a major crude oil exporter, inventory management strategy shifted. Congressionally mandated sales from the SPR occurred from 2017 through the first days of the COVID-19 pandemic, as the barrels in inventory declined from around 695 million barrels at the beginning of 2017 to around 635 million barrels in April 2020. Inventories were further reduced between 2022 and 2023, as the United States and its allies worked to combat Russia’s full-scale invasion in Ukraine and its effects on energy markets. Since mid-2023, the United States began slowly restocking the SPR and inventories currently stand at over 402 million barrels.

While SPR inventories are near their lowest absolute levels in over three decades, the stockpile is very well-placed to meet its mission, which is to “reduce the impact of disruptions in supplies of petroleum products and to carry out obligations of the United States under the international energy program.” That’s because while the SPR’s crude oil inventory levels have fallen, US imports needs have receded, even as US exports have surged. Accordingly, US net crude oil imports stand at just over two million barrels per day, down sharply from ten million barrels per day in 2007, or eight million barrels per day in 2017.

The rise in US crude exports and the drop in net imports have bolstered US oil security. However, challenges remain. US refineries are optimized for specific crude grades, many of which still need to be imported. Shifting light, sweet crude exports to domestic use could, for example, disrupt refineries optimized for heavier, more sulfuric crude grades.

Despite these limitations, SPR inventories are at elevated levels, allowing the United States to cover about 23.8 weeks of demand. Net crude oil import cover is sharply higher than before the shale boom, or even immediately before the COVID-19 pandemic.

Finally, US crude oil production and consumption are projected to remain stable in 2025 and 2026. Technological improvements and—critically—the removal of energy infrastructure bottlenecks are supporting domestic crude production. The recently inaugurated Matterhorn Express natural gas pipeline, which runs west-to-east across Texas, has removed a key takeaway constraint from the Permian basin, improving US oil production fundamentals and sending domestic output higher. The EIA’s latest forecast holds crude oil net imports will remain flat or decline modestly, enabling the United States to draw down inventories even further while still maintaining net import coverage.

The United States’ strategic petroleum reserves and substantial domestic oil production leave it well-positioned to weather a crisis in the Middle East, barring major, prolonged outages to Gulf oil production.

Joseph Webster is a senior fellow at the Atlantic Council’s Global Energy Center and the Indo-Pacific Security Initiative; he also edits the independent China-Russia Report.

Landon Derentz is senior director and Morningstar Chair for Global Energy Security at the Atlantic Council’s Global Energy Center. He previously served as director for energy at the White House National Security Council and director for Middle Eastern and African affairs at the US Department of Energy.

This article reflects their own personal opinions.

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Complex energy systems face low-tech threats

Travis Nels — Wed, 11 Jun 2025 17:06:40 +0000

The dramatic destruction of parked Russian strategic bombers through a daring operation of the Ukrainian intelligence service has once again shone a spotlight on the power of asymmetric warfare. After initial reactions of delight in the West at seeing Russian aircraft burn, such feelings quickly turned to concern that similar events could relatively easily happen here as well.

The fact that cheap, low-end systems could wreak havoc on advanced military forces is indeed fear inducing—and unfortunately, that risk extends beyond jets parked on an airfield apron.

The electrical grid has been described as “the world’s largest machine.” In terms of defending it, a better mental model is that of a very complex supply chain. Electrons are produced from molecules pulled from the ground, atomic reactions, or the movement of wind, water, or sun. Those electrons are transported through a vast network of wires to their ultimate end use.

Notably, that end use—whether light, warm or cold air, artificial intelligence inference, or a Netflix movie—is all that matters. The electrons in an intermediate form or location are useless to a human being, so disruptions anywhere along the supply chain are functionally equivalent.

Attacking energy infrastructure has long been recognized as a useful combat tactic because those electrons are a precursor to many legitimate military end uses. Attacking electric power can also terrorize civilian populations, best evidenced in Ukraine by thousands of Russian attacks against the grid by high-end cruise missiles and guided weapons.

The number of global actors with access to cruise missiles is, thankfully, limited. But that does not reduce the risk to the grid. Being able to disrupt end use anywhere along the electron supply chain is a boon to the asymmetric attacker, who can find plenty of choke points along that chain. They can look for targets with the greatest impact at the lowest cost in time, resources, and risk.

To combat these threats, discussion of asymmetric risk vectors has increasingly focused on cybersecurity vulnerabilities. Recent revelations that the global supply chain for solar power inverters has been compromised by Chinese manufacturers is another reminder of the sector’s cyber vulnerabilities. The North American Electric Reliability Company (NERC), through its Critical Infrastructure Protection (CIP) program strives to address these risks through compliance activity, and players in the electric power ecosystem have invested heavily in software and processes to defend against cyberattacks.

Beyond cyber, attention is often focused on physical risk to the generation end of the electron supply chain. Certainly, it is easy to envision both attacking and defending a large, fixed piece of infrastructure like a power plant from an asymmetric attacker’s drones. The same applies to substation infrastructure. But what if one were to push the imagination a little further?

Electric utilities across the United States must constantly deal with outages from technical challenges, weather, animals, and even mylar balloons, which have disrupted utility services for years.

Listings on Amazon and Alibaba show that approximately 10,000 mylar balloons could be filled and released for less than $15,000 (with 95 percent of that being the cost of helium). Given that electric transmission and distribution infrastructure is in fixed, known locations—often highly visible and open to the air—it is acutely vulnerable to aerial attack.

Such an attack wouldn’t require smuggling drones and explosives, clandestinely attaching them to trucks in an action worthy of a Hollywood spy thriller—it would just require waiting for a delivery from the attacker’s e-commerce provider of choice. Think less of a spy thriller, and more of a dark remake of Up.

Infrastructure risk is increasing on two fronts—from the diffusion of high-end digital technology and from an evolving understanding that high-end energy systems can be threatened by cheap and low-tech weapons, or weaponized commercial products.

To counteract this threat landscape, policymakers are trying to support infrastructure owners and operators in protecting the grid. In addition to NERC CIP measures for infrastructure security, there is legislation pending that would hold states to the same federal standard as interstate transmission infrastructure, or elevate the US Department of Energy’s leader responsible for emergency response to a Senate-confirmed position.

This is not a call to action to ban mylar balloons—though some states are trying. Instead, infrastructure stakeholders must realize that the threat environment is broadening at both the high and low ends of the spectrum. After watching videos of burning Russian bombers, the sinking feeling that society is more vulnerable today than it was yesterday extends far beyond the military domain.

Travis Nels is a Veterans Advanced Energy fellow with the Atlantic Council’s Global Energy Center and the vice president of planning, analytics, technology, and transformation at AES Corporation in Arlington, Virginia. The views and ideas expressed in this article are his own.

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MDBs must finance nuclear power—or Russia and China will

Juzel Lloyd — Mon, 02 Jun 2025 13:23:32 +0000

The world is entering a new age for nuclear energy, as developing nations like India, Argentina, Egypt, and Pakistan consider adding nuclear power to their energy mix to rapidly increase domestic energy access. Multilateral development banks (MDBs) are in a position to enable this expansion of energy in their mission to help developing economies achieve economic growth and energy access, but the banks are hindering the use of nuclear power. Meanwhile, Russia and China, both nuclear technology export leaders, are filling the gap and gaining geopolitical influence. Other countries, such as France and the Republic of Korea, have state-owned nuclear enterprises, but they are market competitors and not geopolitical adversaries. As developing nations seek nuclear power to meet rising energy needs, MDBs must revise their outdated and politicized views of the technology—or risk ceding political capital to autocratic actors.

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An essential tool in the development toolkit

Developing countries’ energy demand is rising, requiring more firm power generation. Nuclear energy offers a reliable baseload critical for economies industrializing with energy-intensive sectors such as manufacturing and data centers. A 900-MW nuclear reactor can produce—with a much smaller footprint—the same power as 8.5 million solar panels or 800 wind turbines. And, unlike hydropower and geothermal energy, nuclear power is much less geographically constrained, enabling it to be sited in many locations.

Major economies are exporting their nuclear aversion

Currently, most MDBs do not fund nuclear energy projects. The Asian Development Bank (ADB) refuses to finance nuclear energy projects due to issues such as waste management and high investment costs. The European Bank for Reconstruction and Development (EBRD) prioritizes its energy strategy for “scaling up renewables,” supporting nuclear projects solely in areas of safety like decommissioning, with no involvement in construction. EBRD states it is neither in favor of or opposed to nuclear energy; it is simply operating within the mandate determined by its shareholders. The World Bank—the largest and arguably most influential MDB—cites a lack of expertise as its reason for not funding nuclear energy projects, although it frequently relies on external contractors for expertise in other sectors.

However, the World Bank’s president, Ajay Banga, recently signaled a potential shift by pushing the board to reconsider its stance on funding nuclear energy projects. In reality, the World Bank’s voting structure, which allocates voting power according to how much funding a country provides, grants its biggest funders with veto power. Germany serves as a key example: it shut down its nuclear reactors and opposed the inclusion of nuclear power in the European Union’s green investment taxonomy. The World Bank is held hostage by this tunnel vision, which supports only renewable projects, even though these technologies alone cannot meet the growing energy demands of developing nations.

MDBs’ refusal to fund nuclear power projects exacerbates the geopolitical divide between developing economies and the developed nations. This results in missed opportunities to expand energy access in poorer nations based on the prejudices of wealthier nations.

Lenders of last resort

MDBs’ current failure to finance nuclear projects cedes opportunities to other lenders. Western banks, including Goldman Sachs and Barclays, recently announced their support for nuclear energy, but this long-term commitment is questionable given private lenders’ risk-averse nature. Prolonged construction timelines and high capital costs for nuclear energy projects in countries like the United States may eventually deter commercial banks from maintaining their support for the technology.

Russia and China could fill the gap if the West leaves nuclear financing to others. Russia leads global nuclear power plant construction, accounting for about 60 percent of reactor exports, with ongoing projects in nations like Turkey, Bangladesh, and Egypt. Similarly, China is rapidly building out its domestic nuclear capacity—targeting over 100 new reactors by 2035—and leveraging the technology as a geopolitical tool under its Belt and Road Initiative, establishing projects in nations such as Pakistan and Argentina.

The MDBs’ absence in nuclear financing starkly contrasts with the generous loans offered by Russia and China. By leveraging state funding, Russia offers highly attractive terms, covering up to 85 percent of total project costs, as seen in Egypt’s loan, with lower interest rates and longer repayment periods than those required by the Organisation of Economic Co-operation and Development (OECD) for its members—an organization that does not include Russia or China. Russia is also expanding its equity stakes in international nuclear projects, such as Turkey’s Akkuyu nuclear power plant, where it holds a majority stake, fostering closer geopolitical ties and exerting influence over critical energy infrastructure.

Similarly, China extends significant financial support, covering 85 percent of construction costs for Pakistan’s Chasma 5 reactor along with a $100 million discount on the total project cost. China has also offered to cover 85 percent of costs in loans for Argentina’s Atucha III reactor.

By refusing to finance nuclear projects, MDBs force developing nations to rely on Russian and Chinese nuclear exports. Both nations’ dominance in nuclear energy exports risks creating significant geopolitical imbalances, expanding their grip on critical energy sources while weakening Western influence over international energy security. The MDBs must rectify this problem to ensure a more geopolitically diverse financing model for nuclear power construction and operation in developing nations.

Breaking the logjam

MDBs must consider structural changes to bypass the veto power of its major players and begin funding nuclear energy projects. One option is to create a consortium of pro-nuclear states within the MDBs. These nations could create a separate fund for nuclear energy financing, independent of contributions from anti-nuclear nations. This would not be a complete fix—the bank’s broader policy against nuclear finance would remain unaffected—but it’s a crucial step in the right direction.

Outside of direct financial support, development banks do have other options. They can establish pathways for technical assistance for nuclear projects, similar to the Energy for Growth Hub’s nuclear trust fund proposal for the World Bank. This can include enlisting expert contractors as advisors to governments building nuclear power plants and fostering open dialogues on nuclear energy. By taking these steps, development banks can empower developing nations to harness nuclear power and create a more equitable energy future.

Don’t hand adversaries a nuclear victory

The increasing dominance of Moscow and Beijing in global nuclear energy finance risks reshaping future energy affairs. It is time for MDBs to acknowledge nuclear energy as an essential tool to expand energy access. The World Bank and other multilateral organizations must reform their antiquated policies to support nuclear energy deployment and allow developing countries to more readily achieve economic growth. If they don’t, autocratic regimes willing to weaponize their energy dominance will eagerly fill the void.

Juzel Lloyd is an energy/environmental technology researcher at the Lawrence Berkeley National Laboratory and a former Atlantic Council Global Energy Center Women Leaders in Energy and Climate fellow.

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Replace the Inflation Reduction Act with FUEL-AI

Joseph Webster — Wed, 21 May 2025 13:00:00 +0000

The race to artificial general intelligence (AGI) could be the most consequential technological competition in history. Some American technologists see initial AGI leadership as self-reinforcing, granting early adopters lasting advantages. By contrast, many Chinese and (increasingly) US experts believe broad, cross-sectoral artificial intelligence (AI) adoption will shape long-term outcomes. This requires an all-of-the-above energy approach: natural gas, coal, and advanced energy technologies like solar, batteries, advanced nuclear, and wind. Regardless of whether the AI race proves to be a sprint or a marathon, however, US policymakers face difficult, complicated choices resourcing AI and its energy needs.

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As AI and data centers expand demand for power, natural gas and coal alone can’t meet future needs, while current solar and battery supply chains carry security risks. To resolve these challenges, the United States should expand domestic manufacturing of advanced energy technologies while maintaining natural gas—and, possibly, coal—production in the near term.

To win the AI race against the Chinese government, US energy policy must shift from a climate-first lens to one that prioritizes national security and securing a growing supply of power. To do so, Congress should pass the Future Usable Energy Legislation—Artificial Intelligence (FUEL-AI) Act, which would prioritize key national security interests such as providing power for key AI hubs like Northern Virginia’s Data Center Alley, streamlining permitting, modernizing transmission and the grid, supporting domestic energy manufacturing, and incentivizing energy efficiency technologies.

Energy and the race for AI supremacy

Whether the AI race is a sprint or a marathon, both paths demand massive amounts of new electricity. Though energy is a small share of AI costs, it’s a critical operational constraint: data centers can’t run without power.

While acknowledging profound uncertainties, top forecasts project data centers and AI-driven electricity demand could reach 4.6–9.1 percent of total US consumption by 2030, up from 4 percent today. If the sprint scenario holds, only fast-to-deploy sources like solar and batteries can keep pace with demand.

Even in the marathon scenario of broad AI adoption, the United States will likely need large amounts of new electricity—fast. Relying on natural gas and coal alone to power AI won’t work. Natural gas turbine production is constrained, and no major coal plant has opened since 2013. Supply chain constraints, profound grassroots opposition, and investor reluctance make new coal capacity unlikely.

Even though gas and coal will play a major role in powering US AI, a gas and coal-only strategy won’t succeed. In the worst-case scenario, insufficient electricity generation could create shortages and necessitate persistent brownouts that were last seen in the United States in the 1970s. Even if those dire conditions don’t materialize, however, higher domestic natural gas prices would reduce the competitiveness of US liquefied natural gas and pipeline gas exports. But the impact of a natural gas and coal-only approach would be felt most acutely by consumers, since residential electricity prices are already outpacing inflation.

Rural Americans would be hit hardest by rising electricity costs and poor reliability. They spend 4.4 percent of household income on energy—versus 3.1 percent in metropolitan areas—and face more outages.

Fueling AI with a summer peaking resource

In both AI sprint and marathon scenarios, solar and battery storage are highly suitable for meeting rising demand due to their speed, low cost, scalability, and geographic flexibility.

Solar is highly capable for matching data centers’ peak summer demand, especially in warm-weather markets. In Northern Virginia, home to 13 percent of all reported data center operational capacity globally, regional solar generation typically peaks in the summer—matching peaks for both commercial data centers’ cooling needs and residential consumers’ electricity consumption.

Solar’s flexibility makes it ideal for data center clusters, as it requires minimal infrastructure and no resupply. China appears to recognize solar power’s strategic value, concentrating rooftop solar in coastal provinces and deploying at least 3,000 megawatts of capacity at the dual-use Shigatse Peace Airport near the Indian border.

Strengthening solar cybersecurity

China’s dominance of solar supply chains poses security risks, especially given solar power’s importance for AI. Reports of Chinese-made inverters with unexplained communication equipment underline the dangers, as such devices could destabilize the grid—a risk the US Department of Energy has long flagged.

However, inverter threats are just one among many. The Chinese government and other adversaries already have broad ability to target US and partner infrastructure. Cybercriminals operating in Russia attacked Colonial Pipeline, while China has been linked to Mumbai’s 2021 blackout, malware found in US power and water systems, a still-unexplained transformer interdiction in Houston, and crypto mines operating near US military sites. Indeed, Chinese firms are estimated to own one-third of US crypto mining infrastructure and supply the vast majority of its machinery. Furthermore, ERCOT, the operator for most of the Texas grid, warns these high-load operations can worsen grid events, turning low-voltage issues into frequency control problems.

China’s role in software and hardware supply chains poses sabotage risks. Just as Russia weaponized energy in Ukraine, Beijing could exploit electricity systems in a Taiwan conflict. The United States should assess the inverter threat by reviewing installed units, ramping up inspections of Chinese-connected devices, and conducting other risk mitigation and software hygiene measures.

Instead of fruitlessly seeking to eliminate vulnerabilities and establish perfect security across pipelines, crypto mines, and inverters, however, the United States must rely on deterrence, threatening proportionate responses if China conducts electricity sector sabotage.

Replace the Inflation Reduction Act with FUEL-AI

The AI race with China carries immense stakes and uncertainty. To compete, the United States will need vast new electricity generation—regardless of whether the race is a sprint or a marathon. This requires an all-of-the-above energy approach: natural gas, coal, and advanced technologies like solar, batteries, advanced nuclear, and wind.

The United States should replace the Inflation Reduction Act with FUEL-AI, shifting focus from climate to national security. FUEL-AI would make it easier to build new energy infrastructure by streamlining permitting and modernizing transmission. Additionally, it would support domestic energy manufacturing for key national security technologies, such as transformers and advanced batteries; and prioritize power demand and supply measures at AI hubs like Northern Virginia’s Data Center Alley.

These reforms could attract bipartisan backing. Both parties oppose the Chinese government and support strategic technologies like nuclear power and transformers, while US advanced energy supply chains support hundreds of thousands of jobs and hundreds of billions of dollars in investment. Reorienting energy policy toward AI competitiveness can unite national security and economic priorities without abandoning the advanced energy technologies of the future.

Joseph Webster is a senior fellow at the Atlantic Council’s Global Energy Center and Indo-Pacific Security Initiative, and editor of the independent China-Russia Report. This article reflects his own personal opinion.

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Four energy deals Trump will look to make on his Middle East trip

Ellen Wald — Tue, 13 May 2025 13:32:41 +0000

President Donald Trump is traveling to the Gulf states this week in a visit aimed at negotiating business deals rather than wading into geopolitical issues. Here are four ways this strategy may play out.

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1. Investment in US energy and manufacturing

Last month, the United Arab Emirates (UAE) committed to investing $1.4 trillion in the United States over the next decade. Some of the investments in the package have already been announced, including a recent commitment by Emirates Global Aluminum to fund the construction of a smelter in the United States. If built, it would be the country’s first new aluminum smelter in thirty-five years and could potentially double US production. Trump will likely push the UAE to announce additional plans to invest in US manufacturing, infrastructure, and energy production, with petrochemicals, steel, and battery production likely targets.

Trump is expected to press Saudi Arabia to announce where it intends to invest the $600 billion that Crown Prince Mohammed bin Salman committed to during a post-inauguration call in January. Just like during his first term, Trump said that if Saudi Arabia agreed to large purchases of US products, he would make the country his first foreign visit. Now, he will look to hammer out the specifics, which will likely include purchases of military equipment in addition to investments in infrastructure, technology, and mining.

2. Nuclear energy cooperation

Saudi Arabia has tried to start a domestic nuclear power program since 2006. It has signed multiple agreements with various contractors and consultants—but with very little progress other than a small research reactor in Riyadh due to come online soon. Saudi Arabia has engaged with Chinese companies to explore domestic uranium mining and enrichment—a potentially problematic move from the perspective of the International Atomic Energy Agency (IAEA) because it can easily lead to weapons production.

However, there are signs that Saudi Arabia is now interested in complying with IAEA standards. Last August, Riyadh agreed to IAEA spot inspections designed to ensure that weapons are not being developed, potentially paving a pathway for cooperation with the United States. Last week, the Trump administration announced that it was dropping the Biden administration’s demand that Saudi Arabia normalize relations with Israel as a condition for civil nuclear cooperation negations, putting Saudi nuclear power back on the table. At stake may be commitments from Saudi Arabia to use US companies and American-made materials to build future reactors, as well as deals to supply Saudi-produced critical minerals to US customers.

3. Pumping more oil

Trump has been extremely vocal about his desire to lower oil prices. While US producers don’t want to see prices fall below the sixty dollars per barrel range (breakeven prices in the most productive shale basins are currently in the low to mid sixty dollars per barrel range), consumers would welcome lower gasoline prices this summer. Middle East producers seem eager to help, as OPEC+ recently committed to increase production by 411,000 barrels per day in June and is expected to recommit to gradually put more oil on the market at its ministerial meeting at the end of May. It is unlikely that Trump will press the Gulf countries to make additional commitments, but he will expect them to follow through—and will likely say so to the press.

4. LNG purchases

Trump is likely to push Gulf countries to expand their orders for US liquefied natural gas (LNG). Kuwait and Iraq already import US LNG and Bahrain just received its first cargo last month. Both Kuwait and Bahrain want to buy more LNG to meet high domestic electricity demand over the summer while natural gas outputs decline. Trump should push them to sign long-term offtake agreements with US LNG companies rather than rely on spot market purchases. This will ensure that these countries continue buying US gas even when more LNG become available from nearby Qatar, which is expanding its production.

This should be an easy sell to Kuwait, which is already in talks with the Australian company Woodside to buy a 40 percent stake in its Louisiana LNG terminal. Kuwait is aiming to secure LNG supplies from this project, but even with assistance from the Trump administration, it won’t be fully operational until the early 2030s. Trump should push Kuwait to sign additional offtake agreements, with the idea that if Kuwait does find itself oversupplied with LNG in the future, it can always resell cargos on the spot market.

Strategically, announcing at least two new LNG agreements with Middle Eastern countries will help the Trump administration’s position as it presses Europe to move forward with long-term offtake agreements for US LNG. Europe has been dragging its feet over concerns about emissions reporting, even though Europe needs US gas to replace the Russian LNG it currently buys. Trump can use LNG deals with Middle Eastern consumers to pressure Europe to commit to US purchases before winding down imports of Russian LNG. This would also help Trump pressure Russia to negotiate on Ukraine, as it would further squeeze Moscow’s income.

It isn’t just business

The focus of Trump’s visit to the Middle East may be on strengthening economic ties, but it is tough to ignore the backdrop of rising geopolitical tensions, particularly regarding Israel, Iran, and the Houthis. Business, trade, and energy markets are important to both the president and the leaders of the Gulf countries he will be meeting, but so are security and diplomacy. In Trump’s mind, business and geopolitics operate in tandem and everything is up for negotiation. It should not come as a surprise to see energy deals, trade negotiations, sanctions enforcement and even weapons sales materialize in concert.

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Environmental risk weighs heavily on the possible rewards of deep sea mining

William Yancey Brown — Fri, 09 May 2025 16:37:31 +0000

Many industry stakeholders and policymakers view deep sea mining (DSM) as a panacea for securing sufficient supplies of critical minerals, which are needed for clean energy and defense technologies. In March, the White House issued an executive order promoting mining generally and, in April, followed with a second order to fast-track deep sea permitting and circumvent multilateral regulations of the practice.

However, an analysis of the applicable international and US environmental requirements for DSM reveals that, in practice, the risks to deep sea ecosystems would prohibit DSM from proceeding under current laws.

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Why pursue deep sea mining?

DSM is focused on collecting polymetallic nodules (PMNs) that look like potatoes and contain critical minerals that currently are sourced from mining on land. A patch of the Pacific Ocean called the Clarion-Clipperton (CC) Zone, which covers more than 4 million square kilometers, may hold more cobalt, nickel, and manganese reserves¹ than are available on land.

A. PMNs scatter scattered on the deep seabed
B. Front of a PMN
C. Side of a PMN

Copyright British Geological Survey, National Oceanography Center © UKRI 2018

What rules govern DSM?

DSM in the CC Zone and elsewhere beyond national jurisdiction is regulated by the International Seabed Authority (ISA) under the United Nations Convention on the Law of the Sea (UNCLOS), to which most United Nations members are parties. The ISA has entered into 15-year exclusive rights contracts for DSM exploration with 17 contractors looking at PMNs in the CC Zone.

The United States is not a party to UNCLOS and cannot sponsor DSM exploration contracts beyond its national jurisdiction, but it and other nations can pursue DSM on their continental shelves, as countries like the Cook Islands are doing. No country is currently mining in the CC Zone, but Nauru is trying.

But the United States has its own applicable laws on DSM: the US Deep Seabed Hard Mineral Resources Act and the US Outer Continental Shelf Lands Act.

So, what do international and US laws say about whether DSM is permissible?

United Nations Convention on Law of the Sea

UNCLOS addresses environmental protection for seabed activities. It directs the ISA to adopt rules for “the prevention of damage to the flora and fauna,”² to disapprove exploitation where “substantial evidence indicates the risk of serious harm to the marine environment,”³ and to include measures “necessary to protect and preserve rare or fragile ecosystems as well as the habitat of depleted, threatened, or endangered species and other forms of marine life.” ⁴

International Seabed Authority

The ISA has issued final rules for exploration⁵ and draft rules for exploiting⁶ deep sea resources. Both regulations require a “precautionary approach” (Principal 15 of the Rio Declaration on Environment and Development) and prohibit activities in international waters that would cause “serious harm,” which both rules define to be any effect which represents a “significant adverse change in the marine environment.”

US Deep Seabed Hard Mineral Resources Act

The United States has its own DSM policy in the Deep Seabed Hard Mineral Resources Act (DSHMRA). This awkward and long-dormant statute prohibits any person under US jurisdiction from exploration or commercial recovery in international waters unless the activity “cannot reasonably be expected to result in a significant adverse effect on the quality of the environment.” That standard is incorporated in regulations. Despite the obvious schism with UNCLOS and objections from the ISA and UNCLOS parties including China and Russia, Canada’s The Metals Company, encouraged by the White House, announced in March that it will apply for a DSHMRA permit to mine in the CC Zone.

US Outer Continental Shelf Lands Act

The Outer Continental Shelf Lands Act (OCSLA) applies to any DSM activities on the 13 million square kilometer US “outer continental shelf”—including Pacific territories where PMNs are found. OCSLA and its regulations have several environmental standards addressing exploration and also requiring mining operations to be “designed to prevent serious harm or damage to … any life (including fish and other aquatic life), property, or the marine, coastal, or human environment.” The potential for DSM in US territory is not an idle consideration. A company named Impossible Metals made an unsolicited request for a lease in 2024 to mine PMNs offshore American Samoa, and has reportedly resubmitted the proposal to the Trump administration, which is likely to be more receptive to the idea.

In sum, the environmental takeaways under these laws are similar:

Don’t mine if there will be “serious harm” to the environment (UNCLOS).

Don’t mine if there could be a reasonable expectation the activity will “result in significant adverse effect on the quality of the environment” (DSHMRA).
Don’t mine if there is “a threat of serious, irreparable, or immediate harm or damage to life (including fish and other aquatic life) … or to the marine, coastal, or human environment” (OCSLA).

Would DSM meet these standards?

Out of concern for environmental impacts of DSM, the International Union for Conservation of Nature (IUCN)—a leading global conservation organization with governmental members, including the United States—approved a resolution in 2020 calling for a moratorium on DSM in international waters. To date, 32 nations have called for a ban or moratorium on the practice.

Studies have shown that the habitats of PMNs teem with exotic and little-understood life. One seminal article estimates that over 6,000 multicellular species occur in the CC Zone, living on and among the PMNs. About 90 percent are probably still undiscovered to science. Each mining operation is likely to remove⁷ PMNs from hundreds of square kilometers each year of operation. If the PMNs disappear, so will these animals, potentially including pink “Barbie” sea pigs and other species that the Natural History Museum of London’s scientists have discovered.

Things go slowly in the deep sea. The PMNs form over millions of years. This is the oldest of old growth—if it is stripped away, the nodules would probably take the same millions of years to come back, if ever.

DSM impacts besides habitat removal include dispersion of animals, noise, and possible oxygen depletion. During DSM testing, contractors primarily use self-propelled collectors that leave tracks and produce sediment plumes with potentially far-reaching consequences⁸ for the marine environment. One recent study found some small and mobile animals commonly found in sediment everywhere in the CC Zone had re-colonized testing track areas after 44 years, however, large-sized animals that are fixed to the sea floor were still very rare in the tracks, showing little signs of recovery. Impossible Metals proposes to hover and pluck the nodules, but its technology is untested at scale.

The CC Zone is huge—4.2 million kilometers have commercial potential and 3.4 million⁹ are considered particularly attractive for mining. This isan area larger than Alaska, Texas, California, and Montana combined, and the abundance and diversity of life forms vary substantially across it.

What’s the takeaway?

No experienced and objective environmental regulator could reasonably conclude that DSM, as now proposed, would meet the environmental standards of UNCLOS, DSHMRA, or OCSLA.

With new technology, greater understanding of the deep sea environment, and advancements in artificial intelligence, future DSM efforts may be able to selectively harvest PMNs with less impact. But for now, deep sea mining does not pass the environmental tests of the laws that apply.

William Yancey Brown is a nonresident senior fellow at the Atlantic Council Global Energy Center. From 2013 to 2024, Brown was the chief environmental officer of the Bureau of Ocean Energy Management in the US Department of the Interior, where he oversaw the implementation of NEPA.

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Make critical mineral spending matter this time

Ashley Zumwalt-Forbes — Mon, 05 May 2025 14:48:31 +0000

For the first time in history, the United States is preparing to inject direct, large-scale funding into critical mineral stockpiling and supply chain resilience as a core pillar of national defense.

As part of the $150 billion defense funding boost that the House Armed Services Committee is including in the budget reconciliation bill, approximately $2.5 billion is specifically earmarked for the domestic production and stockpiling of critical minerals. An additional $20 billion is allocated to strengthening munitions manufacturing and the broader defense industrial base, which will also indirectly benefit critical minerals supply chains.

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While this is a welcome and overdue move, the real test isn’t whether Congress can authorize new spending—it’s whether that spending can be structured in ways that create durable, investable markets.

This wouldn’t be the first time that funds are announced with great fanfare, but lacking clear commercial pathways, private sector follow-on investments never materialize. Projects stall, supply chains remain fragile, and strategic vulnerabilities persist.

To truly improve critical minerals security, Congress must structure these funds to create durable markets with sustainable demand signals, real commercial offtakes, and price stability. Merely handing out subsidies and building stockpiles that gather dust is not enough.

Here’s how Congress can get it right:

1. Use stockpiling wisely: Build “bid windows,” not just warehouses

Stockpiling critical minerals is essential for national defense, but traditional government stockpiles have often operated outside normal market dynamics. Congress must avoid designing a system where the US government simply buys and stores metals at opaque and inflexible prices, inadvertently distorting already underdeveloped markets.

Instead, a “bid window” structure—similar to how the Japan Organization for Metals and Energy Security (JOGMEC) operates—could ensure the stockpile acts as a price floor, rather than a ceiling, for market development. The United States could commit to buying minerals at a transparent, indexed floor price for a set volume each quarter, giving miners and refiners the demand certainty they need to invest while still letting private markets function freely above that level.

This approach would reduce the risk for business and investors of a price collapse, thereby attracting private investment and stretching taxpayer dollars further by stabilizing—rather than dominating—the market.

2. Focus on processing first: Without midstream, nothing works

Many policymakers are tempted to fund new mines, but without midstream processing capacity, mines are destined to become stranded assets.

Instead, Congress must prioritize refining, separation, and chemical conversion capacity inside US borders. It’s not glamorous work—but it’s the missing middle where China dominates and the West remains frighteningly dependent.

The reconciliation bill’s funds should catalyze small-to-midscale batch processing plants for metals like cobalt, rare earths, gallium, and tungsten that are faster and cheaper to deploy than megaprojects. The midstream is where the supply chain bottlenecks—and geopolitical leverage—truly lie.

A mine without processing isn’t a supply chain—it’s an orphan. The middle of the supply chain needs to be fixed first.

3. Use the right tool for the right stage: Grants where needed, blended finance where possible

Grants have been—and will continue to be—essential for building the critical mineral supply chain. Early-stage projects, new technologies, and first-of-a-kind facilities often cannot attract private financing without meaningful public support. Programs like the Department of Energy’s battery material processing and manufacturing grants have catalyzed activity where private capital alone would not step in.

But as projects mature, this funding model should evolve. Wherever possible, blended finance tools—such as partial guarantees, credit enhancements, or first-loss capital—can stretch public dollars further and bring private investors alongside.

Right now, there is not yet enough private capital chasing critical minerals to worry about crowding out investments with public spending. The bigger risk is failing to attract it at all. Structuring public funding in a way that can de-risk projects enough to make them bankable can crowd in private investment without making government funding the only path forward.

Otherwise, critical mineral projects will survive only as long as government grants flow, instead of becoming durable parts of national security supply chains.

4. Target strategic chokepoints: Not everything is “critical”

Finally, not every mineral deserves public backing. Defense dollars must focus on true chokepoints: materials heavily controlled by adversaries where supply disruptions would cripple US capabilities.

Tungsten, antimony, heavy rare earths, cobalt, and graphite fit this billing, but not commodities like aluminum or gold where deep, liquid global markets exist.

By staying disciplined about which materials—and which segments of the value chain—the US government funds, it can maximize strategic leverage without diluting impact.

A historic opportunity

The United States has a rare window to reset its critical minerals strategy. The $150 billion reconciliation bill could be the start of something transformative—but only if it is structured to create a real market pull, not just government push.

If prices can be stabilized without destroying private incentives, if the middle of the supply chain can be bolstered, and if private investment can be attracted in a durable way, the reconciliation bill may prove a real turning point.

Done right, this bill could lay the foundation for resilient, investable critical mineral supply chains that support national security long after the headlines fade.

Ashley Zumwalt-Forbes is a former US Department of Energy deputy director for batteries and critical minerals, co-founder and former president of Black Mountain Metals and Black Mountain Exploration, and co-founder and former senior advisor of Metals Acquisition Corp.

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Can Nord Stream really rise from the dead?

Alan Riley — Tue, 29 Apr 2025 15:31:12 +0000

Recently, Russian Foreign Minister Sergey Lavrov announced that Moscow is in discussions with Washington to bring the Nord Stream pipelines back into operation. But upon closer examination, such a reopening looks difficult to execute in practice.

There are first the legal barriers, particularly with respect to the Nord Stream 2 pipelines. The European Union (EU) Gas Directive of 2024 imposes a supply security test on non-EU asset owners—clearly a problem for Gazprom. However, US investors may be able to take advantage of EU rules to push forward their proposal for the acquisition of Nord Stream pipelines (possibly one, two or all the pipelines) arguing they are more likely to pass such a test than any Russian entity.

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However, there is potentially a major second barrier: civil damages. A range of multibillion dollar claims against Gazprom are now underway because of its refusal to supply gas to its long-term customers during the energy crisis of 2021–22. There is not much point in investing in a pipeline if the gas or the revenues will then be seized by Gazprom’s former customers.

Furthermore, if Chinese tariffs on US liquefied natural gas (LNG) remain, US producers will likely want to keep Russian gas out of the EU market. This factor may weigh decisively on the Trump administration.

The Nord Stream Pipelines

The Nord Stream pipelines consist of two sets of pipelines, Nord Stream 1 and 2, which run along the seabed of the Baltic Sea. Prior to the full-scale invasion of Ukraine in February 2022, Nord Stream 1 was fully operational, while Nord Stream 2 was awaiting German and EU authorization. Each set in turn consist of two pipelines: Nord Stream 1A and B, and Nord Stream 2A and B. Each has a total annual capacity of approximately 27.5 billion cubic meters (bcm), amounting to 110 bcm in all—equal to two thirds of pre-2022 Russian gas exports to the EU.

Leading up to the full-scale invasion of Ukraine, Gazprom progressively cut the flow of gas to the EU via all pipeline routes—not just Nord Stream 1, but also the Yamal pipeline and Ukrainian transit routes. These supply cuts sent EU gas prices spiraling to over €340 per megawatt hour by August 2022, well over the 2009–19 range of €9–29. By early September 2022, no gas flowed through Nord Stream 1, and Nord Stream 2 remained unauthorized. Later that month, explosions ruptured three of the pipelines leaving only Nord Stream 2A intact.

The EU responded first by providing social protection for its consumers and businesses and funding gas purchases, principally from LNG providers. This cost the EU and member states approximately €500 billion. Subsequently, the EU significantly diversified its gas market, increasing pipeline supplies from Norway and LNG from the United States, Qatar, and even Russia. The EU plans to prohibit all Russian pipeline gas by April 2027. With the end of Russia’s Ukrainian transit contract in December 2024, the only Russian pipeline gas arriving in the EU is the 15 bcm which flows via the Turk Stream 2 pipeline principally to Hungary and non-EU Serbia.

Can Nord Stream restart?

The major US figure pushing for a restart is investment banker Stephen Lynch, who has focused particularly on the still-intact Nord Stream 2B pipeline. Lynch has also suggested that repairing the other NS2 pipeline would cost less than $700 million.

It is natural that one would start with the intact pipeline. However, the fundamental regulatory problem is that neither Nord Stream 2 pipeline has been authorized under German or EU law. The 2024 Gas Directive imposes two key requirements on pipeline owners. First, the owner must demonstrate that it is not also the supplier of the gas. Second, a non-EU owner person must show that certification will not risk the energy or overall security of any member state or the EU itself.

One can see how the Lynch proposal could work with the EU law provisions. A US-owned pipeline would be far more likely than Gazprom to obtain certification under the supply security test, given Gazprom’s behavior during the energy crisis. Furthermore, as the US investors would own the pipeline but not provide the gas, they would be able to pass the separation of ownership and supply test.

However, for such a proposal to work, the sale would need to be at full arm’s length—at market prices and with no Russian money or Russian state connections on the US side. The 2024 Gas Directive imports a very broad definition of control from the EU Merger Regulation. Any below-market-price transaction or Russian participation could raise the prospect of a legal challenge against the certification of the new non-EU owner—some EU member states would certainly launch a challenge if there were any suspicion of Russian involvement on the US side.

One also must ask whether Gazprom—which has never willingly sold one of its long-distance pipeline systems—would be prepared to do so now. Gazprom ran a half-decade campaign to get Nord Stream 2 authorized so it could run the pipeline, and it would be unprecedented for Gazprom to surrender it.

A further problem is that in response to the prospect of Nord Stream 2 restarting, the EU could seek to deauthorize Nord Stream 1, which was authorized under an older assessment regime which did not include the supply security test. As both Nord Stream 1 pipelines are ruptured and have not been repaired in over two years, the European Commission could propose amending legislation to the 2024 Gas Directive which could provide that any significant and lengthy rupture to a major piece of gas infrastructure would require the application of the supply security test.

Adopting such legislation would potentially strengthen US investors’ hands with Gazprom. It would mean the only way that Russian gas could flow through the pipelines would be if they were sold. However, Gazprom would probably be even more reluctant to surrender all of its pipelines to outside hands. Taking that position, however, would mean that Nord Stream 1 could never be revived.

The damages barrier

Perhaps the most formidable barrier to US investment in the Nord Stream pipelines is the fact that Gazprom would have difficulty selling its gas in the European Union, stemming from its behavior during the 2021–2022 energy crisis.

From spring 2021—presumably as a means to weaken Europeans’ resolve to assist Ukraine once the full-scale invasion got underway—Gazprom progressively cut gas flows to the EU. This started with a failure to respond to demand for more gas on the European spot market as COVID restrictions lifted. Then, Gazprom did not fill its own European-based gas storages and indeed drew from them as the winter heating season began. By early winter 2021–22, some of Gazprom’s EU storages were as little as 5 percent full.

Following the invasion in February 2022, Moscow went much further. In March, the Kremlin issued a presidential decree requiring all of Gazprom’s long-term customers to pay in rubles rather than in euros or dollars as per their contracts. Because it was difficult to be sure that payments would be cleared, many customers refused to pay in rubles. By May, Gazprom began systematically cutting off its long-term customers, starting with Poland in May and finishing with Italy in October. Over the summer, Gazprom progressively cut gas flows via Nord Stream 1, reducing supplies even for those continuing customers it was nominally still supplying.

This led to at least twenty long-term customers suing Gazprom. As these arbitration proceedings are private, it is not possible to know how many cases there are or the scale of their claims. However, it is known that Germany’s Uniper has been awarded €13 billion by the Stockholm Court of Arbitration, and that Austria’s OMV is pursuing several claims and has so far received awards amounting to €330 million. In addition, Poland’s Orlen has said publicly it has a claim outstanding for €1.45 billion.

The problem for Gazprom is that such awards create a major barrier to returning to the EU market. Gazprom will face seizures of its gas as it enters the EU market or more likely its customers payments will be seized to satisfy outstanding arbitration awards such as that handed down to Uniper.

However, it is not only the long-term customers of Gazprom who have claims. Gazprom was the dominant gas supplier in most of Central and Eastern Europe and parts of Western Europe. Given that refusal to supply is an antitrust abuse of dominance under EU law, and indirect purchasers (including energy-intensive industrial users) as well as consumers are able to bring claims, the potential scale of damages against Gazprom may be enormous.

With its long-term customers, Gazprom could potentially offer very cheap gas as a means of compensation. It could adopt a divide-and-conquer strategy by doing similar low-price compensation deals with high-volume users while seeking to contest consumer cases. The question remains however, as to whether the scale of compensation that Gazprom may have to pay undermines the economic case for entry to the EU market—and thereby the economic case for US investors to acquire one, two or all of the Nord Stream pipelines.

Chinese tariffs and US LNG interests

With the imposition of Chinese tariffs on US LNG, US gas shipments are already being redirected toward the European market. If the current tariff regime is sustained, then US producers will want to maximize access to alternative markets. This then raises the question as to whether the US government would be willing to support any Russian gas flows returning to the EU.

Potentially, Chinese tariffs may give Beijing greater incentive to finally consent to a version of the Power of Siberia 2 pipeline, which would, for the first time, bring natural gas from the Western Siberian gas fields—the main supply fields for the EU—to China.

If this ends up being the case, one can see the potential reshaping of global gas markets. Russia would increase its gas flows to China, while the United States—via long-term LNG contracts—would supply the EU market. In such a world there would only be a limited role—if any—for the Nord Stream pipelines. Given the formidable obstacles, restarting Nord Stream may simply be one pipe dream too far.

Alan Riley is a nonresident senior fellow at the Atlantic Council Global Energy Center and a Professor at the College of Europe, Natolin.

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If Russian gas returns to Europe, it must go through Ukraine

Sergiy Makogon — Mon, 28 Apr 2025 13:25:23 +0000

The possibility of resuming Russian gas supplies to Europe as part of a cease-fire agreement in Ukraine is being actively discussed. Technically, this would be feasible—Ukraine’s gas transmission system is still capable of transiting up to 100 billion cubic meters (bcm) per year of Russian gas to Europe.

Nearly three months of zero gas flows have shown that Europe can manage without the volumes of Russian gas that previously transited Ukraine—only 15 bcm in 2024, compared to 84 bcm in 2019. Nevertheless, rumors of possible restoration of Russian gas deliveries to the European Union (EU)—either via Nord Stream or through Ukraine—continue to circulate in the press. Resuming this trade could be a potential Russian condition for halting hostilities as Russia desperately needs gas export revenues. If that is the case, resumed flows might be a necessary step to create peace. But they must be routed through Ukraine and under conditions that will ensure energy security and full transparency.

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Russia is extremely interested in resuming supplies to the premium European gas market. Since 2021, Russia has lost more than 100 bcm per year of gas exports to Europe, undermining Gazprom’s financial stability. Desperate attempts by Gazprom to redirect exports to Central Asia and China have not brought significant financial returns, as prices there are two-and-a-half times lower than European prices. Moreover, pipeline export capacity to those markets is very limited. Russia’s direct pipeline export capacity to China currently stands at 38 bcm per year via Power of Siberia. This infrastructure is not connected to the large gas fields historically used to supply European markets. Additionally, Russia’s ability to export liquefied natural gas (LNG) faces significant constraints due to US sanctions. To cushion the loss of the European market, the Russian government has been forced to raise domestic prices, an unusual and very unpopular move in the country.

Additionally, the Kremlin is eager to maintain its political influence over Europe, including through export revenues. Hungary and Slovakia are clear examples of how this influence manifests—both nations have repeatedly opposed or diluted EU sanctions against Russia and blocked critical financial and military support for Ukraine.

The Russian government and several members of the German far right regularly raise the issue of resuming Russian gas supplies to Germany via the surviving branch of the Nord Stream 2 pipeline, which has a capacity of 27.5 bcm per year. However, German authorities categorically rule out the possibility of such a resumption. Other Northern European countries, as well as Poland and the Baltic states, also strongly oppose restoring transit through Nord Stream, fearing increased militarization of the Baltic Sea and the potential reversion to EU dependence on Russian gas. Resuming transit through Poland is also unlikely, for both political and technical reasons, as the Yamal–Europe pipeline has now been almost fully integrated into Poland’s domestic gas system and can no longer handle flows from Russia.

This leaves Ukraine as the most feasible route for resuming Russian gas deliveries to Europe.

EU officials and most member states officially do not support the idea of resuming gas transit through Ukraine. However, the EU has not imposed sanctions on Russian pipeline gas or LNG, allowing Russia to retain a significant market share in Europe. The European Commission continues to reaffirm its commitment to phasing out Russian gas completely by 2027, and this month plans to present a detailed roadmap for this process.

Unfortunately, the European Commission has been unable to fully ban Russian gas imports. Combined pipeline and LNG imports from Russia accounted for less than 19 percent of total EU gas inflows in 2024. However, there may be concern that a complete ban could significantly impact gas prices in Europe. Given that the Commission has outlined a plan—not a binding commitment—to fully phase out Russian gas by 2027, it might opt to delay sanctions on Russian gas until then in exchange for peace. The anticipated influx of new LNG volumes from the United States, Canada, and Qatar between 2026–28 could mitigate EU concerns about price volatility during this transitional period.

The position of the United States will be determinative. On one hand, the Trump administration consistently demands that EU countries increase purchases of US LNG and may not welcome significant increases in Russian gas imports to Europe. However, for the sake of a peace deal, Trump may agree to limited imports of up to 15 bcm annually—a volume that flowed via Ukraine in 2024 and would have only a minor impact on US exports to Europe.

As for Ukraine, estimated annual revenues of $400–600 million from Russian gas transit are a miniscule contribution to the economy. Therefore, the question of resuming transit should be considered in a broader context of cease-fire agreements and establishing long-term peace. Continued transit of Russian oil and renewed gas transit through Ukraine could allow Russia to earn up to $12 billion annually. Accordingly, Ukraine is entitled to expect not only transit fees of around $200 million for oil and an estimated $400–600 million for gas, but also significant additional concessions from Russia.

These concessions should include Ukrainian control over the Zaporizhzhia nuclear power plant, which can produce 6 gigawatts of electricity annually, but was occupied by Russia in 2022. This would help balance Ukraine’s power system, large parts of which have been destroyed by Russian missile and drone attacks, and eliminate the need to import electricity from the EU. It is worth noting that Russian control over the plant has little economic sense, as Russia cannot restart the plant without restoring the Kakhovka Reservoir, which is unlikely without Ukrainian cooperation.

Additionally, Ukraine has the right to demand 15–20 percent of Russian oil and gas exports—either in monetary terms or in kind—as a transit tax. These funds should go into a special fund for the restoration of Ukraine’s energy production, which has been destroyed by Russian attacks. The proposed percentage is reasonable, given the existing discounts on Russian oil and gas which, as sanctions are lifted, should disappear.

In order to limit Kremlin’s influence on the European gas market and on political processes within Europe, the EU should place red lines on its reengagement with Russian energy.

First, import volumes of Russian gas should be capped, both for the entire EU and for individual member states, to prevent any renewed dependency on Russian energy supplies.

Second, gas purchases should be carried out collectively through the AggregateEU initiative, with the delivery point for European buyers located at the Russia–Ukraine border. This would eliminate Gazprom’s ability to offer politically motivated pricing to more loyal countries and energy companies.

Finally, the EU and Ukraine should create an international consortium to manage Ukraine’s gas transmission system. This idea was explored in 2018, and its revival could increase European traders’ confidence in transit reliability through Ukraine.

Conclusion

If a cease-fire necessitates resuming Russian gas flows to Europe, it must flow via Ukraine and be conditional on key concessions from Russia. These must include safeguards to ensure that the EU does not become dependent on Russian gas again and that Moscow can no longer use gas as political leverage. Ukraine should also regain control over vital energy assets like the Zaporizhzhia nuclear plant and secure a substantial transit tax for reconstruction of its energy infrastructure. Policymakers in Kyiv, Brussels, and Washington must remain resolute in demanding these terms to ensure any peace agreement reinforces, rather than undermines, regional stability and energy security.

Sergiy Makogon is a non-resident senior fellow at the Center for European Policy Analysis and the former CEO of GasTSO of Ukraine (2019-2022).

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Illicit mineral supply chains fuel the DRC’s M23 insurgency

Clarkson Kamurai, Brad Handler, and Morgan Bazilian — Wed, 23 Apr 2025 19:46:26 +0000

The insurgency by M23 in the eastern Democratic Republic of the Congo (DRC) is the latest example of the damage that can be wrought by the illicit trade of mined materials. It also highlights the limitations of some developing economy governments to oversee mining, particularly when the deposits are easily accessible. As the United States considers a deal that would provide security to the DRC in exchange for access to its critical minerals, it is important to understand the level and nature of the commitment required to address the complex challenges related to critical mineral development in the country. Indeed, broader international engagement—from neighboring governments to commercial buyers—is likely needed to bolster the DRC’s capacity to manage its minerals.

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Conflict minerals and the M23 insurgency

The Great Lakes region of Africa, which straddles the DRC, Rwanda, Burundi, and Uganda, supplies 30 percent of the world’s coltan, a crucial mineral for high-end electronics. Other valuable minerals, such tin, tungsten, tantalite, and gold, are often mined alongside coltan in the region. Artisanal mining is common—while this provides livelihoods for many, it also gives rise to dangerous working conditions, child labor, and political conflict and instability.

Much of the region’s coltan is deemed a conflict mineral as mining areas are controlled by armed groups and organized crime. The DRC government lacks firm control of its territories, especially in the eastern provinces, and transportation infrastructure is underdeveloped. Because of these challenges, foreign companies often avoid direct mining in the DRC, instead purchasing minerals through middlemen.

The M23 rebel group, an ethnic Tutsi-led militia in the eastern DRC, is fighting the DRC national army and claims to protect Tutsi populations from Hutu militias. Its resurgence in 2022 is linked to frustrations over the government’s slow implementation of peace agreements and worsening security, although it is argued that M23 acts in service of Rwanda’s interests in the region’s minerals. The M23 insurgency is allegedly financed through the exploitation of coltan and other minerals, including reports that M23 fraudulently exported at least 150 metric tons of coltan (7-10 percent of DRC’s annual global supply) to Rwanda in 2024. Current estimates put this as high as 120 metric tons per month. The current involvement and role of Rwanda is evidenced by the presence of 4,000 Rwandan army personnel and heavy weaponry.

The ongoing insurgency has halted regular mining activities, leading to “command” mining in which rebels control operations. This is affecting production levels, worker safety, and regional investment. Conflict has placed all transport routes under rebel control, increasing costs and delays due to road closures and violence.

An important dynamic for global supply chains is that rebel groups like M23, along with other middlemen, foster the mixing of legal and illegal minerals. This effectively launders the illegally mined material, allowing its sale to parties that are mandated to buy ethically sourced product, such as US-based customers who must comply with the Dodd-Frank Act. These sales channel profits to armed groups while depriving the DRC of its rightful revenue. Rwanda is effectively complicit, as it does not charge taxes on mineral exports and allows imported goods to be reassigned as “Made in Rwanda” if they are transformed or processed within the country with a minimum 30 percent value addition.

DRC efforts to regain control

Amid the ongoing conflict in the eastern DRC, there is an intensified call for international accountability and economic reforms to address resource-driven violence. At the February 2025 United Nations (UN) Human Rights Council session, the International Chamber of Commerce and Development urged the UN to enhance transparency in raw material transfers from Rwanda to combat mineral exploitation crimes. Enhanced oversight, it argued, would hold resource looters accountable.

Additionally, at the Munich Security Conference, the DRC accused Rwanda of destabilizing the region to exploit its minerals and proposed measures to encourage legitimate investments and transparent contracts while urging the international community to facilitate peace.

The DRC, meanwhile, has classified certain mining sites in North and South Kivu provinces as “red” zones, halting mineral trading in these areas. The country is orchestrating legal and regulatory efforts, including installing ore tracking mechanisms to combat the illegal mineral trade, disrupt conflict financing, and align mining practices with international standards. The red zone classification is intended to last six months and includes independent audits to ensure responsible sourcing.

On the diplomatic and military front, a quid pro quo of mineral rights for security cooperation seems to be developing whereby the DRC is courting Western governments’ security assistance to thwart the Rwanda-backed incursion. Much of the international community is also demanding stricter standards for purchasing minerals ostensibly mined and processed in Rwanda. The DRC will need international support to implement measures for strict oversight of the region and, more fundamentally, addressing the sources of instability that fuel the conflict. On a positive note, in late March, a Qatar-brokered peace summit resulted in commitments by the leaders of the DRC and Rwanda to cease hostilities.

Next steps

Achieving lasting peace in the eastern DRC requires addressing the root causes of conflict, including ethnic tensions, political instability, and competition for mineral resources. It will not come quickly.

The DRC needs sustained dialogue with rebel groups and neighboring countries to reach a peace agreement and foster reconciliation among ethnic groups. It also needs to improve the capacity and legitimacy of institutions to manage resources, provide security, combat corruption, and enhance transparency.

Meanwhile, mineral buyers and the international community can help the DRC by enforcing ethical sourcing that follows regulations like the Dodd-Frank Act and OECD guidelines, supporting peace initiatives with diplomatic and financial aid, and providing humanitarian assistance to support displaced populations, rebuild communities, and enforce human rights laws.

The M23 insurgency is yet another reminder that the international community must support resource-rich countries in building the capacity to formalize mining and adhere to recognized principles for working and living conditions. The United States’ and others’ overtures to help provide security may be a good first step, but it only sets a foundation for much more work to be done.

Clarkson Kamurai is the critical minerals program manager at the Payne Institute and a PhD researcher in the minerals and energy economics program at the Colorado School of Mines. Kamurai has engineering experience in base and precious metal mining in sub-Saharan Africa and South America.

Brad Handler is the program director for the Payne Institute for Public Policy’s Energy Finance Lab. Previously, he was an equity research analyst in the oil and gas sector at investment banks including Credit Suisse and Jefferies.

Morgan Bazilian is the director of the Payne Institute for Public Policy at the Colorado School of Mines and a former lead energy specialist at the World Bank.

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Central Asia’s geography inhibits a US critical minerals partnership

Haley Nelson and Natalia Storz — Tue, 15 Apr 2025 17:14:58 +0000

Recognizing the national security risks posed by China’s chokehold over critical mineral supply chains, the new Trump administration has issued an executive order that aims to increase domestic production. This and previous administrations have also courted alternative critical mineral suppliers to diversify US supply chains. Now, attention is also shifting to the five countries of Central Asia (Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, and Uzbekistan)—a resource-rich region with a wealth of minerals necessary for energy and defense technologies.

Through the C5+1 Critical Minerals Dialogue, the Group of Seven’s (G7’s) Partnership for Global Infrastructure and Investment (PGII), and bilateral memoranda of understanding signed with the region, the United States has begun to explore Central Asia’s untapped critical mineral wealth. However, the political ambition has not necessarily reflected the logistical difficulties inherent in Central Asia-originated supply chains.

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Central Asia’s untapped potential

Much has been written on Central Asia’s position as a “new frontier” in the global contest for critical minerals. The region has a wealth of lithium, copper, aluminum and uranium, although some reserves require further exploration as existing data was collected during the Soviet era.

But just because the region has critical minerals, does not mean the United States can easily access them. Taking a closer look at the region, infrastructure, governance, topography, and geopolitical complexities presents numerous challenges for US companies to navigate.

Regional energy grids are not well equipped to handle expanded mineral production. Mining is highly energy intensive, accounting for 69 percent of Kazakhstan’s industrial energy use. Central Asia’s power system already struggles to balance generation and distribution, suffering high transmission losses and frequent blackouts. To improve the grid and ensure that reliable power is supplied to mines and enrichment facilities, modern power plants and upgraded high-voltage transmission lines are needed, which would cost an estimated $25–49 billion.

Subpar resource governance is also impeding Central Asia’s mineral potential. The region is home to inconsistent tax regimes, lacks government transparency, and has a history of nationalizing or renegotiating contracts with foreign companies. Stronger regulatory protections are needed to ensure investor confidence.

Beyond these challenges, newcomers to this frontier market face deeply entrenched Chinese and Russian influence in regional supply chains. Soviet-era pipelines, highways, and railways initially pulled trade northward after the collapse of the Soviet Union. But, since 2013, China’s Belt and Road Initiative (BRI) has reoriented trade eastward through infrastructure projects like the China-Kyrgyzstan-Uzbekistan railway. Through partnerships with regional transit operators like Kazakhstan Railways (KTZ), and investments in locomotive production and Caspian ports, Beijing has bought out regional transit infrastructure and skewed the investment bidding process. US businesses may face challenges in securing contracts in a region where critical infrastructure is controlled by Chinese and Russian entities.

In the critical mineral sector, China holds the majority of mining permits in Kyrgyzstan and Tajikistan, Russia has monopolized regional uranium enrichment, and several Central Asian mining companies have been sanctioned by the United States for their close relationships with Russia. These geopolitical and regulatory barriers not only limit Western access to critical mineral resources, but also reinforce China and Russia’s control over the region’s strategic industries.

Moreover, the primary bottleneck in the critical minerals supply chain is processing, not mining. While Kazakhstan can refine copper, zinc, and lead, the region lacks processing capacity for energy minerals like lithium, uranium, nickel, and cobalt. Most of these raw metals end up in China or Russia for further enrichment.

Promises and pitfalls of the Middle Corridor

For Central Asia’s critical minerals to reach Western markets at scale, new export routes must be established; energy infrastructure issues must be addressed; mineral survey maps must be modernized; and local enrichment facilities must be developed.

Raw minerals can be shipped to processors in the West, but westward routes are largely underdeveloped. Because the region is surrounded by sanctioned and adversarial states—Afghanistan, China, Iran, and Russia—the Middle Corridor, a multimodal transport route that links Central Asia to Europe via the Caspian Sea and South Caucasus, is the only way to ensure secure, sanction-free export. However, due to regional infrastructure inefficiencies, checkered contractual practices, and rapidly developing environmental issues, Western investors have been slow to develop the route’s capacity.

Infrastructure issues have kept the route’s container capacity low, the shipping times unpredictable, delays frequent, and prices volatile. Caspian ports are restrained by low vessel capacity; there are significant, time-consuming “break-of-gauge” issues across Central Asian railways; and unaligned tariff regimes, cargo regulations, and customs procedures impede the flow of goods across borders.

While climate-driven water loss could see the Caspian’s shoreline lower by 21 meters by 2100, port capacity is expected to shrink further, and ports could be pushed back at least one kilometer from the shoreline, necessitating major redevelopment and causing billions of dollars in economic losses. Rising temperatures and the construction of dams along Russia’s Volga River, the Caspian’s main source of water, have seen the average sea level drop to its lowest point in 400 years, reducing cargo ship capacity by 20 percent. In the northeast Caspian, where waters are shallowest, ships leave ports before they are fully loaded to reduce ship depth. If waters decline further, northeast Caspian ports will likely be unusable. Desalination projects have been implemented by Kazakhstan, Azerbaijan, and Turkmenistan to slow the declining water levels of the Caspian. However, the energy-intensive desalination process has unintended negative impacts on marine life and water quality, and its ability to slow declining water levels has been highly debated. Therefore, the region needs investment in new forms of water-saving technologies, like atmospheric water harvesting, in order to prevent shrinkage that will eliminate the feasibility of the Middle Corridor.

Can this frontier be tamed?

In its current state, the Middle Corridor is incapable of accommodating the United States’ critical mineral needs. Its limited capacity and higher-than-average transit costs would offer little strategic benefit to US businesses while exposing investors to significant financial and geopolitical risks.

For investors to see the benefits of Central Asian critical mineral mining, improved transit routes are necessary; some studies have estimated €18.5 billion is required to ensure commercial viability. Transport costs remain high, delays create logistical uncertainty, and limited domestic processing forces reliance on neighboring markets. Without addressing these bottlenecks, the region’s potential as a critical mineral hub will remain constrained.

Unified tariffs and cargo regulations and the digitalization of regional transit could help to reduce delays along the Middle Corridor, helping to set the groundwork for additional infrastructure investments. Kazakhstan, Azerbaijan, and Georgia have already begun working towards a unified customs system after signing a trilateral union in 2023 to establish a jointly owned logistics company. However, with China Railway Container Transport Corporation (CRTC) joining the joint venture at the end of 2024, the corridor is beginning to look like another BRI project.

China’s formal involvement in the Middle Corridor Multimodal Joint Venture, its agreement with Kazakhstan to construct the Tacheng-Ayagoz railway line, and China’s construction and management of Georgia’s Anaklia deep-sea port underscore the importance of this route for China. Any increase in the route’s capacity will help increase the capacity of China’s westward exports. Investing billions into the westward export of Central Asia’s critical minerals will benefit Chinese transit and open more opportunities for the dumping of Chinese goods into Western markets.

Although the United States strategically benefits from engaging with Central Asia and offering an alternative partner, investing billions of dollars into regional transit routes may lead to negative unintended consequences. Not only does the route require massive infrastructure investments and significant regulatory improvements to benefit Western markets, but from a US national security perspective, investments will undoubtedly encourage westward Chinese transit.

The reality of a US-Central Asia critical mineral partnership

Quickly securing critical mineral partnerships is vital to US efforts to reduce dependence on China. However, the United States should be wary of unrealistic expectations for what Central Asia can provide. Regional infrastructure development is incomparable to any other region in the world. Central Asia is uniquely burdened by its encirclement between US-sanctioned countries. In the short and medium term, low export capacity, high transit costs, geopolitical volatility, and a high-risk investment environment significantly reduce the region’s commercial viability.

The United States should choose its battles wisely. Political will is not enough to move billions of dollars’ worth of minerals across oceans. Infrastructural, logistical, environmental, and legal complexities should guide decision-making. With the time-sensitive nature of US critical mineral needs, efforts should start closer to home with US-allied countries with established mineral export industries, like Canada or Chile. US supply chain efforts need to be driven by capacity, reliability, and economic viability, rather than political pipe dreams.

Haley Nelson is assistant director at the Atlantic Council Global Energy Center.

Natalia Storz is program assistant at the Atlantic Council Global Energy Center.

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Profitability and power: Fixing US critical minerals supply chains

Ashley Zumwalt-Forbes — Thu, 03 Apr 2025 17:00:14 +0000

The United States is not losing the global race for critical minerals because of a lack of resources—it is losing because it lacks a financial model that ensures profitability. Despite bipartisan recognition of the strategic importance of these materials, US policies have failed to make this industry economically viable.

Without a clear pathway to sustainable profits, taxpayer and private sector investments risk becoming financial sinkholes. If the United States wants to secure a resilient supply chain, it must create a financial framework that attracts and retains capital.

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The economics of critical minerals

A functional critical minerals supply chain requires three key stages: mining, midstream processing, and downstream manufacturing. China dominates all three, not because it has better resources, but because it has a better economic strategy.

Through state-backed subsidies, China shields its companies from market forces, allowing them to endure losses in pursuit of long-term control. Meanwhile, the United States expects each player—miners, processors, and manufacturers—to be independently profitable, creating higher costs, greater risk, and systemic fragility. If one link in the chain collapses, the entire system fails.

This fractured approach discourages private investment. Unlike large, transparent markets such as oil or copper, critical minerals markets are relatively small, opaque, and highly volatile. Many key minerals trade on spot markets dominated by China, which can manipulate prices at will. If China wants to eliminate competition, it simply floods the market, driving prices down and making Western projects financially unviable.

To break free from this cycle, the United States must focus not just on developing mines, but on ensuring that the entire supply chain is profitable and attractive to investors.

A market-based strategy to compete with China

The United States has the strongest capital markets in the world. Rather than defaulting to top-down industrial planning, Washington should treat private capital as a strategic asset. With the right risk-adjusted incentives, US capital markets can outcompete China’s state-directed model. To do so, the United States should focus on four pillars: targeted supply chain construction, pricing power, investment risk reduction, and policy stability.

1. Stand up integrated supply chains through strategic funds

To accelerate development, the United States should launch government-backed, private-sector-managed funds focused on building single, vertically integrated supply chains (for example, a supply chain for antimony or gallium). These funds should be designed with strict performance conditions: they receive incentives only if they successfully stand up an end-to-end supply chain. This structure ensures quasi-vertical integration and forces offtake agreements to be part of the business model from the outset.

2. Build pricing power by raising domestic commodity prices for sensitive materials

To reduce vulnerability to China’s market manipulation, the United States must break away from artificially depressed price structures. This can be achieved through two levers: (a) targeted tariffs on mineral imports that benefit from unfair subsidies and (b) tighter domestic sourcing requirements across clean energy and defense sectors. By raising the floor on US commodity prices, these policies would insulate domestic producers and make long-term investments more financially viable.

3. Reduce investment risk via demand guarantees and price floors

Price volatility and uncertain offtake remain top deterrents to private investment. The United States should implement mechanisms to stabilize both. This could include government-backed trading houses or public-private stockpiles that establish price floors for particularly vulnerable minerals. Long-term offtake agreements, brokered through private-sector consortia, would provide stable revenue streams that investors need.

4. Ensure long-term policy certainty

The most important determinant of private investment is confidence in the rules of the game. Critical minerals development is a multi-decade endeavor. If the United States wants capital markets to play a leading role, it must offer long-term policy stability. That means preserving existing tax credits, grants, and loan programs—not just as temporary stimulus but as enduring pillars of the investment environment.

Building a market, not a monopoly

China has not just secured mineral resources—it has built a financial system that allows it to manipulate markets and suppress competition. The United States must construct an alternative, leveraging free enterprise and innovation as strengths. Identifying deposits and opening mines, though critical, is not enough. Without a financial strategy that ensures profitability, the United States will remain dependent on China for the materials that power its economy and national security.

It’s time to stop treating critical minerals as just a resource problem—and start treating them as the economic battle they truly are. The solution lies not in more short-term government intervention, but in structuring a market that incentivizes investment, ensures financial viability, and ultimately secures the United States’ position as a leader in the critical minerals race.

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The future of global energy policy is abundance

Charles Hendry — Mon, 31 Mar 2025 17:19:28 +0000

After years in which the United States and Europe have been aligned in their energy policies, we are now seeing a divergence between two approaches that appear hard to reconcile.

To paraphrase US Energy Secretary Chris Wright, energy policy should be about enriching people, not making them poorer. With some of the largest gas resources in the world, the United States has shifted fundamentally to an approach which prioritizes low costs and economic growth over decarbonization.

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This pivot is having consequences around the world. European—and especially British—energy prices are now a multiple of those in the United States. The risk to Europe is that major energy users will move away from the continent if those price differentials cannot be narrowed.

But while the US narrative is that cheap energy delivers security, in the United Kingdom (UK), the government insists that decarbonized energy delivers security. Britain is still seeing the consequences of the enormous price spikes following Russia’s full-scale invasion of Ukraine. The argument is that had the UK been less reliant on gas, the price increases would have been less dramatic.

While it seems that these two approaches at loggerheads, they are in fact possible to reconcile.

For years, many have spoken about the energy trilemma: the balance between security, affordability, and sustainability. It’s time to reframe that debate—and focus instead on energy abundance.

A decade ago, when the American shale revolution was beginning, the sheer enormity of gas production, combined with an inability at that time to export significant quantities, brought prices crashing down for US businesses and consumers.

Similarly, the global rollout of solar power has enabled the cost to be brought down to under 1 percent of what it was just a few years ago.

Abundance enables costs to come down. Abundance offers energy security. And abundance helps make space to decarbonize without penalizing consumers.

Different countries are abundant in different fuel stocks or technologies, so each country needs to play to its strengths. Consumers are best served by harnessing the resources which are most abundant and most affordable, rather than endlessly pursuing costlier resources just because they happen to be around.

The United States would understandably focus on gas, but that does not mean that all countries should do so. If a country lacks significant gas resources of its own, it is foolhardy to build an energy policy that relies on imported gas, especially from a single source, as the Ukraine war has so clearly shown Europe. To paraphrase Winston Churchill, security comes from diversity, and diversity alone.

Therefore, the UK and Europe need to look at where they have the most abundant resources and allow the genius of innovators and industry to work to drive those costs down.

For the UK, that could be offshore wind, where prices have dropped by two thirds in a decade. It also makes sense to continue to use Britain’s North Sea gas resources for as long as possible, as the original investment costs have long since been recovered. While the North Sea basin is in long-term decline, the rate of decline can be reduced with sensible, pro-business policies. The UK should then be applying carbon capture technology when the gas plants are run as baseload rather than as peaking plants, which operate for only a small number of hours per year.

In sunnier countries, solar is the answer. Nuclear, too, can provide energy abundance, especially if next-generation small and advanced modular reactors (SMRs and AMRs) are developed in sufficient quantities to deliver real economies of scale. Each country needs to chart it owns course, based on the resources and skills available to it.

The first element of energy policy should be to develop abundant and affordable resources. Where that is not be sufficient to meet demand at all times (as abundance is not necessarily the same as self-sufficiency) then the policy should be to secure alternatives in the most affordable way. Interconnection can bring cheap electricity from many hundreds of miles away. Imported gas—from reliable partners and backed by sufficient levels of domestic storage—provides resilience when the wind is not blowing and the sun is not shining. And as the cost of batteries continues to fall, they can provide short-term reserves at grid scale.

Policymakers’ rhetoric suggests a large gulf between the approaches in the United States and Europe. But just as there is no one-size-fits-all approach to every country’s needs, policy approaches must reflect the unique circumstances of individual countries.

Faced with the imperative to keep costs down, governments need to be wary about open-ended commitments to provide subsidies. In the UK, the contract for difference model provides price guarantees to enable large energy infrastructure to be built. But unlike a subsidy, when the wholesale price of electricity rises, the support drops away and even becomes negative. If subsidies are used, then there must be a clear degression from the outset to make sure that they are a mechanism for driving costs down rather than keeping them artificially high.

The cooperative optimism displayed at COP26 and COP28 is long gone. The response should be to rethink how to deliver the energy security the world needs in the most affordable way. The principle of abundance should be at the heart of it. Abundance enables countries with dramatically different supply and demand conditions to find common cause. There is security in diversity—and diversity alone.

Charles Hendry is a distinguished fellow of the Atlantic Council Global Energy Center and a former UK minister of state for energy.

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Nord Stream could divide Europe yet again

Michał Kurtyka — Fri, 28 Mar 2025 16:39:35 +0000

A reset between Washington and Moscow could revive an albatross to European unity. As President Donald Trump tries to secure peace in Ukraine, reports have emerged that negotiations are taking place to open the Nord Stream 2 pipeline with the backing of US investors. The subsea pipeline was suspended by the German government on the eve of Russia’s full-scale invasion of Ukraine before it had delivered a single molecule of gas.

It’s an open question whether the United States, whose natural gas producers now rely on European liquefied natural gas (LNG) sales to boost profits and support investments, would ultimately cede that market—and the political influence that comes with it—to Russian pipeline exports. Perhaps Washington will concede its newfound dominance in Europe’s energy system as a cost of attaining peace in Ukraine—and extricating itself from the continent to focus on the Indo-Pacific theater.

But for Europe, allowing Russia back into its gas market through Nord Stream would be a costly mistake. It would furnish the Russian war machine with an additional $5 billion, open the temptation for German manufacturers to extract a 1.5 percent competitive advantage over other Europeans, and leave 100 million Europeans in geopolitical limbo.

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No reason for Nord Stream nostalgia

There is an obvious temptation for Europe to try to return to the seemingly halcyon world before COVID-19 and war in Ukraine. Elevated gas prices have threatened the continent’s long-term industrial competitiveness. In 2023—after the price spikes of 2022 subsided—industrial gas prices remained a whopping four-and-a-half times higher than in the United States. The European average in 2019, by contrast, was a modest 70 percent higher than US prices.

But Europeans should not view the pre-war status quo through rose-colored glasses. Europe was vulnerable to supply shutoffs, such as happened during Russo-Ukrainian disputes in 2006 and 2009. And supposedly cheap Russian gas proved to be very expensive in the end—mitigating the energy crisis cost Europe a historic price of nearly €700 billion just by mid 2023, on top of nearly €250 million in aid to Ukraine by 2025. All in all, the cost of dependence amounted to more than €1 trillion.

Europe can neither forget the lessons learned from Russia’s weaponization of gas supply in the lead up to and during the war; nor can it ignore the new geopolitical realities that define its relationship with Russia.

Paying off the arsonist

First, if Europe were to restore Russian pipeline imports, that would greatly increase cash flow to Gazprom. Currently, Russia is selling gas mostly to China, supplying the country with 30 billion cubic meters (bcm) of gas in 2024 and aiming to hit 38 bcm in 2025 with the opening of a new eastern pipeline. But those volumes pale in comparison to the record 179 bcm shipped by pipeline to Europe in 2019. Even the amount of gas exported via the now-destroyed Nord Stream 1 alone—which had the same nameplate capacity as its successor—totaled 58.5 bcm in 2019, far more than total Russian pipeline and LNG shipments to China in 2024.

Chinese buyers can’t make up for the loss of European markets. There exists no infrastructure to bring the gas from Russia’s massive European fields to Asian consumers. China has slow walked completion of the 50 bcm Power of Siberia 2 pipeline and appears to be hesitant about becoming too reliant on Russian gas. Losing the European market has severely hurt Gazprom, which posted a net loss of $12.9 billion in 2024—after seeing record profits of $29 billion in 2021.

This has profound implications for Russia’s ability to wage war in Ukraine—and elsewhere. If Gazprom were to attain an additional $15 billion from Nord Stream 2 sales—based on a pre-war estimate of the pipeline’s potential revenue generation—and another $15 billion from restarting the damaged Nord Stream 1 pipeline, one might assume that half would go to Russia’s state budget. Of that $15 billion, one third would go to the military, based on the proportion of Russia’s 2025 budget dedicated to defense. This would mean $5 billion more to Russia’s military, a 4 percent increase in the Russian war chest.

Distorting European competition

Moreover, making Germany the primary entry point for Russian gas into Europe would provide German industry with a temptation to take advantage over its neighbors, as was the case in the early 2000s, constantly threatening European unity at a trying time. A primary reason why other Western European countries had opposed Nord Stream 2 even before the war was fear that Germany monopolizing Russian gas flows would give it a competitive advantage over manufacturers in Italy and France.

Indeed, a 2012 investigation by the European Commission into Gazprom found that Russian gas was cheaper for Germany than it was for the average European country by at least 15 percent. Data released by Russian news agency Interfax in 2010 revealed that Gazprom was charging France 10 percent and Italy 25 percent more than Germany for gas. Further, the Commission found in 2018 that Gazprom had violated European Union (EU) antitrust rules to divide national markets, potentially allowing it to overcharge five Central European member states—countries which paid even more than France and Italy.

For the most energy-intensive sectors in Europe, energy can account for over 10 percent of manufacturing costs—so if German industry gets a 15 percent discount, the country gains up to 1.5 percent advantage in profitability over the European average.

A dagger at the heart of European unity

Last but not least, Nord Stream 2 would deliver Russian gas in a route that bypasses most of the Central European transit states, allowing Russia to leverage energy supplies to these countries separately from Western Europe and leaving 100 million Europeans in geopolitical limbo.

Whereas Moscow’s disputes with Kyiv in the 2000s over gas supply meant that cutting off Ukraine would cut off the rest of Europe, Nord Stream 2’s reopening would allow Russia to more effectively divide and conquer the continent. In a new era of full-scale war to readjudicate the political borders of Europe, this would leave substantial portions of the EUand NATO at the mercy of the Kremlin’s imperial whims.

Three numbers that should frighten Europe

Ultimately, regardless of how Washington decides to proceed on Nord Stream 2, Europe must take responsibility for its own decisions on whether to buy gas from the pipeline or not. In weighing that choice, it must remember three key numbers: $5 billion in additional money for the Russian military; 1.5 percent of additional profitability for German industry over its EU neighbors; and 100 million Europeans left vulnerable to renewed Russian aggression.

Michał Kurtyka is a distinguished fellow with the Atlantic Council Global Energy Center and was formerly Poland’s minister of energy, climate, and environment.

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Why now is the right time for ‘maximum pressure’ on Iran’s oil exports

Scott Modell — Thu, 13 Mar 2025 17:39:15 +0000

US President Donald Trump, now back in the Oval Office, has reinstated “maximum pressure” on Iran, and the economic campaign is inching toward the top of his foreign-policy agenda. Already, the administration has taken a slate of initial actions, which included new sanctions on Iran’s oil industry, seeing as Iran uses oil revenues to fund terrorist proxies abroad, repression at home, and a nuclear weapons program that could upend the region’s delicate balance of power.

The return of “maximum pressure” is coming at the right time. Iran’s economy is extremely vulnerable. The global oil market’s fundamentals are relatively soft, as strong global supply growth keeps pace with moderating oil demand growth, driving Brent crude futures below seventy dollars per barrel for the first time since September 2024. Furthermore, nearly all of Iran’s 1.6 million barrels per day (mb/d) of crude oil and condensate exports go to a single buyer, China. This means the conditions are ripe for dealing Tehran a crippling blow.

Removing most of those volumes from the market would come at a time of relatively high spare production capacity in Saudi Arabia and other members of the oil-producing group OPEC+. The estimated 5–6 mb/d of spare capacity (production held off the market due to output cuts) in these countries is more than enough to offset the loss of Iranian barrels. Moreover, the loss of billions of dollars in oil revenues, in addition to the Israeli military’s deterrence, would make it nearly impossible for Tehran to rebuild its smoldering Axis of Resistance and leaves the regime more vulnerable to internal dissent and international pressure.

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Current global oil market conditions provide a unique opportunity to escalate pressure on Iran without causing undue harm to consumers or US allies. First, strong production growth from the United States, Canada, Brazil, and other non-OPEC+ countries and tepid demand growth have loosened global oil markets, meaning that there are reduced risks for both US consumers and the administration. Expectations from forecasters such as the International Energy Agency continue to see the market in surplus this year. Saudi-led OPEC+ has been forced to cut supply multiple times since the beginning of 2023 to stabilize prices, and while the group announced it will proceed with its plan to return barrels to the market beginning in April, it reiterated that the “gradual increase may be paused or reversed subject to market conditions.”

As a result of the conservative production approach since 2023, OPEC+ has built up enough spare capacity to offset a sharp reduction in Iranian exports. While Washington may need to work with Riyadh to convince it to ramp up production more quickly than currently planned, the buffer can insulate consumers from potential price spikes, reducing political risks for the administration.

Second, removing Iranian barrels from the equation may help the United States avoid a harmful price collapse. Oversupply is not just a problem for Iran and other oil-producing countries—it also threatens US oil producers, which require moderately higher prices to sustain production growth and generate returns. A collapse in oil prices—as seen in 2014 and 2020—would disproportionately hurt US energy interests. By removing Iranian barrels from the market, the United States could help stabilize prices, protect its domestic oil industry, and weaken Iran all at once.

Third, Iran’s oil sector is dilapidated. Prior to the reimposition of oil sanctions in 2018, Iran’s crude oil production capacity was around 3.8 mb/d for decades. Over time, that number has fallen due to sanctions and underinvestment. In December 2024, Iran’s Ministry of Oil released a report on the status of the country’s oil sector, noting it would require three billion dollars of investment to recover the 0.4 mb/d of capacity it has lost since 2018. The ministry also admitted that if trends persist, production could decrease to 2.75 mb/d by 2028. At current rates, Iran may have to choose between meeting domestic demand and sustaining exports (and thus maintaining export revenues) as early as 2026.

Finally, disrupting Iran’s energy sector is not just about economics—it’s also about leveraging an effective tool to achieve broader strategic goals. An energy-focused maximum pressure campaign could heighten economic challenges for Iran, potentially amplifying domestic dissent. Tehran will have to divert resources from its destabilizing activities, such as its nuclear program and support for regional proxies, and make real concessions or risk further escalation.

Trump’s return to the presidency presents a historic opportunity to reset the United States’ approach to Iran. Oil markets are soft, and Iran is more vulnerable than it has been in decades. By turning off the taps, the United States can deliver a decisive blow to Iran’s ambitions and set the stage for a more stable and secure future.

Scott Modell is the chief executive officer of Rapidan Energy Group.

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The Mediterranean must work collectively to harness the power of renewables

Karim Elgendy — Tue, 11 Mar 2025 18:33:14 +0000

In September of 2024, nine northern Mediterranean countries (MED9) agreed to collaborate on making the region a renewable energy hub, aligning with the COP28 commitment to triple renewable energy capacity by 2030. This initiative gained particular significance last week when the EU Commission released its Clean Industrial Deal, reiterating Europe’s strong commitment to decarbonization despite the geopolitical backdrop, and underscoring the importance of regional partnerships in achieving these goals. While the MED9 pledge enjoys broad support across Europe and parts of the Middle East and North African (MENA) region, challenges such as geopolitical tensions, competing priorities, and financing constraints could affect the pace of implementation.

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Nonetheless, grassroots momentum could accelerate decarbonization throughout the Mediterranean basin. Increased renewable energy cooperation across the Mediterranean would not only help mitigate climate change, but it would also promise new economic opportunities, improved energy security, and enhanced regional ties.

To achieve the ambitious global goal of tripling renewable capacity, the Mediterranean region must overcome several challenges, including geopolitical tension and limited finance. But the target is eminently within reach if countries implement their existing renewable energy plans and increase their ambition while embracing the benefits of cross-border collaboration.

Common targets, divergent trajectories

Over the past decade, the region has significantly expanded its renewable energy portfolio, particularly in the east. As of 2022, installed renewable power capacity in Mediterranean countries was estimated at nearly 300,000 megawatts (MW), representing 43 percent of total generation capacity.

According to Climate Analytics, in order to align with the 1.5 degrees Celsius target set in the Paris Agreement, global renewable capacity needs to grow to 11.5 terawatts (TW) by 2030, 3.4 times higher than 2022 levels. For the Mediterranean to play its part, it would need to bring its capacity above 1 TW, 3.6 times 2022 levels. This would require annual growth of 97 gigawatts (GW)—adding the total generation capacity of Spain every year until 2030.

These goals are within reach if countries implement their current plans—and then some. The existing pipeline of solar, wind, and hydropower projects in the region, would nearly triple generation capacity to 780,000 MW. But this only brings the region 73 percent of the way toward the 1 TW goal.

Within the region, plans and aspirations vary widely. Last year, most Mediterranean countries signed the Global Renewables and Energy Efficiency Pledge, which aims to triple renewable energy capacity globally by 2030. Under existing plans, Greece, Egypt, Libya, Tunisia, Algeria, and Morocco would exceed three times their current renewables capacity, while others—including big consumers like France, Italy, Turkey, and Israel—would fall short.

Seizing the economic opportunity

The renewable energy transition presents distinct economic opportunities for both the northern and southern shores of the Mediterranean, reflecting their unique geographical, economic, and industrial contexts.

Solar photovoltaics (PV) and wind power are becoming increasingly competitive with fossil fuels. In Egypt for example, the cost of solar energy dropped to 2 cents per kilowatt hour, while wind power stands at 2.4 cents. Mediterranean countries can meet their domestic energy needs with clean, locally sourced energy, and potentially become net exporters using interconnectors such as the one between Tunisia and Italy. Investing in renewable projects creates real economic benefits—clean energy accounted for 10 percent of global economic growth in 2023. Scaling up renewable deployment has the potential to create 30 million new jobs globally by 2030, although 13 million jobs in fossil fuel-related industries could be lost.

The Mediterranean’s extensive coastlines offer significant potential for offshore wind development. This emerging sector could create thousands of jobs in manufacturing, installation, and maintenance, especially in the north. Northern Mediterranean countries can also invest in smart-grid technologies and energy management systems that would improve domestic energy efficiency and create exportable expertise for grid integration of renewables.

Additionally, the southern Mediterranean can capitalize on its high solar irradiance and vast deserts to develop large-scale solar and wind projects. Countries like Morocco, Egypt, and Algeria can serve domestic needs and potentially export clean energy to Europe through interconnectors, such as that connecting Morocco and Spain, and one being planned between Tunisia and Italy. Abundant solar and wind resources across North Africa are ideal for green hydrogen production, creating new export opportunities serving energy-hungry European markets.

Financing the energy transition

Countries across the Mediterranean can position themselves as green finance hubs, facilitating investments in renewable projects throughout the region rather than chase dwindling investments in fossil fuels. Countries with developed financial markets, like France and Italy in the north, can leverage their existing expertise and infrastructure to accelerate renewable energy deployment. In the south which has often struggled with attracting investments on favorable terms, emerging markets such as Egypt and Morocco can capitalize on their growing financial sectors and strategic positions to attract renewable energy investments.

Southern Mediterranean countries can use instruments like Sharia-aligned sukuk, also known as Islamic bonds, that emphasize environmental stewardship. The success of green sukuk issuances by entities like the Islamic Development Bank has already demonstrated the potential of this approach. Governments can also offer tax incentives and develop national sustainable finance strategies.

Despite not explicitly referring to the Mediterranean region, the EU’s Clean Industrial Deal could also provide some support and resources, particularly in financing through the Clean Trade and Investment Partnerships, and its plans to mobilize €100 billion for clean manufacturing, simplifying state aid for renewables, and addressing energy prices and financing.

Overcoming geopolitical faultlines

Ultimately, the region needs to come together to push toward a collective goal. But doing so requires overcoming complex geopolitical relationships, recent history shows that energy cooperation can persist even amid political tensions.

Despite the economic opportunities presented by renewable energy collaboration, the Mediterranean region faces significant geopolitical challenges. Historical tensions and ongoing disputes create a complex landscape for cooperation, including between Morocco and Algeria over Western Sahara, strained relations between Algeria and France rooted in colonial history, periodic tensions between Morocco and Spain over migration and border disputes, and between Turkey-Greece-Cyprus over territorial and maritime issues.

However, these challenges haven’t completely hindered collaboration. Algeria and Italy have maintained strong energy partnerships despite Libya’s instability. Similarly, Morocco and Spain have successfully operated the Morocco-Spain power interconnector since 1997, and have recently agreed to study collaboration on green hydrogen transport.

Tripling renewables is an unmatched opportunity

By embracing the goal of tripling renewable energy capacity by 2030, countries across the Mediterranean have the opportunity to unlock a host of economic benefits. Achieving this ambitious target will require concerted efforts and collaboration among all stakeholders. Governments must take the lead in creating enabling policy frameworks, investing in infrastructure, and fostering regional cooperation. The private sector must also step up to drive innovation, mobilize capital, and build robust supply chains.

The time to act is now, and the Mediterranean must embrace this transformative journey with a spirit of regional cooperation. By seizing the economic potential of renewable energy, the region can address the pressing challenges of energy and climate change while laying the foundation for a more sustainable and inclusive future.

Karim Elgendy is an Associate Fellow at Chatham House and at the Middle East Institute in Washington.

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The US can reduce Russia’s nuclear energy—and geopolitical—influence

Marina Lorenzini — Fri, 07 Mar 2025 17:31:23 +0000

As the second Donald Trump administration settles in, at least one energy priority will remain consistent: bipartisan efforts to position the US nuclear energy industry for a greater share in the global marketplace. In early February, Secretary Chris Wright emphasized Trump’s priority for the United States: to “lead the commercialization of affordable and abundant nuclear energy” amid surging global energy demand. This opportunity will lead not only to economic growth and improved energy security in the United States, but also the chance to reduce Russian influence on nuclear energy markets in Europe—and the geopolitical leverage it affords.

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For the past two decades, Russia has wielded its nuclear energy technologies—through its state-owned conglomerate Rosatom—as a strategic export to exert geopolitical leverage. Rosatom has been a dependable, cost-effective, and technically competent partner for stakeholders around the world, enabling its dominant market position.

Substantial up-front project finance and loans have contributed to Rosatom’s international success. Bangladesh, Belarus, Egypt, Hungary, and Turkey have benefitted from multibillion-dollar loans from Russia’s State Bank for Development and Foreign Economic Affairs (Vnesheconombank). State sponsorship allows Rosatom to offer favorable loan terms—such as a 3 percent interest rate—that competitors cannot match. Meanwhile, any analogous form of concessional loans for infrastructure projects has not been a part of the development strategy among Rosatom’s competitors.

However, some countries that previously embraced the vision of energy integration with Russia continue to shift investments away from Russian partners. Countries tied to Rosatom for their nuclear supplies are keen to diversify—if not extract themselves entirely—from energy dependence on Russia. Additionally, Vnesheconombank‘s SWIFT ban and US sanctions designation increases risks for loan recipients.

The United States—and allies with nuclear industries such as France and South Korea—could further convert the commercial interest for non-Russian products into strategic wins by focusing on countries with Soviet-era reactors. Countries and utilities often cite project finance as the primary barrier for building, but the new political momentum in the United States could galvanize both sufficient funds and new models across the public and private sectors.

Bulgaria seeks two new reactors at Soviet-era site

Bulgaria’s Kozloduy nuclear power plant operates two Soviet-era VVER-1000 reactors which supply one third of the country’s electricity. But in February 2024, Bulgaria signed an intergovernmental agreement with the United States to contribute to Bulgaria’s civil nuclear program, including the design, construction, and commissioning of two Westinghouse AP-1000 reactors at Kozloduy at a cost of $14 billion. Bulgaria’s energy minister said that the two reactors will be built entirely with public funds: either the Bulgarian treasury or the state plant owner will finance up to 30 percent of the project costs, and a loan will cover the remaining costs.

In early February, the Bulgarian energy minister met with officials from the US Export-Import Bank (EXIM) to advance a $8.6 billion (more than 60 percent of the estimated cost) letter of interest for the two new reactors. For the remaining amount, the Bulgarian treasury or Kozloduy’s owner has several options. Bulgaria may also have access to debt or equity financing from the world’s largest multilateral development lender, the European Investment Bank. Additionally, as the World Bank considers how to incorporate nuclear power into their offerings, any steps toward engagement would encourage other lenders to do the same. If further capital is required, Bulgaria—with its relatively healthy domestic economy—could issue dollar-denominated bonds to raise funds, or the Kozloduy owner could issue green bonds similar to Canada’s Bruce Power.

Bulgaria’s ability—and that of any potential lenders—to overcome financing hurdles will determine the success of such agreements. But if the agreement leads to new nuclear power generation, it bodes well for similar economies to undertake new reactor builds.

Soviet reactor reaches end of life in Armenia

Russia dominates Armenia’s energy system, but Armenian foreign policy has shifted dramatically away from Moscow in the past year, in part due to the lack of Russian military assistance to Armenia when Azerbaijan seized Nagorno-Karabakh.

The policy change will not immediately impact Armenia’s Soviet-era VVER-440 nuclear reactor at Metsamor, which has received several upgrades and lifetime extensions—the latest, with Rosatom’s support, will sustain the remaining operational reactor until 2036. However, preparations must be made in the coming years to: extend the operational lifetime (a highly unlikely outcome due to the reactor’s age); build new light-water reactors (whether from China, Russia, South Korea, or the United States); or invest in small modular reactors (SMRs). Armenia may seek to build an SMR rather than a traditional reactor due to limited financing options and low power consumption.

To build a new reactor, Armenia might want to follow Romania’s blended model for financing its SMR deal with NuScale. The EXIM and US International Development Finance Corporation offered Romania tentative financial support totaling $4 billion. Public and private partners then formed a coalition of stakeholders from Japan, South Korea, the United Arab Emirates, and the United States to finance the SMR project up to $275 million. If further capital is needed, private financial institutions have also recently announced their plans to support the nuclear industry. Whether and when construction begins for the reactor in Romania will demonstrate feasibility, but so far, the financial structure has shown promise.

A great nuclear power balance

In partnership with allies, the United States should advance financial and commercial solutions to help countries dependent on Russian nuclear energy diversify their domestic power programs. The United States is well positioned to do so. Trump, and Biden before him, have supported nuclear energy domestically, which, in turn, can result in the export of US technologies and expertise. Strong bipartisan appropriations from multiple administrations will reinforce Trump’s vision and the domestic nuclear energy industry. In 2019, during Trump’s first administration, the Nuclear Energy Innovation and Modernization Act became law, paving the way for a streamlined advanced reactor licensing process. Under the Biden administration, the multibillion-dollar appropriations from the Infrastructure Investment and Jobs Act and the Inflation Reduction Act bolstered the US nuclear energy industry. Further, the 2023 Nuclear Fuel Security Act and the 2024 ADVANCE Act enjoyed bipartisan support on Capitol Hill.

Building on these domestic advances, Trump’s embrace of financial vehicles, such as the EXIM Bank or DFC, that bridge public and private sectors, will facilitate investments in multi-billion dollar infrastructure projects outside of the United States and bolster US energy-related exports, including from its domestic nuclear energy industry. These factors bode well for the United States to substantially weaken Russia’s share of global nuclear markets and its geopolitical influence.

Marina Lorenzini is the research program coordinator at the Middle East Initiative at the Belfer Center for Science and International Affairs at Harvard University’s John F. Kennedy School of Government.

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How shifting political leadership, war, and generative AI are shaping the energy outlook: Insights from the 2025 Global Energy Agenda

Landon Derentz, Christine Suh, Bailee Mathews — Thu, 06 Mar 2025 16:16:59 +0000

Amid conflict, electoral transformations, and the emergence of generative AI, the Atlantic Council launched its annual flagship report, the Global Energy Agenda, chronicling changes, challenges, and opportunities in the energy system through leadership perspectives and a survey of more than 1,000 energy professionals across more than 100 countries. Collectively, these views provide a valuable roadmap for building a more secure, sustainable, and resilient energy system.

Read the full report here.

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On balancing competing pressures

In recognition of the complexity of the energy system, rising energy demand, and that every energy source has tradeoffs, Rick Muncrief, who just retired as CEO of Devon Energy, sums up the realities facing the sector this way: “We cannot prioritize clean energy over reliability and affordability, we cannot pursue reliability and affordability at the expense of the environment, and we cannot develop energy policies and systems that do not account for geopolitical risks domestically and abroad.”

These geopolitical risks feature strongly in our survey results, with respondents citing conflict in the Middle East and Russia’s unjust war in Ukraine as the biggest concerns. These risks raised the alarm over the use of energy for geopolitical leverage and renewed determination among US business leaders and policymakers to ramp up innovation and manufacturing domestically.

What will be the biggest risk in energy geopolitics in the coming year?

On seeking common ground

But amid this competitive spirit, policymakers know that they cannot secure their respective energy systems alone. Dan Jørgensen, European Commissioner of energy and housing, identifies key areas, including supply chains, cybersecurity, liquefied natural gas, and nuclear energy, where US-EU partnership is critical for both to achieve energy security, writing: “In the face of challenges to come, it will be essential to find and reinforce our common connections, wherever they exist.”

On advancing the energy transition

Energy leaders also make clear in our Agenda that the momentum of the energy transition has taken on a life of its own. Andrés Rebolledo Smitmans, executive secretary of the Latin America Energy Organization (OLADE), notes that in Latin America and the Caribbean “the share of renewable energy in electricity generation increased from 53 percent to 68 percent in the past ten years, while greenhouse gas emissions were reduced by 26 percent.” Ramping up progress will “require investments in unprecedented volumes of materials, which must flow and materialize in relatively short periods.”

This unprecedented amount of investment is perhaps why, out of all sectors we surveyed, those who work in finance predict the longest runway for reaching net-zero emissions.

Median year estimated for achieving net zero (by sector and region/country)

However, progress toward advanced nuclear energy and greater regional cooperation will continue to move the world toward both decarbonization and development.

As Lassina Zerbo, chair of the Rwanda Atomic Energy Board, writes, “Nuclear energy—and in particular small modular and micro reactors (SMRs)—can revolutionize the African energy landscape and promote sustainable development.” In Southeast Asia, Kok Keong Puah, chief executive of Singapore’s Energy Market Authority, emphasizes that interconnections are key to regional decarbonization, but also that a “stable, prosperous, and decarbonized Southeast Asia will not only benefit the region but also strengthen global supply chains, promote economic growth, and contribute to climate stability.”

And one of the most intriguing advancements to watch in 2025 will be the promise of generative AI, which could lead to a game-changing acceleration toward net-zero targets. 

While acknowledging that energy demand for AI is currently growing, Josh Parker, senior director of corporate sustainability at Nvidia, writes, “AI is also proving to be a powerful tool for finding ways to save energy and may very well become the best tool we have for advancing sustainability worldwide.”

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Andrei Covatariu: The EU’s decarbonization goals are technically achievable—but are Europeans able to pay for them?

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Can the EU’s Clean Industrial Deal cut carbon and restore competitiveness?

Andrea Clabough, Andrei Covatariu, Elena Benaim, Carol Schaeffer — Thu, 27 Feb 2025 15:09:01 +0000

The European Commission has introduced the EU Clean Industrial Deal (CID) to align climate ambitions with industrial competitiveness. Building on previous EU energy policies like the REPowerEU Plan, CID focuses on ensuring affordable energy to consumers through streamlining market integration, harmonizing financial and regulatory frameworks, providing clean energy investment incentives, digitalizing the grid, and reducing permitting bottlenecks, and alleviating regulatory burdens on natural gas markets. By integrating industrial, economic, and trade policies, the deal aims to provide a predictable framework for innovation and investment in clean technologies.

However, as geopolitical pressures mount and Europe faces growing competition in global markets, questions remain over whether these measures will be implemented swiftly enough to prevent further industrial decline. Below, Atlantic Council experts share their analysis on the EU’s new industrial policy, its implications for European energy security, and how key partners may respond to the bloc’s evolving regulatory landscape.

Click to jump to an expert analysis:

Andrea Clabough: Europe goes all in on industrial policy—with or without the US

Elena Benaim: The Clean Industrial Deal Needs a Clear Strategy on Clean Energy Supply Chains

Carol Schaeffer: The CID is more industrial than it is clean. But Europe needs to be both.

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The EU’s decarbonization goals are technically achievable—but are Europeans able to pay for them?

Listed first among the critical elements for a “thriving new European industrial ecosystem of growth and prosperity” is affordable energy, as Europe’s energy prices are significantly higher than those of its main trading competitors. For this reason, the Clean Industrial Deal strategy issued by the European Commission is accompanied by an additional, even lengthier document—the Action Plan for Affordable Energy—aimed at finding energy policy solutions to restore economic competitiveness while keeping the EU on track to meet its decarbonization goals.

To achieve this, the Clean Industrial Deal sets a target of a 32 percent electrification rate by 2030, representing a more than 50 percent increase compared to today (21.3 percent). While flexibility is seen as a major contributor to both increasing electrification and reducing system costs, achieving such a rapid electrification rate would require massive investments in power grids—otherwise a critical foundation for the energy transition process—within less than five years. Given that Europe has some of the highest lead times globally for deploying new distribution and transmission lines, fast-tracking permitting is cited as a necessary solution. Although these ambitious targets are technically achievable, ensuring affordability at the same time—as repeatedly emphasized in the Commission’s proposal—is simply aspirational.

While acknowledging that Europe has the most integrated grid globally, the Action Plan for Affordable Energy also recognizes the need for further progress. It proposes making electricity bills more affordable, including by reducing network charges. However, while these costs may be removed from final energy bills, they will still be indirectly paid by end users through domestic or EU budgets, exacerbating existing budget deficits or inflation-related issues, especially in the short run.

Although ambitious targets may foster short-term social and political cohesion, failing to meet them will have political repercussions in the next EU elections in 2029—just months before the 2030 milestone.

Still, the goal of reducing net greenhouse gas emissions by 90 percent by 2040 is still attainable through other energy policy measures listed in the document, most of which have already been talked about in previous years. These include more long-term contracts, faster permitting for clean power projects, creating a Gas Market Task Force to ensure fair competition, fully integrating energy markets, and providing more funding for energy efficiency solutions.

In summary, the EU requires more than €570 billion per year between 2021 and 2030, as well as €690 billion per year between 2031 and 2040, to stay on track to meet its climate neutrality mission, according to the Action Plan for Affordable Energy. These figures include solar, wind and biomass, energy efficiency and grid capacity, but do not cover investments in nuclear energy (including fusion), enhanced geothermal, solid-state batteries, or capacity refurbishment, which the Commission will assess and foster. It is a bold—if old—plan, with the same unresolved question of how the EU will pay for it.

Andrei Covatatiu is a nonresident fellow with the Atlantic Council Global Energy Center

Europe goes all in on industrial policy—with or without the US

The Clean Industrial Deal hardly emerged in a vacuum, and it is perhaps impossible to analyze apart from the sea change the last month has brought to US-EU relations. The CID reveals determination in Europe to build its own future and (re)emerge as a global industrial competitor—looking not just at China, but also the United States. Some of the announcements will be appreciated in Washington, such as delayed implementation of the EU’s Carbon Border Adjustment Mechanism (CBAM), narrowing its application to a smaller group of importers, and more tailored environment, sustainability, and governance requirements in corporate sustainability and due diligence reporting.

But other components point to a “Made in Europe” industrial policy that retains characteristic focus on decarbonization. New Clean Trade and Investment Partnerships and additional free trade agreements are intended to “better manage strategic dependencies” but are almost certainly a response to the protectionist mindset and tariff threats coming from Washington. Likewise, a critical raw materials demand aggregation and matchmaking mechanism will facilitate joint purchases within hotly competitive markets for minerals and other commodities—a focus of the Trump administration’s recent diplomacy to secure such access for the United States. A revision in the Public Procurement Framework next year will “make European preference criteria a structural feature of EU public procurement in strategic sectors.” The Affordable Energy Action Plan, meanwhile, emphasizes further diversification of liquefied natural gas (LNG) suppliers from existing and future LNG projects, likely to include but perhaps look beyond reliance on US LNG.

Through the CID, the EU Commission is arguing that the costs of energy transition can be mitigated while the social and economic opportunities are fully maximized—a marked contrast to the attitude in Washington. These and other elements suggest the EU wants its own rules of the road to be proactive (rather than continually react) to whatever pathways the United States and China pursue. With serious questions surrounding the transatlantic alliance and the reliability of the United States as an economic and geostrategic partner, this gear shift in the European approach comes not a moment too soon.

Andrea Clabough is a nonresident fellow with the Atlantic Council Global Energy Center.

The Clean Industrial Deal Needs a Clear Strategy on Clean Energy Supply Chains

The European Commission’s Clean Industrial Deal outlines a welcome and necessary framework, as it positions climate action as the driver for creating a compelling business case for industrial decarbonization.

While the framework includes a series of forthcoming initiatives that could—at least in principle—strengthen the competitiveness and decarbonization nexus, there is a lack of clarity when it comes to the role of international trade.

Under the “Global Markets and International Partnership” pillar, the Commission rightly points out that “the EU cannot realise its clean industrialisation objectives without partnerships on the global stage.” Clean Trade and Investment Partnerships (CTIPs) are introduced as a tool that will complement free trade agreements to offer a “more targeted approach, tailored to the concrete business interests of the EU.”

For the EU to successfully achieve its clean industrial objectives, a well-defined strategy for clean technology supply chains is essential. This requires, on one hand, a comprehensive analysis of the EU’s current manufacturing capacity in clean technology supply chain segments necessary to reach net zero, and on the other, a thorough assessment of existing trade agreements with global partners to identify where external supply chains can complement gaps in the EU ‘s capacity.

Without such an analysis, there is a risk that CTIPs may fall short of delivering, ultimately undermining the EU’s goals. At a time of geopolitical turmoil and a reassessment of strategic partnerships, fully integrating this evaluation into a joint roadmap for decarbonization and competitiveness is of fundamental importance.

Elena Benaim is a nonresident fellow with the Atlantic Council Global Energy Center.

The CID is more industrial than it is clean. But Europe needs to be both.

With the introduction of the Clean Industrial Deal, the European Commission correctly acknowledges that competitiveness and climate policy are intertwined. But as Carbon Market Watch put it, although the deal is “certainly industrial, it is far from clean.” While the CID is an important step to solidify the green transition as part of a strategy for economic competitiveness, it falls short in bringing Europe closer to meeting the goals of the Paris Agreement.

One example is the CID’s heavy reliance on carbon capture, utilization and storage (CCUS), which is its main strategy to address emissions from key sectors of European economy, such as steel, cement, and chemicals. But CCUS can only count as carbon removal if that removal is permanent. While a revision of the Emissions Trading System (ETS) aims to incentivize permanent storage—which has enormous long-term logistical challenges—relying on carbon capture to manage emissions after they are produced is a more precarious way to decarbonize than reducing the emissions in the first place.

It is important to remember that cutting emissions is itself a competitiveness measure—the long-term damage to supply chains and infrastructure from increasingly severe climate impacts is as great a threat to Europe’s economy as any tariff. But despite the shortcomings of the CID, the good news is that it clearly signals Europe’s commitment to doubling down on the green transition amid profound economic challenges.

The CID may be more industrial than it is clean—but that may be in service of the climate fight in the long run. Europe cannot be a leader in the green transition if it collapses under competitive pressures from the United States, Russia, and China. But if the CID is about Europe fighting for its survival in a rapidly shifting geopolitical landscape, then it should not forget that the climate crisis remains the continent’s greatest long-term threat.

Carol Schaeffer is a nonresident senior fellow with the Atlantic Council Europe Center.

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US energy dominance is Putin’s worst nightmare as Russia enters its fourth year of war crimes

Olga Khakova, Haley Nelson — Mon, 24 Feb 2025 19:50:34 +0000

Three years of Russia’s senseless aggression in Ukraine have caused monumental, unnecessary human suffering but also an irreversible impact on Russia’s energy sector. The war has diminished giants like Gazprom—once a massive revenue crutch for Moscow—into historic economic losers. Now, Vladimir Putin’s narrow path to regaining European gas market share is through liquefied natural gas (LNG)—a modern Trojan Horse of energy influence. Unstopped, he may succeed, as growing LNG exports to European consumers sent €7 billion to Russia in 2024.

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After ending the remaining pipeline exports through Ukraine, Europe is ready to take the leap to address Russia’s LNG leakage into the market, if competitive deals can be reached with alternative suppliers. The EU is welcoming more US LNG to fill these capacities and is also considering investments in LNG projects abroad to boost diversification and security of supply.

President Donald Trump fulfilled his promise to roll back former President Joe Biden’s pause on additional LNG project permits—a vital step to unleash future development. However, permitting is not the only driver for additional LNG capacity. Markets make the final call. Any opportunity to create certainty in a turbulent world would reduce risk for potential investors. Choking off Russian LNG on the global market through sanctions is the surest way to signal a new tangible demand trajectory for Europe and beyond.

But what’s the insurance policy against a resurgence of Russian gas? Unconstrained by the pipeline networks, LNG has the fungibility to reach buyers around the world—often lured in by the highest bidder Because of LNG’s ability to navigate through the global markets, the lasting curtailment of Russian LNG calls for a more comprehensive approach than just an EU ban. Sanctioning LNG where it’s sourced, rather than piecemeal at ports or through a national approach is the most effective way to prevent future supply blackmail from Moscow. The Arctic 2 LNG project sanctions, for example, are a roadmap to impactful project curtailments. Such efforts must be expanded to Russia’s Yamal and Sakhalin-2 LNG project—two significant LNG facilities that have been spared from sanctions to date.

The Trump administration has left the door open for additional sanctions on the Kremlin, if Putin fails to negotiate a peace deal in good faith. Thousands of rockets attacking Ukrainian civilians, including children, and critical infrastructure clearly signal that Moscow is undermining the United States and seeks to continue its brutalities against the most vulnerable populations.

By sanctioning Russia’s biggest remaining LNG projects, the United States and Europe can secure a triple win: stimulate domestic gas production and exports, while applying pressure on Moscow and strengthening transatlantic trade relations.

Olga Khakova is the deputy director for European energy security at the Atlantic Council’s Global Energy Center.

Haley Nelson is assistant director for European energy security at the Atlantic Council’s Global Energy Center.

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What China’s BYD really wants from EV investments in Mexico

Haley Nelson — Wed, 29 Jan 2025 15:28:05 +0000

The world’s largest electric vehicle (EV) manufacturer is moving ahead with plans to launch a manufacturing plant in Mexico. Even after US President-elect Donald Trump threatened steep tariffs on the country, BYD is still rushing to build the plant despite trade friction with the United States, the largest consumer of Mexican-produced vehicles.

While trade barriers will likely restrain BYD’s access to the US market—at least in the short term—the company’s presence in Mexico isn’t about the United States. It reflects a broader ambition to use EVs to embed the company within Mexico’s critical infrastructure.

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Without a sure export market in the United States, BYD’s ambitions in Mexico could challenge the country’s underdeveloped EV infrastructure. BYD plans to expand auto sales sixfold in the country—but with fewer than 3,000 public charging stations, Mexico needs to invest $1.73 billion annually in its charging infrastructure over the next six years to keep up with demand.

Chinese firms, with their experience building renewable energy infrastructure, are filling this gap—and exploiting an opportunity to expand into Mexico’s critical infrastructure. BYD and partner companies are quickly deploying chargers to support Chinese EV ownership in Mexico. Vemo, a Mexican cleantech company, is actively working with the company to double the number of BYD-compatible chargers in Mexico to 1000 in 2025.

Moreover, Mexico’s grid already faces an energy deficit and will struggle to keep up with rising power demand from EVs. In November 2020, China’s State Power Investment Corporation (SPIC) acquired Mexican renewable energy company, Zuma Energia—now the second-largest private renewable energy producer in Mexico—which is involved in fast-charging facilities, storage, and solar panels. As of September 2024, SPIC reported investments of more than $1 billion in Mexico and expressed its intention to continue expansion in the country.

An opportunity for Mexico

Mexico has much to gain from securing a piece of the EV market. New manufacturing facilities could create high-paying jobs, expand one of Mexico’s main export industries, and attract new investments. Jorge Vallejo, BYD’s general director in Mexico, stated that the new EV plant will create around 10,000 new jobs in Mexico.

Currently, EVs remain out of reach for many consumers. In Mexico, the cheapest Tesla model costs a prohibitive $40,000. However, localizing production could lower prices by reducing transport costs and bypassing tariffs.

Other automakers in Mexico are already struggling to compete with BYD. The Song model, BYD’s $30,000 plug-in sport utility vehicle, is edging out rivals. A local factory threatens to slash prices even lower.

EVs are just the first step

BYD is a risky business partner because of its ability to rapidly integrate itself within a country’s energy system, quickly replacing competitors in not only the EV market, but the larger cleantech industry.

BYD’s goal in Mexico is not just to sell electric vehicles. Similar to how the company has operated in Brazil, first come the EVs—then, BYD provides the manufacturing logistic software, charging systems, storage, and generation needed for the EV ecosystem to operate.

BYD is not just an auto company, it’s a software company, with its own chip-making subsidiary and artificial intelligence (AI) program. The company produces batteries, trucks, skyrails, energy storage systems, digital logistic management software, communication equipment, and 5G and AI technology. BYD uses this expertise to vertically integrate itself into a country’s energy system, allowing it to dominate large parts of the green economy.

In Brazil, where Chinese brands have a 9 percent share of new car sales, BYD builds electric buses, operates solar farms, supplies trains, partners with lithium miners, and manufactures consumer EVs. For BYD, EV production is a beachhead for gaining access to broader energy infrastructure, creating dependency on Chinese technology and investment to support the very industries Chinese companies help establish.

In Mexico, China’s footprint in the energy system is growing. In 2023 alone, Chinese companies announced over $12.6 billion in infrastructure projects in Mexico, focusing on EVs, mining, transit, container ports, and telecommunications. China-based miner Ganfeng has also been involved in a years-long dispute with Mexico over the rights to mine lithium in the Sonora desert.

The party’s favors

BYD’s rise in Mexico comes at a time when Chinese companies are under scrutiny for unfair trade practices, supply chain meddling, and security concerns, which have prompted several Mexican states to dial back tax and resource incentives for BYD.

But this means little for a company that is essentially at the service of the Chinese Communist Party (CCP). Since the late 1980s, China’s Go Out policy has encouraged investment abroad to obtain domestically scarce strategic resources. By acting as a key player in the CCP’s economic efforts, BYD gains unfair advantages in an increasingly competitive global automobile market. High subsidies, strong domestic policy support, and access to military intelligence that could guide transnational business decisions give BYD the competitive edge needed to make it one of the top-selling automakers in the world.

BYD’s ties to the CCP run deep: it has supported China’s military-civil fusion strategy, integrating defense and civilian research to bolster national objectives. In 2019, the company received a prestigious state award for contributions to military technology and has developed at least three military-civil fusion enterprise zones focused on research and development in the defense industry, as directed by the military.

BYD’s leadership maintains an extensive interpersonal network—and even a revolving door—with CCP leadership. BYD founder Wang Chuanfu has held a number of CCP posts, including as a delegate to the People’s Congress of Shenzhen from 2000–2010.

Perhaps uncoincidentally, BYD is also one of China’s most heavily subsidized companies. In 2022, BYD received $2.1 billion in direct subsidies from the Chinese government, significantly higher than other domestic manufacturers. These subsidies help BYD’s expansion efforts, especially as countries concerned with Chinese influence impose tariffs on Chinese EVs.

BYD did not become the world’s largest EV manufacturer by mistake. The CCP has called on BYD to “go out” and conquer foreign markets, and it has supported the company’s efforts through military collaboration, funding, and heavy subsidies. This intense collaboration has made it difficult to differentiate BYD’s corporate strategies from government orders.

A larger prize at stake

Through its vertically integrated approach—from electric vehicles to renewable energy infrastructure—BYD not only captures market share, but also secures lasting influence over the systems driving Mexico’s clean energy transition—to the geostrategic benefit of Beijing.

China’s expansion into Mexico’s EV market, led by BYD, is more than just a response to rising local demand for affordable electric vehicles. It is part of a wider strategy to embed Chinese influence in Mexico’s broader energy and infrastructure systems—and signals a much deeper geopolitical play.

Mexico’s demand for EVs is quickly growing—and BYD’s potential to dominate the market is undeniable. The rapid vertical integration of Chinese firms into sectors needed to support EV adoption can leave Mexico increasingly dependent on China for critical energy and industrial systems.

As Mexico looks to capitalize on the EV boom, policymakers must weigh the long-term trade-offs of Chinese partnerships. While BYD promises immediate economic benefits, the country risks ceding control over strategic assets and becoming overly reliant on Chinese technology and investment.

For Mexico to achieve sustainable, independent growth in cleantech, it must balance foreign collaboration with efforts to strengthen its own domestic capacity and regulatory oversight.

Haley Nelson is assistant director at the Atlantic Council Global Energy Center.

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Bigger than the Berlin Airlift: How NATO’s natural gas shut down a key Russian pipeline

Simon Lomax, Morgan Bazilian, and Greg Clough — Wed, 29 Jan 2025 14:41:01 +0000

Just a few weeks into 2025, two significant efforts to stifle Russia’s energy revenues have already taken place. Both carry major energy security and geopolitical ramifications.

On January 10, the US Treasury Department announced the most significant sanctions on Russian oil since 2014. And on January 1, over the objections of Moscow, a contract allowing for pipeline deliveries of Russian natural gas across Ukraine and into the European Union expired. 

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To be sure, following Russia’s full-scale invasion of Ukraine in 2022, gas volumes along this pipeline route had already plummeted to a fraction of their historic levels. But the expiration of the transit deal has allowed Ukraine to finally shut off one of the few remaining connections between the European Union (EU) and Russia’s gas sector—and put further economic pressure on the regime of Russian President Vladimir Putin to end the war.

Before the 2022 invasion, Russia’s share of the European gas market stood at more than 40 percent. Since then, it has fallen to less than 15 percent, and the expiration of the Ukraine transit deal will move the EU closer to its 2027 goal of ending all Russian gas imports.

This is an astonishing achievement, both in technical and economic terms. It would not have been possible without close coordination between members of the North Atlantic Treaty Organization, which was originally formed in 1949 to defend against Russian expansion during the Cold War.

In particular, two founding members of NATO—the United States and Norway—answered the call to defend Europe against Russian energy aggression. The United States surged exports of liquefied natural gas (LNG) and Norway ramped up pipeline shipments at a dramatic pace. Barely 18 months after the Russian invasion, the United States was providing almost 20 percent of the EU’s gas imports from across the Atlantic Ocean and Norway was providing more than 30 percent.

The speed and determination of this effort was reminiscent of the 1948 Berlin Airlift, but on a much larger scale. Instead of supporting a single city after it was blockaded by the Soviet Union, the United States, Norway, and other gas-producing nations came to the aid of an entire continent of 450 million people.

This has not been easy or cheap for the economies of Europe. But the data show it could have been much worse—without the US shale revolution, Europe could have been at Russia’s mercy and a very different geopolitical map might have emerged.

A few months into the conflict, European natural gas prices climbed to record levels, roughly five times the price recorded at the start of 2022. But thanks to a surge of imports from NATO allies and conservation measures that limited demand, the wholesale price of gas in Europe had returned to pre-invasion levels by early 2023. Today, European gas prices are 80–90 percent lower than their record levels.

For this reason, European Commission President Ursula von der Leyen recently called for continued growth in US LNG shipments to Europe. American LNG is “cheaper” than other sources of natural gas and “brings down our energy prices,” von der Leyen said in November after a call with incoming US President Donald Trump.

Another major benefit of the move away from Russian natural gas is connected to climate change. 

Natural gas produces roughly half the carbon dioxide of coal when burned to generate electricity. But the climate benefits of natural gas can be eroded by fugitive emissions of methane during production, processing, transportation, and other points along the supply chain.

In North America, there are strong environmental regulations, efficient production practices, and a series of technologies to detect and reduce fugitive methane emissions. Those technologies include ground-level monitors; drone surveys; aircraft sensors; satellites; vapor-recovery units; low- and zero-emission pneumatic controllers; and real-time autonomous systems that can detect potential methane releases, throttle back production, and alert field crews to investigate.

By comparison, Russia’s oil and natural gas infrastructure is notoriously leaky, producing around 50 percent more fugitive methane than the United States per unit of gas produced, according to data from the International Energy Agency (IEA). Norway’s gas is even cleaner, with virtually no fugitive methane emissions, says the IEA.

When the full-scale war in Ukraine began, Russian President Vladimir Putin believed he could use energy as a weapon to threaten Europe and NATO. Instead, in less than three years, Europe pivoted to cleaner and more secure energy sources, strengthening the transatlantic alliance and benefiting the climate.

Make no mistake, many challenges remain and there is much work to be done. But this moment in geopolitics, energy security and environmental progress—which was unthinkable just a few years ago—deserves to be celebrated.

Morgan Bazilian is the director of the Payne Institute for Public Policy at the Colorado School of Mines and a former lead energy specialist at the World Bank.

Greg Clough is the institute’s deputy director.

Simon Lomax is the director of the institute’s Accelerated Methane Reduction Initiative.

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DOGE should use AI to fix environmental review

William Yancey Brown — Mon, 27 Jan 2025 13:57:26 +0000

The recently conceived Department of Government Efficiency (DOGE), headed by Elon Musk, is the big, new Trump administration idea on the block for cutting costs and making government work better. It should tackle a problem of government inefficiency that is holding up investment and job creation associated with development projects of many kinds, including siting clean energy and connecting it to a grid.

DOGE should focus its tech talent on making the National Environmental Policy Act (NEPA) work the way it was intended: to make federal decision-making sensitive to environmental impacts but not create the byzantine paperwork exercise that haunts many projects. To do that, DOGE should leverage artificial intelligence (AI) technologies to streamline bureaucratic processes.

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NEPA doesn’t need to be so cumbersome

On January 1, 1970, then-President Richard Nixon signed NEPA, and it quickly became a cornerstone for environmental protection in the United States. NEPA doesn’t establish limits for harm—it is a “process” statute requiring federal agencies to identify planned actions that may significantly affect the environment and to describe those impacts in detail, for both the project as proposed and for a range of alternatives. Federal agencies must then state which action they will take, and which measures they’ll implement to mitigate the impacts.

But NEPA has long been a cumbersome process. The law and its amendments call for brevity in words and time, but the collective parts of an environmental impact statement (EIS) can run hundreds or even thousands of pages long and take more than two years to prepare—often by outside firms. Neither the environment nor the participants in the process benefit from that excess—decision-makers rarely even read the EIS.

It’s time for a dramatic change in the way that federal environmental review is carried out. The emergence of AI creates a tool to make that change a reality.

AI can streamline government processes

The Bureau of Ocean Energy Management (BOEM), where I have served, launched an effort in this direction in February 2020 during the last year of the first Trump administration.

BOEM’s initial idea was simple: EISs and other environmental documents were being created anew by the agency for each proposed action. Some parts of those documents were unique to the action involved, but much of the information, such as a required description of the affected environment, was largely identical for activities in the same geographical area. BOEM realized that an information base kept updated by agency scientists would save staff from unnecessary, repetitive review and speed things up.

BOEM named its initiative Status of the Outer Continental Shelf (SOCS) reflecting the agency’s jurisdiction. It began by compiling environmental documents prepared and vetted by the agency over the years and initiating a study to develop a model for decision-making using that information base. The model would not take humans out of decisions but instead provide them with objective indices of impacts on the environment based on defined categories of concern, such as the presence of endangered species and importance to tribal culture.

SOCS is underway now in BOEM, and its potential is made dramatically more significant with the emergence of generative AI.

Here is the concept: couple the SOCS information and model with generative AI and then fine-tune a custom AI tool for BOEM that can prepare EISs and other environmental documents. On top of that, use AI to facilitate public engagement faster and better than is currently done by providing a way for anyone to ask questions directly to the AI tool about projects and NEPA documents.

This concept can work for any federal agency making decisions with environmental impacts, not just BOEM.

How AI can fix NEPA

That said, one approach for developing a new AI-based tool could follow these steps:

Upload contextual documents, including NEPA, other environmental laws and regulations, plus guidance documents and judicial decisions—the more, the better. Include EISs that are exemplary documents so the AI tool can learn what an EIS should look like—that is, it should communicate key issues concisely, clearly, with supporting graphics, focus candidly on important issues, and specify clear and enforceable mitigation measures (as conditions of approval).
Have the AI produce an EIS template drawing from these uploads and integrating a decision-making model if an effective one becomes available—something DOGE should include in its NEPA-related efforts. A good model should transparently address the full range of impacts of greatest concern. It also needs to be user friendly for agency staff who are not modelers themselves.
Task the AI tool to prompt the human team with requests for information specific to the EIS-proposed action.
Fine-tune the AI tool through iterative refinement. This would include human experts systematically reviewing, correcting, and updating AI-generated output, since generative AI models can “hallucinate” facts that require fixing. The review should also look hard for and correct model bias—such as the Google Gemini AI model which, when asked for images of the Founding Fathers, only came up with people of color.
Have the human experts closely review completed draft EISs for accuracy and quality. This task should become easier over time as reviewers gain experience.
AI tools can also enormously improve public engagement with EISs. Google’s NotebookLM is one option currently available for free. Users can upload an EIS (or any other document) and ask questions about it. The answers are reliable and the tool can even generate an engaging podcast.
Eventually, it may become possible simply to task an AI agent to produce a draft EIS, making sure it can access information specific to the project concerned.

NEPA is fixable

So, why aren’t EISs being prepared this way now? It’s partly because generative AI is still novel and government is slow to change. NEPA itself is not an obstacle. The statute and its regulations provide flexibility for how an EIS should be drafted.

To be sure, agency lawyers will wring their hands about what courts may do with AI, but that’s not a good reason to hold back. With rescission of the Chevron doctrine by the Supreme Court, which eliminated deference to agencies by judges, predicting judicial outcomes is impossible, and NEPA can be amended if warranted.

Government information technology (IT) policies are perhaps an even greater inhibition for AI innovation than nervous lawyers. IT requirements, some of which are legislated, are necessary for system security. But the process of change allowed under them can be suffocating and lead agency program staff to avoid innovation.

These organizational inhibitions make improving environmental review under NEPA a strong candidate for prioritization for the Department of Government Efficiency envisioned under the second Trump administration.

DOGE, which aims to bring in technology-focused staff from outside of government, working with the White House Council on Environmental Quality on the inside, could deliver a needed shake-up. It could bring the NEPA process into the 21st century. That would mean a more efficient path to renewable energy growth and the quest for net-zero carbon emissions, while creating a better understanding of the adverse environmental impacts of projects.

Go for this one, DOGE; it’s waiting for you in plain sight.

William Yancey Brown is a nonresident senior fellow at the Atlantic Council Global Energy Center. From 2013–2024, Brown was the chief environmental officer of the Bureau of Ocean Energy Management in the US Department of the Interior, where he oversaw the implementation of NEPA.

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China’s lithium-ion battery exports: Why are US prices so low?

Joseph Webster — Wed, 22 Jan 2025 15:32:16 +0000

Batteries are an increasingly important element in the US-China strategic competition. Batteries are not only used for commercial items, such as electric vehicles (EVs) or battery energy storage systems (BESS)—they’re also crucial military enablers employed in unmanned aerial, surface, and subsurface systems, diesel-electric submarines, electronic warfare systems, military microgrids, and directed energy weapons.

Strikingly, the per-kilogram prices of Chinese lithium-ion batteries exported to the United States are lower than the same product sold to any other market. The low per-kilogram prices may stem from China’s export of heavier BESS batteries to the United States—or anti-competitive tactics meant to oust US, Korean, and Japanese manufacturers in a militarily relevant technology. Given batteries’ dual-use potential and domestic production prospects, the United States should raise tariffs on Chinese imports and boost funding for domestic and allied supply chains.

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Chinese leaders recognize the commercial and military potential of next-generation batteries. Beijing has directed top firms to collaborate on solid-state battery development and banned Chinese companies from supplying batteries to Skydio, the largest US drone maker. Earlier this month, the US Department of Defense (DOD) designated China’s largest battery maker, CATL, as a military company.

The DOD may have made the designation due to CATL’s potential collaboration with the Chinese navy on lithium-ion battery-powered submarines. Currently, only Japan operates such submarines, although South Korea is building three of them. The DOD’s move may indicate that China is also using advanced batteries to enhance its submarine force.

Despite batteries’ dual-use applications, Chinese companies are global players. Chinese export destinations for lithium-ion (Li-ion) batteries are highly diversified, as the chart below shows.

Significantly, Chinese Li-ion battery exports to the United States have risen sharply in recent months, reaching an all-time high of $1.9 billion in December 2024. Chinese exporters may have been expediting shipments to avoid potential tariffs before President Donald Trump’s inauguration. But also, Chinese manufacturers often accelerate shipments in December to meet year-end targets and account for the production slowdown during Lunar New Year celebrations.

While Chinese battery global export earnings have declined from recent highs, focusing on dollar amounts doesn’t tell the whole story. As measured in weight, Chinese Li-ion battery exports are rising.

Chinese trade data shows that battery exports by weight have increased year-over-year, while their export value has declined. In 2024, the United States imported 923,000 tons, slightly less than the EU’s 938,000 tons. However, comparing volumes has limitations since batteries vary widely in function and are not interchangeable commodities.

Even as the quantity exported rises, battery prices on a per-kilogram measure have dropped. Indeed, the average global per-kilogram export price of China’s lithium-ion batteries fell from $32.9 in 2020 to $20.1 in 2024.

Remarkably, Chinese per-kilogram battery export prices to the United States are the lowest in the world—only continental Latin America even comes close.

Tariffs don’t seem to be playing a major role. Chinese exporters of lithium-ion EV batteries to the United States now face a 25 percent tariff after President Joe Biden raised rates in a May executive order, up from 7 percent. But storage batteries—which are China’s primary Li-ion shipment to the United States—are not subject to the higher rate until 2026; they currently face an effective tariff rate of only 10.9 percent.

Importantly, China’s per-kilogram battery export prices vary depending on the type of batteries supplied to different markets. Stationary battery storage systems, typically weighing over 1,500 kilograms, contrast with EV batteries, which generally weigh between 326 and 544 kilograms. However, Chinese trade data, reported at the 8-digit Harmonized Tariff System (HTS)-level for external audiences, does not differentiate between lithium-ion batteries for energy storage or EVs.

In contrast, the United States’ more transparent data on Li-ion battery imports does distinguish between these categories, with most imports consisting of heavier battery energy storage systems. Significantly, per-kilogram battery costs are lower for battery energy storage systems than batteries for EVs. US BESS per-kilogram costs averaged $19.7 through the first eleven months of the year, while batteries for EVs averaged $28.8, according to US trade data. Chinese trade data also show that the EU imports more Li-ion battery units than the United States, suggesting Europe’s imports are more focused on EV batteries. This aligns with Europe’s higher EV penetration rate, which explains China’s relatively lower Li-ion battery export prices to the United States.

Indeed, US deployments of Li-ion storage projects are another factor driving its per-kilogram Li-ion battery import costs lower. Battery storage deployments have surged from 3.4 gigawatts (GW) in 2021 to nearly 8.3 GW in the first eleven months of 2024—a period that correlates with the decline in Chinese per-kilogram export prices.

Chinese battery exporters may indirectly benefit from the US solar deployment boom, despite limited eligibility for tax credits. About 53 percent of US solar projects—and 98 percent under the California Independent System Operator (CAISO), the United States’ most advanced solar market—include paired battery storage in order to reduce curtailment. While US data on its domestic Li-ion BESS production is lacking, market actors suggest China supplies most BESS batteries; conversely, EV batteries are primarily made in the United States. Without policy shifts, such as greater tariffs on Chinese products or more incentives for domestic manufacturing, Chinese suppliers are likely to dominate the growing BESS market.

Finally—and while difficult to prove definitively—Chinese battery exporters may be lowering per-kilogram prices to undercut US and allied manufacturers. US battery investment has surged, rising from under $4 billion in 2021 to over $33.8 billion by late 2024, potentially triggering worries in Beijing that the United States could eventually surpass China in this dual-use technology. Meanwhile, Chinese and South Korean exporters—the top two suppliers to the United States—appear locked in a price war, although Chinese shipments of storage batteries far outweigh South Korea’s, totaling 678,000 tons versus 58,000 tons through November 2024.

It is preferable for the United States that South Korea—a US treaty ally and vital defense industrial base partner, including in semiconductors and shipbuilding—can compete with China in batteries. Indeed, the United States and its allies must win the battery race with China, especially given the technology’s military applications. Accordingly, increasing and accelerating tariffs on Chinese-made lithium-ion storage batteries would bolster US and allied manufacturers at the expense of Chinese competitors. Worryingly, existing planned tariffs will not close the cost gap between US-made and Chinese-made batteries, according to an analysis by Rahul Verma of Fractal Energy Storage. Additional tariffs on Chinese imports—and incentives for US manufacturers—may be necessary to close the cost gap.

To be sure, additional tariffs on Chinese-made lithium-ion storage batteries will impose short-term costs and slow domestic deployment of clean technologies, especially solar energy. Still, US long-term strategic interests—which include reducing emissions as rapidly as possible—are best served by constraining China’s dual-use technological capabilities and industrial capacity in batteries while advancing related US and allied competencies.

Given the need to jumpstart US and allied battery technological and manufacturing capabilities, additional, accelerated tariffs on Chinese-made Li-ion batteries for both EVs and BESS are appropriate. Additionally, policymakers should collect better data on Li-ion domestic production and make that information public. When placing tariffs on Chinese-made Li-ion batteries, however, policymakers should ensure that the United States, working closely with allies and partners, develop a US battery complex. Outcompeting China in batteries, a vital military and energy technology, is critical for US and allied security.

Joseph Webster is a senior fellow at the Atlantic Council’s Global Energy Center and its Indo-Pacific Security Initiative. He is also editor of the independent China-Russia Report. This analysis reflects his own personal opinion.

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Tripling global nuclear energy capacity is in reach—if the world seizes the moment

Amy Drake — Wed, 15 Jan 2025 15:00:10 +0000

In December 2023 at COP28 in Dubai, 22 countries and more than 120 companies pledged to triple global nuclear energy capacity by 2050 to support the goal of reaching net-zero emissions. The declaration reflects a growing consensus around nuclear energy’s role in climate action and spurred a momentous year for the industry. Following further commitments announced at COP29, it will be crucial for industry to mobilize engagement as it looks ahead to this year’s COP30 in Brazil.

In the first global stocktake of progress towards the 2015 Paris Agreement, the 198 signatory countries called for accelerating deployment of low-emission technologies—including nuclear energy—to meet climate goals. The stocktake marked the first formal recognition of nuclear energy as a solution to reduce emissions in a COP agreement, reflecting a recent paradigm shift in how nuclear power is viewed among climate negotiators.

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Acknowledging the emissions-reducing role of nuclear energy enables government and private sector leaders to leverage it as a decarbonization tool; it also helps unlock investment for countries embarking on nuclear energy projects.

During New York Climate Week in September 2024, fourteen global banks and financial institutions pledged to support the COP28 goal of tripling nuclear energy capacity. This public backing from the financial sector was the first of its kind and is a critical step in driving investor confidence in this revitalized market.

The pledge marks a timely shift in attitudes toward financing nuclear energy projects. The average annual global investment in nuclear power in the 2010s was just $30 billion. From 2017-23, this rose to $50 billion. Tripling nuclear energy capacity would require upwards of $150 billion in annual global investment by 2050.

Private investment—in addition to government-backed initiatives—is critical to accelerate nuclear energy deployment at scale. Leaders in the nuclear energy industry must continue to engage with banks and financial institutions to mobilize capital to support anticipated levels of growth.

Customers ready to purchase nuclear electricity are required for new projects to be bankable. As the only zero-emission baseload power source with the potential to be scalable in many regions, nuclear energy is an attractive option for industries which require reliable, 24/7 power—like data centers.

Global power demand from data centers is expected to grow 160 percent by 2030, with US demand rising from 25 gigawatts (GW) in 2024 to more than 80 GW by 2030 to accommodate increased computing capacities. Customers are already experiencing higher electric bills as a result of data centers’ sudden and unprecedented strain on the grid.

Driven by their extraordinary demand for reliable power, US tech companies comprise some of the earliest end-users driving the large-scale deployment of commercial nuclear energy. Last year, some of the world’s largest tech firms announced big commitments to invest in nuclear energy projects, including agreements between Google and Kairos Power, Amazon and X-energy, and Microsoft and Constellation Energy.

Partnerships between Big Tech and reactor companies marked some of the most promising developments towards establishing demand at scale, or an “orderbook,” for the US industry last year. The partnerships illustrate the potential for financial mechanisms, such as power purchase agreements, to de-risk investments in novel projects. Using these developments as a blueprint, nuclear energy providers should work closely with other energy-intensive sectors, such as heavy manufacturing, as demand for clean electricity surges worldwide.

In November, COP29 in Azerbaijan delivered additional support for the industry. The Biden administration set a first-of-its-kind target to deploy 200 GW of new nuclear by 2050, which would more than triple current US capacity. The United States launched three project partnerships with Ukraine under the Foundational Infrastructure for the Responsible Use of Small Modular Reactor Technology (FIRST) program to dedicate $30 million to explore the potential of nuclear energy to help the country meet its energy security goals. The United States also signed a civil nuclear collaboration agreement with the United Kingdom to pool research and development funding and exclude Russia from future collaborations.

With Brazil holding the COP30 presidency, the country’s nuclear power ambitions may help to secure nuclear energy’s place at the center of the COP agenda. Latin America’s leader in installed nuclear capacity and home to the world’s eighth-largest uranium reserves, Brazil has expressed intentions to add 10 GW over the next thirty years and revive domestic uranium production.

Deploying new nuclear energy projects at scale will require global leaders to translate pledges into action. Multilateral engagement, backing from the financial sector, and buy-in from new customers could deliver major wins for nuclear energy. The industry must now mobilize around these converging trends to secure a robust nuclear energy ecosystem for the decades ahead.

Amy Drake is an assistant director at the Nuclear Energy Policy Initiative with the Atlantic Council Global Energy Center.

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Guyana’s low-carbon model for resource-led development

Liliana Diaz — Mon, 16 Dec 2024 13:45:28 +0000

Guyana is making a bold attempt to pursue sustainable development while capitalizing on its fossil fuel wealth. The small South American nation with Caribbean links has emerged as an unlikely laboratory for one of the 21st century’s most pressing challenges: how to harness natural resources while pursuing genuine environmental stewardship.

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A low-carbon vision meets untold natural resource wealth

Guyana had embarked on an ambitious journey toward sustainable development long before ExxonMobil’s massive oil discoveries off its coast in 2015. In 2009, recognizing the value of its vast rainforests in the fight against climate change, Guyana launched its pioneering Low Carbon Development Strategy (LCDS). This wasn’t merely an environmental policy; it represented a fundamental rethinking of how a developing nation could approach economic growth.

The strategy’s origins lay in a holistic understanding of Guyana’s natural wealth. The country’s rainforests, covering roughly two thirds of its territory, store an estimated 19.5 billion tons of carbon dioxide equivalent. Rather than viewing these forests as obstacles to development, Guyana recognized them as vital assets in the global fight against climate change.

An early partnership with Norway—which pledged up to $250 million to help preserve Guyana’s rainforests—established the LCDS’s credibility. It provided vital seed funding, helping Guyana develop the institutional capacity and technical frameworks necessary for environmental asset management on a national scale.

The 2015 oil discoveries placed Guyana at a crucial decision point—over 11 billion barrels of oil equivalent were enough to transform the nation’s economic trajectory overnight. Many nations might have abandoned their environmental commitments in the face of such wealth. Instead, Guyana chose to update and strengthen its low-carbon strategy, creating LCDS 2030.

The balancing act of LCDS 2030

Guyana’s approach reflects a sophisticated understanding of its natural capital. Rather than treating environmental protection and resource extraction as mutually exclusive, Guyana developed parallel value streams from its natural assets.

The country’s forests, for instance, generate revenue through both sustainable forestry and carbon credits, which monetize environmental stewardship. In 2022, Guyana made history by becoming the first nation to receive private sector validation for forest conservation-based jurisdictional carbon credits, leading to a landmark $750 million agreement with Hess Corporation.

The groundbreaking deal involves the sale of 37.5 million carbon credits (about 30 percent of Guyana’s credit issuance) between 2022-32, with increasing minimum prices from $15 to $25 per ton and a 60 percent revenue share for Guyana if market prices exceed these floors. The credits are independently verified under the United Nations (UN) ART TREES standard and meet UN social and environmental safeguards.

The country has further pushed boundaries by launching a Global Biodiversity Alliance aiming to develop a biodiversity credits system that extends beyond carbon, creating a comprehensive framework for valuing ecosystem services. By combining carbon credits, biodiversity credits, and sustainable forestry income, Guyana’s sustainable finance approach offers a new paradigm for how developing nations can maximize the value of their natural assets while preserving them for future generations.

Similarly, rather than treating petroleum wealth as an end in itself, Guyana views it as a means to finance its climate transition. Oil revenues are channeled into renewable energy projects, climate-resilient agriculture, coastal protection, and green job training. For example, the government has invested 12 percent of the nation’s gross domestic product in upgrading drainage and irrigation networks and expanding rehabilitation of sea and river defense structures at critical locations. These investments are complemented by planned water treatment facilities and comprehensive flood management programs.

By 2027, Guyana is projected to produce 1.2 million barrels of oil per day, rivaling some OPEC members. But unlike many oil producers, this production surge is balanced with concrete environmental commitments.

The power of inclusion

The most innovative aspect of Guyana’s approach lies in its governance framework. The Multi-Stakeholder Steering Committee overseeing the LCDS represents a comprehensive model of inclusive decision-making, drawing representatives from government, civil society, Indigenous organizations, the private sector, and academia. Specifically, Indigenous communities—traditional stewards of the forests—are integrated through village-level consultations, dedicated representation in decision-making, and capacity-building programs, ensuring they play a central role in shaping Guyana’s national sustainable development strategy.

Guyana’s global leadership

The strength of Guyana’s commitment to this balanced approach was powerfully articulated at the 16th Conference of the Parties to the UN Convention on Biological Diversity in 2024. There, Vickram Bharrat, Guyana’s minister of natural resources, presented his nation’s journey not as a compromise, but as a pioneering model for development:

“As a developing, oil-producing nation with ambitious infrastructure projects, we face the challenge of balancing economic growth with environmental preservation. However, through the Low Carbon Development Strategy 2030, we are committed to ensuring that development proceeds without compromising our natural capital. Our forests will continue to serve as vital carbon sinks and biodiversity hotspots, supporting both climate action and ecosystem resilience.”

The minister’s words were backed by one of the most ambitious conservation commitments globally: expanding Guyana’s protected areas from 9 to 30 percent of its land mass by 2030. At COP29 in Azerbaijan, Guyana further demonstrated its leadership by receiving the Transparency Award and co-chairing the Forest and Climate Leaders’ Partnership. Bharrat’s call to move beyond theoretical debates to “measurable, accountable action” underscored Guyana’s role as a practical innovator in global climate solutions.

Lessons for a world in transition

Guyana’s ability to transform potential contradictions into complementary strengths offers a compelling model for managing the energy transition. The same government that oversees a rapidly expanding oil sector is also pioneering biodiversity credits and expanding protected areas. This isn’t coincidental—it reflects a nuanced understanding that modern development requires balancing multiple priorities and revenue streams.

The strategy treats oil wealth not as an end goal, but as a bridge to a sustainable future. Oil revenues are systematically channeled into building the infrastructure, institutions, and human capital needed for a low-carbon economy. This approach recognizes that the oil boom, while significant, is temporary. The benefits of preserved forests and biodiversity, however, are permanent.

For other oil producers, particularly those in the developing world, Guyana offers a template that could be adapted to local conditions. The success of this model is already providing compelling evidence that developing nations need not choose between economic development and environmental stewardship. Instead, they can pursue a more balanced path that recognizes and monetizes the value of all their natural assets and builds toward a more sustainable future.

Liliana Diaz is a nonresident senior fellow with the Atlantic Council Global Energy Center and an adjunct professor of energy, climate policy, and markets in the Americas at the Paul H. Nitze School of Advanced International Studies at Johns Hopkins University.

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The United States needs a durable national energy strategy

Sara Vakhshouri — Wed, 11 Dec 2024 14:31:51 +0000

Energy security is critical to US national security, economic resilience, and competitiveness. Despite this, the United States lacks a comprehensive, long-term energy strategy that aligns energy security with broader national interests beyond the US political cycle.

To address this, a “National Energy Strategy” (NES)—like the National Defense Strategy (NDS)—should be mandated through Congress, with regular reviews and bipartisan collaboration to ensure stability and adaptability to emerging challenges. The next administration could work closely with Congress to draft an NES that ensures efforts are enduring and aligned with long-term national interests. Subject to five-year reviews and Congressional oversight, this approach would maintain policy continuity and resilience across political cycles.

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President-elect Donald Trump’s announcement of establishing a National Energy Council (NEC) at the White House underscores the critical need for a cohesive and long-term energy strategy. Trump proposed that the NEC would oversee the path to US energy dominance by enhancing private sector investments across all sectors of the economy, prioritizing innovation, and accelerating review and approval processes to increase energy production and delivery. This approach aligns with the broader need for a structured NES that not only drives economic growth and energy independence but also establishes a durable energy policy framework.

Creating a durable, de-politicized energy strategy

Establishing an NES under Congress elevates energy security as a national security priority. This can allow for a cohesive strategy resilient to short-term political fluctuations. Congressional oversight would align energy policies with long-term national interests, including economic growth, self-reliance, economic and energy sustainability, and global leadership. A structured NES should enhance domestic energy production, diversify supply chains, secure strategic reserves, and integrate sustainable practices. It must also prioritize technological advancements, invest in new energy sources, improve energy efficiency, and ensure the security and transparency of critical mineral supply chains. This strategy would secure reliable and affordable energy production, boost efficiency—especially for AI and data centers—safeguard industrial productivity, stabilize energy markets, and reduce dependence on foreign actors for essential resources. By promoting resilience, sustainability, and strategic autonomy, the NES would also solidify US leadership and strategic partnerships in the global energy and mineral supply chain and energy access.

A regular review mechanism for the NES every four or five years would ensure continued relevance and strategic effectiveness by adapting to new technologies and their supply chains, shifting geopolitical currents, and emerging threats like cyberattacks on energy infrastructure. This process could mirror the NDS, incorporating expert analysis and industry input to keep the strategy up to date.

Strong bipartisan collaboration within the NES would ensure energy security remains a national priority regardless of partisan changes in presidential administration or Congressional majorities. Bipartisan support is essential for creating a stable policy environment that enables long-term energy projects to move forward without disruption, fostering investment confidence in critical energy infrastructure and innovation projects.

How the NES would enhance US energy security

The NES can support investor confidence in emerging technology sectors with uncertain energy demand scenarios.

For example, rising energy demand in data centers, cloud computing, and artificial intelligence (AI) requires stable and resilient power supplies. A significant percentage of global internet traffic flows through data centers in Northern Virginia. The region’s electricity demand is projected to increase as more data centers come online. According to the author’s conversations with the Northern Virginia Electric Cooperative, the region would require the addition of 14 GW by 2030 and 24 GW by 2038 if its data center growth were to continue its steep upward trajectory. This demand is equivalent to the construction of twenty-six to thirty nuclear power plants.

AI’s energy consumption is also growing rapidly, with no reliable method yet to predict its future power needs. Without bipartisan support for long-term energy policies, the United States risks energy shortages that could stall economic and technological advancements.

In addition, the NES must conduct a risk assessment of the US energy system and address the diversification of key energy sources and supply chains. Uranium and critical mineral supply vulnerabilities provide an example of how the NES can foster resilient supply chains. In 2022, US nuclear power plants purchased 25 percent of their uranium from Kazakhstan, where Russia holds large shares in its uranium mines, and 12 percent directly from Russia. China controls much of the global production and processing of critical minerals, essential for renewable technologies.

A robust NES would strengthen US nuclear fuel and strategic mineral supply chains and reduce reliance on Russia and China by leveraging bipartisan collaboration to secure long-term energy investments and ensure policy stability. This approach is essential for advancing domestic energy sources, promoting investment in nuclear power, isotope production, and emerging technologies like hydrogen and fusion. Additionally, bipartisan efforts would help forge international alliances for critical minerals and battery supply chains, diversify supply chains through domestic and global mineral processing, and establish transparent markets for fair pricing and secure access to essential resources.

Finally, by regularly updating the strategy in line with unforeseen technological and geopolitical changes, the United States can proactively address emerging energy trends while systematically identifying and assessing risks, threats, and vulnerabilities within the national energy system. This approach allows for the reinforcement of strategic strengths and opportunities, as well as the reassessment of international alliances and energy trade partnerships. A well-executed review mechanism should prioritize infrastructure resilience to safeguard critical sectors like defense, healthcare, and digital services from new cyber and physical threats.

The NES protects the United States in an uncertain energy future

A comprehensive National Energy Strategy—anchored by Congressional oversight, bipartisan collaboration, and regular reviews—is essential for securing US national security and long-term energy stability. Prioritizing energy security will protect supplies, bolster economic growth, and sustain US leadership in global energy markets. This strategy will equip the United States to address future challenges, from rising energy demands to enhancing domestic energy resources, expanding clean energy, ensuring access to affordable energy, securing critical energy supply chains, and fostering transparent markets.

Sara Vakhshouri is founder and president of SVB Energy International & SVB Green Access, director of IWP Center for Energy Security and Energy Diplomacy, and a senior energy fellow at Oxford Institute for Energy.

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Ukraine faces its most perilous winter yet

Haley Nelson — Fri, 06 Dec 2024 16:48:03 +0000

Russia kicked off its winter assault on Ukrainian energy facilities with missile and drone strikes on November 16, damaging critical energy infrastructure when the country is struggling to accumulate enough gas for winter storage. Despite optimistic government claims that Ukraine is entering winter with “the highest possible level of readiness,” Ukraine’s energy system is at its most precarious state since the full-scale invasion. As of late October, Ukraine’s gas storage stands at 12.5 billion cubic meters (bcm), stalling below its early November target of 13.2 bcm. Ukrenegro, Ukraine’s national electric grid operator, has been forced to introduce intermittent shutdowns to reduce strains on the system after Russia attacked electric transmission facilities nationwide. With heating season underway as of October 15—when temperatures can drop as low as –20 degrees Celsius—low gas storage levels and an already fragile electric grid increase the risk of prolonged blackouts throughout the country this winter.

This most recent round of Russian attacks damaged energy facilities in several oblasts, including hydroelectric plants, critical transmission infrastructure, and network servers. Ukraine is bracing for its toughest winter yet, while Russia has already destroyed most of Ukraine’s energy generation capacity and attacks likely to escalate. Hardening Ukraine’s energy infrastructure against physical and cyber-attacks and ensuring Ukraine can defend its energy systems against Russian attacks can help Ukraine endure the frigid winter months. As temperatures in Ukraine drop below zero, it is imperative that Ukraine’s partners act with urgency to strengthen Ukraine’s energy infrastructure defense systems.

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This winter is different

Although Ukraine’s energy sector remarkably withstood Russian bombardments during two previous winters, this year presents a much greater challenge. While millions of Ukrainians lost heat during sub-zero temperatures last winter, Russia’s intensified attacks have left Ukraine’s energy systems more vulnerable than in previous years. Many of Ukraine’s power plants are either destroyed or occupied, and critical infrastructure—such as thermal power plants and high-voltage substations—remains vulnerable to missile and drone strikes. As Russia launches another offensive against Ukraine this winter, Ukraine is far less equipped to rebound as it did last year.

Ukraine’s gas reserves stand notably lower than the 16 bcm amassed by mid-October last year. Hitting the target of 13.2 bcm to meet winter demand requires an additional 0.6 bcm of piped gas imports from the European Union (EU). Ukrainian underground storage facilities (UGSs), which are the largest in Europe, played a critical role for storing up to 10 bcm of gas for consumers outside of Ukraine. European traders have been injecting gas into these storage facilities throughout the war. However, because of recent Russian missile attacks, European traders are hesitant to send gas to the country—in fact, recently, European traders have, on net, been withdrawing from Ukrainian storage sites.

An energy system on the brink

Since February 2022, Ukraine’s energy facilities have faced relentless, targeted attacks. From 2022-23, Russian forces have destroyed or occupied half of Ukraine’s generation facilities and damaged or destroyed nearly half of the country’s high-voltage substations. Russia has targeted almost everything in Ukraine’s energy system: dams, gas storage, transmission lines, transformers, autotransformers, and construction sites. Initially, the attacks focused largely on the electricity distribution networks but have shifted toward generation. After Russia illegally occupied Ukraine’s Zaporizhzhia Nuclear Power Plant, Ukraine’s nine remaining unoccupied nuclear reactors are the last fully functioning generation facilities in the country, but Russia’s attacks on high-voltage substations threaten even these lifelines.

Russia’s November missile and drone attacks represented the largest attacks on Ukrainian energy infrastructure since August 26, when over 127 missiles hit critical Ukrainian energy infrastructure, including the Kyiv Hydroelectric Power Plant. As a result, blackouts affected more than half of Ukraine’s oblasts, including Lviv, Odesa, and Volyn.

The August attacks put Ukraine’s already weak energy sector over the edge. In September, the International Energy Agency estimated that Ukraine’s supply shortfall could reach six gigawatts (GW) this winter, equivalent to the peak demand of Denmark. This deficit spells serious risks for the country.

Ukraine is getting inadequate support

The Kyiv School of Economics estimates that war-related damages to Ukraine’s energy sector amount to over $16.1 billion, with transmission facilities bearing the brunt of Russia’s assault. DTEK, the largest private investor in Ukraine’s energy industry, reported earlier this year that Russia had targeted its thermal power plants over 180 times since the full-scale invasion, depleting 90 percent of the company’s generation capacity.

Although Ukraine’s energy storage levels are lower than in previous year, and its electric grid is in a precarious state, there are several immediate actions that can be done to bolster Ukraine’s energy security ahead of the Russian winter offensive.

Since the August attacks, the EU has pledged a $39 million loan and the United States $325 million to support Ukraine’s grid rebuilding efforts, a welcome boost but one that does nothing to shield against further Russian assaults. Without enhanced air defenses, Ukraine’s critical infrastructure remains exposed.

With most of its thermal generation destroyed, Ukraine has increasingly adopted decentralized energy systems to defend against Russian strikes. Decentralization must accelerate to keep up with winter needs—it’s much more difficult to take twenty small, dispersed systems offline than it is to take out one large thermal plant. By deploying low-capacity energy sources such as household batteries and power generators, the country reduces the efficacy of Russia’s widescale attacks.

Local municipalities are already using small gas turbines to supply homes, hospitals, and essential services. The US Agency for International Development (USAID) is assisting in deploying 20-megawatt gas-powered units in district heating systems across Ukraine. Although some factories have invested in the turbines, they are expected to produce only 0.5-1 GW this winter—a minor relief to Ukraine’s worsening energy crisis.

Ukraine must also add more passive protection around its transformer substations—structural reinforcements, such as concrete walls and steel-enforced enclosures, which make it more difficult for attacks to inflict significant damage.

During the April 2024 Russian offensive, Ukraine’s passive protection saved at least half of its substation equipment from destruction. But, notes Volodymyr Kudrytskyi, then CEO and chairman of the national energy company Ukrenergo, “these are huge structures, the arrangement of which requires huge financial and human resources.”

The protection of Ukraine’s energy infrastructure goes beyond physical defense. Cyberattacks have tripled since the start of the war, and defenses must be upgraded. Strengthening cyber infrastructure, developing incident response plans, and collaborating with NATO partners can protect from cyberattacks that could potentially take the entire system offline, as happened in 2016.

The stakes are high

Sustained attacks on the country’s energy infrastructure could leave millions of Ukrainians without heating, disrupt critical services, and provoke further migration into already-strained EU countries. Without adequate air defense support for Ukraine, an energy and humanitarian crisis risks spilling into broader European instability.

The security of Ukraine’s energy system this winter depends on the support Kyiv receives from its allies. Strengthening Ukraine’s air defenses to cover existing gaps could prevent further damage and reduce the risk of a complete grid collapse.

Beyond immediate human costs, the continued destruction of Ukraine’s energy infrastructure has lasting implications. Attacks on energy facilities reduce industrial output and heighten Ukraine’s dependence on energy imports, complicating long-term recovery efforts. The persistent targeting of critical infrastructure highlights that, for Russia, destabilizing the energy system is not merely a wartime tactic, but a broader strategy to undermine Ukraine’s future.

As Ukraine braces for another harsh winter, Russia appears poised to exploit every vulnerability in Ukraine’s energy landscape. Short on energy reserves and its infrastructure at the breaking point, Ukraine remains at high risk of intensified Russian attacks. It should be assumed that Russia’s tactics of degrading critical infrastructure will continue, and perhaps escalate given the circumstances.

To secure Ukraine’s future, bolstering the resilience of its energy infrastructure is imperative. This means hardening critical facilities against both cyber and physical attacks, strengthening rapid response plans to restore power, and ensuring Ukraine has the advanced defense systems needed to protect against ongoing threats. Without these defenses, international financial support risks being undermined by the next wave of attacks.

Haley Nelson is an assistant director for European energy security at the Atlantic Council Global Energy Center.

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There’s a more effective way forward than “maximum pressure” for Venezuela

David Voght and Patricia Ventura — Tue, 03 Dec 2024 18:31:14 +0000

Following the fraudulent outcome of Venezuela’s July election, calls are growing for the United States to reinstate maximum sanctions on the country’s oil sector. Critics of the regime of Nicolás Maduro want the US Office of Foreign Assets Control (OFAC) to terminate licensing that allows US and European companies to operate within Venezuela’s petroleum industry.

But despite the fraught politics of the OFAC licensing system, Washington should stick with the current policy—which regulates cash flow into Venezuela, distances the country from China and Iran, and strengthens transatlantic energy security—rather than returning to the “maximum pressure” strategies that preceded it.

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Maximum pressure, minimal results

In January 2019, the first Trump administration imposed broad sanctions on Venezuela’s state oil company, PDVSA, which expanded into a “maximum pressure” campaign that barred US oil companies from operating in the country and extended sanctions risk to non-US firms.

Stricter sanctions contributed to an abrupt decline in Venezuela’s crude oil production. Output crashed from 1.6 million barrels per day (bpd) in January 2019 to 430,000 by July 2020—although the effects of long-term underinvestment, national blackouts, and COVID-19 also impacted oil operations during this period.

The economic fallout from Venezuela’s oil bust intensified a wave of emigration that had begun in 2015. But the sanctions failed to dislodge Maduro—and polling, both internally and among the country’s diaspora, showed they were unpopular with most Venezuelans.

PDVSA quickly learned how to circumvent the sanctions. Secondary sanctions aimed at preventing companies from selling Venezuelan oil abroad were overcome through an extensive network of phantom traders.

As a result, by the end of 2020 China and Iran had emerged as Venezuela’s primary trading partners. Between July 2021 and July 2023, Venezuela imported over 35 million barrels of Iranian condensate as diluent used to produce 400,000-500,000 bpd of extra heavy crude oil. Over this two-year period, Iranian traders acquired over 47 million barrels of crude in exchange for that condensate, with nearly all shipments routed to China clandestinely and at steep discounts. These swaps circumvented sanctions and strengthened ties between Venezuela and Iran.

Course correction

Two years into the Biden administration the policy changed. In November 2022, OFAC issued General License (GL) 41 to Chevron, permitting it to resume operations under an agreement with PDVSA that allowed the US company to manage key aspects of its joint ventures, including procurement, crude marketing, and finance. Under GL41 and other specific licenses, Chevron can swap oil for US-sourced diluent. All production from joint ventures is required to be sold on the US market. Greater operational control has allowed Chevron to improve working conditions and mitigate safety and environmental risk.

In October 2023, GL44 lifted nearly all sanctions on PDVSA to induce the Maduro government to hold free and fair elections. However, the license was allowed to expire in April 2024 when the regime failed to recognize Maria Corina Machado or her designee as the opposition candidate in the presidential race. Instead, OFAC adopted a policy of issuing “specific” licenses to companies on a case-by-case basis for limited projects or activities.

Joint ventures operating in connection with specific licenses pay the Venezuelan government taxes and royalties in bolívars—not dollars—up to 50 percent of sales, as required by Venezuelan law. Payments to PDVSA are not allowed. Thirty percent of the value of each cargo is reinvested into operations and maintenance. The private partner manages this reinvestment, ensuring an additional layer of accountability. Funds are channeled to strictly vetted service companies.

Finally, 20 percent of each cargo is earmarked for the repayment of debt owed to the minority partner.

Detractors of the licensing regime express frustration with a lack of public information. OFAC licenses are diplomatic tools that permit certain economic activities within restrictions that result from challenging geopolitical conditions. Consequently, key information related to license activities is not made public. But “non-public” does not mean “opaque.” Detailed reports on all activities are filed with OFAC. Information on crude trades is available from numerous subscription sources.

Objectively, specific license holders do channel hundreds of millions of US dollars into the Venezuela economy through private banks. Many economists agree that the flow of these funds into the domestic economy plays a crucial role in stabilizing the exchange rate and managing inflation, which benefits all Venezuelans.

Better than the alternative

Given the unverifiable election results and subsequent human rights abuses in Venezuela, many question why the US government would authorize foreign oil operators to generate revenue from Venezuelan crude. The answer is that OFAC licenses are far more effective at regulating the cash flow from these sales than the maximum pressure sanctions of 2019 to 2022, when Western companies were divorced from their joint venture activities.

The issuance of specific licenses directed Venezuelan oil exports away from China and toward the United States, Europe, and India. In 2024, Venezuela exported 310,000 bpd to China, down from 491,000 in 2021. The share of oil exports marketed by phantom traders decreased from virtually all in 2021 to about 60 percent in 2024. Venezuela’s reliance on Iranian condensate ended, as OFAC-licensed companies are now allowed to import Western-sourced diluent for extra-heavy oil production.

If specific licenses are revoked, the consequences would not align with US energy and security interests, and may bring unintended costs for the opposition and the Venezuelan people.

PDVSA knows how to skirt maximum pressure sanctions and is well prepared to do so again. If those sanctions return, PDVSA would regain full discretion over revenue generated by approximately 300,000 bpd of crude exports, giving the Maduro regime direct access to more money than it currently receives—with no transparency requirements on how it uses it.

Crude sales would be diverted back to China from the United States, Europe, and India. Large discounts would effectively subsidize Chinese imports at the expense of Western company debt repayment. PDVSA would likely resume its reliance on Iran—instead of the US Gulf Coast—for diluent supply.

Venezuela accounts for just 1 percent of global oil production and has limited influence over oil prices. But with instability in the Middle East, it does no good to the United States to lose access to supplies so close to home. Removing Western companies from Venezuelan oil production would only increase energy security risks.

A fine line

Investors face a delicate balance in contemplating engagement with Venezuela, where human rights abuses and corruption pose real risks to moral integrity and financial viability. But the existing approach to OFAC licenses has found a productive middle path that provides greater economic stability, transparency, and control over the flow of revenue to the Maduro regime.

The United States remains limited in its ability to deliver a satisfactory political resolution in Venezuela. Although sanctions are historically ineffective at forcing regime change, they are likely to remain given Venezuela’s complex socio-political environment. But by retaining the existing system and avoiding a return to maximum pressure, the United States can act pragmatically to improve conditions for the Venezuelan people, support more effective mobilization for change, address global geopolitical priorities, and enhance transatlantic energy security.

David Voght and Patricia Ventura are experts on Latin American oil and gas markets and its energy transition.

The views expressed in this analysis are the authors’ own, based on independent research, and do not necessarily reflect those of any clients.

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Extend and expand the Nord Stream sanctions now

Alan Riley — Mon, 02 Dec 2024 21:59:58 +0000

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PEESA needs a refresh

In 2020, the United States enacted the Protecting European Energy Security Act (PEESA), which was adopted as part of that year’s National Defense Authorization Act. The act imposes sanctions on foreign persons who provide vessels or ancillary services in the construction of Nord Stream 2, Turk Stream, or any successors of those projects to create new routes for Russian gas to reach the European Union (EU).

This legislation was an appropriate response to European and Ukrainian security threats in early 2020. At the time, construction of Nord Stream 2 would have provided an additional 55 billion cubic meters per year (bcma) of Russian gas to Germany directly through the Baltic Sea.

The route would allow Moscow to bypass transit states to Germany’s east—creating the possibility for the Kremlin to threaten these countries with gas shut offs or other coercive measures without interrupting shipments to the lucrative markets to their west. No country was more exposed than Ukraine, which transited 90 bcma of Russian gas to the EU—half the bloc’s total imports from Russia—as late as 2019. While Nord Stream 2 never came online, the European security situation has changed dramatically since Moscow launched a full-scale invasion of Ukraine in February 2022. Before and during the war, Gazprom found excuses to cut gas supplies via Nord Stream 1. By the time Nord Stream 1 and 2 were rocked by explosions in September 2022, neither were transiting gas.

Down, but not necessarily out

The explosions took out Nord Stream 1 pipelines A and B, which each carried up to 27.5 bcma of Russian gas to Germany before the war. Nord Stream 2 pipeline B was taken out by a third explosion, while pipeline A remains intact but is still not operational.

PEESA should be extended to prevent any of the Nord Stream pipelines being brought online. The legislation places sanctions on activities supporting the “construction” of Nord Stream 2. The words “or reconstruction” should be added to remove any doubt that sanctions would also apply to pipelines being repaired.

The law should also be extended to Nord Stream 1. It’s clear that both Nord Stream 1 pipelines will need to be repaired before they can become operational again. It would be unfortunate if Nord Stream 2 could not be repaired because of PEESA, but Nord Stream 1 could—when in fact that both pose grave security risks to Ukraine and Europe. The historical circumstances which meant that only Nord Stream 2 could be addressed by PEESA should not now constrain the opportunity to address the threat posed by both sets of pipelines.

In addition, the EU has much more difficulty in blocking Nord Stream 1’s reopening because it is subject only to an earlier regulatory regime and not the 2009 Gas Directive. Nord Stream 2 could be stymied even if PEESA were to lapse by the directive’s security of supply test for non-EU owners—which Gazprom would have significant difficulty meeting. A recent scheme by a Miami-based investor to acquire Nord Stream 2 would likely also fail that test, given the prospective buyer’s 20-year business career in Russia. But no existing US sanctions nor EU legislation could block reconstruction of Nord Stream 1.

Updating PEESA would benefit Ukraine, the EU, and the United States

Extending PEESA to Nord Stream 1 would strengthen Ukrainian security. It would prevent Moscow from doing gas deals in Western Europe that isolate Ukraine against Russian economic and military power. Instead, Ukraine would gain leverage: most Russian gas sent to the EU would have to transit Ukraine. This would permit Kyiv greater negotiating power with Moscow and open the prospect of effectively taxing Russian gas to help pay for reconstruction, thereby reducing the cost to the West of rebuilding Ukraine. While Kyiv currently has little appetite to extend a gas transit contract permitting a limited 15 bcma of gas to flow through Ukraine that will terminate at the end of December, post-war flows could give Ukraine bargaining power and a revenue stream for compensation.

By contrast, leaving Nord Stream 1 untouched by PEESA would undermine Europe’s energy security by locking in its dependence on Russian gas. On the eve of the war in February 2022, the EU sourced 45 percent of its gas imports from Russia—in Germany, this figure was 55 percent. Extending PEESA to Nord Stream 1 would encourage continued supply diversification and make it less likely that Europe would return to its dependence on Russian energy.

The Senate must amend and expand PEESA. Simply preserving the existing legislation past its 2024 expiration date does not recognize the dramatic changes in Europe since 2020. The Senate cannot miss a major opportunity to enhance the security of Ukraine, the EU, and the United States.

Alan Riley is a nonresident senior fellow at the Atlantic Council Global Energy Center and a visiting professor at the College of Europe in Natolin, Poland.

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Brazilian, US public-private partnerships key to regional energy security

Bailee Mathews — Tue, 19 Nov 2024 15:39:11 +0000

Abrão Neto, the chief executive officer of AmCham Brazil (the American Chamber of Commerce in Brazil), signaled Brazil’s readiness to enhance collaboration with the United States on energy security by bringing the public and private sectors together to deliver concrete outcomes.

Speaking at an Atlantic Council Global Energy Center’s event on November 13 on the sidelines of COP29 in Baku, Azerbaijan, Neto and Landon Derentz, senior director and Morningstar Chair for Energy Security of the Global Energy Center, noted that Brazil and the United States are natural partners for strengthening cooperation given both countries’ historic leadership in innovation and research and development. Brazil’s robust biofuels sector and mature wind turbine manufacturing capacities demonstrate the country’s ability to drive energy sector transformation while meeting energy security needs.

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Both Brazil and the United States also understand that innovation is a key aspect of energy security. Looking ahead, both countries are well positioned to partner on enduring issues such as securing the supply chains central to energy security needs and energy transition efforts.

Following Neto and Derentz’s conversation, Cassia Carvalho, the executive director of the Brazil-US Business Council, moderated a panel with Allyson Book, the chief sustainability officer of Baker Hughes, Leonardo Botelho, the head of international and investor relations at the Brazilian Development Bank (BNDES), Jake Oster, the director of sustainability policy at Amazon Web Services, Owen Herrnstadt, a member of the board of directors at the Export-Import Bank of the United States (EXIM), and Anna Shpitsberg, the chief climate officer at the US Development Finance Corporation (DFC).

Unlocking climate and energy finance

Hernstadt of EXIM and BNDES’ Botelho emphasized that their institutions and DFC will continue to play critical roles in de-risking projects and promoting competitive markets.

In Brazil specifically, where DFC just opened its first Latin America office this past March, Shpitsberg was optimistic about the level of opportunity she sees in the country. In October, DFC signed a cooperation framework arrangement with BNDES to enhance co-investment opportunities in a number of energy and climate sectors such as innovation, infrastructure, mining, biofuels, decarbonization, and green hydrogen.

Private sector investment in the energy transition

Industry has a key role in developing and deploying the technology necessary for accelerating the energy transition. One area of opportunity in particular is in methane abatement. Baker Hughes’ Book said that not enough is being done to address this potent greenhouse gas, but this creates an opportunity. Investors must look closely at the tools necessary to tackle methane emissions in Brazil and elsewhere in the coming year.

Amazon’s Oster noted that technology companies are also in a position to lead on investments in renewable energy and sustainable practices.

Looking ahead: strengthening collaboration

On public investments, Brazil and the US are both looking to strengthen partnerships. Shpitsberg and Botelho both expressed optimism for future collaboration between their organizations, noting that the opportunity to drive investments in Brazil is still large. Working together will be crucial to ensuring that future investments lead to energy sector innovation efficiently and effectively.

Similarly, Book and Oster said the private sector will also focus on building partnerships across industry to advance energy and climate goals. This means using a range of finance instruments and expanding cooperation on clean energy technologies, including geothermal, hydrogen, and carbon capture, utilization, and storage.

The discussion in Baku signals that industry, finance, and government are continuing to push forward investments in clean energy and build coalitions in the year ahead with an eye toward COP30 in Brazil.

Bailee Mathews is a program assistant with the Atlantic Council Global Energy Center.

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Batteries are charging California’s solar revolution

Joseph Webster and Natalia Storz — Mon, 18 Nov 2024 13:31:30 +0000

California is generating more solar electricity than ever, a significant accomplishment that will lower costs and emissions while making the grid more resilient and secure. The California Independent System Operator (CAISO), which manages the state grid, is reporting record-setting solar electricity generation in both absolute and relative terms. CAISO’s solar generation success has been due to several factors, including expanding generation while limiting curtailment. But the key to California’s solar revolution is batteries.

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California’s solar generation is rising sharply

Solar and batteries go together like peas and carrots. CAISO’s solar generation continues to grow as a share of its total in-state load, with the trailing 12-month share rising from 13.8 percent in January 2021 to 22 percent in August 2024. California overlaps almost entirely with, but is distinct from, CAISO, which serves 80 percent of the state plus a small portion of Nevada.

Solar’s growing share of California’s in-state electricity consumption is greening the grid. Coal electricity generation declined from 303 gigawatt hours (GWh) in 2021 to 257 GWh in 2023, while natural gas generation fell from 97,431 GWh to 94,192 GWh over the same period.

Additionally, CAISO imports significant volumes of electricity from neighboring states, some of which is generated by natural gas or coal. In 2023, only 64 percent of California’s electricity imports were from zero-emission sources, with many of these imports received via the Pacific DC Intertie high-voltage direct current (HVDC) transmission line used to ship electrons over long-distances. Consequently, as CAISO’s electricity imports fall due to local solar generation, the demand for carbon-emitting generation sources in neighboring states decreases. Importantly, it also frees up clean electrons—such as from Washington state’s hydropower—to serve other use cases, like data centers or green hydrogen. The rise of Golden State solar is not only reducing emissions and pollution in California; it also benefits the wider region.

Batteries are enabling incremental solar growth

Solar production has increased along with battery deployments. From January 2021 to August 2024, CAISO deployed 9.5 gigawatts (GW) of batteries. As batteries became relatively more significant on CAISO’s grid, cumulative installed battery capacity reached almost 50 percent of total installed solar capacity in August 2024. Without substantial battery deployment, solar curtailment likely would have exploded.

This trend of pairing solar with batteries is set to continue. Indeed, within CAISO, 98 percent of prospective solar projects include battery storage.

To meet ambitious climate targets while maintaining grid resiliency, CAISO will need more solar, more storage—and more transmission. A follow-on article will examine how CAISO’s transmission expansion is unlocking solar generation.

Joseph Webster is a senior fellow at the Atlantic Council Global Energy Center.

Natalia Storz is a young global professional at the Atlantic Council Global Energy Center.

This article represents their own personal opinion.

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Europe’s new industrial plan faces formidable obstacles

Andrei Covatariu — Thu, 14 Nov 2024 13:00:31 +0000

Employing 30 million people and accounting for more than 80 percent of the bloc’s exports, the industrial sector is an economic cornerstone of the European Union (EU). But European industry faces fundamental challenges. The EU’s industrial behemoth was fueled by cheap energy imports, which are no longer available to it. Now, the bloc’s decarbonization mission also relies on imported technologies.

Maintaining economic competitiveness is a pressing issue for Ursula von der Leyen as she begins her second term as president of the European Commission. President von der Leyen has promised to put forward a new Clean Industrial Deal in the first one hundred days of the new mandate to “channel investment in infrastructure and industry, in particular for energy-intensive sectors.” But energy supply challenges and geopolitical hurdles risk undermining plans to restore Europe’s industrial competitiveness.

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The roots of Europe’s industrial crisis

The state of European industry is nuanced, but the trends are increasingly alarming.

The European Union’s share of the global industrial sector, measured by gross value added, decreased from 21 percent in 2000 to 14.5 percent in 2021, numbers similar to the United States’. Manufacturing still accounts for 15 percent of the bloc’s gross domestic product (GDP). But amid the impacts of COVID-19 and the 2022 energy crisis, the EU industrial sector has lost 850,000 jobs since 2019.

Experts question the EU’s preparedness for increasingly strategic industrial activities, such as defense, clean energy technologies, and chips. Moreover, the bloc’s reliance on imported energy commodities and technologies leaves its industrial sector vulnerable to external shocks. This vulnerability was exposed during Russia’s full-scale invasion of Ukraine, as the Kremlin took advantage of the EU’s reliance on Russia for 43 percent of its natural gas imports.

By contrast, the EU’s industrial competitors benefit from cheaper energy. The United States enjoys abundant oil and gas and is producing at world-record levels—a trend that the incoming Trump administration would like to continue—and is witnessing a boom in renewable generation. China continues to use domestic coal while increasing imports of Russia’s price-capped oil.

The International Energy Agency estimates that electricity prices for the European Union’s energy-intensive industries were double those in China and the United States in 2023, making it almost impossible for Europe to compete due to high energy costs in production. Complex regulatory frameworks, lengthy permitting processes, expensive labor, and limited innovation are also weakening the EU’s competitiveness.

How the Clean Industrial Deal can help

The stakes are high for European industry. Europe has been proactive in addressing its energy supply vulnerabilities, developing important initiatives such as the Net Zero Industry Act and Critical Raw Materials Act. Now, the Clean Industrial Deal provides the opportunity to address key energy-related competitiveness challenges.

First, the proposal needs to address vulnerabilities in the energy supply chain. This starts with diversifying the sourcing for critical raw materials needed for domestic clean energy production—many of which Europe is reliant on China for.

Despite low public support for such projects, de-risking supply chains should involve domestic mining and processing—which may happen in Germany, the Czech Republic, and Sweden, as well as in a still-controversial mining project in EU candidate state Serbia. But Europe cannot be fully self-sufficient in critical raw materials, and must also enhance supply chain cooperation with the United States and partners in the Global South. Nevertheless, the lead times required to source sufficient critical raw materials domestically or from like-minded partners are considerable. For now, the majority of EU demand will likely continue to be met by imports from China.

In addition, Europe’s industrial transition requires electrification to reduce energy consumption and thus costs. To do this, the EU needs to strengthen the backbone of its energy system: the power grid. This requires investment, accelerated permitting processes, and dynamic regulation that can reduce uncertainty for grid developers, investors, and operators.

As emphasized by former Italian Prime Minister Enrico Letta in his Much more than a market report issued this spring, the EU’s internal fragmentation also poses a threat to industrial efficiency. Harmonizing regulations across member states and finalizing the EU’s single market are crucial steps toward creating a more predictable business environment, fostering investment, and encouraging innovation. Coordinated public spending at the EU level, particularly on large-scale projects like cross-border energy infrastructure, is essential.

Enhancing existing external strategic partnerships should also be foundational to the EU’s industrial plans. This includes collaboration on protecting energy infrastructure from physical and digital threats, securing access to critical raw materials, and coordinating climate efforts at the multilateral level.

What could go wrong?

The geopolitics of energy will play a significant role in shaping the EU’s industrial revival plan.

On the one hand, the EU’s approach to managing its reliance on China for cleantech needs to assess the costs and benefits of de-risking. Europe’s aspirations to expand its clean manufacturing sector could potentially backfire—if Europe makes progress in developing domestic clean manufacturing it will gradually acquire fewer technologies from China, which might hedge this risk by cutting off access or increasing prices for EU-bound exports. By doing so, China could weaken Europe’s financial capacity for investing in its industrial sector—keeping the continent reliant on imports. China’s 2023 export restrictions on gallium and germanium could be a sign of such a risk.

It is often overlooked that EU exports to China have increased more than sevenfold over the last two decades, and China is the EU’s third-largest external market, after the United States and the United Kingdom. A trade war would be damaging to both sides.

On the other hand, the Clean Industrial Deal comes as US elections have concluded, raising concerns on whether the EU and the United States will pursue a clean industrial partnership or potentially move toward rivalry. The transatlantic partnership plays a crucial role in the EU’s ability to stabilize its exposure to energy commodities, as demonstrated by Europe’s increased US LNG imports since 2022.

For the United States, this cooperation is also of great benefit, not only for fostering exports in LNG, critical raw materials, and nuclear energy technology, but also for finding synergies in research and development and for reinforcing geopolitical stability. However, potential trade barriers, such as the EU’s Carbon Border Adjustment Mechanism (CBAM), may heighten the risk of a trade war. The future of this partnership could significantly influence global economic and security dynamics.

Much depends on what will happen in the new Commission’s first one hundred days—on both sides of the Atlantic.

Andrei Covatariu is a Brussels-based energy expert. He is a senior research associate at Energy Policy Group (EPG) and a research fellow at the Centre on Regulation in Europe (CERRE). This article reflects his personal opinion.

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Tackling the energy-water challenge at COP29

Robert F. Ichord, Jr. — Wed, 06 Nov 2024 15:26:47 +0000

Understanding the energy and water nexus is vital to combating climate change. Global demand for both continues to grow as populations, cities, and incomes expand. Climate change increases rainfall variability, causing more destructive droughts and floods, and affecting hydropower’s ability to supply low-emission electricity and stabilize the grid. Climate impacts will boost energy demand for irrigation and desalination, and stress electricity transmission and utility water systems.

At this month’s COP29 in Baku, greater attention must be given to the complex relationship between energy and water. The meeting should promote long-term policies, strategies, and investments to meet this challenge.

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Hydropower’s role in the global energy system

Hydropower is the world’s single-largest source of renewable power. But most clean energy development analyses, including the 2024 World Energy Outlook by the International Energy Agency (IEA), emphasize the role of solar and wind in the energy transition. Their growth over the past decade has indeed been unprecedented; the IEA forecasts that global hydropower generation will be overtaken by solar photovoltaics in 2029 and by wind in 2030. Nevertheless, hydropower still contributes 14 percent of global power generation and 35 percent of the world’s non-fossil electricity. Hydropower is widespread in all regions, with 89 countries boasting installed capacity over 1,000 megawatts. Nine countries across four continents depend on hydropower for over 75 percent of their electricity generation, while another fourteen rely on it for more than half.

But drought and flood conditions have left this important power source vulnerable—after remaining constant for over a decade, hydropower output fell in 2021 and 2023 despite new capacity additions and improvements to older units.

New stresses, new demands

Climate change has exacerbated water stress. The World Resources Institute finds that a quarter of the world’s population lives in countries facing extreme drought conditions, notably in the Middle East, North Africa, and South Asia. Many other nations experience high water stress for at least one month a year.

This has a serious impact on power production. Droughts reduced hydropower generation by 8 percent in India during the first half of 2024. Droughts not only require increased thermal power use; they also reduce the availability of water for cooling thermal plants. In 2020, about 22 percent of global energy-related water use was for cooling thermal plants, drawn largely from freshwater sources. These volumes are projected to increase to at least 35 percent of world water use by 2050.

The agricultural sector is being profoundly affected by increased drought and record high temperatures. Irrigation systems, especially the expansive diesel and electric groundwater tubewell systems of South Asia, require increased energy supplies. A 2024 study suggests that future irrigation system expansion could increase energy consumption in irrigation worldwide by 28 percent.

Demand for desalination has risen about 7 percent per year in order to meet growing freshwater needs and groundwater depletion. Desalination plants are energy intensive, with total plant electricity consumption ranging from 1.3 kilowatt-hour (kWh) per cubic meter of water in new plants to as much as 3 kWh in older ones. This energy load and associated costs may strain electricity and water systems, as well as increase emissions if powered by fossil fuels. Desalination is expanding in a number of regions, notably in the Middle East and North Africa, which has the largest regional desalination capacity. Since 2022, the Algerian Energy Company has begun building five new desalination plants to augment the nineteen currently in operation. To reduce dependence on natural gas, the government is looking to use renewable energy to power these units.

Climate-induced severe weather comes at high cost

The severity of storms and floods have intensified in recent years, inflicting damage on energy and water infrastructure. Communities are being left devastated by severe weather events, such as the back-to-back hurricanes Helene and Milton in the United States.

The destruction of watersheds, including by wildfires that have reduced their ability to retain water, has resulted in mudslides and polluted lakes, rivers, and reservoirs with debris. Dams are critical to controlling water flows, but large floods put them under stress, with older facilities particularly impacted. In the United States alone, it is estimated that rehabilitating approximately 15,200 high-hazard dams will cost $24 billion.

The time for action is now

The energy-water nexus is creating new uncertainties for energy and climate planning, requiring a more integrated analytical framework for decisions on strategic investment. COP29 should support the development of improved data and monitoring of key energy-water indicators—such as reservoir and river flow levels, energy use and efficiency in water utilities, water prices, and infrastructure investment—that can be incorporated into national climate and energy plans.

Although it would be wise for hydro-dependent countries to diversify their clean generation, there still exists significant potential for new hydropower capacity, even though the IEA sees only marginal future growth contributing to emissions reduction. The International Hydropower Association estimates global hydropower potential stands at 1,782 gigawatts (GW), even larger than total installed capacity in 2023 of 1,416 GW, which includes pumped storage. Africa has the largest regional potential at 487 GW, but the lowest installed capacity of only 42 GW.

The International Renewable Energy Agency estimates that to meet net-zero emission goals, hydropower needs to double by 2050, requiring a much higher level of investment than the current $50-60 billion annually. Although China has been the largest international financier of hydropower projects, multilateral financial institutions have increased their funding over the past decade. The African Development Bank’s $1 billion program to upgrade twelve hydropower plants in Africa is an example of such funding.

Private sector participation is also critical to achieving net-zero goals through hydropower. Promising areas for private investment include pumped storage projects that can contribute to grid stability and store water, as well as desalination plants, which require large amounts of clean energy.

As COP29 pursues its mission to enhance ambition and enable climate action, clearer and stronger commitments—such as those that emerged on methane from public and private actors at COP28—are needed to meet the energy and water challenge. Addressing this critical issue is central to enabling emissions reduction and adaptation, and remedying loss and damage.

Robert F. Ichord, Jr. is a nonresident senior fellow at the Atlantic Council Global Energy Center.

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What will a Trump or Harris administration mean for climate and energy policy?

David L. Goldwyn, Andrea Clabough — Wed, 30 Oct 2024 17:54:00 +0000

After a frenetic presidential campaign, voters are faced with a stark choice on climate and energy. The outgoing Joe Biden administration prioritized actions on this front, passing a landmark bipartisan infrastructure law and the $300 billion investment of the Inflation Reduction Act (IRA), and matching this legislation with an expansive slate of regulations and incentive-based programs favoring a clean manufacturing agenda.

The future of this agenda depends on the outcome of the election. Former President Donald Trump has promised to reverse course and reassert the fossil fuel-centric “energy dominance” posture of his prior administration, along with a resurgence of protectionist trade policies. Vice President Kamala Harris, who cast the tie-breaking vote to pass the IRA, has promised to build upon her predecessor’s clean energy industrial policy legacy. But both candidates face constraints that will shape their approach to energy and climate, with great geopolitical and national security implications.

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Full steam ahead, or double back?

While there’s no shortage of pressing energy and climate considerations awaiting the next administration, four are most immediate.

1. Permitting reform

Despite President Biden’s legislative successes, comprehensive permitting reform remains elusive. Recent analyses have warned that if permitting and environmental review bottlenecks remain unaddressed, as much as 100 gigawatts of new clean energy projects could be delayed, and $100 billion of potential investment lost over the next decade. With an estimated 40 percent of new manufacturing projects experiencing delays already, and surging new projections for electricity demand growth, the permitting reform question may soon go from challenge to crisis.

All sides agree that something must be done on permitting, but diverge on what that should entail. The previous Trump administration attempted to limit environmental reviews to expedite permits. A Harris administration is expected to favor review timelines that balance stakeholder input and environmental justice considerations, akin to the Biden administration’s executive-level efforts and stated reform principles.

Permitting reform has the potential to benefit a wide range of project types—from pipelines to offshore wind and nuclear—but that diversity makes for tricky politics among advocates for some categories of projects over others.

A starting point for reform exists in the bipartisan Energy Permitting Reform Act introduced by Senators Joe Manchin (D-WV) and John Barrasso (R-WY). Its prospects in the lame-duck session are uncertain, and the next Congress may decide its fate.

In that circumstance, whoever occupies the White House will have outsized influence on the negotiations. So, too, will the makeup of Congress—but even if either party secures a trifecta, they will almost certainly need to compromise to attract votes from across the aisle to pass reform via regular order. With high-profile energy moderates like Manchin now departing, these bipartisan negotiations could be fraught regardless of White House intervention.

2. IRA implementation

The IRA is unlikely to be fully repealed even under a Republican trifecta, despite Trump’s promise to try. But with Republican control of Congress, some controversial provisions—such as the $7,500 credits for electric vehicle (EV) purchases—could be eliminated. But even without Congress, the IRA’s original design could be undermined by more subtle executive action.

The White House, through federal agencies, can avoid issuing important guidance or regulations, drastically change how tax incentives are structured, stifle disbursement for specific programs, and delay leases, reviews, and studies needed to implement the IRA. For example, Trump plans to rescind any and all “unspent” IRA monies. Similarly, the law’s hydrogen tax credit guidance, 45V, has yet to be finalized amid fierce debate. A Trump administration uninterested in hydrogen’s decarbonization potential could further delay this guidance or alter it in ways that exacerbate risk and uncertainty in this emerging sector.

A Harris administration would face a monumental implementation task. Of the IRA’s initial $145 billion in direct spending, tens of billions remain undisbursed and thus vulnerable to repeal under a new Congress.

Spending money quickly may seem an enviable problem, but managing the debates around IRA guidance is not. In addition to the drama surrounding 45V, the Biden administration has received sharp criticism over its interpretation of the IRA’s EV provisions, from perceived giveaways to foreign auto industries to controversial electric vehicle minerals agreements with other governments. Navigating these issues while maintaining the original intent of the IRA will be a difficult tightrope for a Harris administration to walk.

3. Trade policy

Trade policy has seen strong continuity between the Trump and Biden administrations. President Biden has largely retained his predecessor’s energy-related tariffs, including those targeting Chinese EVs and solar technologies.

The former president is prepared to revive his “America First” system of trade barriers, intended to decouple the US economy from China as much as possible. He has promised to establish a baseline global tariff on most foreign products, followed by incremental increases based on alleged currency devaluation. With the United States-Mexico-Canada Agreement (USMCA) up for review in 2026, a new Trump administration is expected to make fresh demands on Mexico, which has growing economic ties with China. By the same token, incoming European Union (EU) regulations on imported methane emissions and a carbon border adjustment mechanism (CBAM) might provoke a Trump administration into retaliatory measures that could ensnare energy exports.

Harris’ trade agenda also views China as a geostrategic adversary and promises to “fight for a level playing field with China and other global competitors.” Though her campaign disavows the “disastrous trade war” of the Trump era, it reaffirms support for reshoring manufacturing under President Biden’s clean industrial policy. Her approach, however, prioritizes multilateralism and maintaining partnerships wherever possible, especially in North America, East Asia, and Europe. For example, a Harris administration would likely negotiate with the EU to secure exemptions for US fuels and other exports that might be affected by EU climate policies.

The CBAM presents an area of potential convergence between the EU and both potential administrations. Multiple bills to enact a US version exist, including the GOP-endorsed Foreign Pollution Fee and the Democrat-sponsored Clean Competition Act. To be sure, Trump and Harris have disparate views of what a CBAM should accomplish, how its funds should be spent, and how it would impact domestic producers of high-emission products. But the concept appeals to both sides, albeit for different reasons, especially as industrial policy is likely to remain the driving theme for any presidency.

4. Natural gas

The role of natural gas and new gas infrastructure in the US energy system is at the crux of energy policy discussions. US electricity is increasingly powered by natural gas. US liquefied natural gas (LNG) is an important commodity for allies in Europe. The prospects for a sharp increase in US power demand driven by artificial intelligence highlight the importance of affordable, domestically produced gas in meeting these requirements.

The Trump campaign has derided the Biden-era focus on clean energy technologies and reasserted its vision for prioritizing American fossil fuels, especially natural gas. The Harris campaign has taken a nuanced approach that acknowledges the imperative to reduce fossil fuel emissions while also touting LNG exports to Europe and record US fossil fuel production under the Biden administration, and disavowing a federal fracking ban which she supported during her 2020 campaign.

The candidates diverge on the ongoing LNG export authorization pause, which froze new permits to sell to countries without a US free trade agreement. This pause, ostensibly to allow for a thorough review of the approval process for new applicants, has been lambasted by Republicans. The Biden administration has pledged that the review will conclude by the end of 2024 and the pause will be lifted in early 2025, but Trump has vowed to terminate it immediately upon taking office. Harris faces a delicate balancing act; while she has indicated support for LNG exports as an economic and national security matter, she has not criticized the pause either.

Additionally, the next administration may need to consider the impact of new export permits on domestic gas prices. While the Natural Gas Act has always required such analysis before granting permits, the impact of exports on domestic prices has historically been modest. As exports grow to larger shares of total demand for US natural gas, the price impacts for domestic consumers could be significant, potentially creating new domestic opposition to exports based on economic, rather than climate, concerns.

Guardrails

Neither candidate, however, will enter office with a clean slate or unlimited options. Three critical guardrails will constrain their respective energy and climate agendas.

1. The death of deference

Earlier this year, a seismic Supreme Court ruling overturned the “Chevron doctrine,” which allowed agencies wide regulatory latitude in areas where their statutory authorizations were ambiguous. As a result, agencies’ proposed regulations must now be firmly grounded in the letter of statues, even those written decades ago.

Federal agencies must now tread carefully. A future Harris administration would be particularly impacted, tasked with defending a slate of her predecessor’s climate-focused regulations now winding their way through the federal judiciary. If controversial rules, like the Securities and Exchange Commission’s new climate disclosure regulation, are overturned on the basis of agency overreach, Harris-appointed agency leadership may be forced to expend time and resources on new regulations subject to similar constraints.

However, the end of deference cuts both ways. A Trump administration could face a ruling binding it to certain IRA provisions it may oppose, such as the methane fee.

2. Congress

While Congress’ post-election composition is still unknown, the likeliest scenario appears to be divided control of the chambers. But even if either party were to gain full control, the next Congress faces a circuitous series of fiscal negotiations. Many provisions from the 2017 Tax Cuts and Jobs Act are set to expire at the end of 2025, setting up contentious debates over various rates, deductions, credits, and subsidies. This situation raises troublesome questions over finding new revenues and adjusting corporate tax rates, areas where either future administration will have strong opinions.

These imminent debates herald a more constrained fiscal environment than existed during the prior Trump or Biden administrations. Appetites for more energy and climate spending will be extremely low, even among Democrats who have plenty of other priorities. Conversely, there will be a hunt for new revenues. The latter could be an opening for protectionist tariff or border adjustment policies depending on who holds executive office. Undisbursed funds, such as those in the Biden-era climate and infrastructure laws, would also be tempting targets to help pay for new tax plans.

3. Federalism

The US federal system represents the most important limitation on any president’s agenda. In an increasingly polarized national political environment with few states that are not largely controlled by one party, either future presidency’s agenda will be met with state-level pushback, usually in the form of lawsuits.

How those suits proceed with a conservative-dominated Supreme Court is an open question. What is certain is that states will govern as they please, pursuing their own policy mandates, funneling tax dollars toward preferred projects, and making critical infrastructure and permitting decisions which have ripple effects elsewhere. For example, in the late 2010s, former President Trump’s withdrawal from the Paris Agreement did not stifle ongoing clean energy expansion in northeastern and Sun Belt states.

In a post-IRA environment, this situation may present a greater challenge to a Trump administration than a Harris one. Billions of dollars of federal investment in clean energy and manufacturing during the Biden administration has gone to traditional Republican strongholds such as Georgia, Tennessee, Texas, and South Carolina. Any attempts to rescind this funding or cut tax incentives which have enabled major investments in these states will be controversial. As ever, all politics is local.

What’s next?

As the 2024 campaign enters its final hours, the respective energy and climate agendas of each ticket are a study in contrasts. Even so, the future under either administration is murky, with significant limitations and complex negotiations ahead for whoever occupies the White House in 2025. This is to say nothing of the unforeseen events which can propel a government into one direction or another, such as global pandemics, land wars in Europe, or disruptions in global shipping hubs.

The competing visions of the campaign cycle will soon be a memory. What comes next will have enormous implications for the world.

David L. Goldwyn is chairman of the Atlantic Council’s energy advisory group and a nonresident senior fellow at the Atlantic Council Global Energy Center and the Adrienne Arsht Latin America Center.

Andrea Clabough is a nonresident fellow at the Atlantic Council Global Energy Center and a senior associate at Goldwyn Global Strategies, LLC.

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Hungary’s Russian oil deal threatens EU solidarity

Sergiy Makogon — Fri, 25 Oct 2024 14:13:30 +0000

Hungary’s largest oil and gas company, MOL, has announced a deal with Lukoil to resume the transit of Russian oil to Hungary through Ukraine. By purchasing Russian oil at the Belarus-Ukraine border, MOL effectively takes legal ownership of the oil before it reaches Ukrainian territory. While this allows MOL to avoid sanctions imposed by Ukraine on the Russian oil producer, it undermines Europe’s collective action against Russia’s aggression in Ukraine. The European Union and Ukraine must act decisively to prevent such flagrant violations of the spirit of the sanctions regime, both now and in the future.

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The gaping hole in European sanctions

In June 2022, in response to Russia’s full-scale invasion of Ukraine, the European Commission imposed an embargo on Russian crude oil and refined oil products. However, Brussels granted a temporary exemption to some European Union (EU) member states due to their unique challenges in securing alternatives to Russian oil imports, including Hungary, Slovakia, and the Czech Republic. The exemption was intended to provide time to establish new sources of supply. Since then, about 14 million tons of Russian oil per year have been transited via Ukraine to these three countries, unchanged from pre-war levels, bringing approximately $6 billion to Russia’s war chest.

Central Europe’s oil diversification laggards

The EU should have closed this Druzhba pipeline loophole long ago. Despite the temporary nature of the exemption, Hungary and Slovakia have done little to develop alternative supplies. By contrast, the Czech Republic announced that it will eliminate its dependence on Russian crude by next year and aims to request its exemption be canceled once the Italian TAL pipeline’s expansion is completed, which will make more seaborne oil supplies available to the landlocked country.

Hungary’s inertia has not been for lack of help. Croatia constantly offers to expand the Adria pipeline, capable of importing non-Russian oil from its shores to Hungary. In August 2024, Croatian pipeline operator JANAF tested and confirmed that the pipeline can transport 14.3 million tons of oil, exceeding the annual needs of MOL’s refineries in Hungary and Slovakia.

However, MOL has contracted only 2.2 million tons for 2024. Hungarian officials have expressed skepticism about depending on Croatia—an EU and NATO ally—for oil. “Croatia is simply not a reliable country for transit,” claimed Péter Szijjártó, Hungary’s foreign minister. Instead, Hungary relies on Russia’s oil, as Moscow continues its military aggression against Ukraine and poses a threat to the NATO alliance.

Undermining solidarity

Hungary, the Czech Republic, and Slovakia paid Moscow €557 million for crude oil in April 2024, funding the Kremlin’s war and raising concerns within the EU about the precedent it sets for other member states. For example, although Germany halted its imports along the northern Druzhba pipeline, it could consider a similar deal at the Belarus-Poland border to resume imports of cheaper Russian oil. After the left-wing populist BSW party finished third with 14 percent of the vote in Brandenburg’s recent state elections, party leader Sara Wagenknecht said she would try to lift the embargo on Russian oil if her party entered the state government.

Allowing individual member states to circumvent the spirit of sanctions could play into Russia’s strategy to weaken EU solidarity, in line with the Kremlin’s historical “divide and conquer” tactics to exploit intra-European divisions. The EU’s sanctions aim to diminish Russia’s ability to finance its military operations. Hungary’s disinterest in developing alternative supplies—creating a workaround to continue importing Russian oil instead—undermines these collective efforts.

Given these developments, it is crucial for the European Commission to reassess the current sanctions on Russian pipeline oil. Closing loopholes that permit Hungary and Slovakia to continue importing Russian oil is essential for maintaining the integrity of the EU’s sanctions regime and the unity of its members. Implementing mandatory changes over a six-to-nine-month period would allow affected countries reasonable time to secure alternative supplies through existing infrastructure, such as the Adria pipeline.

Hungary’s actions present a critical test for EU unity and the effectiveness of its sanctions regime. By exploiting legal loopholes, Hungary risks undermining not only the collective response to Russia’s aggression, but also the foundational principles of EU solidarity.

The situation highlights the delicate balance that the EU must strike between respecting individual member states’ interests and upholding collective commitments to international security. A decisive response from the European Commission by cancelling exemptions for Russian pipeline oil would reinforce the EU’s dedication to solidarity and its resolve in confronting global challenges. Failure to act now could not only weaken the effectiveness of sanctions against Russia—it risks setting a concerning precedent for EU unity in future crises.

Sergiy Makogon is an energy expert who served as the chief executive officer of GasTSO of Ukraine from 2019-22.

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Despite panicked markets, Israel is unlikely to attack Iranian oil facilities

Ellen Wald — Mon, 21 Oct 2024 19:55:45 +0000

Since Iran fired over 180 ballistic missiles at Israel on October 1, speculation about Israel’s response has intensified. According to Israeli officials, the country is planning a “significant retaliation” that could target Iran’s crude oil production and export infrastructure.

Iran is taking this threat seriously. Shortly after the October 1 attack, the National Iranian Tanker Company directed several empty tankers to leave their moorings at Kharg Island, where 90 percent of Iranian oil is loaded for export. These tensions are unsettling the market—the price of Brent crude jumped nearly 4 percent on October 7 in anticipation of Israel’s response.

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Although analysts are rivetted by the prospect of an attack on Iran’s oil production and export facilities, the likelihood of this is actually fairly low. Here’s why:

The mission would be complicated and risky

Iran’s oil assets are spread out mostly along its Gulf coastline. Oil fields are concentrated in Iran’s northern region but stretch towards its interior. Multiple pipeline networks connect the various fields to refineries and output terminals. The most significant facilities are the Abadan refinery, located on the coast along the border with Iraq, the Kharg Island terminal in the center of Iran’s Gulf coastline, and the Bandar Abbas refinery and terminal, both located at the Strait of Hormuz. Of these, Kharg Island and the Bandar Abbas terminal are key to disabling Iran’s oil export industry.

The logistics of targeting both of these facilities are challenging given the distance, likely use of Arab airspace, and Iran’s Russian air-defense system, though Israel demonstrated back in April its ability to contend with, and damage it. Kharg Island is also near an Iranian nuclear facility and thus more heavily protected. Although former Israeli officials insist that Israel is capable of such an attack, the risks associated with it probably outweigh the benefits such a strike would achieve at this point. A successful attack on Iran’s oil production and export infrastructure would alienate the United States, imperil relations with the United Arab Emirates and other Arab neighbors and anger China, Iran’s largest customer of crude oil and condensate exports. This damage would be long-lasting and significantly more difficult to repair than the physical damage to Iran’s oil export infrastructure.

But Israel’s bluff offers strategic advantages

Still, there is an advantage to manipulating adversaries (and allies) into believing you will do anything in pursuit of victory. Since Iran’s most recent attack, current and former Israeli officials have spoken openly about attacking Iran’s crude oil industry and probably have seriously considered it. But even if Israel does not undertake this approach—which would dramatically escalate the conflict with Iran—Israel has put itself in an advantageous position. Now, a response targeting Iran’s military sites through military and/or cyber means, will appear restrained compared to Israel’s public messaging.

According to recent reports, the United States just agreed to send Israel the Terminal High Altitude Area Defense (THAAD) missile system, along with the military personnel to operate it. It is likely that the Biden administration agreed to deploy this system to mollify Israel and to deter additional ballistic missile attack from Iran.

The United States successfully employed a similar strategy to extricate itself from the Vietnam War. According to Henry Kissinger, he and President Richard Nixon sought to make North Vietnam and the Soviet Union “think we might be ‘crazy’ and might really go much further.” Through massive bombing campaigns and veiled nuclear threats, they intimidated North Vietnam and succeeded in getting Moscow to pressure Hanoi into the diplomatic concessions needed to bring the conflict to a negotiated conclusion within a relatively brief timeframe.

The real impact on markets

Market watchers should understand that despite the rhetoric, Israel’s next move isn’t likely to disrupt Iranian oil production or exports. However, Israel could deliver a strong-but-not-crippling blow to Iran’s economy by targeting its domestic gasoline industry. Israel was linked to a December 2023 cyberattack that disabled the majority of gasoline stations in Iran, and a similar attack on Iran’s steel industry.

A cyberattack followed by a military strike is a likely Israeli response to the Iranian missile barrage. A potential target could be the Abadan refinery, which produces a quarter of Iran’s gasoline supply. Fighter jets would only have to fly over Jordan and Iraq, and the area is not as heavily defended as Kharg Island. Hitting Abadan wouldn’t roil oil markets because most of its production is consumed domestically, and an outage wouldn’t impact crude exports.

It is clear that Israel wants the United States and Iran to believe it will attack Iran’s oil industry. However, traders, market watchers, and policymakers must understand that this is very unlikely, and that a much more limited attack with minimal global impact is far more likely.

Ellen Wald is a nonresident senior fellow with the Atlantic Council Global Energy Center and the author of the book, “Saudi, Inc.: The Arabian Kingdom’s Pursuit of Profit and Power”.

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Innovation can accelerate Southeast Asia’s energy transition

Reed Blakemore, Chase Thalheimer — Fri, 18 Oct 2024 13:12:04 +0000

As Southeast Asia accelerates its energy transition, the Atlantic Council Global Energy Center (GEC) is engaging with stakeholders across the region to develop the policy and business strategies needed to rapidly finance and deploy clean energy technologies. This includes collaborating with Singapore International Energy Week 2024 (SIEW) as a Strategic Insights Partner. There, the GEC is supporting SIEW TechTable 2024 to build a platform for stakeholders to engage with these cutting-edge technologies and discuss their deployment at scale in order to advance Southeast Asia’s energy future.

Southeast Asia is undergoing a profound transformation in its energy landscape, driven by rapid economic growth, urbanization, and a pressing need to reduce carbon emissions. Regional energy demand is expected to surge by two-thirds by 2040. Ensuring reliable and affordable supply for rapidly expanding populations requires an accelerated deployment of cleaner, more sustainable energy sources.

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From highly industrialized nations like Singapore to developing economies like Vietnam, each country faces distinct energy security and sustainability concerns. But across the region, there is a common need for an integrated transition strategy that supports economic growth, enhances energy security, and aligns with global climate objectives. Central to achieving this transition is the adoption of innovative clean technologies.

Technologies like carbon capture, utilization, and storage (CCUS), battery storage, enhanced geothermal systems, and small modular reactors (SMRs) are essential to ensure a reliable, resilient, and clean energy supply. With strategic investments and robust policy support, these technologies are poised to play a pivotal role in Southeast Asia’s energy future as the region faces rising demand and climate risks.

Diversifying the energy mix for resilience

By diversifying their energy sources with emerging technologies, Southeast Asian countries can enhance energy security while progressively reducing emissions. Finding the right balance between conventional and clean energy while leveraging innovative technologies is critical for maintaining resilience during the transition.

Natural gas is seen as a “transition fuel” for many Southeast Asian nations. While still a fossil fuel, natural gas produces nearly half the carbon dioxide emissions of coal and can be integrated with renewable sources of power generation. Investments in liquefied natural gas (LNG) infrastructure are increasing across the region. Singapore is positioning itself as a major LNG trading hub in Asia. Pavilion Energy and Sembcorp Industries have already made significant investments in LNG bunkering services, providing cleaner fuel options for shipping and ensuring Singapore’s energy security.

As countries rely on natural gas for immediate energy needs, emerging clean technologies are providing a pathway for achieving the deeper decarbonization needed for long-term sustainability. Clean energy technologies can diversify the energy mix, reduce emissions, and ensure resilience as Southeast Asia transitions to a more sustainable energy future.

Innovations supporting the region’s transition

Battery storage systems are critical for stabilizing power grids as intermittent renewables like solar and wind come online. The Asian Development Bank recently proposed a $30 million, 50-megawatt battery energy storage system project in northern Vietnam. The proposal is designed to reliably integrate solar energy into the grid. Vietnam added a massive 16.5 gigawatts (GW) of solar capacity in 2020. The project could provide a model for other Southeast Asian countries facing similar challenges with renewable integration.

CCUS is being deployed to mitigate emissions from the region’s fossil fuel use while maintaining energy security. Indonesia’s CCUS and enhanced gas recovery (EGR) project on the Gundih field in Central Java, led by Pertamina in partnership with Japan’s Ministry of Economy, Trade and Industry, is projected to capture and store 300,000 tons of carbon per year. Malaysia’s Kasawari project, spearheaded by Petronas, is expected to become one of the world’s largest offshore carbon capture projects, aiming to capture up to 3.3 million tons of carbon per year. Kasawari illustrates the potential for large-scale CCUS to decarbonize Southeast Asia’s natural gas industry.

Enhanced Geothermal Systems (EGS) represent a largely untapped opportunity for Southeast Asia which could expand geothermal energy in areas where other domestic energy resources are otherwise limited. Indonesia, with some of the highest geothermal potential globally, could meet its ambitious goal of increasing capacity to 9.3 GW by 2035 through EGS. However, scaling up this technology will require significant investments. The right policy frameworks are needed to de-risk projects and attract private sector involvement. Despite these hurdles, EGS could provide stable, baseload power—both at utility scale and to meet demand for energy-intensive facilities such as data centers and artificial intelligence hubs—complementing renewables and reducing reliance on coal.

Finally, advanced nuclear reactors, including SMRs, can produce carbon-free baseload energy while being more scalable and more efficient than traditional nuclear power plants. SMRs are gaining particular attention due to their smaller size, flexibility, and ability to integrate with renewables. For instance, in mid-2024, Singapore signed a civil nuclear cooperation agreement with the United States. Known as a “123 Agreement,” this provides access to US nuclear technology—including SMRs—as part of Singapore’s long-term decarbonization strategy. Indonesia is developing its own SMR technology through the PeLUIt-40 project, a domestically designed reactor aimed at helping the country achieve net-zero emissions by 2060. These initiatives highlight the growing interest in SMRs as a reliable and sustainable solution for Southeast Asia’s diverse energy needs.

Powering sustainable growth

Southeast Asia’s energy transition is a driver of economic growth and development. Clean energy technologies are creating new industries, attracting foreign investment, and creating jobs across the region. Countries that position themselves as leaders in cleantech innovation can unlock industrial expansion and international collaboration. And as Southeast Asia embraces sustainable energy, it will be better equipped to compete in the global economy. Reducing reliance on fossil fuels will not only help meet the region’s climate commitments, it will also protect Southeast Asia from the volatility of global energy markets. As clean energy infrastructure grows, regional energy cooperation—such as cross-border energy grids and trade in renewable energy—could further boost economic stability and integration.

Ultimately, by committing to a clean energy future, Southeast Asia can not only protect the climate, but also build a resilient, competitive economy that thrives in a rapidly changing global landscape.

Reed Blakemore is the director of research and programs at the Atlantic Council Global Energy Center.

Chase Thalheimer is an assistant director at the Atlantic Council Global Energy Center.

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Attention to market realities are key to a successful COP29

Robert Cekuta — Tue, 15 Oct 2024 21:13:32 +0000

Analysis ahead of next month’s COP29—often called a “finance COP”—focuses largely on increasing the funds available to poorer countries to address climate change. However, this misses a key point: that market conditions in recipient countries are a critical determinant for the success of such climate efforts.

Fighting climate change requires trillions of dollars globally for low- or zero-carbon technologies, for measures to adapt to changing sea levels or weather patterns, and to establish more resilient infrastructure. The International Energy Agency (IEA)’s Net-Zero Roadmap to keep global temperature rise under 1.5 degrees Celsius states that the world has to invest $4.5 trillion annually by the early 2030s to be on a path toward achieving this goal. This same report notes that “annual concessional funding for clean energy in emerging market and developing economies will need to reach around $80-100 billion by the early 2030s.”

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For years there have been repeated calls for industrialized countries to foot much of the bill for lower-income countries. However, such transfers—even if they can be agreed to and realized—would be inadequate. Moreover, while the World Bank and other international financial institutions can be mobilized to boost funding levels, experts predict serious shortfalls will remain and call for greatly increased private sector engagement.

Governments and civil society groups have seized on public-private partnerships as the answer to addressing these shortfalls. Such partnerships can be instrumental in combating rising carbon emissions and their impacts—not just in rich industrialized counties, but also in many of the emerging market economies that now account for much of the world’s annual carbon emissions.

However, because these partnerships involve the private sector, market factors are key in determining if, where, and how such partnerships can be realized. The same market factors that make a country attractive to domestic or foreign investment in general will affect their ability to attract and mobilize capital for projects to build a more sustainable, lower-carbon future.

If a country has problems attracting or keeping capital in general, these same problems will affect its ability to attract or keep the funds, human capital, and technologies needed for new renewable power generation systems, more efficient electrical grids, and other climate-aligned projects.

The exact factors vary by country, but years of working with highly industrialized, emerging market, or lower-income countries point to some very basic, common concerns and how they can be addressed.

The first is to recognize that every country competes globally to attract and keep capital. Political and business leaders work to sell their country and its market to investors. But when the corporate, banking, or government leaders from country X finish their presentations, counterparts from country Y come in soon after to say why their project deserves backing instead.

A second factor is a country’s overall reputation as a place to do business. How strong is the rule of law? What is the country’s reputation regarding corrupt business practices? Are contracts—whether with the government or private entities in the country—kept and fairly enforced? How freely can capital enter or leave? There is a saying that when it comes to oil or gas ventures, “good rocks are not enough.” This same principle applies when it comes to building solar or wind power facilities as well.

Moreover, non-governmental organizations (NGOs) and other institutions from these countries that are looking for international backing for their climate-related proposals will be affected by these same concerns. A women’s group or civil society organization operating in a country with a poor international business reputation will face additional hurdles compared to those operating in countries with good transparency, low corruption levels, and well-functioning regulatory and judicial systems.

The good news is that once recognized, these issues can be addressed. International financial institutions, bilateral and regional development assistance organizations, NGOs, and private sector and academic experts can provide willing governments with insights and suggestions. Governments may already know what they should do and have just been slow in acting. Global realities, however, require recognizing that projects to slash carbon emissions or make their countries better equipped to deal with climate change are not immune from the factors that attract or deter funding for other projects.

Taking countries’ market realties into account will be essential for discussions in Baku to achieve the necessary results for global climate efforts.

Robert Cekuta is a former principal deputy assistant secretary for energy at the State Department and was U.S. ambassador to Azerbaijan.

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A new European Commission faces three key issues at the heart of the clean energy transition

Michał Kurtyka — Tue, 08 Oct 2024 17:54:58 +0000

The new European Commission is taking shape. EU member states have named their commissioners-designate, and portfolios have been assigned. Now, parliamentary confirmations will be held to establish who will shape key EU policy files for the next five years.

This political jockeying has important consequences for two interdependent portfolios in particular, whose prominence has grown dramatically since the last election cycle in 2019: energy and climate. Europe has gotten through the worst of the energy crisis following Russia’s full-scale invasion of Ukraine. But now the energy transition faces growing political headwinds, evidenced by a backlash to green policies expressed in recent European, national, and subnational elections.

To answer these challenges, Mario Draghi, former prime minister of Italy and former president of the European Central Bank, has written a report postulating that the Clean Industrial Deal should be adopted by the new European Commission within the first one hundred days. As the energy focus shifts from “clean” to “green”—suggesting more emphasis on industry and competitiveness as compared with environment and climate—it remains to be seen what this evolution means in practice. It needs to be viewed in the light of increased geopolitical tensions and rising concerns over European energy security.

Europe stands at a critical juncture in its mission to meet energy demand and fuel economic growth in a changed world. It’s a tall order. To do this requires the new Commission to overcome three key obstacles: lack of funding, import reliance, and declining economic competitiveness.

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Out of the energy crisis comes a climate opportunity

Europe’s energy crisis created tension between energy security and its climate ambitions, which lie at the heart of its global diplomacy. As Russia turned up the dials on its energy war against Europe, the continent rapidly embraced liquefied natural gas (LNG). Some countries—notably Germany—even restarted previously closed coal plants.

This kept the lights on but damaged Europe’s green credibility. As the crisis becomes less acute, Europe has the space to prove to the world that it is possible to build a secure, competitive, and resilient energy system—but to accomplish that task, it must first address three major obstacles.

1. Without adequate funding, Europe’s climate agenda is toothless

The problem is that Europe’s current climate toolbox is not up to this task. The European Union finally put adequate resources behind its Green Deal by using money left over from the Recovery and Resilience Facility (RRF), a pandemic-era policy innovation that utilized collective borrowing for the first—and so far, only—time.

Brussels mandated that at least 37 percent of member states’ shares of the €750 billion program go toward climate-related projects, and then repurposed €300 billion of the facility’s scantly used funds for the May 2022 REPowerEU plan, which aims to wean the bloc off Russian energy in part through decarbonization.

But that money has been spent. The EU reports that nearly all of REPowerEU’s funds have been mobilized, in addition to €275 billion of the RRF toward emissions-reducing projects. The EU’s climate account has run dry, but not its legislative ambitions—final approval was given to a new Net Zero Industry Act last May, and a Critical Raw Materials Act (CRMA) in March. Now, Commission President Ursula von der Leyen intends to introduce a Clean Industrial Deal within the first one hundred days of the new mandate.

But without new money to back up these initiatives, Europe’s climate plans have no teeth. Over the next decade, the US government could invest $569 billion under the Inflation Reduction Act (IRA) and Infrastructure Investment and Jobs Act, alongside a well-capitalized and risk-tolerant US financial sector. And China invested a staggering $890 billion in low-carbon sectors in 2023 alone, with little indication it will soon pull back.

Europe faces an internal battle to match such funding. Former Italian prime minister Mario Draghi’s long-awaited report calls for new common borrowing to reinvigorate European industry. But the Commission’s previous proposal for a European Sovereignty Fund faced widespread opposition among northern member states, who oppose further collective borrowing. If such opposition continues, clean industry may well seek greener pastures elsewhere.

2. Europe’s reliance on foreign energy, materials, and finance creates economic risks

Europe is dependent on energy imports. The reality that 45 percent of EU gas consumption came from a hostile power was made clear in February 2022. While Europe survived a dire end to its reliance on Russian fossil fuels, it now depends on imported LNG for 37 percent of its gas.

Likewise, Europe’s clean industry relies on Chinese finance and products. Last year, Europe imported a staggering $57 billion-worth of China’s marquis clean energy products: solar photovoltaics, lithium-ion batteries, and electric vehicles.

Where Europe tries to substitute those imports with domestic products, Chinese money and technologies are critical for backing such ventures. Chinese investments in the EU electric vehicle supply chain reached €4.7 billion in 2023. Chinese firms are in various stages of development for battery, auto, and material plants in Germany, France, Sweden, Finland, the United Kingdom, Spain, and Hungary.

These external dependencies leave Europe vulnerable to market instability and geopolitical pressure. The effects are already being felt.

Exposure to a more liquid and globalized market for energy has inflicted massive volatility on European gas prices, which were nine times higher than US prices in August 2022 before leveling off to a modest five-fold spread by May 2024. Partly as a result, Europe’s electricity prices are also two-to-three times higher than in the United States, with profound implications for Europe’s manufacturing competitiveness and investors’ willingness to plow more money into European industry.

The development of clean industries still leaves Europe beholden to external actors, where it depends mostly on imports for key cleantech raw materials like lithium, cobalt, rare earth elements, magnesium, and graphite.

3. Energy dependence and industrial policy imbalances are harming Europe’s competitiveness

European industry is still reeling from elevated fuel prices. Germany’s manufacturing sector—which in 2018 accounted for two-thirds of the EU-28’s trade surplus—has been hit by higher fuel prices, which Markus Krebber, the chief executive officer of Germany’s largest utility, warned may never fully recover. The automotive industry, the crown jewel of German manufacturing, responsible for one-sixth of German exports, is no longer performing—exports in 2023 were down 11 percent from 2019 levels.

Attempts to use industrial subsidies to stem Europe’s competitive decline are not only insufficient to keep pace with China and the United States—they also exacerbate intra-European disparities. Lacking consensus to establish common funding mechanisms at the EU level, the Commission in March 2022 relaxed state aid rules that normally prevent member states from subsidizing domestic industry. Perhaps unsurprisingly, Germany, France, and Italy accounted for 85 percent of industrial support under the crisis framework, undermining European solidarity and widening the competitive gap between the bloc’s three largest economies and the other twenty-four member states.

This every-country-for-itself subsidy strategy risks centralizing clean industry around Europe’s big three economies, given the prevailing economics of localization when dealing with ultra-heavy machinery like batteries and wind turbines. While Poland and Hungary currently account for most EU battery manufacturing capacity, Warsaw and Budapest can’t compete with aid packages from Berlin, Paris, and Rome.

Europe’s path forward requires cooperation—and competition

The European Union began as a peace project but now must reconcile itself to a world that it is more dangerous, more competitive, and more uncertain. Europe cannot resign itself to be a peripheral player in an era centered on US-China strategic competition. The continent needs to be clearer on its role within the international system and its geopolitical stance toward Washington and Beijing. And it must remember that Europe’s core strength has always been its ability to forge unity out of diversity, whether internally or with external partners.

On funding, Europe needs to work collectively

Collective European action is required to build competitive clean industries at home. The Draghi report calls for an EU-funded Marshall Plan for European industry, which low-carbon sectors would naturally be at the heart of. A common EU funding mechanism would also help to crowd in private sector investment, much like the IRA does in the United States. Further common borrowing is needed to make that a reality.

Fully leveraging private European capital also means providing clear and simple rules to the private investors. That requires a technologically neutral approach to moving towards net zero, much as the United States has done with its landmark climate laws.

The EU green taxonomy should include nuclear fusion and fission, geothermal, and other low-emission technologies that advance energy security and emissions-reductions in tandem. Europe cannot achieve its moonshot mission of climate neutrality by 2050 with one hand behind its back. No solutions can be taken off the table—the United States and China certainly are not doing so.

Europe needs trusted partnerships to de-risk external dependencies

Collective European efforts must go beyond funding. Reducing external dependencies does not only mean replacing foreign energy imports with domestically produced clean energy. It also requires acting in concert to secure greater bargaining power, as well as diversifying sources of imports and pivoting towards trustworthy suppliers.

Europe must enhance its demand aggregation measures under the EU Energy Platform to achieve greater security and affordability in energy sources where it will always be a net-importer, such as LNG and hydrogen. It must also consider such measures for critical raw materials.

While the CRMA is justified in its objectives of locating more extraction and processing within Europe, there are limits to that approach. Europe’s raw materials cannot only be Made in Europe—they must also be Made with Europe, alongside a complex array of trade partnerships with nations in Africa, Latin America, and—of course—the United States and Canada.

Indeed, Europe must also deepen its collaboration in energy and climate among external partners who share its vision of an open, free, and climate-secure world. This means intensifying transatlantic cooperation on innovating and deploying technologies like batteries, electric vehicles, and nuclear energy.

A competitiveness agenda means re-tooling the EU for an era of great power competition

Achieving Europe’s energy security and climate goals requires a radical approach that gives the European Union the tools to meet the challenge of a more competitive world. This means transforming the European Union so that it can survive in an era defined by hot war, industrial policy, and strategic economic competition. Europe must adapt, or as Draghi says in his new report, succumb to a “slow agony.” The new Commission has not a second to lose.

Michał Kurtyka is a distinguished fellow with the Atlantic Council Global Energy Center and the former Polish minister of climate and environment.

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China’s cleantech growth strategy sets its sights on Brazil

Joseph Webster, William Tobin — Wed, 02 Oct 2024 15:59:38 +0000

China is counting on three cleantech sectors to fuel future economic growth: electric vehicles (EVs), lithium-ion batteries, and solar photovoltaic (PV) panels. Exports of these so-called “new three” industries reached nearly $143 billion in 2023, up massively from $33 billion in 2019.

But China’s growing might in cleantech is stirring unease in recipient markets due to perceived economic and national security risks. The United States has all but banned imports of Chinese solar cells and modules, and EVs. Other advanced economies may follow suit—for example, on August 26, Canada imposed tariffs on Chinese-made products.

With several developed countries becoming increasingly reluctant to absorb imports from China’s new three industries, China’s cleantech sectors need alternative markets to secure future export growth. Accordingly, Latin American’s approach to China’s cleantech industries could prove consequential. For now, growth in China-Latin America ties in the “new three” is driven primarily by Brazil, although electric vehicle shipments to the South American country have softened considerably in recent months.

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China’s Brazil bonanza

New three exports to continental Latin America have surged. The region’s total imports of Chinese solar panels, lithium-ion batteries, and solar PV rose from $3.2 billion in 2019 to $8.9 billion in 2023, with Brazil absorbing 63 percent of these imports by value last year.

Exports of the new three are relatively minor compared to China’s total exports to the region, which nearly reached $230 billion in 2023. Altogether, continental Latin America accounted for 10 percent of China’s exports of the new three for the twelve months ending August 2024. The region features, however, as one of the options China is presented with to find a market for its exports amid rising manufacturing capacity domestically.

Electric vehicles are where Brazil’s outsized purchases of the new three are most striking. For the twelve months ending in August 2024, 73 percent of China’s exports of battery electric and plug-in hybrid vehicles to continental Latin America were directed toward Brazil.

Interestingly, there has been a sharp decline in EV exports to Brazil in recent months, while shipments to Mexico are rising sharply. Some of the recent decline is due to sales being brought forward to avoid an 18 percent tariff imposed by Brazil in July.

The same trend may be observed in Mexico, as its rising imports of Chinese EVs are likely tied to the phase out of a tariff exemption on October 1. Still, rising shipments to Mexico could also signal the start of a larger trend. Importantly, BYD is, for now pausing investment plans in the country.

Brazil’s market advantage

China’s apparent focus on Brazil for new three exports can be attributed to the size of the Brazilian market, strong environmental and policy fundamentals, and the influence of Beijing’s trade and investment diplomacy.

Brazil’s gross domestic product (GDP) measured $2.2 trillion in 2023, accounting for 34 percent of continental Latin America’s GDP. In a regulation-heavy region, China needs to prioritize markets for its early-stage exports.

In addition to Brazil’s size, the country is a favorable location for clean industry. Brazil is fertile ground for solar power, enjoying high solar irradiance in nearly all regions of the country. Since 2017, Brazil has added an average of 1 gigawatt per month of combined solar capacity in residential and utility-scale projects. The average price of solar electricity in the country has decreased by 68.6 percent since 2013, making it among the most competitive generation sources on the grid.

Brazilian policy supports domestic deployment of clean energy—and thus new three imports from China. Brazil provides import tax credits for electric vehicles, and has an emissions standards program known as Proconve, which mandates emissions limits for harmful pollutants. By extension, this program also incentivizes battery deployment, since electric vehicles perform well under this scheme.

The country has long-established solar support mechanism through its ProInfa tax credit scheme, and BNDES, the national development bank, provides cheap project finance. Brazil also incentivizes residential solar through a net-metering policy. Few other Latin American nations combine such sophisticated policy frameworks with favorable financing conditions, a key enabler of investment in a region beset with high interest rates. These policies have made Brazil an attractive market for Chinese cleantech firms.

Finally, China views Brazil as a valuable diplomatic partner in South America, and the relationship could provide Beijing a regional foothold. Brazil is also an important economic partner—in Latin America, it is China’s largest trading partner and the largest recipient of Chinese investment. Globally, Brazil is China’s principal source of soybeans and second-largest source of iron ore, which are central to China’s livestock and steelmaking industries, respectively. China is, in turn, a critical export market for Brazil.

Brazil’s policy tightrope

However, Brazilian policymakers face a dilemma in their economic relationship with China. To spur productivity growth needed to boost real wages, Brazil would benefit from moving up the value chain for its exports.

In 2021, capital, consumer, and intermediate goods accounted for 93 percent of Brazil’s total goods imports, while raw materials represented 55.7 percent of Brazil’s goods exports. Brazil’s trade specialization in raw materials and lesser value-added goods has only increased over time—manufacturing’s share of GDP has shrunk by 23 percent since 1980. For this reason, re-industrialization was recently cited as “essential” for Brazil’s growth by its minister of labor and employment, with the energy transition counted as one of the six pillars of Brazil’s new industrial policy plan.

Brazil has sought to invest in domestic production rather than imports. During Vice President Geraldo Alckmin’s recent trip to China, he obtained commitments for nearly $5 billion in infrastructure investment. While Chinese commitments do not always pan out, they do signal diplomatic intent.

Additionally, Brazilian diplomacy coaxed Chinese EV manufacturer BYD to invest in a facility in Bahia—at the site of a closed Ford plant—BYD’s first such establishment abroad. Still, Brazil has a vested interest to ensure the Chinese market remains open to their exports of raw materials. This means the Brazilian government is not likely to take a confrontational approach on trade, which limits its ability to alter the nature of its economic relationship with China.

Brazil’s posture toward Chinese cleantech imports must balance competing interests. Cheap cleantech could provide low-cost equipment to expand the grid and accelerate decarbonization, all while providing short-term economic benefits. On the other hand, unfettered imports could weaken domestic manufacturing and give Chinese companies monopolistic leverage they could exploit.

Additionally, while there is little risk from “dumb” solar panels and lithium-ion batteries that do not connect to the web, Chinese-made Internet-connected vehicles pose potential security threats. Brazil, a major non-NATO ally, and other Latin American countries can mitigate economic and security dangers by ensuring that Chinese firms site production locally and share source code for connected vehicles. Additionally, Latin American countries could ban “over-the-air” software updates for Chinese EVs, or otherwise airgap them from the Internet.

Brazil, China, and the new three

As Chinese goods increasingly face scrutiny across North America, Europe, and other markets, the Brazilian market will loom larger as an alternative. China’s economic ties with Brazil are an inescapable reality, but Brasília should ensure the relationship serves its own objectives and does not inculcate dependency. Policymakers in Washington should also elevate Brazil as a strategic commercial partner, and work with the private sector to offer a credible, competitive alternative to Chinese cleantech.

Joseph Webster is a senior fellow at the Atlantic Council Global Energy Center.

William Tobin is an assistant director at the Global Energy Center.

This article reflects their own personal opinions.

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Renewables offer opportunity in the Western Balkans. But challenges remain.

Michael Hochberg — Fri, 27 Sep 2024 19:56:38 +0000

Change is afoot in the Western Balkans. The region of 17 million inhabitants is rolling out policy tools to maximize its solar and wind potential via private sector investment. The depth of renewable energy deployment will ultimately depend on the interplay between competing ideologies and economic concerns, international and local politics, and the capacity and topology of the electric grid. But targeted solutions to channel investment and create favorable market conditions can accelerate the speed and scale of regional renewable deployment.

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Coal dominance, renewable potential

The Western Balkans rely heavily on coal. Four of its six nations produce at least 50 percent of their electricity from locally mined lignite, the most polluting coal class. Albania is unique in having no coal generation, although it supplements locally produced hydropower with electricity imports from its coal-burning neighbors.

The region’s second-largest source of electricity is hydropower. With more than 9,000 megawatts (MW) of installed capacity, hydropower accounts for more than 80 percent of the Western Balkans’ renewable energy capacity. Hydropower is a low-emission technology, but it can have a significant environmental impact. Moreover, the zero-marginal cost nature of hydropower can make it difficult for other renewable power technologies to compete in competitive power markets.

Wind and solar resources in the Western Balkans remain relatively untapped. The region had installed capacities totaling 1,011 megawatts (MW) of wind and 897 MW of solar at the end of 2023. A patchwork of support mechanisms aims to boost wind and solar, including reverse auctions, feed-in tariffs, private market deals, and self-consumption regulations—albeit with mixed success. Tens of thousands of megawatts of solar and wind projects have been proposed within the region, reflecting investor appetite for new projects. But the vast majority remain in the development or planning stages.

To facilitate offtake for these projects, auctions have been implemented across the region. Serbia used an auction in 2023 to solicit bids for 400 MW of wind and 50 MW of solar projects. The wind portion of the auction was oversubscribed, yet the solar portion underperformed. In terms of consumer participation in renewables, all Western Balkan nations have begun to develop self-consumption frameworks to enable onsite renewable power generation. North Macedonia and Albania have adopted these frameworks faster than their neighbors.

The need for investment

The average coal-fired power plant in the Western Balkans is more than 40 years old. These inefficient plants are significantly more polluting than their counterparts within the European Union (EU), causing regional public health issues and creating obstacles to national EU accession goals, which require alignment on climate policies.

Air pollution—much of it from burning coal for electricity—causes 30,000 premature deaths annually in the Western Balkans. Retiring older coal plants would lower emissions, facilitate compliance with EU air pollution requirements, and enhance European energy market integration. But under any scenario, security of supply must be maintained.

To retire coal, replacement capacity must be built, which can offer a range of secondary benefits beyond cleaner power generation. Renewable power deployment can provide impetus for regional clean energy business clusters which facilitate local manufacturing, new jobs, and economic growth. New large-scale renewable energy facilities also typically boost property tax revenues, create construction jobs, and supply indirect economic benefits from new expenditures resulting from the projects.

Challenges to deployment

Despite policy incentives and positive market signals, significant renewable energy deployment in the Western Balkans is not guaranteed. Five key challenges remain.

First, limited available transmission capacity makes it difficult to deliver clean power to consumers. Serbia’s grid operator has received requests to connect 20,000 MW of new renewable power, which is several times greater than Serbia’s available capacity.

Second, entrenched coal interests diminish the prospects for rapid decarbonization. Tens of thousands of jobs across the region are supported by the coal industry. Careful planning, early stakeholder engagement, reskilling programs, and prudent messaging around these efforts are key to generating public support for decarbonization as aging plants are phased out.

Third, illiquid electricity markets can make financing difficult. For example, Bosnia and Herzegovina has no organized electricity market, and most of the region’s nations only began rolling out time-differentiated markets in 2023. This limits power commercialization opportunities and financing options for the private sector.

Fourth, finding offtakers to purchase renewable power represents a challenge. State-owned utilities within the region can help through bulk purchases from renewable projects. But they often lack the financial wherewithal to serve as offtakers. Large-demand private commercial and industrial consumers, when enabled by regulation, could meet a portion of power demand via contracting with renewable projects. Yet these firms do not always enjoy physical proximity to renewable projects, nor sufficient demand to buy all of the electricity produced from a single large-scale project.

Finally, a lack of regional coordination and inconsistent rules across jurisdictions raises the barriers to entry for new market participants in the Western Balkans and creates silos that may reduce the perception of scale of a truly regional opportunity.

Coal, grid capacity, and technology

Despite coal’s outsized role in the region’s energy system, there are no current plans for new coal capacity. Within the next decade, many aging plants will either retire or be refurbished to become less polluting. To facilitate both retirements of coal and deployment of renewables, private developers should pursue clean energy projects adjacent to planned coal plant retirements to secure valuable transmission capacity and help move renewable projects to construction and operation.

Battery storage will also play a role in enabling growth in renewables as coal plants retire. Regulations that incentivize battery deployment would help new solar and wind replace coal by firming up intermittency. Battery systems can also facilitate incremental increases in solar and wind capacity—for example, if a solar project has 100 MW of grid capacity, its owner can overbuild to 120 MW, store the excess 20 MW, and deliver this power to consumers when the solar output declines in the evening.

Other technical solutions, like grid-enhancing technologies (GETs), can increase the capacity of existing power lines. With minimal investment, GETs carve out room on the grid for new solar and wind projects where there previously was none. In addition to grid capacity, the introduction of GETs can enable business partnerships and knowledge transfer between the companies that deliver these technologies and utilities or power grid operators.

Procuring renewable power

Auctions are a proven method used by many countries to secure investment in power generation. They can enable price discovery and enhance competition, leading to the deployment of inexpensive power.

Serbia, Albania, and Kosovo have implemented auctions for procuring renewable energy. Other nations in the region may follow suit.

Yet auctions can lead to problems. Auction design and administration must account for local contexts. If implemented incorrectly, auctions can inspire collusion, thereby undermining legitimacy and competitiveness. Or they can cause overly aggressive bidding, harming project completion rates. Finally, auctions often limit the number of suppliers, which can reduce competitiveness.

One alternative to auctions is a bilateral approach, in which procurement is negotiated directly between power purchaser and project developers, leading to quicker deployment and lower transaction costs. Such an approach can also unlock access to suppliers that may not normally join an auction process.

European Union support

Support from the EU and European institutions is a key facet of the Western Balkans’ transition. Serbia’s utility recently secured $100 million in green debt from an Italian bank, enhancing its viability as a green offtaker. The prospect of EU accession provides a carrot for decarbonization as well. The EU has made billions of euros available to support regional energy transition projects. Meeting EU standards to access financing could encourage standardization of rules that would help private investors more effectively navigate the region.

Looking ahead

The tailwinds propelling solar and wind investment are strong. Developing solar and wind generation will bolster the Western Balkans’ economy and provide broader strategic advantages as the region continues to face fast-evolving energy and geopolitical paradigms.

Michael Hochberg is chief development officer at HGR Energy.

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As Middle East tensions simmer, the world fixates on the wrong energy market risks

Ellen Wald — Tue, 17 Sep 2024 13:46:59 +0000

As the anniversary of Hamas’ devastating October 7 attack on Israel approaches and the escalation of the Israel-Gaza war continues, tensions in the Middle East show no signs of receding. Iran’s role in supplying, training, and facilitating attacks from Hamas, Hezbollah, and the Houthis is well-known, but fears persist that dismantling this network will lead to a serious escalation with Iran and threaten global energy supplies. But the real risks to the energy sector are not the ones that policymakers and oil traders are focused on.

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The risks in the Strait of Hormuz are overblown

The risk that Iran could close the Strait of Hormuz looms large among government and industry leaders, given that one fifth of global petroleum liquids consumption and liquefied natural gas (LNG) trade flows through this narrow waterway. The impacts would be devastating to the global economy—particularly for Asian consumers of Gulf oil.

However, the economic, political, and geographic realities mean that—not only is Iran extremely unlikely to close the strait—it is practically impossible for it to do so.

Economically, Iran has too much to lose. The country exports 1.5 million barrels per day of oil in contravention of US sanctions, up massively from 350,000 in 2019. If the country refused to allow non-Iranian tankers to exit the Gulf, it would expose its own tankers to foreign navies, threatening Tehran’s primary source of revenue. As long as Iran continues to make money selling oil, it will not close the strait.

Politically, Iran can’t afford to jeopardize its relations with the United Arab Emirates (UAE), Saudi Arabia, or China. Over the past five years, Iran has painstakingly rebuilt ties with Saudi Arabia, the most powerful Gulf state, and the UAE, Iran’s most important trading partner. Nor can Iran afford to alienate its best customer and the largest overall importer of Gulf oil—China. Samir Madani, co-founder of TankerTrackers.com, Inc., an independent company that tracks seaborne oil, said it would be incredibly ill-advised for Iran to disrupt Beijing’s oil supply from the Gulf.

Even if Iran were desperate enough to attempt closing the strait, it’s unclear if it could even halt shipping. While the safest and most efficient route through the Strait of Hormuz traverses Iranian waters, tankers can—and do—deviate from it by going through UAE waters. After two British tankers were seized by Islamic Revolutionary Guard Corps (IRGC) ships in 2019, British ships were instructed to avoid Iranian waters despite the increased likelihood of a collision. While a mass rerouting of traffic through UAE waters would be slow and restrict transit volumes, it would be possible for oil flows to continue.

Rather than focusing on a worst-case but extremely unlikely scenario in the Gulf, policymakers should focus on more realistic energy risks in the region.

Instead, worry about disruptions to Israel’s natural gas exports…

Israel produces natural gas through two offshore gas fields, Tamar and Leviathan, which meet Israel’s domestic needs and supply gas to Jordan and Egypt. Egypt uses Israeli gas for domestic demand or liquefies and exports it to Europe. After the October 7 attacks, Israel shut down production from Tamar, forcing Egypt to halt shipments and causing a brief spike in European natural gas prices. At the end of November, Israel resumed flows to Egypt, and exports to Europe continued at lower levels than before the attacks. Since April, however, Egypt has halted all LNG exports in order to use Israel’s natural gas to meet domestic electricity demand.

Israel’s natural gas fields remain vulnerable in the event of a military escalation between Israel and Hezbollah. If gas exports were halted, Egypt—which plays an important role in ceasefire negotiations between Israel and Hamas—could face an energy shortage. Decisionmakers involved in negotiations could offer incentives that would increase Israel’s natural gas deliveries to Egypt or help alleviate Egypt’s power crunch with other sources of natural gas, in exchange for Cairo exerting more pressure on Hamas to accept ceasefire terms.

It would also behoove policymakers to help the two countries expedite plans to build a 40-mile pipeline that would enable Israel to export an additional 6 billion cubic meters per year of natural gas to Egypt. Increasing energy interdependence would not only improve economic and diplomatic relations in the region; but also, increasing Israel’s gas export capacity to Egypt’s liquefaction facilities serves as an insurance policy for southern Europe in the event of a supply crunch.

…And escalation in the Red Sea

Policymakers should work to neutralize the threat of Houthi attacks on ships transiting the Red Sea. Iran is supplying the equipment the Houthis are using to threaten seaborne trade. Since October, the Houthis have attacked more than eighty merchant ships—and dry bulk traffic through the Suez Canal is down 50 percent year-over-year. While some oil tankers now avoid the Red Sea, most have continued to cross the Suez despite higher insurance costs.

A recent attack on a Greek-flagged tanker, the Sounion, should be a wakeup call. The attack caused a fire aboard the ship, which has been abandoned. The vessel, carrying 1 million barrels of oil, is now leaking—if that continues, the environmental disaster could be four times greater than the Exxon Valdez oil spill. While the crew was able to escape, efforts to salvage the ship were called off because the Houthis planted explosives on its deck.

The pattern of escalation in the Red Sea cannot be ignored—whereas previously the Houthis confined their attacks to ships affiliated with Israel or Israeli citizens, this is no longer the case. Since the Sounion attack, insurance companies have nearly doubled the risk premium for Red Sea-bound ships. Only Chinese-owned ships seem to be safe—their insurance premiums have dropped by 50 percent since February.

On September 2, US Central Command (CENTCOM) reported that the Houthis attacked and hit two oil tankers in the Red Sea, one of which was a Saudi very large crude carrier (VLCC) tanker carrying 2 million barrels of oil. The Houthis claimed responsibility only for the attack on the non-Saudi tanker. Saudi Arabia denied that its ship was hit, although the US military maintains that both ships were damaged by “reckless acts of terrorism by the Houthis.”

Though the specifics of the incident remain in dispute, the risks are clear: millions of barrels of oil could spill into the Red Sea or ignite in fires that cannot be extinguished. The ensuing environmental catastrophe and economic disruption would hit all producers and consumers that use the waterway regardless of their political stance on Middle East conflicts. Even if Saudi Arabia can’t publicly acknowledge that its tankers are at risk, it has just as much—if not more—to lose from attacks in the Red Sea.

Even the presence of US naval forces has not deterred the Houthis. US destroyers stationed in the Red Sea faced sustained combat rivalling that experienced during World War II—and still could not thwart every attack. Policymakers need to realize that Houthi activity in the Red Sea is a serious and growing risk to global energy supplies. Currently, the risk is being realized in insurance rates but could quickly spread throughout the global oil market if another tanker is hit.

Focus on the real risks

The ongoing conflict in the Middle East has challenged long-held assumptions about the risk geopolitical instability in a critical region for global energy supplies poses to world markets. Old paradigms, particularly those focusing on the Strait of Hormuz, no longer apply. If industry and financial experts priced in the actual risks to global energy supplies instead of focusing on unlikelier ones, world leaders might be more motivated to better ensure the security of global maritime transportation in the Red Sea.

Ellen Wald is a nonresident senior fellow with the Atlantic Council Global Energy Center and the co-founder of Washington Ivy Advisors.

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After Venezuela’s stolen election, here’s how the US should craft an effective sanctions policy

David L. Goldwyn — Thu, 12 Sep 2024 21:24:23 +0000

Venezuela’s political crisis is deepening, with worrying consequences for Venezuelans, the country’s neighbors, and the entire Western hemisphere.

The United States now faces a serious question of economic statecraft: how to design a set of policies that advances the cause of Venezuelan democracy by inflicting pain on the Maduro regime while minimizing the impact on the population, the region, and US interests.

In response, on September 12, the US Treasury imposed new sanctions targeting sixteen Maduro-affiliated individuals from the National Electoral Council, the Supreme Tribunal of Justice, and the National Assembly for impeding the electoral process and obstructing the release of the election results, while the US State Department imposed visa restrictions limiting their ability to travel or do business with the United States.

A broader approach, however, is needed. Washington must work with the opposition and regional allies, craft a smart sanctions policy based on lessons learned, and provide Venezuela’s leaders an exit strategy.

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How the opposition outfoxed Maduro

Venezuela’s democratic opposition launched a new strategy to contest what they knew would be a deeply flawed presidential election. Rather than boycotting the vote as they had done in the past, they unified the disparate opposition parties under one banner to contest national, regional, and local elections—and demonstrate the lack of popular support for the ruling United Socialist Party (PSUV) and its leader Nicolás Maduro.

The Unitary Platform held a primary that selected Maria Corrina Machado as its presidential nominee. It then supported a substitute nominee, Edmundo González Urrutia, when Machado was banned from participating in the election.

The opposition faced a great deal of intimidation throughout the process, and was keenly aware that Maduro would not give up power easily. The Unitary Platform was confident, however, that contesting the elections could dramatically transform Venezuelan politics and create the opportunity for change.

This approach succeeded in showing that the regime vastly overestimated its support across Venezuelan society. It’s now clear that González won by a wide margin—the opposition cleverly took photographs of the physical voting receipts and published them, demonstrating that Maduro lost the election.

The United Nations, the United States, and a number of Latin American countries have all recognized González as the winner. Brazil, Colombia, and Mexico have called for Venezuela to publish the results and have them independently validated as the constitution requires.

Maduro has instead doubled down by controlling decisions by the National Elections Council and Supreme Court, and calling for the arrest of González, who has escaped to Spain. With the military’s support, it now appears that Maduro will remain in power past the end of his term on January 10, 2025, despite his shameless lack of legitimacy at home and abroad.

The unintended consequences of sanctions

While the United States must support Venezuela’s democratic opposition, it must also consider the impact economic sanctions could have within Venezuela and across the Western hemisphere as a whole.

Harsh sanctions of the past—and fear of more to come—have substantially degraded the Venezuelan economy and created a migration crisis. Around 7.7 million Venezuelans have fled, mostly to neighboring countries, including nearly 3 million in Colombia alone.

The United States has also been deeply affected; on some days last year, as many as 3,000 Venezuelans attempted to enter the United States.

Energy is critical for changing Caracas’ behavior

Migration from Venezuela is driven by the state of the economy, which is determined by the level of oil production and exports, as well as the ability of Venezuela to produce adequate quantities of gasoline for transportation and diesel for power generation, public transport, agriculture, and industry.

The US Energy Information Administration estimates that Venezuela’s crude oil production has fallen from about 3.2 million barrels per day (bpd) in 2000 to just over 0.7 million bpd in September 2023. Sanctions have been a key driver of these declines. Until recently, Venezuela has had to sell its oil at steep discounts.

Exports in 2024 have averaged between 0.5 and 0.6 million bpd, with profound effects on national income. While modest in global terms, Venezuelan exports influence global supply and price, given the fragile world economy and severe sanctions on Russian and Iranian oil supplies.

Lessons learned

The challenge for the Biden administration is to craft a sanctions policy that incentivizes the Maduro regime to alter its behavior while minimizing harm to the population of Venezuela and its neighbors.

The United States has learned a great deal from past failures, including the maximum pressure campaign of the Trump administration, which banned US and non-US investment and trade in hydrocarbons with Venezuela. It resulted in mass migration from the country and major shortages of food and electricity.

All of this proved deeply unpopular in Venezuela, including among the opposition. It also proved wholly ineffective in dislodging Maduro.

Instead, a wise sanctions policy should have five key elements:

First, do no harm. An effective policy crafted over the past year licenses private companies to invest in Venezuela’s oil production as long as they control all material aspects of the project, including monies earned from oil sales. The only payments to Venezuela are for taxes and royalites deposited with the Central Bank.

This policy has been largely successful. It sustained and modestly expanded Venezuelan oil production, displacing Iran as a supplier of diluent, funneling Venezuelan oil to US and global markets, and reducing discounted oil sales to China. Specific licenses have also created a system of transparency and accountability, overseen by the US Treasury Department. This system should be expanded, rather than returning to the failed maximum pressure policy of the past.

Second, follow the lead of the opposition. Venezuela’s democratic opposition has called for punishing the regime and not regular Venezuelans. This is essential to the opposition’s political viability.

Recent polls show that large majorities of Venezuelans reject sectoral sanctions. While the opposition calls for continued pressure on the regime to release legitimate election audit results, it has not asked for additional economic sanctions.

Third, work with neighbors. Venezuela’s neighbors have a political, economic, and ideological stake in managing this crisis. While critical of the Maduro regime, neighboring countries have objected to further sanctions. Some, like Brazil, have even called for lifting existing sanctions.

Venezuela’s neighbors are suffering the most direct consequences of the crisis, given the number of migrants taking refuge in their countries. Even Mexico will be affected, as the United States continues to put pressure on it to prevent Venezuelans from crossing the border.

By working with partners, the United States is not subcontracting diplomacy, as some have claimed; it is building the most effective coalition possible. Whatever steps the United States takes would have direct consequences on those countries—all of them democratic allies—and their views should be respected.

Fourth, use smart sanctions that target members of the regime and their enablers. The United States announced new sanctions targeting these individuals, limiting their ability to travel or do business. It also impounded a presidential aircraft which violated US sanctions.

In the medium to long term, sanctioning regime leadership and their enablers could impact the decision-making of government officials, the military, and PSUV party leaders when deciding whether to pressure Maduro to leave.

Fifth, create an exit path for the regime. The regime and Maduro himself face prosecution if they leave power today. The military is deeply entrenched in the economy and their future role would be unsettled in the event of a political transition.

Therefore, a successful transition requires a pathway to avoid an existential risk to Maduro if he departs, as well as to the Chavista leadership and the military. Other countries have considered immunity, political participation, relocation, and power sharing as options. The sanctions imposed today are most useful as measures that can be revoked in the event of a better and more equitable political outcome.

Use sanctions wisely

It is tempting to resort to draconian measures that sound appealing on the campaign trail, but are counterproductive to US interests. The Biden administration should stay the course, focusing on sanctions against the regime and its members while ensuring that it does not aggravate the migration crisis Venezuela’s neighbors face today.

In turn, any future presidential administration must carefully calibrate its approach with an eye toward avoiding yesterday’s mistakes in the hope of a brighter tomorrow for Venezuelans.

David L. Goldwyn served as special envoy for international energy under President Barack Obama and assistant secretary of energy for international relations under President Bill Clinton. He is chair of the Atlantic Council’s Energy Advisory Group.

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The US government should build a Resilient Resource Reserve for wartime and peacetime

Gregory Wischer and Morgan Bazilian — Thu, 29 Aug 2024 19:35:44 +0000

In December 2023, the US House Select Committee on the Chinese Communist Party called for creating a Resilient Resource Reserve, which would “insulate American producers from price volatility and [China’s] weaponization of its dominance in critical mineral supply chains.” The committee recommended targeting minerals “with high volatility, low US domestic production volume, and [Chinese] import dependence,” such as cobalt, graphite, and rare earth elements, but it did not specify what the reserve mechanism would be—a physical stockpile, a financial reserve, or something else.

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If Congress proceeds—as it should—with creating a Resilient Resource Reserve, it should establish a physical stockpile that can meet the critical mineral demands of the US military in a major conflict, as well as influence domestic mineral prices to incentivize expanded US mineral production. This critical minerals reserve would differ from the Strategic Petroleum Reserve as it would directly use stockpile purchases to incentivize domestic production, and it would differ from the National Defense Stockpile as it would explicitly use stockpile purchases to influence domestic mineral prices.

Specifically, supplying the military means stockpiling the strategic minerals necessary to wage a large-scale and high-intensity conventional conflict with China for five years. For incentivizing mineral production, the US government should buy domestically produced minerals to establish price floors that would keep existing US mineral producers operational and incentivize investment in additional US mineral projects. By the same token, it could also sell minerals amid high prices to ensure supply access and create price ceilings that keep manufacturers in defense and other important sectors operational.

Historic precedent, contemporary shortcomings

Washington used to maintain robust mineral stockpiles. During the first decade of the Cold War, the US government stockpiled enough minerals to cover a five-year conflict with the Soviet Union. By 1962 this meant a reserve worth over $77 billion adjusted for current prices. This stockpile was housed at over two hundred locations, ranging from military depots to commercial warehouses, and it contained large-volume minerals like aluminum, copper, lead, and acid-grade fluorspar—some of the most commonly used minerals by the Department of Defense.

Today, the existing National Defense Stockpile is insufficient for supporting the US military in a major conflict. The stockpile targets enough inventories for just a one-year conflict with China, followed by a three-year recovery. Even so, the present reserve—which is worth only $912.3 million and stored at just six locations—meets less than half of the military’s estimated demand in this scenario. It also lacks any inventories of critical aluminum, copper, lead, and acid-grade fluorspar. Furthermore, the stockpile is meant only to be used during a national emergency, and it is not leveraged to incentivize domestic mineral production.

The China model

By contrast, China’s stockpile provides minerals to key sectors during national emergencies and influences mineral prices to support domestic producers and consumers. Illustrating its price influence, in 2016, China purchased copper at depressed prices from domestic smelters to keep them operational. Conversely, to address strategic supply concerns during the COVID-19 pandemic, China stockpiled copper at elevated prices. Again displaying its price influence, in 2021, China released copper from the stockpile to shield manufacturers in key sectors like the power grid from high prices—a far lower threshold than a national emergency.

The proposed Resilient Resource Reserve should operate similarly to China’s mineral stockpile. The first priority should be to stockpile sufficient reserves to fulfill military demand in a major five-year war with China. This includes, first and foremost, minerals needed to manufacture platforms and munitions that would be critical to winning a US-China conflict, including excess volumes for those minerals not mined in the United States or sourced from vulnerable East Asian countries like Japan and South Korea.

Building a stockpile to meet the challenge

In coordination with partners and allies, the US government should acquire these military-related minerals with urgency, given the serious consequences of shortages should a conflict arise before stockpile targets are met. That means purchasing domestic minerals if they exist in the necessary form, but also sourcing minerals quickly from overseas, including from China and Chinese companies abroad. This would not be unusual—during the Cold War, the US government purchased minerals for its stockpile from the Soviet Union. Similarly, China currently stockpiles much of its copper through imports due to its limited domestic production.

After securing a baseline level of strategic inventories, the US government’s second priority should be to purchase and sell additional minerals to favorably influence mineral prices for domestic industries. When prices are low and risk curtailing domestic mineral production, the government should purchase minerals for the Resilient Resource Reserve to boost demand. When prices are high and risk disrupting downstream manufacturing, the government should sell stockpiled minerals to the defense industrial base and other critical sectors.

Pulling the levers of the market

Both the purchase floor and sell ceiling should be above current prices to protect existing mines and incentivize further mine development. In 1957, the US government stockpiled chromium ore at $100 per ton when global prices hovered around $50 per ton. US mineral projects generally have higher capital and operating expenses than those in other countries and thus require higher prices to remain operational.

When prices are low, the US government should purchase minerals from domestic producers at fixed prices to set price floors. In one cautionary example, the final construction of the only US primary cobalt mine in Idaho was halted when oversupply caused by Chinese companies depressed prices and rendered the operation unprofitable. However, if the US government were to purchase high-purity cobalt from domestic producers at $25 per pound, this price floor could support existing projects and incentivize new mines and refineries.

Conversely, when prices are high, the US government could sell minerals at lower fixed prices to key sectors, setting price ceilings. For instance, Russia’s invasion of Ukraine caused cobalt prices to exceed $40 per pound by April 2022. The US government could protect against future volatility by selling stockpiled cobalt to the defense industrial base at $40 per pound. When releasing from the stockpile, the US government should prioritize selling minerals to manufacturers of platforms and munitions important in a US-China conflict.

A reserve made in America

Because one of the core aims of the Resilient Resource Reserve is to expand US mineral production, Washington should procure domestic minerals for its non-military mineral inventories. This approach has precedent. Early in the Cold War, the United States sought to protect and expand domestic mineral production through stockpiling. Under Title III of the Defense Production Act, the US government guaranteed that it would buy certain minerals from domestic producers at fixed prices—for example, it promised to buy domestic copper mines’ expanded production at $0.245 per pound. It took similar action with aluminum, causing US production to double from about 720,000 tons in 1950 to nearly 1.6 million tons in 1955.

Likewise, the US government in 1951 guaranteed that it would purchase all domestically produced tungsten at $3.9375 per pound for five years or until 24,000 tons were stockpiled. Consequently, tungsten mine production increased from 2,000 tons in 1950 to almost 8,000 tons in 1955, which was then the highest level in US history—and virtually all of it was destined for the national stockpile.

While the United States lacks extraction and refining for many minerals, the US government should still only purchase domestic minerals for its non-military inventories so that government demand drives new mineral projects. For instance, in the 1950s, the US government guaranteed that it would pay premium prices for cobalt from the St. Louis Smelting & Refining Division of National Lead Co., incentivizing the firm to build a new cobalt refinery in the United States.

Stockpiling for wartime and peacetime

By building a sizable physical stockpile, a Resilient Resource Reserve could help mitigate supply disruptions to the US military in a major conflict while also incentivizing US mineral production. Both the US government’s mineral stockpiling in the early Cold War and China’s mineral stockpiling today demonstrate the effectiveness of such a stockpile. All that remains is for Congress to act.

Gregory Wischer is a nonresident fellow at the Payne Institute for Public Policy at the Colorado School of Mines.

Morgan Bazilian is the director of the Payne Institute for Public Policy and a professor of public policy at the Colorado School of Mines.

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Japan’s economic revitalization requires nuclear energy

Lauren Hughes, Maia Sparkman — Sun, 11 Aug 2024 19:46:16 +0000

After decades of sluggish growth, Japan’s economy may be turning a corner. The government is pressing ahead with initiatives to promote population growth and expand energy-intensive industries, particularly artificial intelligence (AI) and semiconductors. But current energy policies are not accounting for increased demand driven by these growth efforts.

However, Japan is taking positive steps in restarting its nuclear reactors under new security and safety measures established after the Fukushima Daiichi accident in 2011. The government recognizes nuclear energy as an important source of baseload electricity generation that can help achieve Japan’s climate targets and bolster energy security to hedge against the volatility of global fossil fuel import markets. To power its economic growth and competitiveness, Japan must continue restarting its existing fleet and commit to the eventual construction of next-generation advanced reactors.

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Japan’s climate and energy security strategy

Japan’s energy system is transforming to decarbonize and ensure energy security. The government’s “S Plus 3E” strategy is based on the four pillars of safety, energy security, economic efficiency, and the environment. To advance these objectives, the government is targeting an electricity mix in which nuclear constitutes 20-22 percent of generation by 2030, alongside a 36-38 percent share for renewables, 20 percent liquefied natural gas, 19 percent coal, and 2 percent oil.

Japan has some offshore wind capacity—currently 0.25 gigawatts (GW)—and ambitious goals of achieving 10 GW by 2030 and 30-40 GW by 2050 under its feed-in-tariff (FIT) scheme. The 2012 FIT significantly boosted solar generation, increasing installed capacity from 5.6 GW before 2012 to 70 GW by May 2023. However, solar deployment has slowed recently due to a shortage of land and grid congestion.

In February 2023, the government announced its Basic Policy for the Realization of GX (Green Transformation), Japan’s vision for a virtuous cycle of emissions reductions and economic growth. The GX Promotion Strategy, adopted in July 2023, identifies support for nuclear power as one of several necessary policies to provide a steady supply of energy. Public approval of nuclear energy has steadily increased since the Russian invasion of Ukraine. In 2023, a majority in Japan favored restarting the existing reactor fleet.

New momentum for nuclear

As of fiscal year (FY) 2022, nuclear energy constituted 5.6 percent of Japan’s electricity production, a significant decrease from 25 percent in FY 2010, the year before the Fukushima Daiichi accident. In the last few years, nuclear generation has recovered steadily, despite remaining well below pre-2011 levels. Nuclear also holds great promise for repowering retired coal-fired power plants, providing firm generation for data centers and semiconductor facilities, producing industrial heat and hydrogen, and powering Japanese industries participating in a growing export market.

Japan operated over fifty nuclear reactors before the accident; as of May 2024, thirty-three reactors are classed as operable. However, only twelve reactors—of the twenty-seven that have applied—have met new regulatory requirements and received approval from the Nuclear Regulation Authority (NRA) to restart. Ten remain under the authority’s review and must obtain local government consent before restarting. Notably, Tsuruga Unit 2 could be the first to be denied restart approval under post-Fukushima regulations, due to its proximity to fault lines and failure to meet new seismic regulatory requirements.

Two notable plants being queued for restart are at Onagawa and Shimane. The Onagawa Nuclear Power Station, which utilizes boiling-water reactors (BWRs), will likely be the first BWR to resume operation in Japan since the 2011 earthquake. This restart is a powerful step toward advancing Japan’s S Plus 3E objectives.

Safety improvements learned from the Fukushima Daiichi accident, such as tsunami walls and earthquake reinforcements, have been implemented for the existing fleet. The restart process has taken over a decade, with continuous reviews and updates required by the NRA. Japan should glean lessons from Onagawa Unit 2’s upcoming reconnection process to refine technical, operational, and regulatory efficiencies for other pending BWR restarts. Improving the clarity and predictability of the regulator’s heightened post-Fukushima safety requirements will also be essential.

Increasing or decreasing demand?

Japan’s government currently projects that energy demand will decrease as a result of a declining population and successful energy efficiency measures. However, these projections have yet to reflect the government’s plans to boost energy-intensive industries and reverse Japan’s population decline.

Japan’s birth rate has been declining since the 1970s, reaching an all-time low in 2023 with only 727,277 births for a population of 125 million. Prime Minister Fumio Kishida has committed to doubling government spending on child-related programs and established the Children and Families Agency in an attempt to reverse this trend. If successful, the government will need to revise its expectations that falling birth rates will contribute to plummeting energy demand.

Economic growth is also challenging those assumptions. The domestic semiconductor industry is growing, with Taiwan Semiconductor Manufacturing Company (TSMC) investing $20 billion for two plants in southwest Japan, one of which opened in February 2024. Micron Technology intends to build a manufacturing facility in Hiroshima, and Tokyo-based Rapidus aims to build a facility in northern Japan, an effort reinforced by $6 billion in government support.

Rapid adoption of new AI tools is boosting Japan’s economy and tech sector. Digitalization gained momentum during the pandemic, and tech giants like Microsoft—which is investing $2.9 billion in AI data centers over the next two years—and Oracle—which is planning to invest over $8 billion in cloud computing and AI within the next decade—underscore this AI boom.

These factors are expected to increase power demand significantly. The International Energy Agency forecasts that data centers and data transmission services—and their insatiable appetite for electricity—could double their power consumption between 2022-26. This level of growth is already being seen in some markets. In the United States, a recent Energy Information Administration survey found that, because of large-scale computing facilities, commercial demand for electricity generation surged by 27 billion kilowatt-hours in Texas and Virginia from 2019-23, and increased by 40 percent in North Dakota over the same period.

As a result, Japan’s Ministry of Economy, Trade and Industry (METI) is supporting the restart of nuclear power plants to meet growing energy needs, particularly to backstop load growth from its expanding tech and AI industries. METI’s Advisory Committee for Natural Resources and Energy will no doubt capture these emerging dynamics in its forthcoming seventh Strategic Energy Plan, currently under discussion and expected later this year.

Moving forward with nuclear energy

In August 2022, Kishida proclaimed that restarting idled nuclear power plants is a strategic imperative to avert crisis and secure Japan’s electricity supply, urging additional units approved by the NRA be brought online.

Echoing this sentiment at the March 2024 Nuclear Energy Summit in Brussels, Kishida said, “Japan will work to push forward the restart of nuclear power plants, extend their operational periods, and foster the development and construction of next-generation advanced reactors.”

Japan has moved to utilize its existing nuclear power units and restarted twelve reactors. It is imperative, however, to look to the future when the existing fleet will need to be replaced and new reactors built. To create a favorable business environment and enable utilities to construct next-generation advanced reactors, policies that promote large initial capital investments and improved business predictability are crucial. Additionally, the nuclear industry struggles with an aging workforce and an illiquid market for skilled labor, necessitating sustained investments in human capital and a strengthened talent pipeline. Japan must also work to bolster supply chains needed for eventual plant construction and operation. Moreover, if Japan is to compete in the global market—and team up with the United States and other like-minded countries on reactor export tenders—efforts such as the Nuclear Supply Chain Platform are essential and will enable the Japanese nuclear workforce to maintain expertise.

To overcome these challenges, Japan must maintain positive momentum and implement robust measures to support the nuclear sector, ensuring it can meet growing electricity demand and secure its energy future. Nuclear power plants are not solely physical components of critical electrical infrastructure; they are long-term strategic assets that generate clean, firm power and can strengthen green growth strategies, as articulated in Japan’s GX policy. Japan can harness its existing fleet and leverage its technical prowess to secure and invest in a brighter economic future.

Note: This blog post is based on the authors’ recent trip to Japan, having attended a workshop on advanced reactor technologies at Tohoku University in Sendai. The authors wish to thank Tohoku Electric Power Company for hosting a tour of Onagawa Nuclear Power Station in May 2024.

Lauren Hughes is the deputy director of the Nuclear Energy Policy Initiative at the Atlantic Council Global Energy Center.

Maia Sparkman is the former associate director for climate diplomacy at the Atlantic Council Global Energy Center.

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Pragmatism can improve Mexico’s energy outlook

David L. Goldwyn and Antonio Ortiz-Mena — Wed, 31 Jul 2024 21:17:59 +0000

Claudia Sheinbaum’s seismic victory in Mexico’s presidential election is certain to have material impacts on energy and investment in Mexico. Much will depend on her predecessor, President Andrés Manuel López Obrador (AMLO), and his government’s final actions before Sheinbaum takes office, as well as the composition of her cabinet.

It is a crucial time in Mexican energy politics. While there are important challenges to address, Sheinbaum’s initial moves are a promising beginning to maximizing Mexico’s economic potential, which requires significant investment in clean energy.

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Uncertainties complicate investment in clean energy

Under Mexican law, the new Congress takes office on September 1, but the new president takes office on October 1. The current government intends to present constitutional reforms to the new Morena-dominated legislature—the ruling party that will now likely have a supermajority—in a manner that could challenge certain policy adjustments by the new government. To that end, AMLO has stated that electoral and judicial constitutional reforms are his legislative priorities—repealing the 2013 energy reforms, which enabled an influx of foreign and private investment in Mexico’s energy sector during the mid-2010s, is not.

The outgoing government introduced complexities to private investment, especially in clean energy. These include suspending auctions in oil, gas, and clean energy, giving priority to the state electricity system operator CFE’s established fossil-based generation over cleaner and cheaper alternatives, and suspending implementation of the clean energy certificate program, which incentivized conversion to less carbon intensive electricity. Several of these actions are now the subject of disputes under the United States-Mexico-Canada Agreement (USMCA), and have disincentivized foreign investment in manufacturing, due to companies’ strict carbon-emission reduction targets—for them to set up shop or expand in Mexico, they require access to clean energy.

The government has also taken steps to prioritize Mexico’s long-established fossil-based power sector, but production by national oil champion Pemex is at historic lows despite a consistent influx of federal spending to revive the flagging company, which faces a looming debt crisis. Meanwhile, CFE is struggling to power Mexico’s growing economy amid the burdens of extreme heat and other climate-exacerbated energy challenges.

The federal government is in a challenging fiscal position, as its budget deficit is forecast to grow this year. In addition, there appear to be adverse market reactions to controversial, proposed judicial reforms, which include appointing judges by popular vote. Some foreign investors remain cautious, particularly in the energy sector.

Mexico’s golden economic opportunity requires clean energy to sustain it

Despite these investment challenges, Mexico holds vast potential as a nearshoring destination. For Mexico to capitalize on the USMCA and its proximity to the lucrative US export market, it will need to expand its energy supply not only for manufacturing, but also to power artificial intelligence use by data centers, which will increase demand for clean energy exponentially.

It will be in the interest of both US government and energy industry stakeholders to help Sheinbaum find a way to navigate among Morena’s different groups to develop a pragmatic policy approach that moves forward Mexico’s energy security and transition while maintaining a leading role for Pemex and CFE, which remains a central element of Morena’s policy platform. Public-private partnerships of many forms can be part of the solution.

It will be challenging but possible for Sheinbaum to retain the primacy of Pemex and CFE while also giving foreign and domestic investors full confidence that they will receive permits to build and obtain reasonable returns without fear that a popularly elected judiciary and weaker national regulators will undermine their projects.

Serious policymakers will be in charge

Sheinbaum wants to make her own mark on history as the first female president of Mexico, but faces a tough road ahead. The most important benchmarks will be her cabinet appointments, her commitment to a predictable and transparent policymaking process, and her engagement on the USMCA, which comes up for review in 2026.

The composition of Sheinbaum’s cabinet will be an indication of her intent to meaningfully address Mexico’s energy and fiscal challenges. So far, the news is positive, with serious policy professionals being tapped for high-level appointments. Current Finance Minister Rogelio Ramírez de la O, who is familiar with the overall fiscal challenge, including that posed by Pemex and CFE, is slated to remain in his post. Former Foreign Minister Marcelo Ebrard, a highly experienced and capable politician, was named economy minister and will play a steadying hand. Luz Elena González, an economist who until recently was finance secretary of Mexico City, will be the secretary of energy, demonstrating that the government understands the relevance of public finances for energy policy. Finally, current Foreign Minister Alicia Bárcena, who is experienced in environmental issues, will become environment minister and could be a relevant actor on energy transition.

The path forward

Sheinbaum’s commitment to clear, predictable policies will be an important marker of her style of governance. This can send positive signals to investors in areas such as energy import permits and infrastructure investment. Her approach to the 2026 USMCA review—which will be deeply impacted by whoever wins the US presidential election in November—will be another test of the Sheinbaum administration’s ability to navigate a delicate bilateral relationship. That review will be a top-line issue for both the US and Mexican governments, and early consultations are already underway. Energy will loom large in this review; both the US government and private stakeholders have a powerful motivation to ensure that energy disputes do not undermine the USMCA—they need it to remain strong enough to provide certainty for the wider cross-border relationship.

Sheinbaum has much to gain from reassuring investors, capitalizing on Mexico’s advantages in nearshoring, and addressing the country’s slow energy transition. She can creatively design a framework that respects Morena’s political stance on energy while increasing investor confidence. Sheinbaum will be looking for able and willing partners to craft solutions that maximize the potential of foreign investment and job creation in Mexico. Undoubtedly, the energy industry and civil society on both sides of the border all have a major interest in helping her succeed.

Antonio Ortiz-Mena is a professor at the Center for Latin American Studies, Walsh School of Foreign Service, Georgetown University, and a partner at DGA Group.

The views expressed are the sole responsibility of the authors and not necessarily those of any institution with which they are affiliated.

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European energy security requires stronger power grids

Andrei Covatariu — Wed, 24 Jul 2024 20:47:50 +0000

In 2022, 63 percent of all energy consumed in the European Union (EU) was imported. Europe’s energy generation gap has come into focus amid the energy security challenges stemming from Russia’s full-scale invasion of Ukraine. But while Europe has weathered the storm, in part by deploying renewables and accelerating electrification, there is a pressing need to strengthen the backbone of a decarbonized energy system—Europe’s power grid.

A mismatch between supply security, climate ambition, and grid capacity

Upgrading electricity grids to enable decarbonization is a worldwide issue. The International Energy Agency (IEA) estimates that global grid investments must double to reach $600 billion per year by 2030 to meet nationally set climate objectives. In Europe, a recent study by Eurelectric suggests that the EU and Norway must invest €67 billion in grids per year to realize carbon neutrality by 2050.

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As the EU aims to reach a 42.5 percent—ideally 45 percent—share for renewables in its total energy mix by 2030, grid capacity must keep pace with rapidly growing clean energy generation.

Europe overall, including the UK, is making progress on renewable deployment, but a mismatch in grid capacity is already causing significant challenges. In Britain, for example, the connection queue for generation, storage, or energy-consuming projects waiting to be connected to the grid is projected to reach 800 gigawatts by the end of 2024. Grid congestion is also a major problem in the Netherlands, with industry and households asked to reduce demand at peak times to avoid blackouts. In Romania, a boom in state-backed prosumers without adequate storage facilities is placing significant stress on the grid.

Building the grid of the future

Currently, cross-border interconnections within the EU limit the amount of electricity that can be imported or exported, creating significant price discrepancies between neighboring states. Expected increases in electricity demand due to electrification will only exacerbate these distortions.

Enabling greater cross-border electricity trade is a must for solidifying energy security and solidarity across Europe. New high-voltage transmission lines could convert intermittent renewable generation into more baseload-like output by quickly moving excess clean electricity to regions in deficit.

To this end, debate continues in Brussels over creating an EU-wide supergrid that would enable high volumes of electricity to be transported across the continent. This would help level energy prices across borders, reduce equity concerns, and improve supply security over the short and long term.

Furthermore, the difficulties in predicting renewable energy generation and adapting consumption accordingly requires the digital transformation of energy grids. Digitalization can further integrate renewable generation through smart meters and smart appliances that can accurately forecast output and match it with flexible electricity consumption. This can help minimize grid congestion and enhance resilience in the face of intermittency.

Additionally, new sensor and software platforms can enable predictive maintenance that reduces the time infrastructure is out of service. Digital twins—virtual representations of physical power grids—use data analytics to model various scenarios, leading to higher operational efficiency, increased asset lifespan, and optimized energy flow. While a highly digitalized energy grid may also increase cyber threats, other sectors have demonstrated over decades that these threats can be mitigated through strategies that include rapid incident reporting to limit malware spreading and investment in threats monitoring systems.

The unavoidable but necessary cost

Upgrading and extending the grid would translate into higher tariffs paid by European end-users, who have already struggled with energy affordability. A spike in network tariffs could lead to negative social, economic, and—eventually—political consequences, as was seen during EU-wide protests in 2022, triggered by increasing energy bills.

Although these investments will impose direct and indirect costs on consumers in the short term, they will unlock over the medium and long term increased electrification and pass decreasing renewable generation costs onto rate payers. Today, onshore wind and solar photovoltaic energy are cheaper than new fossil fuel plants almost everywhere. The average cost of variable renewable energy generation is expected to drop further, from a levelized cost of electricity of $155 per megawatt hour in 2010 to $60 in 2028.

To finance these upgrades while minimizing the negative impacts on rate payers, new earmarked EU funds could complement tariff-based network revenues. While this has not been done before in advanced economies with complex electricity systems, policy innovation is required to keep the EU’s ambitious 2030 targets alive.

Not investing in transmission and distribution would jeopardize both European energy security and climate ambitions. By stalling deployment of renewable generation and thereby the electrification of heating and transport, failing to invest in the European grid would prolong high levels of fossil fuel imports. This would keep energy bills high, leave Europe exposed to fossil fuel supply insecurity, and place at risk Europe’s social and political fabric.

Bottlenecks to be addressed

Beyond financing challenges, building power infrastructure is notably slow. In Europe in particular, permitting procedures cause significant delays. The IEA highlights that the United States and EU have the longest deployment times for distribution—around three years—and transmission lines—between four and twelve years. The COVID-19 pandemic has made the problem worse, creating high demand while constricting supply for power grid components.

Regulatory frameworks are also constraining grid development. While the regulation of these natural monopolies has evolved in Europe to liberalize and unbundle the sector, national regulatory authorities need to deal with greater uncertainty; for instance, the rate of electrification and improvements on energy efficiency are difficult to predict. They will need to manage increased investment while encouraging innovation and keeping tariffs in check. Energy regulators must learn from previous experience, respond to current challenges, and anticipate future trends—all at the same time.

The overlooked factor in European energy security

Energy security in Europe hinges on the state of its power grids. As reliance on renewable energy and electrification grows, existing grid infrastructure is struggling to keep pace, causing congestion and delays. Substantial investments in grid upgrades and modernization are essential for integrating renewables, accelerating the electrification of heating and transportation, building technical redundancies to enhance resilience, combatting cyber threats, and protecting against extreme weather events.

While difficult to sell politically, investments in grid infrastructure will ultimately pay off in lower energy bills for consumers and industry, compared to a business-as-usual scenario. Failing to achieve these objectives will imperil Europe’s security of supply and its capacity to build a resilient energy future.

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The case for investing in Ukraine’s energy future

By Mark Temnycky

Despite uncertainty over when the war will end and corruption in Ukraine, international investors should see Ukraine’s energy reconstruction as an opportunity to create a European energy leader.

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What to do about Russia’s energy trojan horse

By Olga Khakova, Charles Lichfield

The future of Gazprom’s piped deliveries to Europe looks bleak. However, Europe has no binding timeline for phasing out Russia’s growing LNG exports. Reducing these import will be critical to bringing Ukraine closer to victory and for securing Europe’s energy system.

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Clean industrial policies: A space for EU-US collaboration

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EU-US tensions over clean industrial policy could derail the energy transition. Collaboration on equal footing would bolster collective security and drive emissions reductions to new levels.

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Chevron deference is dead—and US climate action hangs in the balance

David L. Goldwyn, Andrea Clabough — Thu, 11 Jul 2024 18:56:36 +0000

In a seismic ruling, the US Supreme Court overturned the long-standing “Chevron deference” in its decision for Loper Bright Enterprises v. Raimondo. The ruling was not specifically concerned with energy or climate policy. But its consequences for US decarbonization are profound.

The ruling creates deep complications for the Joe Biden administration’s energy and climate agenda. But it also highlights their significance for the upcoming presidential election.

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The death of deference

The landmark 1984 ruling in Chevron U.S.A., Inc. v. Natural Resources Defense Council centered on the prerogatives of federal agencies to interpret existing—and potentially decades-old—federal laws. Under the precedent enshrined as “Chevron deference,” agencies were allowed a wide berth to interpret federal laws where they were unclear or ambiguous on a specific issue. Chevron deference has proven valuable to administrations of every political inclination for forty years.

The end of deference represents a monumental shift in regulatory authority away from agencies and their technical experts—now merely accorded “respectful consideration”—and toward the hundreds of federal judges seated throughout the country.

Judges are empowered as arbiters if and when a given statute is ambiguous. They thus determine whether an agency’s interpretation of its authorities—as expressed in agency-delivered regulations—is valid. This outcome creates a more complex legal system surrounding every regulatory intervention, potentially creating a patchwork of interpretations across the ninety-four US federal judicial districts.

This development has implications for any future administration. Regardless of the outcome of the November election, both candidates must contend with the new realities of enacting their respective energy and climate visions without Chevron deference.

Overruling net zero?

For the Biden administration, the ruling undermines its sweeping regulatory efforts toward economy-wide decarbonization. Already, key agencies such as the Environmental Protection Agency (EPA) and the Securities Exchange Commission have likely anticipated this court could end the Chevron deference, tailoring their recently finalized regulations accordingly.

But the Biden administration’s marquee regulations could now be challenged in whole or in part for straying too far from the letter of their foundational laws. If so, any federal judge could rule against that perceived overextension of an agency’s statutory authority.

The fate of the EPA’s regulation for fossil-fueled power plants will be a litmus test. Finalized last April, it’s expected to be extensively litigated and eventually reach the Supreme Court. Democratic leaders have anticipated this, confirming within the 2022 Inflation Reduction Act (IRA) that greenhouse gases, including carbon dioxide, are air pollutants, giving the EPA the explicit authority to regulate it.

However, this legislative amendment does not necessarily insulate the EPA from scrutiny of how it regulates the newly labeled air pollutant—for example, by encouraging changes in generation mix, implementing power plant-level regulations not explicit within the original Clean Air Act, or, most recently, mandating the adoption of carbon capture.

This Supreme Court’s string of recent rulings, from West Virginia v. EPA and the stay of the “good neighbor rule” to extending the timeline for a federal rule to be challenged, suggests that the bench views the EPA’s authority as far more limited than the Biden administration does.

Crucially, the Loper ruling has limitations of its own. Per the majority opinion, it will not apply retroactively, meaning that previously decided cases where agency deference was at play cannot be reopened. Perhaps even more importantly, the ruling applies specifically to the federal government and not to local, state, or regional administrations.

Even if the EPA and other agencies find themselves confined to strict readings of their statutory authorizations, state regulations—including clean energy and renewable portfolio standards—cannot be challenged on this basis. On the contrary, a state attorney general could instead leverage the end of Chevron deference as a new opportunity to litigate regulations from the federal government not aligned with their state’s climate and energy goals.

Beyond November, the end of agency deference could destabilize the Biden administration’s climate agenda in a re-election scenario. Implementation of the IRA is likely to be hampered by lawsuits, and agencies may see newly issued regulations and guidelines—such as the controversial hydrogen guidance pertaining to Section 45V—become fodder for litigation. The same could be true for federal permitting and siting procedures.

Federal agencies may find it less cumbersome to simply issue broad, performance-based regulations that set a widely applicable standard, such as to power plants. These could allow for a wide range of approaches to meet a given standard rather than prescriptive rules mandating specific technologies or fuels. Programmatic approaches that concern major statutes, such as the Endangered Species Act, Clean Water Act, and others, may also become the preferred means to simplify environmental reviews and preclude challenges.

Not so clear a victory

The extensive media coverage of the Loper decision has framed the outcome as an unequivocal boon to Donald Trump’s agenda, particularly in the energy and climate landscape. To some extent, this perspective is justified; a new Trump administration will leverage this ruling as justification to back away from addressing environmental or climate challenges beyond the bare minimum mandated by existing statutes.

However, agencies have long been criticized by stakeholder and environmental organizations for hiding behind Chevron deference for inadequate enforcement of environmental laws. A Trump administration, which aims for the floor, but can no longer rely on Chevron deference for protection, may discover that such lawsuits have become more numerous and disruptive.

Moreover, not every congressional statute on energy and environmental matters is ambiguous. A new Trump administration attorney general would struggle to argue that the IRA’s methane fee cannot or should not be enforced, as this requirement is explicit in the law.

There are other, more subtle, pathways to undermine the IRA and other major Biden-era climate achievements if a Trump administration were set on doing so—namely, by doing as little as possible.

The 45V credits are instructive. If a given Internal Revenue Service regulation for this section of the IRA were challenged in court as being outside the letter of the original law, it could be thrown out in a post-Loper world where agency deference is no longer assumed. A Trump administration, gifted this development, could simply refuse or delay issuing new guidance if it were uninterested in abetting the emergence of a US clean hydrogen industry.

This tactic would undermine investment certainty for large, expensive projects across technologies and fuel types while technically keeping the IRA on the books. This approach, however, assumes that federal courts will agree with sharply limited interpretations of ambiguity and not rule against thin regulations or force a Trump administration to issue guidance whether it wants to or not.

If agency deference is no longer axiomatic, then a conservative administration risks similar pushback in interpreting laws to suit ideological preference and policy goals. In a post-deference world, such an administration might face legal challenges in, for example, attempting to extend the lifetimes of operating coal plants, as much as a more liberal administration might face challenges for creative attempts to phase coal out of the US generation mix.

A volatile patchwork lies ahead

Fundamentally, the end of Chevron deference implies a new era of volatility in the legal and regulatory landscape for US energy and climate policy. Everyone from project developers and operators to investors and local stakeholders should prepare accordingly.

While federal judges are newly empowered to intervene, the Supreme Court cannot adjudicate every potential dispute in the handful of cases it reviews in a given year. As a result, it will take any suit years of litigation to reach that level—if at all—making the rulings of lower federal courts more important than ever before. Judicial opinions are likely to vary widely, making the location and timing of a suit paramount to its outcome.

For project developers, this uncertainty compounds an already serpentine US permitting landscape. Depending on which administration is in control after 2024, it is conceivable that environmental and social justice considerations around projects are given less weight than had Chevron deference been maintained. Going forward, an agency may be less inclined to propagate criteria or guidelines that would allow refusal of a permit on the basis of considerations not explicitly prescribed in existing laws. Confined to their statutory foundations, agencies may therefore be inclined to decide on leases and permits more quickly. But with fewer creative tools to mitigate project impacts authorized in their foundational statutes, agencies may simply lean toward faster denials.

Ultimately, however, the Supreme Court is the likely final stop for all major regulations going forward, implying greater uncertainty, circuitous timelines for judicial review, and whiplash aligned to the winds of political change in the executive branch. This could foster a scenario where climate action is largely blocked by the courts, and Congress is unable to meaningfully amend or write new laws to clarify the exact role of the federal government in addressing the climate crisis.

That prospect, and its implications, could exacerbate societal tensions at a time of deepening alarm over our global climate future.

Andrea Clabough is a nonresident fellow at the Atlantic Council Global Energy Center and a senior associate at Goldwyn Global Strategies, LLC.

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The UK sets a path for clean, affordable energy—and renewed climate leadership

Charles Hendry — Tue, 09 Jul 2024 16:24:21 +0000

The new United Kingdom administration is one that is passionate about clean energy and the energy transition. But first, to understand its approach to energy policy, it is important to understand how this new government will operate.

Prime Minister Keir Starmer’s pitch is that the government will be focused on “mission delivery” with mission delivery boards chaired by Starmer personally. He has said that his approach to all issues will be “country first—party second.”

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Almost all members of the Shadow Cabinet have been appointed to those same portfolios in government and, in addition, Starmer has also brought back some former ministers from the Tony Blair/Gordon Brown years. They are all therefore familiar with their portfolios, widely respected, and able to hit the ground running. It is also clear that the prime minister wants to work closely with the private sector in order to make early progress on the government’s priorities.

Ed Miliband has been appointed as secretary of state for energy security and net zero. This is broadly the role he held when Labour was last in government before 2010, so he knows the issues well and is a genuinely passionate advocate for tackling climate change and delivering net zero.

With the UK government now one the most secure among the large western nations (with a five-year mandate and a very large majority), the United Kingdom is expected to reassume a leading role in the international discussions on climate change. As the only country to have reduced its carbon emissions by over 50 percent since 1990, many will welcome that leadership once again.

In most areas, there will not be a huge difference in UK government energy policy under the new administration, but there will be a few distinct changes.

Labour has set a very challenging target to decarbonize the electricity grid by 2030. Until there is much more detail about how this can be done, industry will understandably be skeptical about the feasibility of such a goal, the costs involved, and how local communities will be brought on board. This will involve a significant further commitment to renewables, including a welcome early announcement to end the ban on onshore wind. The United Kingdom’s success in developing offshore wind will be continued.

There is evident government support for new nuclear, including next generation small modular reactors, and in the longer-term for fusion. The government wants to see a significant role for hydrogen and for tidal power, but these cannot deliver at scale in time for the 2030 target, so expect to see an acceleration of carbon capture utilization and storage programs. Starmer has spoken recently about the continuing role for gas in the mix, to deliver energy security, and this can only happen if its use can be decarbonized.

Labour is committed to ending the granting of new oil and gas licenses for the North Sea, while respecting the licenses that have already been issued. In reality, these would be for field developments that are many years off, so they would not make any significant difference to the United Kingdom’s energy security in the short-term. Of more immediate impact, there will be a new levy on companies operating in the North Sea oil and gas sector, and here the detail will be crucial—if not done carefully, companies may simply choose to leave the United Kingdom, as many have already done.

At the heart of its energy policy, there will be a new government organization, Great British Energy, and although its full details are still to be clarified, its purpose is to drive forward the clean energy sector and accelerate the transition. If done properly, it will help ensure the roll-out of the grid infrastructure needed to harness the wealth of renewable energy that the United Kingdom has in abundance.

Also of value will be greater attention on issues that have not had the attention they deserve, such as energy efficiency, decarbonizing heat, and an acceleration of demand-side response measures that are already starting to transform the electricity market. The government already knows that the success of its energy policy will be judged in large part by whether people can afford their bills.

Sadly, energy rarely seemed to be center-stage under the Conservative government (unless in response to a crisis), and that seems to be changing fast. There is already a sense that energy deeply matters to this administration—not just to deliver energy security but as an economic driver, helping to decarbonize homes and businesses, and creating a mass of new green jobs.

As a former Conservative energy minister, I wish this new administration well. If they can get these policies right, they stand a very good chance of delivering the holy grail in energy terms—clean, and secure energy, at a price people can afford.

Charles Hendry is a distinguished fellow with the Atlantic Council Global Energy Center, a former member of the UK Parliament, and former UK minister of state for energy.

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Bangladesh’s air quality is among the world’s worst. What can be done?

Joseph Webster, Natalie Sinha, and Sarah Meadows — Tue, 25 Jun 2024 22:53:39 +0000

Bangladesh is grappling with a severe air quality crisis. Recent reports highlight pollution’s impact on the nation’s health, economy, and environment. Bangladesh urgently needs to balance growth, sustainability, and energy access to enhance the well-being of its population. But the country faces profound challenges in moving toward a safer and more equitable energy system.

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Bangladesh’s air quality crisis

The air quality index (AQI) measures air pollution through levels of PM2.5, fine particulate matter small enough to penetrate the lungs and enter the bloodstream. This past decade, PM2.5 concentration in Bangladesh’s capital, Dhaka, came in at a yearly average of 77.1 micrograms per cubic meter (μg/m³), more than eight times higher than the US Environmental Protection Agency’s health-based PM2.5 standard of 9.0 μg/m³ per year.

Bangladesh’s alarming AQI has many causes, including vehicle emissions, industrial discharges, and the widespread use of kilns to make bricks. These are all exacerbated by the absence of stringent environmental regulations and enforcement.

This extreme level of air pollution exacts a severe human toll. Particulate pollution has reduced the average life expectancy in Bangladesh by 6.9 years. By contrast, the next-biggest health hazard in the country—tobacco use—reduces life expectancy by 1.6 years, while child and maternal malnutrition in Bangladesh are responsible for a 1.4-year decrease. Pollution in Bangladesh not only has a dire immediate health impact; it poses negative long-term consequences on the well-being and productivity of its population.

Rising incomes, rising emissions

Bangladesh’s level of carbon emissions are also rising, tied to increasing levels of development fueled by hydrocarbons. Between 2010 and 2022, Bangladesh’s annual per capita income rose by three-and-a-half times to reach nearly $2,700 in real terms. Over the same period, Bangladesh’s consumption of oil and coal rose by factors of three and six, respectively. Natural gas consumption also rose by 52 percent.

While greater economic growth has improved living standards in Bangladesh, air quality has worsened. A World Bank study found that average annual PM2.5 concentration levels in Dhaka rose from 84 μg/m³ in 2013 to 106 μg/m³ in 2021.

Bangladesh’s growing use of fossil fuels has not only worsened air pollution, it has also contributed to climate impacts, which will increasingly produce negative economic effects. The United Nations Intergovernmental Panel on Climate Change says Bangladesh could lose 2 to 9 percent of its GDP from more frequent natural disasters like tropical cyclones and severe flooding.

It’s important to note, however, that Bangladesh’s use of coal pales in comparison to other regional actors. According to data from the Energy Institute, China’s consumption of commercial solid coal fuels exceeded Bangladesh’s by more than 325 times in 2023. So, while the world should seek to mitigate Bangladesh’s coal consumption, the country only contributes about 0.4 percent of all world emissions, even as China accounted for about 27 percent of greenhouse gas emissions in 2021, according to Climate Watch.

Nevertheless, if Bangladesh’s use and import of coal remains on its current trajectory, 2024 is poised to break national emissions records—and, more significantly—degrade its air quality and economic goals. Importantly, Bangladesh’s coal use could harm its export abilities as the European Union and other jurisdictions impose carbon border adjustments.

Bangladesh’s difficult transition to clean energy

Bangladesh’s poor air quality is disproportionately large compared to its overall carbon footprint. The country contributes less than 1 percent of global carbon emissions, yet its cities have some of the worst AQI scores in the world. Fifty-nine percent of the country’s energy derives from natural gas, 31 percent from oil, and 10 percent from coal. Renewables are a negligible part of Bangladesh’s energy mix, while coal use has ticked up sharply in both absolute and proportional terms.

Coal-versus-gas competition has great relevance for Bangladesh’s air quality. While natural gas emits carbon dioxide, it produces far fewer particulates than coal, with some studies showing that swapping coal for gas can reduce harmful emissions of sulfur dioxide by more than 90 percent, and of nitric oxide and nitrogen dioxide (NO_X) by more than 60 percent.

Coal-to-gas switching is a quick and relatively easy fix for Bangladesh’s air quality concerns, given the country’s daunting challenges in switching to clean energy. Bangladesh’s solar and wind resources are limited, and it has weak hydropower potential. The country suffers an absence of summertime breezes, reducing wind’s usefulness in meeting peak demand during the hottest months.

The promise of nuclear energy

Given its constrained supply of indigenous renewables, Bangladesh is building two new nuclear power plants, for which Russia, China, and South Korea all provided bids. In 2009, Russia’s proposal was accepted. Bangladesh’s first reactor, which began construction in 2017, is set to begin operation this year.

While nuclear energy produces no emissions or pollutants, Bangladesh’s pursuit of the technology has not been cheap. Russia’s Rosatom is providing technical assistance, but Bangladesh is responsible for financing, for which it received a Russian loan. The Rosatom-led Rooppur project will cost $12.65 billion and is set to have a total capacity of 2.4 gigawatts. While nuclear energy is useful for decarbonization and improving air quality, expanding it further in the near term will prove difficult for Bangladesh. Capital financing costs have risen since Russia’s full-scale invasion of Ukraine, while tie-ups with Rosatom are potentially fraught. Some US legislators have called for sanctions on the state-owned Russian nuclear power giant, although experts generally believe these measures would disrupt Western markets while providing few geopolitical benefits.

How Bangladesh can improve its air quality

A nearer-term and more affordable option for reducing air pollution is liquefied natural gas (LNG). LNG is a fossil fuel, but it burns cleaner than coal and oil, which can help improve air quality.

Other measures to improve Bangladesh’s air quality could target vehicles, a major source of air pollutants. Bangladesh should look to models such as Mexico City’s ‘hoy no circula’ or Beijing’s odd and even days to limit vehicle pollution.

In Mexico City, the last number of a vehicle’s license plate determines which days it can be driven, with only the lowest-emission vehicles allowed to operate seven days a week. In Beijing, a similar program dates back to 2008, when China hosted the Summer Olympics. Beijing’s restrictions limit which weekdays cars with license plates ending in certain digits are allowed on the road.

These measures come at a significant economic cost, which may be too high given Bangladesh’s lower level of economic development compared to Mexico and China. But Bangladesh’s cities may consider such tradeoffs as acceptable given the severity of the country’s air quality crisis.

Over the longer term, Bangladesh can access cleaner electricity and lower its air pollution by integrating its grid with other hydropower-rich countries in the region. In January 2024, India concluded an agreement with Nepal to import 10,000 megawatts of hydropower from the Himalayan country, showing that cross-border electricity deals are possible in the region.

While deeper integration of regional electricity markets will require substantially more political trust than exists today, cooperation is necessary to meet Bangladesh’s energy access and air quality needs.

Bangladesh’s air quality trilemma

There are no easy ways to mitigate Bangladesh’s air quality crisis. Bangladesh has little renewable energy potential and faces difficulties in expanding nuclear energy or adopting vehicular emissions programs given the country’s limited financial resources. Moreover, Bangladesh suffers from substantial energy poverty, making improved energy access a top priority.

It is extremely difficult to balance these concerns, particularly in the short term. But in the longer term, trade in low-emission fuels and clean electricity can help Bangladesh resolve its trilemma of ensuring clean air, economic growth, and sustainable energy access.

Joe Webster is a senior fellow at the Atlantic Council Global Energy Center.

Natalie Sinha is a former young global professional at the Atlantic Council Global Energy Center.

Sarah Meadows is a former young global professional at the Atlantic Council Global Energy Center.

This article reflects the authors’ personal opinions.

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