Joseph Krist

Publisher

CARBON CAPTURE

The North Dakota Public Service Commission denied a siting permit for the Midwest Carbon Express CO2 Pipeline Project. Summit Carbon Solutions filed an application in Oct. 2022 to construct approximately 320 miles of carbon dioxide pipeline in North Dakota. The proposed route of the pipeline would cross through parts of Burleigh, Cass, Dickey, Emmons, Logan, McIntosh, Morton, Oliver, Richland and Sargent Counties. The CO2 would then be injected into pore space for permanent sequestration.

The Commission felt that Summit has not taken steps to address outstanding legitimate impacts and concerns expressed by landowners or demonstrated why a reroute is not feasible. The Commission also requested additional information on a number of issues that came up during the hearings. Summit either did not adequately address these requests or did not tender a witness to answer the questions.

One important caveat pertains to one of the key issues driving efforts against the pipeline – the use of eminent domain. “The issues of eminent domain, safety compliance with the U.S. Department of Transportation Pipeline and Hazardous Materials Safety Administration (PHMSA) construction and operation, and permanent sequestration and storage of CO2 were outside the jurisdiction and consideration of the Commission.”

It looks more and more likely that the ultimate decision on eminent domain will be made outside of the regulatory or legislative process. It is part of the trend of difficult issues effectively being passed off to courts by legislatures unable to legislate on the topic.

AUTONOMOUS VEHICLES

The California Public Utilities Commission recently showed that preemption is not just the province of one political party or philosophy. The PUC has approved the use of autonomous vehicles on the streets of San Francisco to carry paying passengers. The proposal generated strong responses. As the debate unfolded, there were numerous examples of these vehicles having difficulties navigating a variety of obstacles and situations. There have been numerous incidents of delayed response by police and fire due to roads blocked by AVs in downtown SF.

It certainly appears that if left up to the City, that permission would not have been granted. The tech industry has focused its lobbying efforts on state level players after less than favorable experiences under local control. The state was seen as being more amenable to supporting the tech companies. In the meantime, on the first day of expanded operations, a group of the cars malfunctioned together blocking other traffic. Exactly what the City was concerned about.

It may be another step forward on the path to widespread adoption but these vehicles still face significant challenges. Neither the desert southwest or the City of San Francisco provide comprehensive testing grounds. There are still obstacles to be overcome especially outside of the urban environment or in winter weather. Snow has been a notorious troublemaker for the technology these vehicles rely upon.

MANAGED RETREAT

Manville, NJ is a working-class community which has suffered from three major flooding events in a little over two decades, dating back to Hurricane Floyd in 1999. The most recent was from Hurricane Ida some two years ago. Unlike more visible locations along the Jersey shore, Manville is inland along the Raritan River. Many impacted homeowners decided to rebuild but in many cases the cost of rebuilding exceeded their available insurance. In those cases, the residents hoped that there might be federal funds from one of three sources which would have allowed those homeowners to complete repairs.

Now, some 79 homeowners are facing the new realities of climate change and increased flooding. In New Jersey, flooding has created pressure on limited federal resources and several state agencies agreed not to spend it on for repairs or elevations in areas where homes are very likely to flood again. Instead, the state is dedicating some $49 million on a buyout program.

The state offers homeowners market-rate prices for their properties to relocate while the structures are demolished so the area can better absorb future flood waters. For those who do not wish to relocate, they are effectively on their own.  The areas of Manville that were designated at high risk of future flooding and are now ineligible for federal aid for home repairs encompass about 500 residential structures, or 17% of the residential building stock. 

More than 174 homeowners have requested buyouts in Manville, with 58 of those applications made after Ida. Some $10 million from the Federal Emergency Management Agency will be used to buy 31 other properties throughout the borough. The state is also waiting on approval for another federal grant to buy 20 additional Manville homes.

NYC BACK TO THE FUTURE

The congestion pricing debate in NY continues on as the state conducts its process of establishing the price and how many exemptions would be granted. In the interim, additional proposals to address the issue of congestion continue to surface. We are intrigued by the news this week that the NYC Department of Transportation wants to test out the use of “cargo boxes” – pedal and electrical assisted small vehicles to try to address the issue of trucks and deliveries of online purchases.

We are amused in a way because – I’m showing my age here- this brilliant new idea is not new at all. For years, pedal driven vehicles were used to ferry goods between businesses and facilities. They were a mainstay of the grocery industry in Manhattan. Why they went out of style isn’t clear but they never went away. One has to wonder if all of the solutions proposed for transportation are just too complicated to make them practically and financially viable.

The plan would use vehicles with “freight” areas four feet wide. The size is cited as a safety factor by making it easier to use in traffic. That raises a question of whether the total number of vehicles will actually decline and reduce congestion. If the human powered rickshaws around Central Park are any indicator, the will just slow things down. The boxes would seem to be too large to use bike lanes. The older pedal driven versions could be accommodated within a typical bike lane.

CLEAN ENERGY AND JOBS – BEYOND THE HYPE

A recent working paper from the National Bureau of Economic Research reviewed the impact of the clean energy industry on jobs and workers. Clean energy advocates have painted a picture of seamless transitions from carbon-based to non-carbon-based industries and processes. There has not been enough solid information to provide a basis for assessing those claims. The paper does shed some light on the subject.

The researchers found that “the vast majority of workers in carbon-intensive jobs have not historically found work in green jobs. In 2021, 0.7 percent of workers who transitioned out of a dirty job transitioned into a green job. Conversely, the vast majority of workers obtaining green jobs do not come from carbon-intensive industries, but from a wide range of other industries and occupations. Approximately a quarter (26.7 percent) of green jobs appear to be taken by first-time job-holders, and over 20,000 workers are observed entering green jobs from overseas.

On average, approximately 20 percent of transitions out of dirty jobs are into other dirty jobs, including transitions within and out of local labor markets. The sector to which dirty workers are most likely to transition is manufacturing, which accounts for over 25 percent of all transitions out of dirty jobs.

So, it looks like the transition to the green economy will be a lot more twisted and a slower trip than advocates would lead one to believe. It is not surprising that efforts are being made to find ways to adapt the carbon economy to the realities of moving large numbers of people to work in new industries. The disruption in the local workforce can be offset by repurposing legacy electric infrastructure. It is part of the attraction of carbon sequestration and removal.

It is also part of why the Energy Department announced it is awarding up to $1.2 billion to two projects to directly remove carbon dioxide from the air.  One will be built in Calcasieu Parish, Louisiana. The second is planned for Kleberg County, Texas. Each claim it will capture up to one million metric tons of carbon dioxide per year initially. The Texas project said it will scale up to remove 30 million metric tons per year once fully operational. 

Louisiana and Texas are two of the states cited in the NBER paper which have the highest number of dirty-to-dirty moves. It is no surprise to see these two states welcome the projects.

ESG AND REALITY

When the NHL awarded a franchise to Seattle, Amazon was an early supporter and executed a naming rights agreement for the refurbished Key Arena. That deal named the facility the Climate Pledge Arena, designed to signify Amazon’s commitment to carbon free operations. The goal was to produce zero waste, source food locally and eliminate all single-use plastics by 2024.

It had all of the gimmicks – using reclaimed rainwater in its ice system, powered entirely with renewable electricity, some of which to be produced by on-site solar panels. All operations and events at the arena will also use compostable containers, with a minimum of 95 per cent of all waste diverted from landfills.

So far, the facility has been a hit with fans. As far as imaging and optics for Amazon are concerned, the name game has not necessarily panned out in terms of Amazon’s virtue signaling. The Science Based Targets initiative, a United Nations-backed entity that validates net-zero plans, has removed Amazon from its list of companies taking action on climate goals after the company failed to implement its commitment to set a credible target for reducing carbon emissions.

The week also saw S&P take a big step back from its effort to incorporate ESG factors into its ratings. They have been under enormous pressure from coordinated efforts by conservative politicians to stop providing ESG scores. From their perspective, ESG factors are political not financial. We disagree. Nonetheless, The situation highlights the difficulty there has been in the effort to come up with quantitative ESG metrics.

In reality, ESG has yet to be universally defined. Like efforts in previous sectors, the focus on development of a score has been a slow process. The “black box” nature of the analytics has made it hard to explain. The lack of agreed upon metrics does not support the process.

MOUNT SINAI DOWNGRADE

When the pandemic emerged and continued with its high concentration of cases in New York, there were real concerns about the potential impact on hospital financial results. The initial concerns were immediate in nature, driven by overwhelming COVID-based demand. While those factors were overcome without ratings impact, the trailing factors which have emerged from the pandemic are what is driving credit now.

Moody’s Investors Service has downgraded Mount Sinai Hospital’s (NY) rating to Baa1 from A3. The downgrade to Baa1 from A3 reflects Moody’s expectations that Mount Sinai Hospital’s (MSH) and Mount Sinai Hospitals Group’s (“the system”) operating performance and liquidity will be below historical averages for several years. The flagship institution of the Mount Sinai system is expected to be able to generate revenue to support some of the weaker facilities in the system.

Diminished results reflect rising labor and supply costs. On the positive side, the health system’s high acuity services continue to generate demand, which will support volume growth. Mount Sinai is considered a leading research institution and its medical school generates significant commercialization opportunities as well as substantial fundraising at the closely affiliated Icahn School of Medicine at Mount Sinai (ISMMS). It is anticipated that these funds will benefit the entire enterprise.   

In the end, the impact on liquidity drove the move. Even with federal assistance, the balance sheet shows about 4 months of cash on hand. Until the hospital can improve its liquidity there will be no driver of ratings improvement. That will require some moderation in costs as well as improvement in utilization levels. That is another left over from the pandemic.

NATIVE AMERICAN INFRASTRUCTURE

The U.S. Interior Department announced a program which will be funded through the Inflation Reduction Act to connect Native American homes to the electric grid. The program will be funded by an initial $72.5 million allocation. In all, $150 million is being invested to support the plan.

In 2022, the U.S. Energy Department’s Office of Indian Energy issued a report citing that nearly 17,000 tribal homes were without electricity, with most being in southwestern states and in Alaska. According to the Bureau of Indian Affairs, 1 in 5 homes on the Navajo Nation and more than one-third of homes on the neighboring Hopi reservation are without electricity.

It exacerbates the impact of this year’s SCOTUS ruling which said that the federal government was not required to provide water infrastructure to deliver Colorado River water entitlements to the Navajo reservation. The Navajo reservation’s northern border is the Colorado River. The means to install pipelines from the river to the reservation have been hard to come by. The same applies to electricity, especially in the Southwest.

ELECTRIC VEHICLE FEES

Beginning September 1, owners of electric vehicles in Texas will face increased registration fees. EV owners will now have to pay $200 to register their vehicles. Unsurprisingly, EV owners are howling about how they are being punished by such a fee. Opponents of the fees cite studies which purport to show that a $100 fee more closely approximates the amount of lost taxes.

How did we get here? Legislation enacted in 2019 required the Texas Department of Motor Vehicles, in coordination with other specified state agencies, to organize a study on imposing fees on alternatively fueled vehicles (AFVs). The Public Utility Commission of Texas, the Texas Department of Transportation, the Texas Department of Public Safety, and the Texas Commission on Environmental Quality participated in the study.

The analysis estimates that for every conventional vehicle a consumer replaces with a hybrid approximately $80 per year less in state gasoline taxes will be collected. This is about an 80% decline per year per vehicle. That number increases to a 100% decline if the consumer replaces the conventional vehicle with a fully electric one which would represent approximately a $100 reduction in state gasoline tax collections per year per vehicle, and similarly a $95 reduction in federal gasoline tax collections per year per vehicle.

That’s how the $200 number was generated. Texas now joins 29 other states which levy a registration fee specific to AFVs. Almost all levy a flat fee due at the time of vehicle registration. The average amount levied was approximately $120 a year. The arguments against these fees ignore the tax benefits associated with buying an EV. So, you get a subsidized purchase price and you don’t pay gas taxes to operate on roads you don’t pay for. Whether they like it or not, EV buyers tend to be a much higher income cohort given the relatively high price tag on electric vehicles. The resistance to fees just enhances the view that EV ownership is the province of elitists who don’t want to pay for the decisions they make.

Tennessee undertook a study through the University of Tennessee as well. That study showed that the average combustion engine vehicle pays $274 per year in gas tax. The Tennessee Transportation Modernization Act is the basis for charging fees. The law authorizes increase with the first round of increases seen when electric vehicle drivers go to renew their tags in 2024. The legislation raises the cost to register and renew tags for electric vehicles from $100 to $200 from 2024 to 2025. Then, it increases them to $274 by 2026. 

Disclaimer:  The opinions and statements expressed in this column are solely those of the author, who is solely responsible for the accuracy and completeness of this column.  The opinions and statements expressed on this website are for informational purposes only, and are not intended to provide investment advice or guidance in any way and do not represent a solicitation to buy, sell or hold any of the securities mentioned.  Opinions and statements expressed reflect only the view or judgment of the author(s) at the time of publication, and are subject to change without notice.  Information has been derived from sources deemed to be reliable, but the reliability of which is not guaranteed.  Readers are encouraged to obtain official statements and other disclosure documents on their own and/or to consult with their own investment professional and advisors prior to making any investment decisions.