The Geoeconomics of Energy and Superpower Ambitions

The Geoeconomics of Energy and Superpower Ambitions

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This week on the podcast, Jackie and Peter start by talking about Jackie’s recent op-ed in the Globe and Mail, titled “Yes, absolutely – Canada needs more oil and gas pipelines to our coasts,” also available on the ARC Energy Research Institute website.

Next, Peter and Jackie review the fundamentals of oil prices, the muted effect of the 12-day Iran-Israel war, and why oil prices have been creeping up despite weaker short-term fundamentals. Peter argues that the growing importance of “geoeconomics” – where countries use economic tools to influence foreign affairs – means that predicting oil prices will no longer be just about counting barrels. In the future, one of the most significant factors shaping oil markets will be the geoeconomic strategies of nations, including actions such as sanctions, tariffs, and withholding supply.

Finally, Jackie and Peter discuss President Trump’s recent letters to numerous countries threatening higher tariffs effective August 1st, including a letter to Canada with 35% tariffs on Canadian goods. Washington also introduced global copper tariffs.

This is the last podcast before a break; the podcast will resume at the end of summer.

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Episode 292 transcript

Disclosure:

The information and opinions presented in this ARC Energy Ideas podcast are provided for informational purposes only and are subject to the disclaimer link in the show notes.

Announcer:

This is the ARC Energy Ideas podcast, with Peter Tertzakian and Jackie Forrest, exploring trends that influence the energy business.

Jackie Forrest:

Welcome to the ARC Energy Ideas Podcast. I’m Jackie Forrest.

Peter Tertzakian :

And I’m Peter Tertzakian. Welcome back. So, Jackie, you forgot your smartwatch.

Jackie Forrest:

Yeah, I did. I’m not going to get my credits today for all my activity, so-

Peter Tertzakian :

You’re in withdrawal.

Jackie Forrest:

… I’m not going to get my star at the end of the day.

Peter Tertzakian :

You’re in withdrawal.

Jackie Forrest:

I am.

Peter Tertzakian :

Yeah, yeah. I got rid of mine.

Jackie Forrest:

Wow.

Peter Tertzakian :

Yeah.

Jackie Forrest:

How do you know if you’ve had enough exercise at the end of the day? Or if you need to stand up?

Peter Tertzakian :

Well, I just think it’s TMI, too much… I don’t need it anymore.

Jackie Forrest:

You don’t have your watch buzzing every time you get a spam call?

Peter Tertzakian :

No. Well, this is the problem. It’s just like it creates ADD. And so I’ve got back to my old collection of analog watches, which I love.

Jackie Forrest:

You don’t miss it? Reminding you about your calendar, what you need to…

Peter Tertzakian :

Well, the number one reason I had it, I did keep track of all my physical stuff. And it was all very interesting and important, admittedly, to a certain degree. But what I really missed was that feature where it would ring your phone if you didn’t know where it was.

Jackie Forrest:

Oh, yeah, I use that all the time.

Peter Tertzakian :

Yeah. But actually, I find it quite liberating to get rid of the digital shackle.

Jackie Forrest:

Yeah. Well, it looks good, too. There you go.

Peter Tertzakian :

Yeah, there you go. Okay, good. What are we talking about? There’s no end of things. We’ve got more tariff uncertainty from the United States. We’ve got oil prices that are hanging in there, all sorts of opinions about where they’re going to go. Pipeline talk, you wrote a recent article. You want to start with that one?

Jackie Forrest:

Yeah, let’s start with that. And it really came out of my Stampede discussions. I wrote an op-ed talking about the need for oil and gas pipelines to Tidewater in Canada, because I think that was a big discussion during the Stampede. Especially with Mark Carney coming to Alberta and saying that an oil pipeline is likely. We also think that LNG support… He never said this, but I think most people believe that there’s a good case to be made for support of LNG in terms of these nation-building projects.

So generally, pretty good mood at Stampede. I have to say, best Stampede in terms of the overall sentiment, unless you’re in the power industry. People in the Alberta power industry had some concerns around this market redesign that continues to go. And I think there’s still some real big concerns about, will it result in a system that allows people to invest in new generation in the province? And then concerns around these AI data centers and the cap at 1.2 gigawatts between now and 2028. But generally overall a pretty good sentiment. I know you weren’t there, Peter, so-

Peter Tertzakian :

No, I wasn’t. I was overseas and somewhat absent from the whole debate and discussion. But certainly not absent from discussions about tariffs and international, what I would call geoeconomics, the use of economic power as leverage to gain international sway, such as we’re seeing from Trump or such as we’re seeing from countries like China who limit supply of critical minerals and so on. I want to talk more about that when we talk about oil. But before we go there, so you’re going to post…

Jackie Forrest:

Yes, I’ll put a post, a link to the article. It was published in the Globe and Mail. We’ve also got a version of it on our website. I’ve had a lot of good feedback on it. It actually ties into what you just said. I argue not only is it an economic case where we can now get a more fair price for our goods. For instance, we talked about it when we had Mark Mackey on, the Trans Mountain Project. If you actually do it in Canadian dollars, I would estimate it’s adding about $7 to $12 billion in annual revenue for Canadian producers. But that doesn’t only help producers, it helps all Canadians through higher taxes and royalties. I also calculated, if we could, through more LNG exports, and of course while you were away, we celebrated the first LNG export off our coast.

Peter Tertzakian :

Yes, I saw that.

Jackie Forrest:

We understand it’s soon to arrive in Asia.

Peter Tertzakian :

Yeah, it’s just circling around in the sea of Japan at the moment.

Jackie Forrest:

Yeah. Going to head for Korea, it looks like. So we’ll have our first natural gas molecules hitting Asia. But if we used a conservative assumption, which I think is quite conservative, because our gas was pricing so low the last couple of years, almost like half of the American price. Basically giving it away. But if our gas could just be $1 per gigajoule higher, that’s $7 billion a year of additional revenue to Canada.

Peter Tertzakian :

It’s huge. Yeah.

Jackie Forrest:

Really just shifting the value of our resources back over the border, giving us a fair price. So despite the economic argument, I think there’s a real argument here. If we’re a superpower, we have more power and influence, kind of like what you’re talking about with this geoeconomics, right? Would Mr. Trump threaten the 35% tariff… we’ll get to that, but that just happened in the last week… on Canadian goods if we had more diversified export routes? Would the trade negotiations be going better if we had greater leverage because we had more customers and we weren’t so dependent on the Americans? So I think there’s this other aspect that helps all Canadians that has to be considered.

Peter Tertzakian :

Yeah. Well, I do think so, and I think that touches on what you touched on, the definition of energy superpower. To me, getting a better price for the commodities is just smart business practice. Selling at a discount makes no sense whatsoever. It’s just leaving money on the table, or advantaging the customer. As in the case of when we had very wide differentials, advantaging US refineries with our heavy oil. What sense does that make if we should be getting the benefit of the full price that is being paid by the world? Ditto for LNG and natural gas, as you point out.

So mere getting a better price is not defining being a superpower, certainly. Nor in my mind is the size of what we offer. So we are the fourth and fifth-largest producer of oil and gas in the world. You mentioned that in the article. But having actual leverage is when you become a superpower. The ability to use that as a negotiating or bargaining chip in some trade negotiation or other kind of negotiation.

And that’s what we need, and that’s what countries of the world today are jockeying for as we enter this new era. This new era where countries like certainly the United States with its tariff assaults, China with its restrictions on critical minerals and other things. These are geoeconomic/geopolitical-type strategies where vital commodities can be used as leverage in negotiations.

And so, the more that we can get our commodities offshore to various markets, the more relevance and influence we can have. And as the size of commodity exports that we have, we certainly should be able to do it.

Jackie Forrest:

And I think the definition of an energy superpower is one that sells their products to many countries and therefore, has more influence in these countries.

Peter Tertzakian :

Exactly.

Jackie Forrest:

One of the paragraphs I had the most feedback on is I asked the question, “How can Canada, the fourth-largest producer of oil behind only the US, Saudi Arabia, and Russia, and the fifth-largest producer of gas, not already be recognized as an energy superpower?” And it’s because we fail to send our products to enough countries. And then we forfeit our influence and our autonomy by doing that.

Peter Tertzakian :

And our relevance by definition. And we are in a world where being relevant matters, because now we are in an era where it’s nation against nation. And that sort of relates back to the article that I wrote several months ago about the new, almost mercantilist economy that is reemerging in the world. But we’ll have more to say about that and certainly more to say about the realities of geoeconomics, which again is national interest as defined by its economic muscle and power, and using it as levers of influence globally.

Jackie Forrest:

Now, another comment I got was, “Well, can we actually do it?” And I think that’s another question. The question I was trying to answer is, “Should we do it?” And yeah, there’s a real question around do-ability, around, “Are we going to get private capital, or the BC government going to allow us to do this?” And all the problems that we need to solve, I do think the new government is trying to head in the direction of solving those problems.

But the other question I had, and this is one for you, Peter. When you think about energy superpower and what that entails as the definition we just said, what does this mean for clean energy? I started thinking about it. How would I define a clean energy superpower? Because you know our government has said they want to be an energy superpower in both clean and conventional energies. And I thought, like China, the topic of our last podcast, for sure they’re an energy superpower when it comes to clean energy. They’re flooding the market with cheap stuff, critical minerals technology.

We learned from Mike Carr last week about how that’s made it very difficult to build manufacturing in the United States. We’re learning that critical mineral plants can’t be built. It’s getting worse instead of better because they’re making the price of these commodities so cheap. So when you think about what we have, do we have any places where we could play? The Chinese are investing something like $100 billion annually in building out clean energy infrastructure, manufacturing plants, whatever. Can we really be a clean energy superpower?

Peter Tertzakian :

It’s difficult. And certainly, the Chinese have done it. Let’s just get back again to this notion of energy superpower, or economic superpower as a broader umbrella, which is projecting or exerting force in the national interest. So, the Chinese have invested, as you say, hundreds of billions of dollars, in fact trillions of dollars, in three really important areas: critical minerals that are vital to electrification and other parts of clean energy, including the manufacture of solar cells, solar panels, etc.; wind turbines; and batteries. And therefore, tertiary industry products such as vehicles and so on.

So it’s very hard to catch up to them now. We’ve talked about that in previous podcasts. So for Canada to be a clean energy superpower in any of these is difficult, except for possibly critical minerals. If we can develop some processing. I mean, it’s not just mining the critical mineral ores. It’s actually processing them and turning them into the products, or even magnets and things like that that go into electric motors, or the cells that go into batteries and things like that.

Jackie Forrest:

Well, we have the natural resources in the ground, but there’s a lot to do. Yeah.

Peter Tertzakian :

Yeah, so theoretically, we should be able to do it. But the free market on its own is unlikely to do it. So it requires a lot of national help. And the amount of money that the Chinese have allocated to this is far beyond what Canada can allocate to it, so catching up would be very difficult.

Jackie Forrest:

Okay. Well, there’s a couple areas that I agree with you on that. And by the way, I think we’re going to have a bit of a break here for the summer, but maybe when we come back in the fall, maybe we could do a podcast on critical minerals?

Peter Tertzakian :

Yeah.

Jackie Forrest:

But there are a couple of areas that I think potentially we could be leaders in. In fact, I would argue we’re already leaders in carbon capture storage. We have about 7 million tons annually that we store, either through enhanced oil recovery or carbon capture storage. That’s about 1% of all of our emissions.

However, when we look at globally how much carbon capture storage and EOR is going on, I would say it’s in the range of 10% or so of what’s happening globally. So maybe that’s definitely an area where we are a established player.

Peter Tertzakian :

Yeah, okay.

Jackie Forrest:

We know what we’re doing. That could be something.

Peter Tertzakian :

Yeah, but I think you have to distinguish between as it relates to the original question, energy superpower. I don’t think carbon capture really is something that you can use to exert influence. Correct me if I’m wrong, you can be an industry leader in reducing your carbon emissions out of your supply chains, but does that actually allow you to exert geoeconomic or geopolitical influence in the world? I don’t think so.

Jackie Forrest:

No. We might be able to export some of our knowledge and technology or things like that. But no, I agree, it probably doesn’t. Not like having 4 million barrels a day of oil exports or something like that-

Peter Tertzakian :

That’s right.

Jackie Forrest:

… would have political influence. Okay, well, here’s another one. What about electricity with SMRs? If we made it a strategic priority to roll out quickly these SMRs? We are going to be the first country with an SMR in the G7 by 2028/29. If we were to say, “This is something we want to be leaders in. We’re going to roll these SMRs around the country, then we’re going to become experts at building them. Then we’re going to export this technology to others,” do you think that is an area we could-

Peter Tertzakian :

That’s an area where we stand a chance. We were leaders in nuclear technology in the first generation of nuclear in the 1960s and decades after that. But I would argue we would need a lot more investment still. But that’s certainly an area, if we choose to have an industrial strategy that leads to us becoming a fourth-generation SMR nuclear superpower, I guess we could do it. To what extent you can wield any sort of influence with that is not clear because it’s a pretty competitive space. But-

Jackie Forrest:

And by the way, you said the Chinese, but they’re actually already installing these things and their own technology.

Peter Tertzakian :

Yeah. Yeah.

Jackie Forrest:

So, yeah. And also the costs, right? We already talked about the Ontario Power Generation, the costs, about $20 billion for these four units. It’s going to have to get a lot cheaper, I think, for it to be really compelling for a lot of countries.

Peter Tertzakian :

Yeah. To have real influence as an energy superpower, you have to have influence or control over primary energy sources that are vital to the global economy. So there’s oil, there’s natural gas. And frankly, critical minerals, because they’re vital to the supply chains. But after that, I don’t know. There’s just not a lot.

Jackie Forrest:

Well, I think you’re coming to the same conclusion I came to, because I really started thinking about this definition and what we really have when we think about the leaders in clean energy. So I think it’s a bit more challenging there to see how we could accomplish that. Not to say that these areas wouldn’t generate GDP, and private capital, and other benefits to the country.

Peter Tertzakian :

See, I’m keeping in mind the original question, “What does it take to be a superpower?” Let’s just lower the bar a bit and say, “What does it take to be an industry leader?” And I think that there’s plenty of things we can be industry leaders in in the world of energy and export, whether it’s knowledge, or whether it’s actual commodities or supply chain materials. So that’s what we should be targeting. But “superpower”, that’s a whole different dimension.

Jackie Forrest:

Yeah. And I would add too, worth a mention is our clean energy potential. We’re already a very large generator of clean energy with our hydro. We’re growing wind and solar now across the country. There’s room for more hydro, and more wind and solar.

But the issue I have with that when I think about energy superpower, for sure, that’s going to increase GDP. Maybe that will bring more people to our country to invest in manufacturing plants that want clean energy. But it’s not like an export market. We can send our power to the US, but unless we put it into the form of green hydrogen, we can’t really get this product out into the international markets to many customers.

Peter Tertzakian :

The dollars are just not enough to be meaningful in terms of any kind of leverage.

Jackie Forrest:

All right. Well, let’s move on to the next topic, which is oil prices. So we did cover this a little bit in the intros to some of our podcasts. But we had this 12-Day War in June, which really didn’t cause prices to increase as much as you would’ve thought.

Peter Tertzakian :

You’re talking about the bombing of Iran?

Jackie Forrest:

That’s right. Yeah, so we had a Israel-Iran war. They call it the 12-Day War now.

Peter Tertzakian :

okay.

Jackie Forrest:

That’s what people are calling it. And then there was the US coming in and bombing these three nuclear sites. And at that point when that happened, it wasn’t certain how this would go, but it turned out it diffused very quickly when Iran sent some missiles over towards a US base in Qatar and that ended the whole thing.

So, short event. Could have caused a real outage in oil supply and could have caused much higher prices, but the market really didn’t react. It went up about $10 a barrel and came back pretty quickly after. Now, prices have actually drifted up since then. But when I thought back, if you think about the Libya Civil War in 2011, oil prices quickly shot up over $100 and there was only the potential outage of 1.6 million barrels a day.

So now we’re talking about, there’s many different scenarios here, but everything from taking out some major infrastructure in a neighbor, or just losing Iranian exports, which are around one and a half million barrels a day. We didn’t see any impact to the oil price, really, considering the threat.

Peter Tertzakian :

Well, though, the price of oil had retreated to the high 50s, low 60s. You’re right, it went up mildly over 70 for a few days and then retreated. We’re in the mid- to high-60s now, depending upon the day of the week. So I would argue that there is a 10% minimum premium that’s lingering on top of other issues that we can talk about here in a minute that’s keeping the price of oil buoyant, I think.

I would just add that, although it was a 12-day war, that’s the 12-day, I’ll call it the “hot war” where there was actual bombing going on, but this war is far from over. There’s still no nuclear agreement in terms of the Iranians stopping all nuclear refining activity towards achieving a nuclear weapon. The Israelis are very skeptical that any agreement would lead to anything honest. The Americans want a peaceful deal.

This is far from over. And now the Iranians are very jaded about the whole thing. So I think there’s just sort of a hiatus right now. This story is far from over. The chapters yet to come. There are chapters yet to come.

Jackie Forrest:

Well, maybe that explains. Because since that time, actually when everything diffused, the price of oil went back into the mid-60s. However, it’s up to $68 right now, which is surprising because in the meantime, we’ve learned that OPEC will accelerate supply additions to the market. They announced in early July that they’re now going to have yet another tranche of supply. Even more than people thought, 548,000 barrels.

This is in addition to tranches of around 400,000 barrels a day over the previous several months. Basically getting all their supply for their first tranche of cuts back, and there’s even more potentially that they could do because they’re still sitting on spare capacity. And, now Donald Trump is sending out letters around the world saying he’s going to put these Liberation Day tariffs back in. So the threat of a recession is far from over. And yet you-

Peter Tertzakian :

So you think the price of oil should be lower.

Jackie Forrest:

Yeah, the oil price is moving up. How can the oil price be moving up in-

Peter Tertzakian :

Well, I’ll give you the counter arguments. We’re at 105 million barrels of oil per day now, 105. The last I checked, we were a little over 103, and I just reviewed all the numbers and the IAEA reports and whatever. We’re at 105.

Jackie Forrest:

Right. That’s not the annual average. That’s at this time. The peak consumption for the year.

Peter Tertzakian :

I still think people don’t really appreciate how much oil that is. It’s still going up. I think it will continue to go up. The OPEC report that came out just recently said it’s going to go up to potentially over 123 million by 2050. But even if it goes up to 110, these are staggering numbers. It’s not retreating, as people have been saying over the course of the last 10 years.

The consumption this year to next year I think is going to go up by something like 700,000 barrels per day. It’s not as much as was expected, but it’s still a lot. These are big numbers. It’s like a supertanker a day increase in consumption. And then on top of that, you look at some of the stats in terms of the inventories. The inventories are actually quite low. So I actually am not in the camp that these oil prices are going to retreat.

The biggest thing I would argue to you is that counting barrels is no longer the dominant paradigm, adding and subtracting barrels and making calls on what the supply and demand is going to be. Because the uncertainties are now in what we’ve been talking about, those geoeconomics. What are the impacts, as you just pointed out, of the tariffs?

But if we think about tariffs not as slowing down the economies of the world as a whole, but as actually creating distortions in regional supply-and-demand dynamics, all of a sudden it’s a completely different paradigm of how you price these commodities. I just think there’s so much uncertainty that the uncertainty is not in whether it’s going to be 105.2 or 105.4. The uncertainty is all in how different countries are going to leverage their energy superpower and economic superpower levers. And the uncertainty around that is so great, I think there’s a premium built into a lot of commodities, not just oil and gas, but if you look at all of the other commodities as well.

Jackie Forrest:

By the way, today, now, this quarter is one of the highest times of the year. So when you say 105 million barrels a day, that might be this quarter. But for the rest of the year, the second half of the year, it’s generally lower, just because the summer season in the Northern Hemisphere drives a lot of oil demand.

And so, let’s go forward to November, December, when demand on a daily basis isn’t so great. When maybe this recession has started to impact demand, and all these OPEC barrels are actually in the market and inventories are starting to build. Because I agree with you, inventories are low. But when they start building, it does change the dynamic and the psychology of the market.

And reminding us that we still are sitting on a bunch of OPEC spare capacity, so there’s the potential for even more barrels to come in. There are many forecasters… Well, many. At least a few, that think that the oil price could get into the 50s, maybe the high 50s by the end of the year because of those dynamics.

Peter Tertzakian :

See, I’m just not in that camp. Because actually, the inflation for core commodities and supply chain distortions as a consequence of all this geoeconomic to-ing and fro-ing around the world is driving the costs up. So the cost of exploring, developing, producing oil and gas is going up. It has yet to manifest itself and show up, but I think what the market is also seeing is that future supply is not necessarily going to be as robust as you would think. And demand is being stubborn, particularly if prices stay at these levels. The current prices at the pump are not anything that scare people away from consumption.

So I just think that we’re in a new paradigm of how we price these commodities. Like the last 30, 40 years, we used certain formulas and ways of thinking about pricing risk and return in commodity markets. In this new world now that we’re seeing, the ability to price risk has become very difficult, so the default is just to price in premiums into all these commodities, including oil.

Jackie Forrest:

Okay. Well, let’s switch to the last topic, because it’s kind of related, which is this Trump uncertainty associated with the tariffs, or Trump-tility some people are calling it, for volatility. Because we had letters last week that talked about threatening 25 to 40% tariffs to a long list of countries by August 1st. Canada of course got our own letter, and we’re still trying to understand what it means. 35% on all goods, but we’re not quite sure if that’s NAFTA-

Peter Tertzakian :

But not USMCA.

Jackie Forrest:

Well, I don’t know. People are a little confused. Is it USMCA? Is it energy? Obviously, the stock market is assuming it’s not. But I went and looked at last week the performance of the overall Dow Jones. It’s kind of moving sideways. If you think about Liberation Day, was that April 1st or 2nd? We saw about a 10% drop in these indexes, like the overall stock market in the US.

I looked at Canada. Even with this 35% tariff, barely a move in our overall composite stock index. So they’re calling it the TACO trade now, Trump Always Chickens Out. So no one’s actually believing he’s doing this stuff anymore, and therefore it’s not being factored into stock values.

I also argue it’s not being factored into the oil price right now. The oil price is just sort of seeing through it. So could everyone be surprised when he actually goes ahead with some of this stuff and the markets have a big drop? Because now they’re not factoring in that this is real anymore, in my opinion.

Peter Tertzakian :

Well, I’m not going to stick my neck out and say what the markets are going to do, because I certainly don’t want anyone taking investment advice from me. But I would say that the probability that some tariffs are going to prevail, that Trump isn’t going to chicken out, is quite real. I think there are going to be tariffs that are going to linger and it’s just a question of how much.

Now, what that does to the global geoeconomic situation, I don’t know. I also think though that this threat of tariffs is going to come and go, come and go, deals or no deals. Because we are in an era, again, where countries are throwing their weight around, notably the United States, but not only. There’s also China. They’re throwing their weight around using economic muscle as a weapon. There’s a weaponization of economic leverage.

So to think that everybody’s going to get deals and that’s going to be the end of the story I think is incredibly naive. And that this lingering uncertainty of how countries are going to use their economic muscle to gain national interest, it’s going to be a story for a while. And that includes the EU, it includes the Japanese, the Koreans, everybody.

Jackie Forrest:

Right. And it doesn’t only have to be tariffs. That Trump’s favorite variety, but-

Peter Tertzakian :

No, it could be sanctions. There’s sanctions, there’s restricting supply, restricting… Yeah. Sure.

Jackie Forrest:

Well, there’s like the Chinese just saying, “We’re restricting selling these certain products to the world that we know that there’s very few other alternatives.” Yeah, and now we have the copper one.

Okay, so here’s the question. July 21st is the date that Mark Carney and Trump were supposed to ink a trade deal. Seems a bit unlikely to me. But in this environment that you’re describing, why would he ever make a deal? And I actually think, as a Canadian, now’s not the time to make a deal. Maybe we need to wait until the US feels the brunt of the tariffs, copper being the latest one. It’s going to hurt their companies, and eventually maybe they will have some motivation to come to the table, because we learned with this digital service tax that we don’t have a lot of leverage here.

Peter Tertzakian :

No.

Jackie Forrest:

Right? And so maybe the leverage we could have is time.

Peter Tertzakian :

The leverage we could have is time, the leverage we could have is not be the first to make a deal, which was something that Prime Minister Carney has said is part of the strategy and I agree with. I think also that even if there is a deal, it’s not the end of the story, as I said earlier. I think that anytime the United States doesn’t like what a country is doing, whether it’s Canada, Brazil, or whomever, they pull out the economic cannon and say, “If you don’t do this, then we are going to put another tariff on, deal or no deal.”

Jackie Forrest:

Okay, and is that just for the next three years or so, or do you think that’s a new permanent change?

Peter Tertzakian :

Well, I don’t know. I just think this is the new reality of the world that we’re in.

Jackie Forrest:

Well, it speaks to… I kind of come back. Let’s finish the podcast coming back to our debate on oil price. To me, it speaks to a slower economy. Because if all of this crazy volatility and Trump-itility, how do companies make decisions around investments? And if they stop investing, does that not cause a slower economy, which lowers oil demand, which lowers oil prices?

Peter Tertzakian :

Potentially, but that’s if you think about oil prices in a global sense. What the geoeconomic reality of the world means is that we are seeing fragmentation and regionalization of different economies. So counting barrels globally is potentially an outdated mode of thinking that you have to think about, “Okay, well, what if the Russians are sanctioned and the Iranians are sanctioned even more or less?”

And all these things, they’re uncertainties that are far greater in terms of their error bars than the historical way we used to think about the probability of demand being 100 million barrels a day or 100.2 million barrels a day. And saying that the uncertainty that is being wrought by all these other factors now create error bars that are much bigger. And when you have greater errors, the tendency is to price the commodities higher because of greater volatility.

Jackie Forrest:

Right. And another example, like United States, President Trump seemed to get kind of aggravated at Russia. Could we see some sort of change in Russian oil supply?

Peter Tertzakian :

Yeah. Absolutely.

Jackie Forrest:

So you’re right. There’s a lot of potential for large amounts of supply to come out or into the market.

Peter Tertzakian :

Right.

Jackie Forrest:

Iran could go either way. It could lose its supply or we could see some sort of deal and they add supply. So you’re just basically saying there’s this geopolitical influence, which comes back to the very first topic we started with. For Canada to be an energy superpower, for Canada to be relevant in this new world, we should be getting more of our oil and gas to the international markets.

Peter Tertzakian :

Well, we should be getting more oil and gas to our allies, because we want to help the economic bloc, specifically I would think the Europeans, Koreans, Japanese, et cetera, because they are economically and otherwise ideologically aligned with the way Canadians think, more or less.

So we want to be able to have influence within our allies. To think that Canada’s going to exert influence over the global situation I think is a bit naive. But to have influence within our ally peers I think is quite… And in fact, they’ve been asking for it.

Jackie Forrest:

Well, I get this question often, which is, “Well, is there even demand for the product out there? If Canada built a pipeline for a million barrels a day, would somebody want that?” I’m like, “Of course they would.” We would be less than 1% addition to the global market.

And I think after the events of even the last month, people recognize the importance of diversity of supply, supply from a country like Canada with rule of law and not having our oil flow through a choke point like the Strait of Hormuz, which is, what? 30 kilometers wide at one point, surrounded by people that are having conflict.

So I think there is no doubt in my mind that not only our Western alliance, but other countries would want to see diversity of supply. And we’re not talking about adding a whole bunch more supply in the world. I think it can be easily absorbed.

Peter Tertzakian :

No, the world can easily absorb it. And as a fraction of the world’s consumption, the incremental barrels that we offer are not that great. But in terms of the fraction of our allies’ consumption, it’s all of a sudden quite significant.

Jackie Forrest:

Right.

Peter Tertzakian :

All right. Well, that’s a robust discussion, Jackie. That all started with whether or not you were wearing your smartwatch. Given that you’re not, time has gone by quickly on the podcast, so I suggest it’s time to wrap up.

Jackie Forrest:

It is. And also, we’re going to take a little bit of a wrap up for the summer.

Peter Tertzakian :

Yeah. Well, I hope everyone enjoys their summer.

Jackie Forrest:

Yeah, I hope all our listeners have a great summer and we’ll be back here in late August. If you enjoyed this podcast, please rate us on the app that you listen to and tell someone else about us.

Announcer:

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Why Canada Must Build More Tidewater Pipelines: Both Oil and Gas

Why Canada Must Build More Tidewater Pipelines: Both Oil and Gas

Produced by Jackie Forrest | by

This article was originally published in The Globe and Mail.

During Prime Minister Mark Carney’s July Stampede visit to Alberta, he said a new oil pipeline to B.C.’s coast will likely be declared a national priority. Still, some Canadians are asking: Why build another pipeline to the West Coast? Don’t we already have enough?

It’s a similar situation for another commodity. While these questions arise less often when it comes to shipping natural gas to Asia – especially as we celebrated our first LNG shipment from the West Coast on the eve of Canada Day – some Canadians still question whether expanding the commodity’s exports is essential to fulfilling the country’s ambitions as an energy superpower.

But the real question is: How can Canada – the world’s fourth-largest oil producer, behind only the United States, Saudi Arabia, and Russia and the fifth-largest producer of natural gas – not be already recognized as an energy superpower? The reason is simple: We fail to export enough of our oil and gas to global markets. As a result, we forfeit both influence and autonomy – and we undermine our own economy.

To borrow U.S. President Donald Trump’s style: ABSOLUTELY, we need more pipelines! Canada needs new oil and gas pipelines to tidewater. These projects are both politically and strategically vital, ranking among the most consequential nation-building initiatives the country can pursue.

Let’s begin with one of the most debated topics: building a new oil pipeline to Canada’s West Coast. Most Canadians know the federal government completed the Trans Mountain Expansion, which added 590,000 barrels per day of export capacity last year. This additional access to tidewater has already strengthened Canada’s negotiating position with U.S. buyers.

Now that we have alternative export options, American refiners must pay Canadian producers a more competitive price. The pipeline has brought more of the economic upside home, lifting prices by $4 to $7 per barrel and adding an estimated $7-billion to $12-billion in annual revenue for Canadian producers.

These higher earnings translate into more tax revenue and provincial royalties that benefit Canadians nationwide. But sustaining this pricing advantage over the long term – and ensuring American buyers pay fair value – will require more pipeline capacity than the modest boost from Trans Mountain, which may be fully utilized in a few years.  

But the benefits go beyond economics. Expanding Canadian export capacity strengthens Canada’s relevance, influence, autonomy and trade relationships at a critical time. Would Mr. Trump have threatened a 25-per-cent tariff on Canadian oil earlier this year if Canada had more diversified export routes? Would trade negotiations play out differently if Canada held greater leverage?

Turning to natural gas: Expanding Canadian LNG exports to tidewater is just as essential to our ambitions of becoming an energy superpower. This strategy delivers the same strategic advantages as oil pipelines alongside substantial economic benefits.

In 2024, Canadian natural gas sold for about one-half of the U.S. price – effectively giving it away. However, with the recent launch and potential expansion of Canadian LNG exports, we have an opportunity to bring the economic benefits of these resources back to Canadians.

For example, using a conservative assumption, if all Canadian natural gas priced just $1 per gigajoule higher as a result of tidewater access, producers would gain an additional $7-billion per year – benefiting companies and citizens in B.C., Alberta and across Canada. And this doesn’t even factor in the additional growth in gas and liquids production that new export terminals can unlock.

To be an energy superpower, a country needs to export energy to many nations. Canada isn’t there yet. To unlock more value, boost security and build real influence, we need to get more oil and gas to tidewater. All Canadians stand to gain.

So, the next time you’re asked whether Canada needs to expand oil and natural gas exports to become an energy superpower, the answer is a resounding YES! Thank you for your attention to this matter!

Is the US Clean Energy Boom Over?

Is the US Clean Energy Boom Over?

Produced by ARC Energy Research Institute | by

The President of the United States signed the “Big, Beautiful Bill” into law on July 4th. The new legislation brings big changes to the future of U.S. clean energy development. It reduces many (though not all) of the Biden-era subsidies from the Inflation Reduction Act of 2022 (IRA).

This week on the podcast, our guest is Mike Carr, Executive Director at SEMA Coalition—an organization supporting the U.S.-based solar supply chain. Mike has extensive experience in U.S. federal energy policy, including past positions at the Department of Energy and the U.S. Senate Committee on Energy.

Jackie and Peter asked Mike: How would you characterize the Bill’s impact on U.S. clean energy, and what damage has it caused? At a high level, does this major policy shift lessen the appetite for investment, even in areas where subsidies remain, due to concerns about political uncertainty? For clean technology manufacturing, such as solar panels, do the newly introduced restrictions on Foreign Entities of Concern (like China) regarding content, intellectual property, and investment make it more challenging to qualify for the production tax credit (45X)? Renewable energy projects that commence construction within a year of the Bill’s passage can still be eligible for subsidies for the following four years; does this create a construction boom, and what happens afterward? Given China’s dominant position in manufacturing many types of clean energy technology, how should the U.S. compete? Is it better to leapfrog China with innovation, rather than simply following and producing the same technology?

Please review our disclaimer at: https://www.arcenergyinstitute.com/disclaimer/

Check us out on social media:

X (Twitter): @arcenergyinst
LinkedIn: @ARC Energy Research Institute

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Episode 291 transcript

Disclosure:

The information and opinions presented in this ARC Energy Ideas podcast are provided for informational purposes only and are subject to the disclaimer link in the show notes.

Announcer:

This is the ARC Energy Ideas podcast, with Peter Tertzakian and Jackie Forrest, exploring trends that influence the energy business.

Jackie Forrest:

Welcome to the ARC Energy Ideas Podcast. I’m Jackie Forrest.

Peter Tertzakian:

And I’m Peter Tertzakian. Welcome back. Well, Jackie, it’s that time of year in Calgary. It’s the Stampede.

Jackie Forrest:

So lots to celebrate because not only is it Stampede, but we have our first LNG shipment on the eve of Canada Day. So it’s definitely a new era in Canadian gas, and everyone’s hoping that this is not one and done. A lot of conversation at Stampede week about momentum building for more big projects around LNG, and maybe even an oil pipeline. We heard the potential for that from our prime minister this weekend.

Peter Tertzakian:

We sure did. So yeah, there’s a lot of upbeat talk at the Stampede, so I think we’re going to hear a lot more as the week progresses on. But this week, we’re going to really look south of the border because there was some big news down there as well. The Big Beautiful Bill as President Trump had coined it has been passed, right?

Jackie Forrest:

That’s right. Everything’s going on time here in Canada. We got our C-5 done for Canada Day, they got their big beautiful build done for July 4th Independence Day, and we’ve been focused a lot on Canadian clean energy, but Canadians need to look across the border to understand what’s happening there because it does have impacts on us. For the last several years, it’s been tough for Canadian clean energy projects to compete with the very generous subsidies that the Americans have been offering, and Biden put those in 2022. So it’s important for us to see, well, what’s happening across the border and what does that mean here in Canada?

Peter Tertzakian:

Yeah. Well, much as President Joe Biden at the time brought in the Inflation Reduction Act, which had huge subsidies for extreme energy and a lot of development ensued, a lot of excitement. The Big Beautiful Bill as it’s termed also has a lot of ramifications because it pulls back a lot of those incentives. And whereas, we in Canada can think of this as a potentially just a US issue, it’s really not because capital flows across borders. So we really need to look more into this, and who better to help us with that. And Mike Carr, Executive Director at SEMA, otherwise known as the Solar Energy Manufacturers for America, it’s a Coalition that supports US-based supply chains for solar energy. So welcome, Mike.

Mike Carr:

Thank you very much, Peter.

Jackie Forrest:

Well, Mike, it’s great to have you on. We had met back in May and you have so much knowledge. Maybe tell us a bit about the SEMA Coalition, but also your previous roles with the US Department of Energy and at the US Senate Committee on Energy.

Mike Carr:

Sure. Thanks again. I appreciate you guys having me here. I guess, I’ll start with me. I’ve been in Washington DC now for about 30 years. I am trained as a lawyer with a specialization in environmental law, and I really worked the very bulk of my career around climate and energy policy. I worked at various stints set at different government agencies, including the Department of Interior and the US House of Representatives. But the bulk of my sort of climate and energy career really began at the Senate Energy and Natural Resources Committee in 2004. I worked there as a senior council for about eight years, and that was sort of during the era where in particular the United States was trying to figure out what’s next. Oil prices, as you may remember, had sort of spiked in that 2006, 2007, and 2008 timeframe, and it’s really when the United States began to think hard about how we would develop the next generation, the resources, and how the United States would fit into that.

And that’s when I really first became enmeshed in examining our industrial policy or at that time lack thereof, around manufacturing in particular. That my boss, the chairman of the committee at the time, Senator Bingham of New Mexico, was particularly concerned that the United States was losing ground to our international competitors. So we began designing policies both on the regulatory side, which was the jurisdiction of the committee, but he also served on the finance committee which develops tax policy. So we began working on tax credits such as the EV purchase incentives back then, the loan programs in the energy committee, and the like to try to reinvigorate manufacturing in the United States. I did that until he decided to retire in 2012, and I went from there as a political appointee in the Obama administration at the Department of Energy as the number two at the energy efficiency and renewable energy division within the Department of Energy.

I did that for about three years. And then with a couple of my colleagues left to try to work it from the industrial side and began talking to companies in the clean energy and manufacturing space about what it really took to pull this industrial policy together and advance our goals. After a few iterations around 2019, led to several solar manufacturers in the United States getting together and really digging into why we had fallen so far behind, and what it would really take to catch up.

And when I say catch up, fall behind, at this point, it really is about China’s industrial policy around manufacturing. And what we had seen was a dedicated effort by the Chinese manufacturer or the Chinese government to in effect monopolize manufacturing across a number of clean energy spaces, including batteries and solar. And we came to believe that really to advance the technology, to secure supply chains, to really arrive at a place where we could solve these larger problems around deployment of clean energy as well, it was necessary to build out a complete supply chain for that in United States and with our allies in North America. And so that was how the SEMA Coalition was originally born and then sort of took it from there.

Jackie Forrest:

That’s interesting, Mike. I mean, I think the US had some real successes in your time, like a support of Tesla, which turned out very well. And we’re going to get to this issue about China because it hasn’t gotten any better since 2004. It’s gotten much worse in terms of their dominance and their scale and their expertise in many of these areas.

Peter Tertzakian:

So Mike, it strikes us across the border here that the Big Beautiful Bill is quite consequential to the Inflation Reduction Act. In other words, it’s almost like a sledgehammer, if not a scalpel or both to a lot of the programs that were put into place by the Biden administration. So could you categorize exactly what this means in terms of the clean energy, transition/revolution, whatever you want to call it in the United States. On a scale of 1 to 10, how damaging is this to the momentum that the United States was trying to achieve in the face of that Chinese competition we talked about earlier and that we’ll come back to?

Mike Carr:

Well, that’s right, Peter. It is in fact a dramatic reversal of industrial policy when it comes to clean energy. In particular, technology such as solar and wind we’re singled out for very, very strong reversals in policy at various places. Storage was in that category, hydrogen policy was in that category, and then adjustments were made along the way. To some extent, we need to see how this plays out, but whether it’s a 10 or a seven or an eight on the 1 to 10 scale, it is certainly in the higher registers there. This was, choose your analogy. Was it a sledgehammer taken to industrial policy? Was it a sharp U-turn, wrenching the wheel? There’s a lot of ways to look at it, but very dramatic. And in fairness, the Inflation Reduction Act credits, which carried a lot of this sort of manufacturing industrial policy, were a pretty significant change in direction as well.

The United States has been very leery of engaging in direct industrial policy to compete with China. We have generally relied on tariffs, which I think we can talk about the limitations of tariffs and trade policy. But I think there were a lot of folks who had argued that the United States was sort of asleep with the switch as the industrial core of our economy was hollowed out by these industrial policies from China. And this was often characterized as sort of the IRA, I’m saying, was often characterized as sort of a wake-up call and a beginning to rebuilding that manufacturing base. And I think for a variety of reasons, some mere partisanship, some discomfort with industrial policy, and in many cases focus on competing interests, this was a very strong rebuke of that effort and an attempt to really reverse the momentum on those technologies.

Jackie Forrest:

All right. We’ll get into some of the details, but some of the areas that were spared and mostly preserved, although, I think everything got some changes, like you say, manufacturing. The ability to get tax credits for manufacturing, production tax credits, CCS Carbon Capture Storage, biofuels, geothermals did well, areas that didn’t do so well were large-scale wind and solar, green hydrogen, residential solar EVs. But just taking a step back, there were some spared and some really cut hard. And you can argue in some of these areas that were spared, you should still have the economic case to go forward with your decision to build a new manufacturing plant or maybe build this carbon capture storage plant. But how are companies looking at this massive change? If every four years you could get such a fundamental change in the policy, how do you make 20-year investments? Do you think that this is damaging for all areas, even the areas that were maybe spared more in terms of the subsidies?

Mike Carr:

I think you raised a very good point, Jackie. I mean, I think this was going in perhaps the biggest concern that the business community had in, and was voiced by a number of members of Congress as well, and certainly economists on all sides of the spectrum. And I do think it was largely unprecedented. I have never seen a reversal like this, and I’ve often heard it voiced that a previous Congress may make some policy decisions that the new governing party doesn’t agree with. But they have often said, and certainly I’ve heard my boss say this when we took a majority that we risked undermining our own credibility if we did reverse course on some of these things. And Congress and policymakers across the spectrum, they want the private sector to do things. They understand that markets are not shaped without on their own, markets are shaped by policy decisions. And so if you reverse those policy decisions, then you do lose a great deal of credibility. And the next iteration, you’re not able to get the private sector to believe you.

Peter Tertzakian:

Well, one can’t help but think that actually the Chinese would be quite happy with this bill, at least in the near term because, obviously, it allows them to continue to subsidize and gain more momentum and a lead at least notionally. But another school of thought might be that, well, if you actually cut subsidies and tax credits and what have you, it actually makes pre-market companies even more attuned to driving down costs and innovating and getting ahead. That’s the way I’m thinking about is that tens, if not hundreds of billions of dollars were invested as a catalyst of the IRA. If there could be enough momentum now for companies to innovate on their own and really take it from a free market perspective. I mean, the free markets are hugely innovative, and too much subsidization actually can lead to what I would call, Innovation Laziness. Is there an argument to be made that actually cutting some of these subsidies may actually be a catalyst to kickstart the free market into a more aggressive innovation mode?

Mike Carr:

Yeah, I think there’s a real point to be made there. I like your innovation laziness frame. And what I would say is, that’s frankly what we’ve been seeing in solar for a while because of the Chinese domination and over-subsidization. I think one of our member companies put it very well in a conversation we were having with the senator that was very much along these lines, Peter, where the CEO said, “I’m a free market believer, an advocate, and I am more than happy to compete with other companies, and I’ve been competing with companies my entire life.” But in solar, what you have to recognize is it’s not a company versus another company, it’s a company versus a country. And that’s the way you have to understand these solar manufacturers are seeing the world. They’re not competing versus JA Solar or Longi or any of these Chinese based companies.

They’re competing against the country’s industrial policy, which allows for unlimited subsidization. We’ve all heard the specifics of the subsidization that can be free land, it can be free electricity, it can be cash, but at the end of the day, it is a fundamentally different economic system in China as we all know. And so you can look at it as industrial policy, but another way of just looking at it is it’s a jobs program. The idea is to have manufacturing in all of these provinces throughout the country, and to facilitate that against all comers. And they’re hungry for cash, they can’t sell their product within the country. And from a strict economics perspective, a lot of these investments in manufacturing in China or in their client countries are not productive investments. And I think that that’s really the way you need to judge it.

Jackie Forrest:

Right. And we see this actually in other areas like critical minerals. You can’t get private company funded because the Chinese drive down the prices to the point where there’s money to be made by a private company and building a plant.

Mike Carr:

Exactly. And in those cases, you don’t see advances in mining technology, you don’t see processing advances the way you would like to see them because, let’s say, the externalities of the environmental costs or the energy costs are not taken into account.

Jackie Forrest:

Right. Okay. Well, let’s go back to the manufacturing and the bill. There are also limitations that were put on in terms of, you kept the production tax credit, I think it’s called the 45X, for building a lot of clean technology including solar panels, but also batteries, electrolyzers, things like that. But there’s a new requirement that to get that, you need to make sure that you don’t have any materials or components from foreign entities of concern. I think it’s being called FEOC, and that you have very limited Chinese ownership or debt. I think something like 25% Chinese ownership and 40% of your debt can be from China. If you’re more than that, then you can’t qualify, and you can’t use much Chinese IP. Well, this is difficult because so much of the supply chain, including the critical minerals, the polysilicon, they all come from China where Chinese IP or companies are behind them. So, how big of a barrier is this? Do you think that a lot of companies won’t be able to actually qualify for these credits because of this Chinese content?

Mike Carr:

Well, it’s going to vary a lot by technology. In the case of solar, we actually have a bit of an advantage, in that the raw materials are not particularly rare. You’re using silica and that’s mined throughout North America. It’s produced in the United States as well as a number of other countries. We actually do have a substantial amount of polysilicon manufacturing in the United States. Two of the largest and highest quality polysilicon manufacturers are in the United States. One is Wacker in Tennessee, I believe, and the other is Hemlock Semiconductor in Michigan. It does explain a little bit of why solar is different than say, battery manufacturing. In the solar space, we don’t have a lot of concerns about FEOC involvement. We have access to the intellectual property that we need. We have access to the raw materials from the polysilicon. What we just don’t have is the facilities right now to manufacture them because we couldn’t finance those facilities.

Now with the IRA, although some of these factories are still under construction, we have in the pipeline facilities that are not interacting with the China, and that is the founding principle behind the SEMA coalition is to have a China-free supply chain. And so we’ve made substantial progress on that for the last few years. And so we don’t find it particularly concerning for solar manufacturing. Manufacturers have access to materials. Stuff is coming online in the near future and, of course, there are a limited number of non-Chinese-based overseas, including places like India where some materials can be acquired. The story is very different when it comes to batteries. For example, this is an area where Chinese dominance has been more profound, and the ability to invest in the United States has been even more hampered. Maybe because it’s a little bit more of a nascent industry and we haven’t seen a lot of grid storage, for example. And so, I think there will be significant challenges when it comes to battery manufacturing from these FEOC provisions.

Peter Tertzakian:

So if that’s the supply and componentry dimension, let’s move on, Mike, to the time dimension, particularly as it relates to wind and solar generation projects. So as I understand it, the final rule in the Big Beautiful Bill allows projects that start operations by the end of 2027, which is now what, two and a half years away. Or start construction within a year from now of the bill’s passing to still get these incentives, right? So in other words, if there’s an accelerant in this thing or a time restriction that you could only get the incentives, basically, if you get going now or you can complete it by 2027. So, are you already starting to sense there’s going to be a big push to get stuff through to get stuff done like a boom?

Mike Carr:

Well, yeah, it’s an interesting dynamic. I will say that the commence construction addition that you mentioned where there’s a year to commence a project, that happened at the very last minute that was something that we were very, very concerned that had been left out. And the reason we were concerned about the so-called placed in service deadline is just the way the market functions in the United States. Developers have to get into interconnect queues in order to bring their projects online, they have to do permitting, they have to do a number of things. And that process is typically 3 to 4 years from acquiring the land or acquiring the lease to build your project, to finally getting it placed in service. And importantly, a big piece of that, particularly the interconnect queue is beyond your control as a developer. So you don’t know when your project will be placed in service, and you really don’t have a lot of influence over when it’ll be placed in service.

And that has massive implications when it comes to financing your project. So if you want to put a 500 megawatt project on the grid in, let’s say, the MISO service area, you have to get into that queue and you hope that they will do their reviews, their grid interoperability reviews, and that they will allow you to be placed in service. Because it has been so long, historically, banks are very leery they won’t take on that risk that you will actually be able to place it in service by the end of 2027. So as a result, our analysis, and I think the way the market has generally reacted to it, that place in service state effectively means if you’ve not already commenced construction before the passage of this bill, and therefore, sort of grandfathered in under the commenced construction standard, there will be no new acquisition of incentives.

Or put another way, the banks won’t finance under the assumption that you’re going to regain any of the incentives because they don’t have any way of knowing that you’re actually going to be able to place it in service. So effectively, commenced construction is the whole ball game. And so we have got a year to commence construction, and then you are grandfathered in, it’s under the normal IRS published rules which allows you essentially four years to place it in service after that commenced construction. And so from a manufacturing perspective, that means we have the domestic content bonus in effect for a year. The rest of this year, it’ll be 45% domestic content to gain that 10%, and then next year it’ll be 50% domestic content to gain that 10%. And that has been a huge driver to buy the domestic product from these factories that are being established.

There is some tale to that, and I’ll try to explain that, in that if you achieve commenced construction, you have a safe harbor to put that into place and service for four years. And in order to achieve that, you have to make a certain amount of investment, do some activities on the land, have the land acquired and the like, or have the options on the land. But then you can take delivery of the product, the solar panel in this case some years down the road. So, we do think there is likely to be a rush for developers who think they can achieve that four year placed in service period for a year to try to get those credits in place and to place orders for product that can come off those assembly lines in two or three years.

Peter Tertzakian:

Well, let me ask you something else though. I mean, if you’re a manufacturer or operator or whatever and you’ve just gone through this roller coaster, you say there’s this most policy uncertainty fatigue, you just can’t count on any of this stuff.

Mike Carr:

Yeah, I think it’s a real risk. We were talking earlier about the uncertainty and the sort of loss of credibility of reversing policy in quite the way that they have done in this bill. I think you’re exactly right, it does make investors nervous. It makes it difficult to make new investments. For example, there are factories that were ready to break ground at the beginning of this year when the domestic content regulations were finally finalized. And so people knew the value of producing in the United States. There were some wafer factories, for example, very, very high CapEx, multi-billion dollar factories that were ready to go. Investments were finally lined up and this seemed like the environment was certain enough. Those investments, I think, are going to have a very difficult time. The investors now look at that and they say, “Boy, I don’t know that it’s really going to come together.”

It seems like the government has reversed course. Fortunately for solar, there are factories that had gotten substantially past that stage gate. We have large investments companies such as Silfab, Q Cells, such as Hemlock, Corning had made major investments and had already begun construction of their factories and are nearing completion of those factories now. For those people, I think they are in a position to credibly produce product in the next 3 to 4 years when we do expect there will be sort of a maintenance of demand and maybe significant demand if it can all get permitted into that commenced construction phase can probably absorb those products. So it’s going to keep those factory doors open for those that have really gotten pretty near the finish line. But for those that were sort of stuck at the starting gate or were just getting out of the starting blocks, I think there’s a very rough road ahead.

Jackie Forrest:

Now beyond that four years, there’s a lot of outlooks for very rapid growth in US electricity load and a concern that it’s going to be very hard to keep up with that. Natural gas will be part of it, but maybe can’t meet it all because there’s constraints in natural gas equipment. So, do you think beyond these subsidies that you could just see these projects go forward and yeah, the price for electricity is going to be higher because they don’t have subsidies anymore. In that case, do you see a role for domestic product? Because I know you still have the tariffs that are protecting these developers not having to face the Chinese competition directly.

Mike Carr:

Yeah, we could spend a whole hour, I think, talking about sort of whack-a-mole nature of tariff policy and how difficult it is to sort of track these factories down, and how quickly they move and how long trade cases take to process. But suffice it to say, I think there’s a very broad consensus that tariff policy alone can’t really meet the need of protecting American manufacturing. But I think to get to your point, there is accelerating demand for solar power. It is a global phenomenon. It really doesn’t have a lot to do with subsidies. And because it is such an intense need and there’s such intense competition to put solar on the grid, I think one thing it’s important to recognize is these subsidies don’t, generally… The value of them is not really being captured by the developers very much. A lot of it is being passed through to the eventual consumers, keeping costs down.

And so I think that’s a core point you were making, Jackie, because there is so much demand for solar, we will see the PPA prices around those tick up because nobody will be gaining the credit effectively after this period after a year. What we’ll likely see is pretty much a wholesale move to Chinese products for projects where they will effectively be taking advantage of the subsidies that China is putting on those products and keeping those prices low. I think it really does fundamentally come down to, do you want the panels in those and the inverters and the like? Do you want them to be from a domestic source or not? And I think the environment we’re now seeing as a result of this bill is starting in August of 2026. We’ve now removed any incentive for those to be domestic products versus Chinese products.

Jackie Forrest:

So maybe some changes there still coming once they see that reality. Well, let’s come to the last question, Mike. This has been a fascinating conversation, and you’ve really highlighted many times throughout this conversation the problem with China. How can we compete against a country that has such scale that is subsidizing these businesses, and in every area of clean energy, it pops up as an issue? And it got me thinking like maybe we’re doing it the wrong way. We’re always doing fast following, right? We’re trying to build the batteries just like they are, the same chemistry and try to do it better. Well, how can we do it better when they’ve got such massive scale? And could we actually try to leapfrog them by just developing brand new technologies? And I know there’s some exciting companies out there in the US, but is that maybe the better approach at this point because they’re so far ahead?

Mike Carr:

This has been a debate in energy policy for a few decades now. I think it is an interesting point, and it’s an attractive idea that we can just sort of leapfrog ahead, as you said, create a new technology that can get ahead of the curve. I guess, I would say, we’ve tried that a lot, and I hate to raise the specter of this, but Solyndra was an example of a technological leap forward. It was a thin film technology produced in an environment where silicon… All these silicon prices were very, very high. And the idea was, “Oh, well, these will never become cheap enough for us to displace it, so we’ll leapfrog ahead to thin film technology.” And they had an expensive process, obviously. But basically, I think we have found again and again, that manufacturing prowess is rules the day. A lot of these technologies, for example, the lithium iron phosphate batteries that we see CATL and BYD dominating in today, were actually developed in the United States.

And I think the challenge that we need to recognize our R&D complex, I think in North America, I would include Canada in this is really second to none. And we do develop these new technologies, we throw them off all the time. But the environment that we see again and again is when the technology is ready to move from the lab into the commercial space, the manufacturing prowess simply isn’t here anymore to actually turn those into viable technologies. And so to the extent that there is a leapfrog available, those companies, A123 was a good example of the earliest iteration of this leapfrog technology of lithium ion phosphate batteries. Eventually, that company went bankrupt because we didn’t have enough support for them in the United States, and they were sold to a Chinese company, and now they’re bringing that technology back to us. I think we’ve seen that movie a few times at this point, and it really does…

You have to advance both policies at the same time. You have to build a manufacturing base to really turn these into commercially viable technologies. Certainly, we never want to be in the position of fast following, but we do want to be in the position of having enough manufacturing capacity that that leapfrog technology is available to us. And in solar, the example that everybody cites to is tandem technology. So our expectation is that perovskite layers will be deposited on top of silicon layers to dramatically increase efficiency.

The entire industry knows that this is the next generation. Perovskites are very cheap. We have a technological advantage in perovskites, but what we hear from the perovskite companies when you go talk to them is, “Well, we need a manufacturing partner in order to bring this to market, and we don’t have the capacity here in the United States.” So that’s exactly what we’ve been trying to address for the last few years through this industrial policy. I think the end state ends up exactly as you outlined, Jackie, where we do have a leapfrog technology, but we got to have at least enough ability to manufacture the existing product to make sure that that doesn’t follow the same path to China as we’ve seen in the past.

Peter Tertzakian:

Yeah. I mean, as I’m listening to the conversation and thinking it’s the only thing we can predict, for sure, is there are going to be more policy surprises coming, I think. And I think there’s going to be more technological surprises both on the product innovation and the necessary manufacturing process innovations as well. Well, Mike Carr, executive director at the Solar Energy Manufacturers for America, otherwise known as SEMA Coalition. Thanks so much for joining us, and helping us at least momentarily understand American energy and industrial policy. We’ll see how it changes that goes forward. But for now, thanks very much for joining us.

Mike Carr:

Thanks again for having me. I appreciate the time. I had a good time.

Jackie Forrest:

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