Policy Discussion: The Only Certainty Is Uncertainty
This week, Peter and Jackie discuss the latest news on the Canadian federal election, including takeaways from the leaders’ debate on April 17th and the platform released by the Liberal Party on April 19th. The Conservative Party of Canada (CPC) had not yet released a full platform document at the time of recording.
Next, they provide an update on investment in clean energy. Equity values of publicly traded clean energy companies have fallen for the past four years (as measured by WilderHill Clean Energy ETF). At the same time, based on research by BloombergNEF, the sector registered an increase of 11% in new investment in 2024. The market is becoming bifurcated, with investment in mature and profitable technologies growing, and investment in emerging technologies, which are more dependent on government policy support, declining. Peter and Jackie also discuss China’s dominance in clean energy technology manufacturing and the impact that US tariffs could have on clean energy globally, considering China’s strong position and outlook for continuing expansion.
Content referenced in this podcast:
- Yale Budget Lab’s estimate of the US effective tariff rate (April 15)
- Liberal Platform (released April 19, 2025)
- BloombergNEF Energy Transition Investment Trends 2025 Edition
- White House Executive Order “Protecting American Energy from State Overreach” (April 8, 2025)
- Dan Yergin and Atul Arya “The Troubled Energy Transition: How to Find a Pragmatic Path Forward,” Foreign Affairs (March/April 2025)
- Nat Bullard Annual Presentation (see slide 135 for China’s exports to the US, EU, and Global South)
Please review our disclaimer at: https://www.arcenergyinstitute.com/disclaimer/
Check us out on social media:
X (Twitter): @arcenergyinst
LinkedIn: @ARC Energy Research Institute
Subscribe to ARC Energy Ideas Podcast
Apple Podcasts
Amazon Music
Spotify
Episode 281 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 and welcome back post-Easter weekend. It was pretty busy out there, Jackie.
Jackie Forrest:
Yeah. Yeah, I went skiing on Friday and there was a massive lineup at the Banff Gates. I couldn’t believe how many people were going out to the parks. But then the next two days were really quiet, but I think it’s because we had really nice weather out here-
Peter Tertzakian:
Oh, Friday.
Jackie Forrest:
On Friday.
Peter Tertzakian:
Well, Friday was beautiful, but the highways were nuts. I’ve never seen them that busy.
Jackie Forrest:
And then it wasn’t as nice the other days, but actually it was still really nice. So should have come out the other days, all those people waiting in line but-
Peter Tertzakian:
Yeah. Well, we need high-speed rail, but we’re going to maybe talk about that. It’s part of some political platforms anyway. Where do you want to go-
Jackie Forrest:
So markets are still not great, the oil price is still in the low 60s and a lot of volatility in the equity market, still down quite a bit from that whole Liberation Day. This whole risk of a US recession and beyond, I think is weighing the market’s down. But I find it interesting that Yale has estimated, and they have a really interesting page, which I put a link to in the show notes, but every time Donald Trump changes a tariff policy, they recalculate the effective tariff on all the goods coming into the US, and now they think it’s about a 16% effective tariff rate on the US when you consider they have these high China tariffs, but lower tariffs, like 10% on the others. So that’s still a pretty significant, I guess, tax on everything coming in from other countries. So we’ll just continue to monitor the situation. But obviously with that type of tariff, there’s still concerns in what that can mean for the economy.
Peter Tertzakian:
As we’ve mentioned in prior podcasts, to me, the tariffs are part of a much bigger issue here. We’ve got potential for a recession, the poly markets, predictive markets are showing now greater than 50% chance of a recession. But to me it’s much more than a recessionary framework here, it’s really a reordering of the global financial economy, repricing of risk, particularly repricing the risks of American Treasuries. It’s just a massive reordering of the world’s financial system that’s going to take a while to sort out the volatility indices. We talked about that in the last podcast, I expect them to stay high, and so the uncertainty is the only certainty that we can go forward with for the next short while.
Jackie Forrest:
Yeah, the Bank of Canada, I don’t know if you caught that last week, they actually put out two scenarios, and I think that’s the first time they’ve done that. That just highlights, it has a scenario of tariffs going away and one where tariffs are there and one is a recession and one isn’t.
Peter Tertzakian:
Well, we’ve gone beyond tariffs, it’s beyond tariffs. You could probably have to run 15 different scenarios and each one has merit. But anyway, what are we talking about today?
Jackie Forrest:
Well, did you catch the debate last Thursday?
Peter Tertzakian:
I did.
Jackie Forrest:
We want to talk about that, and there’s been some platforms come out from some of the parties, but we wanted to also talk about clean energy investment. We haven’t talked about it in a long time, just like a whole energy equities are down, but clean energy’s really struggled and we wanted to just give an update in terms of how investing in clean energy has changed really quite rapidly over the last year or two. We can highlight that.
Peter Tertzakian:
Yeah, I think it’s important because it’s very difficult to raise money, period, but raising money for clean energy is especially difficult, so we want to talk about that.
Jackie Forrest:
Okay, so did you watch the debate, Peter?
Peter Tertzakian:
I did. I did from beginning to end, believe it or not.
Jackie Forrest:
But I checked the polls last night and it didn’t look like there was a major change, still showing liberals at 43% and conservatives at 38. So I think that the polls would show there wasn’t a major change in voter sentiment. How did you feel?
Peter Tertzakian:
Well, I felt like it was a good debate. There was some good discussion. We can get into some of the nuances. I didn’t feel there was any knockout punches, and so I’m not surprised that the polls haven’t changed that much. I think that Mr. Poilievre showed a lot of confidence and conviction, clearly a debating pro. I think Mr. Carney came across confident, but at the same time, there was some vagaries, at least from the energy perspective that we can talk about. Mr. Blanchet or Monsieur Blanchet I should say, was also very confident and convicted in his positions. And Mr. Singh kept trying to change the channel as far as I could see, but let’s talk about it.
Jackie Forrest:
Yeah, I agree, Pierre was definitely stronger at debating, but Mark Carney didn’t make any major errors or anything either. But the one thing for me that was unsatisfying in terms of Mark Carney is it still was not clear to me if he supports oil and gas, especially we had this flip-flop where he comes to Alberta and says that he supports oil and gas pipelines and he goes to Quebec and says around pipelines, “Not necessarily pipelines, but maybe pipelines. We’ll see.” So that was the framework going into the debate. And so I was listening really carefully to hear does he support oil and gas industry?. He did say things like he wants Canada to be a clean energy superpower. He talked about carbon capture storage, nuclear energy, hydrogen, and he talked about the goal of making Canada oil and gas low carbon and even mentioned the Pathways project, but he didn’t clarify that for me. And there was even a pipeline section where it came up. Would you support pipelines?
Peter Tertzakian:
Right, right. Well, that was interesting and I want to talk about actually Mr. Blanchet’s position from Quebec because there was something he said in there that I think is quite revealing and that can be extrapolated, and he basically said, look, we don’t want individual Canadians strapped with thousands of dollars of payments for building an East-West pipeline. Mr. Singh, as I said, kind of deflected and said, I want to build electrical power grids, but implicitly said, we don’t want to pay for it. And Mr. Carney effectively said that we will sanction pipelines that are in the “national interests, which can be interpreted in a number of different ways. Mr. Poilievre clearly said that we want to have oil and gas export facilities built. Why I found Monsieur Blanchet’s position interesting is that there’s an implicit assumption that the taxpayer has to pay for all this, and even in the liberal plan and the platform that we’re going to talk about, there’s sort of this implication that the taxpayer is going to have to foot the bill for a large part of this.
Well, I don’t know where that assumption came from because as a taxpayer myself, I’m not keen on paying for a whole bunch of infrastructure. The trick to building infrastructure, which we have been successful at doing in this country is to say, Canada is open for business and then get investors to come and pay for a large part of it and make the policy regulatory, the overall business environment conducive for investment. So basically we do the, in financial jargon, OPM thing, use other people’s money to build our infrastructure, and not one of the candidates actually stood up and said, “Canada is open for business.” The closest person that comes to saying that it actually is Pierre, he’s saying he’s going to create energy corridors six-month approval periods and then let open competition decide which pipeline company or which infrastructure company is going to build it.
Jackie Forrest:
Yeah, he’s focused on getting that private capital here.
Peter Tertzakian:
But again, it is just not to me, I want to see the next step. I want to see it like we are open for business. And to me that was the most revealing thing is again, I’m going to sort of repeat that. There’s sort of this implicit assumption, at least three out of the four of them that the taxpayer has to foot the bill for all this infrastructure. I saying, but actually if you just said Canada’s open for business, we’re going to make it conducive for investment to come in. Actually, a taxpayer does not have to foot the bill that if we’re clever about it, we get other investors to pay for it and we prosper from it.
Jackie Forrest:
Right, yeah, because the issue now is we have a system, and we’ve heard from some of our most recent guests, we had Petronas and TC Energy say the system doesn’t attract capital.
Peter Tertzakian:
Exactly.
Jackie Forrest:
So we could fix that. Now, that did come out in the liberal platform documentary we’ll get to, and Pierre Poiliev of the CPC have talked about these five points that they want to scrap the C-S69, do six-month project approval. So he’s talked about that, but it didn’t really come out on the debate. But I do want to go back to this support for oil and gas and just look at some of the quotes. Mark Carney said when he got the question, do you support the pipelines? Well, it goes back to where we started, which is we’re in a crisis and we need to have maximum force. He says, “We need to have a process and a consultation, but a consultation with a purpose, which is to identify those projects that are in the national interest.” So again, I’m still not clear on his position here, what are projects that are in the national interest? It’s not clear to me that it’s oil and gas. He goes on to say they need to support our long-term competitiveness, which necessarily means lower carbon. So again, doesn’t sound like too supportive or a hundred percent supportive.
Peter Tertzakian:
Well, there’s a lot of caveats in all that. When I’m talking about investment and caveat-free investment I think you’re exactly right. If you think about the guests, the corporate guests, the corporate CEOs that we have had on this podcast, not one of them has said, “I want government money to build my projects.” They’ve all said, “Hey, we’ll bring the money, just make it more conducive for us to build it.” And I think if we were to bring other CEOs from other industries, whether it’s port authorities, electrical power or power generators, we’ve had them or we’ve had transmission lines, rail, nuclear power. Again, nobody’s saying, “Give me taxpayers money and we’ll build it for you.” The overarching refrain is make it easier for me to attract capital to build these projects.
Jackie Forrest:
Which is ultimately what we need to increase our economic growth, our productivity, and also keep up with the large debt levels we seem to be acquiring.
Peter Tertzakian:
That’s not to say that taxpayers’ money can’t be used to seed the projects or backstop the projects and so on, but it just disappoints me that not one of the leaders actually stands on stage and says, “When I’m Prime Minister, I am going to make sure Canada is open for business and we are going to build this great country, so.”
Jackie Forrest:
In separate areas like whether it be their policy documents or some of the other conversations, I think both Pierre Poilievre and now Mark Carney with that liberal plan, we’ll get to that, but there is some kind of move in that direction. But I did want to highlight one thing before we get off this topic. There’s no doubt Pierre Poilievre had a very clear support for pipelines. He actually went on to talk about the fact that we’re making a mistake by not exporting more LNG or liquefied natural gas because if we send our gas to India, it will displace some of their demand for electricity from coal and we’ll actually reduce emissions. And he used a number, two and a half billion tons, which is three times of the total emissions of Canada if we could just really maximize our gas to India and avoid them using coal. So I think that’s a good argument. It doesn’t always resonate with everyone, but I thought that was interesting that he thought that was important enough to put out in debate.
Peter Tertzakian:
Yeah, I think it’s a good argument. I think though, as you said, it doesn’t resonate with everyone because the average Canadian’s eyes glaze over because they’re not really going to care about an issue unless it hits themselves in the pocketbook or benefits them directly or indirectly through say, greater taxes that pay for things that are important to them here in the country. So talking about things that happen on the other side of the planet, yeah, that’s good for people who understand it, like you and me and others, but I think that there’s a bigger argument that can resonate here, and that is we’re open for business where a great country will put your capital to work and be one of the leading and most responsible suppliers of any commodity, whether it’s critical minerals or agriculture or oil, gas, you name it.
Jackie Forrest:
Yeah, I know your point on that one. But I guess the thing is we have this discussion in this country that’s so focused on our domestic emissions. So there is this uncomfortable thing that big part of the voting base does want to see emissions to come down, and if we open up for business, we’re going to have emissions go up. So I do think that that is an argument that helps people understand that we can have emissions go up here domestically, but overall still be contributing in a positive way to climate. Maybe you don’t need all the details, but I think it’s-
Peter Tertzakian:
What do you say, like the polls would actually show when ask what are the most important things that matter to Canadians? I mean, emissions and climate change has fallen, I think way to the bottom of the list or certainly I think it’s like before the Trump issue and the tariffs came up, it was number seven had fallen. If I don’t even know
Jackie Forrest:
Well even think so in this debate though, a Singh went on and on about how Canadians care about reducing emissions because we’re having all the extreme weather, and he talked about the forest fires, and that’s why we need to reduce emissions, which I think is really misleading because we could reduce our emissions to zero and we’d still have climate change because it’s being caused by emissions from other countries. But anyway, I agree with you Peter. It’s probably not-
Peter Tertzakian:
I don’t know why.
Jackie Forrest:
Canadians, but it was on the stick.
Peter Tertzakian:
Maybe that’s Singh’s polling so low, to be honest with you. It’s just not hitting the mark on what’s important. I mean, I think healthcare, he brings that up. Fair enough. That’s important. Certainly important to me. He brings up some other good points, but right now the average Canadian is interested in being Canadian, not having a US passport. They’re interested in putting food on the table and a whole bunch of other things ahead of the emissions issue. So prosperity is important to people right now and it’s going to become more important, even looking at the markets as leading indicators over the course of the past week. Yeah, we’re likely going into a recession, so the pocketbook is going to be the dominant issue for whomever is the new Prime Minister.
Jackie Forrest:
Before we leave this political topic, I did want to talk about this liberal platform document. The NDP and the Liberals did issue shortly after the debate, before people hit the polls. There is early voting right now, documents that had their full platform and it was costed out. So Canadians would know, yeah, you’re promising a lot of things, but what’s it going to cost us? And so for those that did the pre-voting this weekend, they had that information. We’re still waiting on the conservative plan. That hasn’t come out yet. And actually I looked back in the last election and the Conservatives had issued a plan about two weeks before the election. So to me, it seems a bit late and I hope they get it out soon. As of recording, I checked right before and it hadn’t come out yet.
Peter Tertzakian:
It needs to come out certainly before voting, advanced voting starts. It should have come out before the debate started. So I do think they’re late to the party.
Jackie Forrest:
Yeah. Now, there was some quotes this weekend from Pierre Poilievre saying 95% of it is already out there. He’s put out press releases and things like that. So there’s some information that way, but having it costed is important because actually this plan right now is quite expensive, the liberal plan. It’s talking about increasing the debt even more over the next four years, and I think it’d be interested to see if the conservative plan would be more fiscally responsible in terms of not growing the debt.
Peter Tertzakian:
Right. Well, again, I’ll come back to it. If we say we’re open for business and look for investors from abroad, which can help to build their infrastructure, we don’t have to go so far into debt. This seems maybe like a novel idea, but it isn’t because over the course of the last century, much of our infrastructure, certainly our energy infrastructure, and especially our oil and gas infrastructure has been overwhelmingly financed from multinationals and sources from sovereign wealth funds and other funds from abroad.
Jackie Forrest:
Well, we have to find projects too that are attractive to those people because some of the things in the liberal plan are things like building a lot of Arctic infrastructure. I know we talked about that last week, but some of it may make a lot of economic sense for a private company. Some of it may be more in the national interest than from the private company.
Peter Tertzakian:
And things that are really in the national interests and overlap heavily with national security. Yes, that should be state funded, state built, state owned. Obviously military facilities, northern facilities likely, but there’s a lot that can be done on other people’s monies and offer them a return and in return to us, it basically fuels our economy and our prosperity for the generations to come.
Jackie Forrest:
Yeah. Well, so I’ll be looking, I think the numbers I would look to a CBC article was something like 200 billion of additional debt the next four years under the Carney plan. So we’ll see what the conservatives have in terms of their platform and what it costs. We maybe talk about this, but I did want to, of the 67-page document from the liberals, which we will put a link to in the show notes. There was a couple of things worth mentioning. This was something new I hadn’t seen before. Committing to a new major federal project office. Now I’m not sure that concept is new. I think that’s been an idea before, but they say a two-year timeline maximum to render a decision for a project much faster than the current five-year one. So that’s a big change, so recognizing we need to get things done quickly and attract capital to your point. So I thought that was positive. I like Pierre Poilievre’s six month one better.
Peter Tertzakian:
I mean, I think there’s a sense of urgency here that’s required. And also what about the notion of one approval per a corridor or a region so that companies don’t have to go back over and over again and start the process from square one?
Jackie Forrest:
Yeah, I mean the part of this office, it talks about the fact that they’re going to work with all the layers of government and come with a process that just gets to that point. There’ll be one process for each project, but easier said than done, we’ve found that you’ve got to go right to the municipal level or the county level at times for some of the permits that are required for some of these projects, but.
Peter Tertzakian:
This is not just about federal thing. I mean, whomever again, becomes the prime minister really has to work with the provincial governments because it’s one thing with a federal overlay. But because we’re a federation, so much of the challenges still lie within the provinces, even between provinces, take Alberta and BC, for example. And so whomever is the prime minister is really going to have to be a leader, make a commitment to work with the premiers in a constructive way. Because even with providing these sorts of federal level things, which are essential, it’s not a sufficient condition to still get things built. Then we have to go down to the next layers, the provincial layers, and then of course the regional layers. So there’s a lot of work to do.
Jackie Forrest:
It takes a lot of effort.
Peter Tertzakian:
And it takes a lot of leadership.
Jackie Forrest:
We’ll have some more time to talk about the election as we lead up to the end of April, but let’s switch topics to clean energy investment. And we touched on this the last week, that the tariffs are really impacting the cost of clean energy in the US, especially for batteries and grid components, which are both areas that US still imports a lot from China, and also manufacturers even in the US of clean energy products do use a lot of things from China ’cause China is actually where most of the manufacturing capacity is, whether it be for critical minerals or processing minerals for clean energy. So the Trump changes are already having an impact on the energy sector, and that was a sector that actually has been struggling already. The Wilder Hill is down three years in a row after peaking in 2021.
Peter Tertzakian:
So that’s the ETF, the exchange traded fund for a basket of the leading clean energy companies in the world. And I’ve looked at the companies in that, and they are representative of fairly pure play clean energy companies all the way from hydrogen to solar manufacturers to installers and so on.
Jackie Forrest:
Electric car manufacturers-
Peter Tertzakian:
Electric car.
Jackie Forrest:
Yeah. Yeah , it’s a real bundle of everything you would consider clean energy. So it’s been very hard for companies to raise money. It seems to get worse every year, but I thought I would highlight a report that Bloomberg New Energy Finance puts out every year. We’ll put a link to it in the show notes. The big report is for their clients, but there is a free version, a smaller version of the report that anyone can download. So I’ll put the link there. But interesting, despite all the negative news around clean energy, it is still growing. It reached $2 trillion of spending in 2024, which is a big deal. By the way. That’s almost two times the amount of spending on all fossil fuels. So that includes not only upstream oil and gas and coal, but also power generation and everything in the whole Supply chain.
Okay. Time out. I think this is hugely misleading. It’s got in those numbers, the money spent on electric vehicles.
Yes, it does. Yeah.
Peter Tertzakian:
Okay. So to be fair, you would include spending on combustion vehicles to have an apples to apples comparison.
Jackie Forrest:
Okay, well, that’s fair.
Peter Tertzakian:
So sorry. You need to take the EVs out and I haven’t done that, but we should do that.
Jackie Forrest:
We should do that. But it’s still show growth, but you probably, honestly, EVs are such a big part of it, you’d probably have it a bit more balanced with oil and gas.
Peter Tertzakian:
Let’s do that calculation and we’ll come back to it, say in a future podcast. But even with what’s left over after you take out electric vehicles, the market is still highly selective, right?
Jackie Forrest:
It is. By the way, I just wanted to add too, that growth year-on-year is 11%, and even if I took EVs out, I actually think I’d probably see growth in that range. But this is the thing. We’re actually kind of seeing a bifurcation of the market, and Bloomberg talks about this. They’re calling it mature sectors, power grids, electrified transport, renewable energy and energy storage. Those are still really growing.
Peter Tertzakian:
Can I offer a different word to mature?
Jackie Forrest:
Okay, sure.
Peter Tertzakian:
Okay. Because to me, it’s a bit euphemistic to call it mature. I would call it profitable.
Jackie Forrest:
Yeah, that’s another way.
Peter Tertzakian:
Makes money. And that really is what differentiates what’s growing and what isn’t. Whereas four or five years ago when it was very easy for clean energy companies to raise capital in the equity markets, and that Wilder Hill index of companies was 10 times the value, it’s a drop by 90% from the peak. And back then the sentiment was, okay, it’s a horse race. Let’s see who can make money, who can’t. And now it’s four or five years later, it’s very clear who’s making money. Actually, it’s more like four years ’cause the peak was I think February ’21. So it’s clear solar panel operators and others can make money, but there’s a whole constituency of companies, especially early stage companies that aren’t making money. They have some cash in the bank, but they’re running out very quickly because they don’t make money and they can’t raise any more money.
Jackie Forrest:
That’s right. But the mature sectors, these ones that make money are actually the vast majority of the market. They’re like 95% of the market, and I’m including electric cars in that too, of that 2 trillion. These emerging sectors are actually about 4% of that total. And they’re spending year-on-year declined, 23%. So people are spending less money than they were a year ago on things like hydrogen, carbon capture and storage, decarbonization of industry, electrified heat was in that bucket as well. And so these are areas that the economics generally are a bit more challenged, right? Small modular reactors. And we’re not seeing the money go into them. And I believe that if we go out next year, the spending in this emerging sectors as they’re calling it, maybe you’ll have a different name, I think it’s going to be worse.
All of this stuff requires policy. And although many of those policies are still in play, for example, in the US, the Inflation Reduction Act, it still exists. There’s a lot of concern that at some point the Congress is going to make changes there that will reduce those subsidies. Even here in Canada, we know that the liberal government, they did have it in their document, will support things like our investment tax credits, but we’re uncertain if the Conservatives get in, if they will. So that’s causing people to just not invest as they wait and see.
Peter Tertzakian:
Yeah. Well, when you say policy, you’re basically alluding to government subsidies and grants.
Jackie Forrest:
That’s right.
Peter Tertzakian:
For the clean energy sector. So if we look at the sources of, for these companies to ultimately enter into what you’re calling the mature or the profitable world. So if we look at the emerging companies, they don’t have cash flow because typically they are not profitable. They’re losing money in the absence of say, government policy. So if you don’t have cash flow, you don’t have profits to invest back into the company and into the manufacturing lines and what have you. So government subsidies and grants are critically important. They’re under siege, I would argue. I think you’re arguing too, that they’re going to be increasingly under siege, particularly if we go into a recession and there’s cutbacks, so that leaves raising money in the equity markets, but the cost of capital, because these stocks have fallen so precipitously in some cases, like 95 to 99% for some of these emerging companies, nobody’s going to buy their shares or they’re going to be able to do a share issuance. And if you don’t have cash flow, getting debt is near impossible.
Jackie Forrest:
Yeah. There’s also carbon markets.
Peter Tertzakian:
And the carbon markets-
Jackie Forrest:
Which I say are a little different than subsidies because they’re usually polluter pays, but though the carbon markets are looking a little bit more uncertain as well, we’re seeing the potential in Canada to not have the carbon markets.
Peter Tertzakian:
Well, I think you’re being kind. I mean, look at the Alberta carbon markets. What is the tier carbon pricing has fallen from? What’s the headline price supposed to be right now?
Jackie Forrest:
It should be around $95 now with the increase.
Peter Tertzakian:
$95, and it’s trading, last I checked about a couple of weeks ago it was $30.
Jackie Forrest:
Yes. Yeah, I’ve heard that too.
Peter Tertzakian:
And now what’s the California market doing?
Jackie Forrest:
I don’t know if you caught it ’cause there’s so much news coming from the White House, but there was an executive order a couple of weeks ago saying that all state level policies are illegal if they target greenhouse gas emissions. So things like reducing your greenhouse gas emissions, carbon pricing, low carbon fuel standards. So the federal government wants to challenge the states for their ability to even have those types of policies. So we’ve seen some weakness in those markets as a result of that.
Peter Tertzakian:
That’s an extreme manifestation of what’s going on in the United States. But here in Canada, we also have freezing up of the carbon markets. As I said, the 30 bucks for an Alberta carbon credit when it should be 85 or 90 or 95, generally speaking, the carbon markets in this country have frozen up. And so too, they are not a source of financing for clean energy companies.
Jackie Forrest:
Yeah. And that was an important source.
Peter Tertzakian:
So I mean, this is something, I mean, we’ve talked about it ad nauseam on this podcast, but again, the new prime minister is going to have to deal with our, at last count 11 carbon markets now, none of which seem to work properly or are deeply depressed and illiquid.
Jackie Forrest:
And because that was a key way of paying for all of these emerging sectors, or I think what we’re going to see, which is happening globally, is there’s just a lot more money and clean energy is going to go to these profitable, as you call them, sectors. Sectors that don’t need the government’s support.
Peter Tertzakian:
Well, and that’s not a bad thing. I mean, the market is discriminating and the capital markets are ruthless at ultimately discriminating between which companies should be financed and which shouldn’t. The market speaks. And until such time, some of the upstarts can demonstrate they’re going to make money, there is no money.
Jackie Forrest:
Well, and I think another big challenge, even if you had money right now is we’re in this changing situation where we have the legacy policy still around, but there’s a lot of uncertainty. The risk associated with them is so high that people can’t really count on them. So they’re discounting the value of them. And we’re transitioning, I think, to some new policies, maybe more industrial policy focused, maybe more focused on energy security, and it’s still uncertain how that will play out. But those things may incent investments in clean energy focused on new goals. Before it was all focused on reducing emissions and climate change, but there’s some new goals that could support clean energy too.
Peter Tertzakian:
There are, but we’re in a policy blizzard, that’s what I call it. We’ve got the legacy policies that had already been clouding the situation and reducing my visibility, and now we have fiscal policy with the tariffs. So we don’t even know how these tariffs are going to manifest themselves in global trade, for example, even for solar panels and all these sorts of things. So it is just between environmental climate and fiscal policy, it’s a policy blizzard, and this is going to need to be dealt with certainly in this country where the policy blizzard, I would argue, is more acute than even in other countries.
Jackie Forrest:
Well, and I think all of this is leading a lot of people to say net-zero by 2050 is not happening. It’s going to look different. The view of how energy transition will happen is changing. And I wanted to highlight just a couple of articles on that. Dan Juergen had an op-ed in foreign affairs. I will put a link to it called the Troubled Energy Transition. And the subtitle was How to Find a Pragmatic Path Forward. And he just basically lays out the case that everyone’s starting to wake up to the fact that it’s going to take trillions of dollars of investment and no certainty who’s going to pay and that we’re probably going to be moving more to an additive. He calls it energy transition. And that’s actually how historic energy transitions have typically happened. When we found a new energy type, we didn’t just replace the old one, we just added new energy, right.
Peter Tertzakian:
It’s a different expectation.
Jackie Forrest:
So he talked about things like even in Europe, because the real focus now is on secure and affordable that some of the green policies that are making energy maybe less secure or less affordable, are starting to face, he calls it a green lash, like a backlash, but a green lash.
Peter Tertzakian:
Yeah, I’ve heard that term.
Jackie Forrest:
Even in Europe, in places where their carbon markets I think have been around since 2005 and are viewed to be very stable and people would invest in them, I think there’s even some uncertainty on how they may evolve over the next several years. So I don’t think you can invest on these policies. I think everyone’s waking up to fact that you’ve got to look at the profitable areas. And then this other dynamic that’s coming, which is this idea that not only do we need to have clean energy, but we need to all produce it at home. Like the Americans really wanting to create more supply chains within the US.
First of all, it started out with the IRA trying to create incentives for domestic manufacturing. Now we have big tariff walls going up, trying to stop, for example, Chinese goods coming into the US. I’m hoping that will result in more investments in clean energy. And I wanted to highlight a bit about China because I actually question, I’d be interested in your opinion, if these tariffs the Americans have put on, do you think that’s going to help people want to invest in domestic manufacturing in the US for clean energy?
Peter Tertzakian:
No, I don’t think so. Not right now. There’s just too much uncertainty. I just talked about the policy blizzard, and when you have a policy blizzard and the specter of recession hanging over your head, when you go to a boardroom discussion, it’s generally we’re going to be much more pragmatic and frugal with our spending. So in the near term, no, I don’t expect a flurry of manufacturing lines pop up for solar panels and electrolyzers and all sorts of other things in the United States because of what’s going on.
Jackie Forrest:
And I think it’s because too, it can change all the time. So how could we make, think of the idea to build a new manufacturing plant in the us That’s probably a couple year at least process. And so if you think the policy may change next week or next month, it doesn’t create that longevity of the policy that’s needed to support capital investment either.
Peter Tertzakian:
Well, this comes back to the distinction. I think we talked about it on a podcast or two ago between uncertainty and certainly there’s a lot of uncertainty and stability, and they’re are two different things. If you have stable uncertainty, at least you can quantify the uncertainty and make some investment decisions. It’s just that you price your project differently in what you’re willing to pay to build a project and invest in it. But if you have the combination of uncertainty and instability, that’s when I freeze up, and that’s where we’re at right now. It’s unstable. We don’t know what’s coming tomorrow. We don’t know how the world’s capital markets are going to shake out. Even what’s called the risk-free rate, which is pegged to the US Treasury is no longer considered to be risk-free. So uncertainty plus instability, or maybe it’s uncertainty times instability, is going to lead to a lot of freezing up of decisions around the boardroom.
Jackie Forrest:
Well, and that leads to maybe a slower economy that maybe it’s a self fulfill.
Peter Tertzakian:
Well, because a key part of the GDP formula is investment. If there’s no investment, it basically leads to recession.
Jackie Forrest:
Okay. Well, on that happy note, I did want to talk a bit about China because the Americans are really trying to keep China out in terms of the 145% tariffs. But there was some interesting data, and this is from that same Bloomberg New Energy finance report. It showed the investment in global clean tech factories, and it’s stunning, but in the last couple of years, the Chinese have been putting anywhere between 90 or over $100 billion annually into clean energy investment. And the rest of the world is less than $20 billion.
And you could argue at this point, the Chinese have put so much capacity in that we’re actually oversupplied in many product categories like solar, battery, electrolyzer, battery minerals. All of these have very low prices right now because there’s too much capacity. But yet, according to Bloomberg, their forecast, they actually think that the Chinese are going to continue over the next three years to put anywhere between 80 to $100 billion more in clean energy. And so they’re going to be the dominant force in this. And when you get the scale and expertise that they have really gotten to now where they are putting out batteries at a scale that’s totally different than everyone else, they’re advancing the technology now, they have a skilled workforce that’s huge that knows how to do these things. I just think that’s probably very hard to see how China doesn’t continue to dominate in the supply of all of these
Peter Tertzakian:
Well, China has what we need is a long-term vision. It has a strategic imperative. It has, I would say, is industrial policy rather than climate policy. Industrial policy actually is above climate policy. Their view is to dominate certain industrial sectors, many of which are in the clean energy electric vehicles, batteries associated with electric vehicles.
Jackie Forrest:
Solar.
Peter Tertzakian:
Solar, you name it across the spectrum.
Jackie Forrest:
All the upstream minerals, the critical minerals.
Peter Tertzakian:
The critical mineral processing-
Jackie Forrest:
The processing, yeah.
Peter Tertzakian:
For which there’s a massive deficit in the Western world.
Jackie Forrest:
And that’s only going to continue to strengthen. Even in this scenario, they still continue to build capacity. And you may say, “Well, where are they selling it to?” Because the Americans are keeping them out now. The Europeans actually were putting in more restrictions. Just like us, the Americans asked them to put tariffs on electric cars to keep the Chinese electric cars out. And we did the same. We paid a price for that, by the way, because now we have more tariffs from China on some of our grains and things like that. But the interesting thing is in the areas where Europe and the US have tried to keep China out through tariffs, and I will send a link to this as well. This is research from Nat Bullard. He puts out a large-
Peter Tertzakian:
Yeah, it’s great.
Jackie Forrest:
Slide deck. It’s great. Yeah, 300 slides. I will point out the slide that this is in, but it shows that as the sales, for example, of solar ramped down in Europe and the US, they skyrocketed up in the global south, which he considers to be Africa, Asia, South America. So all you’re doing is forcing those products into other markets that aren’t tariff, and you saw a similar situation with the electric vehicles. As those new tariffs came in, sales came down in Europe and they just shot right up in the global south. And for batteries, you haven’t seen that yet, but that’s going to happen this year because we didn’t have big tariffs on batteries coming into the US but we do now. And I think you’re going to see a real surge up in those batteries going to those areas.
So the good news is from a climate perspective, that the Chinese are building all this capacity. They’re making it cheaper and cheaper and cheaper, and they’re selling it to the global south who is now going to decarbonize and create energy systems that look very different than the developed world. And so from a climate perspective, it’s really good. But I guess from the American’s perspective, I see it as risky because their companies may fall behind, they’re being protected by these tariffs, but at the same time, the Chinese continue to grow, advance the technologies, sell them to the rest of the world, and the US may lose out on that opportunity of having leading companies that can sell to the rest of the world.
Peter Tertzakian:
Yeah. Well, there’s a lot to unpack in all the geopolitics that you speak about in terms of what’s going on in the global south. I would just say that it’s not really decarbonizing. It’s actually because a lot of these economies didn’t even have carbon-emitting energy sources, so.
Jackie Forrest:
True, yeah.
Peter Tertzakian:
They’re just
Jackie Forrest:
Building for the first and growing new energy.
Peter Tertzakian:
Building for the first time and growing energy needs in a different way than we have, following the industrial revolution. So it’s a different dynamic. And frankly, it’s easier to do that than to substitute legacy incumbent infrastructure.
Jackie Forrest:
Right. Well, and now the Chinese are producing it at a way where it is cheaper than some of the alternatives too for these countries.
Peter Tertzakian:
They’re the masters of process innovation. And in the West, particularly in the United States, they’re the masters of creative product innovation. In other words, creating new innovative products. But then the Chinese are the masters of being able to produce it with manufacturing lines that are highly efficient and bringing down the costs.
Jackie Forrest:
Yeah. And doing it at a scale that allows them to do that.
Peter Tertzakian:
At scale.
Jackie Forrest:
Yeah, so we’ll wrap that up. I mean, there are other positive trends for investing in clean energy. The other one is just this trend towards electrification. No matter where you look, there’s outlooks for growth in electrification that are higher than historical, sometimes twice or even four times as high. And so I do think, to wrap it up, that there’s a lot of opportunity still in clean energy, but where the opportunity is is shifting. I think it’s going to be, as we say, on these affordable, or some people say mature sectors where they don’t need the government subsidy as much around areas of electrification, or there’s going to be a lot of growth in terms of electric brands.
Peter Tertzakian:
I agree. I think though, that being objective about this, the reality is that things are slowing down economically, and when things slow down, spending slows down. We’ve talked about that. And when that happens, there’s just a pause and more resistance to change. So if it’s new markets where you don’t have to change the way you do things, fine. But in existing markets, I think it’s going to be quite difficult. Not forever, but until, as I said, the instability clears and we get back to some more stable sense of uncertainty that we can quantify the risks and get investment going again.
Jackie Forrest:
Well, with that, we’ll wrap it up.
Peter Tertzakian:
Great. Thanks. That was a good discussion.
Jackie Forrest:
And thanks to our listeners. If you enjoyed this podcast, please rate us on the app that you to and tell someone else about us.
Announcer:
For more ideas and insights, visit arcenergyinstitute.com.
