The past 12 months were momentous for climate and energy watchers. Russia’s war of aggression in Ukraine roiled energy markets. The United States passed the largest climate bill in its history, allocating vast new resources for clean energy development and deployment. The Supreme Court’s June decision in West Virginia vs. EPA imposed a new judicial standard that could hamstring climate regulation. And all this took place against an unsettled political backdrop, both within the United States and abroad. The year just beginning will, undoubtedly, bring challenges both expected and unexpected. Below are three of the main stories to watch.
Russia invaded Ukraine in February 2022 expecting a quick victory against Kyiv and a limp response from divided and energy-dependent Western countries. To Moscow’s surprise, Ukraine has utilized stout Western support to fight the far larger Russian force to a standstill. And, so far at least, the West has been willing and able to bear the economic pain of a sudden separation from a major energy supplier. Indeed, oil markets have even offered some respite in recent weeks. European sanctions on Russian crude came into effect in December without the skyrocketing prices seen when the sanctions were announced. And, after the G7’s controversial price cap came into effect in December, Russian oil began to sell at a steeper discount than it had been in the months leading up to the deal.
Nonetheless, the coming year could be rockier. Europe landed nearly 1 million barrels per day of Russian oil in November, demonstrating that it still had some way to go in replacing Russian supplies. Russian President Vladimir Putin decreed that, beginning February 1, Russia would bar all oil exports to countries “directly or indirectly” abiding by the cap – a vague standard that could be meaningless or could take significant quantities of oil off the market, depending on Putin’s whims. And, beginning in February, the European embargo will expand to include refined products like diesel, which will be trickier to replace than crude.
Nor is oil the only energy risk stemming from the Ukraine conflict. Over the course of 2022, Moscow choked off pipeline shipments of natural gas, sending European prices to historic highs. Prices equivalent to $410 per barrel of oil drove down demand, while policymakers worked to replace lost Russian supplies and build up gas storage for what has so far turned out to be a mild winter.
All this eased prices as the year closed, but 2023 will likely be harder. For the first half of 2022, gas was still flowing through Nord Stream 1, a major pipeline that has since been rendered inoperable by an unexplained explosion. Europe will need to rely on costly liquid natural gas (LNG) and longer-range pipeline shipments to meet 2023’s demand and refill storage tanks for next winter. This all but ensures that prices will remain elevated, threatening not just household and government budgets but also the competitiveness of energy-intensive industries such as steel and glass manufacturing. Public support for Ukraine remains strong across the continent, but whether that will endure through a second year of war-related energy disruptions will be a key story to watch in 2023.
Transition in Washington
The 118th Congress began last week, inaugurating a new term of divided government. Democrats expanded their narrow control of the Senate, while Republicans took over the House with a wafer-thin majority of just four seats, where they are already grappling with historic, self-inflicted challenges. It is easy to dismiss these early disruptions as unseemly bickering that will soon be forgotten in the tide of everyday politics. On the contrary, this suggests that everyday politics will be thin on the ground in this Congress.
The window for federal energy and climate legislation is, at best, closed. Perhaps there will be scope for climate-friendly provisions in forthcoming legislation like the Farm Bill, where there is at least tentative interest in supporting practices that boost carbon sequestration, soil health, and water retention. To date, however, such practices are utilized by a small minority of farmers, making them important growth opportunities but marginal sources of abatement compared to changes in power generation or transportation infrastructure.
At worst, Congressional climate skeptics could utilize proposed rule changes to gut climate and energy programs and zero out salaries or staffing levels for important implementing agencies; hamstring the regulatory process with investigations and hearings; weaponize the debt limit to force discretionary spending cuts; or even force out the Speaker in favor of someone more amenable to their interests. Of course, climate and energy issues are not at the top of the House Republican agenda, and Senate Democrats and the White House would certainly fight back. But with the debt limit looming and some Members’ appetites for nihilism apparently limitless, climate and energy watchers should expect some fireworks.
International Climate Implementation
The 2022 UN Climate Summit reached agreement on a “loss and damage” mechanism to compensate countries for the costs climate change is imposing today, a long-sought goal of vulnerable countries. Though the agreement was celebrated as a landmark, it is far from clear how establishing yet another financing scheme fulfilled the summit’s goal of policy implementation, or how diverting time, attention, and funding from existing mitigation and adaptation efforts will serve at-risk states.
This year’s summit, which will take place in the United Arab Emirates, will need to find a way not only to flesh out the thin agreement on loss and damage reached in Sharm el Sheikh but also meet critical new deadlines. Countries are scheduled to report progress toward their previous emissions reductions pledges – pledges it is already abundantly clear most will miss. Wealthy countries will be challenged to deliver on climate financing promises they made more than a decade ago, and to begin filling a fund for adaptation assistance pledged two summits ago. In a summit hosted by a petrostate, in the middle of what is projected to be a global recession, and on the cusp of a second winter of energy disruptions, these talks will face stiff headwinds.
All that said, the signals for 2023 on the international climate front are not uniformly bad. The United States and China have taken tentative steps out of the diplomatic nadir that followed former Speaker Nancy Pelosi’s trip to Taiwan last August. Though significant differences remain between the two powers on a wide range of issues, China experts expect that climate will continue to be a promising area for bilateral cooperation.
Separately, momentum seems to be building toward reforms of international financial institutions that will allow them to take a more prominent role in financing mitigation and adaptation projects. As such, the outcomes of the Spring Meetings of the World Bank and International Monetary Fund will also be key to watch.