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The HC Commodities Podcast
Building Commodity Supply Chains in Trump’s America with Peter Stahley
00:44:39
Today, we return to the subject of commodity supply chain policy, permitting and regulation and policy in the US, with the One Big Beautiful Bill going through reconciliation. Less public, but no less momentous, we cover the Seven County Infrastructure Supreme Court decision, which may herald Sea change in how new energy and mining projects can get underway to meet both the growing energy demand but also the need for robust and resilient supply chains in the energy transition. Returning to the show is our guest, Peter Stahley, Senior Vice President at Cassidy & Associates, the bipartisan governmental relations firm, where Peter specializes in energy and mining.
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Foreign.
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Welcome to the HC Commodities Podcast, a podcast dedicated to the commodities sector and the people within it. I'm your host, Paul Chapman. This podcast is produced by HC Group, a global search firm dedicated to the commodities sector. Today we return to the subject of permitting and regulation and policy as it pertains to the energy transition, primarily in the US with the one big beautiful bill coming up for reconciliation, but also the seven county infrastructure Supreme Court decision, which may herald a momentous change in how new energy and mining projects can get underway to meet both the growing energy demand, but also the need for robust and resilient supply chains in the energy transition. Returning to the show is our guest, Peter Staley, senior vice president at Cassidy and Associates, the bipartisan governmental relations firm where Peter specializes in energy and mining. As always, you can support the show by leaving us a positive review on the platform you're listening on. And as always, I hope you enjoy the episode. Peter, welcome back to the show.
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Real pleasure to be here.
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So what a difference a year makes. So our last episode was a year ago and really you gave us and encouraged people to go back to listen to it. And a deep dive into the permitting and regulatory backdrop to energy and natural resources in the US But a story that mirrors itself in Europe and elsewhere around the developed world and really that causing a duration mismatch or a risk mismatch between achieving the goals of whether it was the energy transition or energy security. So we're going to recap that. But the backdrop to this episode is really what's happened since obviously with the change of administration and in particular, the seven county supreme court decision, which is slowly making momentous waves about what it heralds and its potential impact. Can you just give us your brief digest of the last story we told about where the US is and indeed more broadly where the west is when it comes to permitting and regulation and how that pertains to energy and the energy transition.
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Sure. So I think everyone is going to be keenly aware there has been an election in the intervening year or so since we spoke last. And then I, you know, I think in the last six months or so with us being here in June, there's been a flood of news. It feels like every, every five minutes. So you know, as many of your prior episodes have talked about, volatility is still, I think the name of the game, especially when it comes to the policy world, but in the the macro picture of energy demand, AI manufacturing. So that's all held steady and that's the backdrop for I think the continued Story where permitting, you know, writ large and that can we'll get into this a little bit about there's the regulatory side, there's the legal backdrop. And now, you know, almost a year after we recorded last time, this Supreme Court decision, which has some, you know, major ramifications, I think, for how projects get permitted going forward in the future. But I think if we take a step back, there was a lot of hope at the end of last Congress that what ended up being the Manchin Barrasso bill, Energy Permitting Reform act would get across the finish line, make a lot of the changes that industry proponents had been pushing for, really for years, which that in itself built on previous efforts at the end of the prior Congress, unfortunately didn't quite get there. So there's still this overhanging question of does Congress still need to act? Will Congress act? Because it's also paired with an administration that I think everyone would say is, you know, 100% all in on deregulating, moving fast, getting things built. And so it's a, it's a complicated interplay between these new legal standards, deregulation and then, you know, Congress in this political environment, figuring out what they have appetite for.
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What was in that, that permitting bill Mansions Permitting bill. Just a digest of that, just to get some sense, I guess, both of the, the current bottlenecks again, which we covered in that episode, which people should listen to May last year, 2024, but also some of the proposed solutions.
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Sure. So at a really high level, it was focused on pairing what I'll call all of the above process reforms for primarily energy projects, but also mining projects with transmission reforms to get more transmission infrastructure built in the United States. And that was sort of the grand political bargain. Right. On the, on the left, decarbonization, clean energy. So much of it hinges on building more transmission. And then, you know, on the right, and I would say Senator Manchin putting himself somewhat in the middle of this, building everything, especially oil and gas infrastructure. So the way it did that, a variety of reforms on federal lands, both to make it easier to build renewables as well as, you know, additional lease sales, giving more certainty to oil and gas developers in New Mexico, in Wyoming, states with a lot of federal land on top of that. And I think this is the part where, you know, maybe it didn't go far enough in the eyes of some members, and that's why it's, it kind of fell apart. Judicial reforms meaning, you know, we talked a little bit last time about the litigation doom loop, which is one of my Favorite phrases, even if it's one of my least favorite phenomena. But judicial reforms, you know, shortening statutes of limitations so project developers don't have to kind of wait six years to see if they're going to get sued. Has to happen a lot quicker. Making courts review a project that is subject to litigation much faster. And then if they have a finding again, speeding that up, trying to, even if the answer is no, get to know quicker both on the agency side and then in the legal side. And I think it's important to note what was not in there. This is subject a little bit to combination of politics, but also the arcane rules of the Senate. You know, in the last Congress, House was controlled by Republicans, Senate was controlled by Democrats. You know, the Senate by nature of needing 60 votes tends to be a little bit more bipartisan. But also in the Senate, the committee that is in charge of the National Environmental Policy Act, NEPA, is the Environment and Public Works Committee, Senator Manchin, Energy and Natural Resources. So the bill didn't directly touch nepa. The bill didn't directly touch, say, the Clean Water Act, Clean Air Act, a variety of other statutes where Republicans have long wanted reform and a variety of reasons, but those things were not in the bill. And then, you know, on the House side, on the Republican side, those were big asks. And you know, the lack of consensus on those items arguably is what helped, helped keep it from securing passage at the end of the Congress.
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I guess we're leading up to some sense of where there's this sort of Venn diagram of the energy transition proponents, decarbonization proponents, typically more the left, progressive left, and then energy security proponents, typically more the right, the Republicans. And again, this matches globally. So there's a, there's a narrative here that everyone can take from. In the middle of that sits kind of this, the need for permitting, regulatory reform to actually achieve some of these projects. At the heart of that sits NEPA that you mentioned and its role in kind of what you've described as the litigation doom loop. It's worthwhile, rather than rehash our last episode, but actually it's worthwhile just mentioning this because it's going to be important for Severn County. Can you just give us some sense of process versus substance, how actually the nature of that as a piece of legislation has led to this, you know, it being much easier to file a lawsuit and just wait out any given commercial proposal than it is to actually, you know, go through the normal process.
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I think the permitting process versus substance question is the ideal lens Especially in the wake of this Supreme Court decision, seven county that we're going to be talking about. So you have NEPA very clearly stated in this court case, and frankly before this, that NEPA is a procedural statute. And so what that means is NEPA says, hey, federal government, before you do something, you really need to take a hard look at the environmental consequences of whatever you're doing. Now the law is five pages long, very simple, and in fact passed, you know, before a lot of these substantive statutes that came along later, whether it's the Clean Air Act, Clean Water act, you know, you could go on and on for talking federal lands, the Federal Lands Policy Management Act, Flipma, you know, we could die in the acronyms here of substance statutes. But NEPA is basically saying, look at all the consequences, look at what's going to happen and use that to inform your decision making. And so I think the, you know, this litigation doom loop, again, not to go too deep into the weeds, a lot of that has hinged on various courts over you know, the past 50 years, really trying to figure out where to draw the line, what counts as a hard look, what's enough detail, you know, in seven county, 3,600 pages, I think is cited repeatedly in the opinion of the Environmental Impact Statement, you know, to give context. When initial guidance came out, you know, I think that was early 70s, they were talking about 100 pages or less. And in fact that was one of the reforms that passed at the very end 2024 was legislating in hard coding, in page limits. They've grown incredibly long, incredibly detailed. And most of the reason for that, I think most experts would agree, is that's because agencies are trying to litigation proof, be ready to be fly specked and say, did you look at this one stream? Did you look, you know, at this industry downstream and hit every possible impact you could possibly think of.
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So that's, that's sort of all this, you know, the procedure side. But how does that sort of translate into a decision or indeed actually I guess even clarity about kind of its, you know, the compliance world, where yes or no, if you'd like. You know, I guess then that is the nature of that is that is at the heart of the litigation piece because you're essentially talking about sort of perspectives rather than clear bright lines, I guess.
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Right. So that's part of the problem here is so many of these lawsuits are actually about the process. They're, they're suing under what's called the Administrative Procedure act. And it's basically saying you didn't do the procedure. Right. Oftentimes, not in all cases, but oftentimes it's not a lawsuit that says, hey, this project puts too much mercury in the air, you know, under the Clean Air act or oh, it doesn't hit this water quality standard, you know, that is enacted in law and then implemented through regulation. So so many can just keep doing that. Right. And you can just keep going and.
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You know, you didn't do that one with the right test tube. Now it's the next one.
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Exactly.
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The point being that you can reset the clock and essentially your, your standpoint on this is in four years there'll be another change of administration or in 10 years that project will run out of money and in fact, it's just not going to get financed. Graham Kerr, South32, you know, Australian CEO of an Australian mining company, you know, was saying about being questioned by colleagues and network about why they would and invest in manganese in the U.S. right. With that backdrop, that bill doesn't pass. So all of this stuff still sits there. But again, we've got this convergence of energy security and energy transition requiring a lot of stuff dug out the ground, requiring a lot of permitting around. You know, how do you get the grid, the transmission lines, even the backdrop policies behind those in terms of market structure so that we can meet this energy demand story that you pointed out at the top.
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Right. And then there's tons of, you know, the executive orders in the Trump administration. And sure, if they're not focused on renewables the way the Biden administration was, you know, there's this imperative to, as you said, build mines, build processing facilities on the power side, you know, get more turbines up and running. That requires pipelines. We're talking about, you know, building 30 gigawatts of nuclear power quickly. That requires, you know, major, not just investment, but on the government side, if it's going to work. Right. Certainty on can I get a permit and when.
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Exactly. So the Trump administration comes in, there's some very clear signaling. There's a sweep of executive orders. There is also the Doge cuts. That's removed a lot of the ability to enact some of these. Even on the military side, we've got an episode coming up there where actually a lot of the long standing purchases have, have exited the building. But anyway, that aside, so what, what has been in those executive orders? And then can you just talk very specifically about the epa, because there's a lot of talk about repealing sweeping acts as it pertains to environmental standards. Some of which have been there for a long time. You know, again, are these, is this more sort of signaling than it is reality? And, you know, how much can. Well, can you just give us some sense of how effective executive orders can be? And have they really changed the environment yet at all?
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Right. So it's, you know, as with everything, the annoying answer is a bit of both, and it depends. So these executive orders and then, you know, the agencies implementing them, it does move the needle. I would argue it's already been moving the needle on how quickly some things are going forward, you know, and a lot of that is ordering agencies to essentially remove regulations that, you know, have been slowing down projects to prioritize getting things built, you know, perhaps as opposed to extra study. On the NEPA side, for example, the Council on Environmental Quality, the actual sort of broad agency that sets the standards, has actually removed and repealed its regulations, deferring more to agencies. So there's a lot of that sort of what I call procedural improvement. And then on the other hand, there's this focus at the agency which, you know, to briefly touch on staffing, where agencies have been given the direction to reprioritize, you know, in line with these executive orders, American energy production, American mineral production. Right. So that means, you know, they have moved the staff who are there into processing permits, you know, moving these reviews through. But as you say, there are hiring freezes. A lot of staff have taken the Doge buyouts, the fork in the road. And there is a question, especially, you know, if you take the Bureau of Land Management, you know, most of the American west has huge pockets of federal land. You know, if you look at New Mexico, a lot of the federal estate there is where tons of our oil production comes from on federal land itself. You've got offshore. And then, you know, if you think about mining or renewables, it's sunny, it's windy in the American west. And you know, the glories of geology says that most of our mining is there. These are remote rural places. And you have, you know, a field office where even pre Trump, you know, I think the federal workforce has been aging for a long time. They've already had hiring difficulties, some of which were bureaucratic related. And now you've got this question of, you know, when you call your local BLM field office and say, hey, you know, I want to get out here and drill over that way, how do I get the permit? You know, who's there to pick up the phone? Who's there to follow that, that process? Because even if you clear out the regulatory underbrush, we'll say by statute, the actual legal requirements is still going to require, you know, step ABC and D. Maybe we got rid of E, F and G, but someone's still going to have to do those steps. And that is an ongoing question about how effective and how much capacity will be at some of these agencies. The energy and resources sector is experiencing unprecedented change. To help navigate this change and capture its opportunities, HC Group launched ENCO Insights, a global advisory network dedicated to the sector providing senior advisors and subject matter experts to investment and infrastructure funds, law firms and corporates. Encoinsights leverages HC Group's 20 years of connections in energy and commodities to give clients the expertise they need when the stakes are high and insight matters.
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Learn more@encoinsights.com in your sense, is there kind of this in some ways a bipartisan meeting of the minds that actually the pendulum swung way too far? We're now talking about critical demand for both energy, critical demand for energy security that actually something has to give. And in general, there is a sense that whatever these changes are made around trying to fix regulation and permitting and some of these, these procedures, there is some support from both part, well, the Democrats as well in actually sorting this out. I mean, you know, are we, are we sort of actually seeing a shift in the realities of the need to build some of these crucial supply chains up?
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I think so. So I, I would say that there's still, you know, we'll call it a broad consensus on, on how to, or the need for, I should say, to reform process. The devil's always in the details. You know, in the previous Congress, I would say there was a lot of consensus around building transmission and then all of the above faster. And then when someone would say, oh, we have to reform NEPA to do that, you know, that's where we got into the arguments. Now, on the substance side, I think it does get a little trickier. Those were a lot of those pieces that, you know, someone you could argue were missing in previous reform attempts and that might be again, you know, the Clean Water act kind of state veto, say, a pipeline crossing a river. Those questions, I think there's a little less consensus. But to your point, you know, right now we're talking about the abundance Caucus, you know, abundance Democrats more broadly even than energy. Right. Housing. There's this, I would say a political undercurrent, you know, on the, on the center left that maybe wasn't there before or was not as vocal talking about building things again. The devil's in the details about what exactly that means. But I think there is still this with, especially with this backdrop of energy demand. I think you can read the paper every day and you know, hear about like a PJM capacity auction here in the Northeast and prices going up or inability to get through the interconnection queue not just to feed the grid in general, but so that we can build this, you know, the data center, the manufacturing we're all talking about. So like I think there's that high level consensus and of course the politics of this moment, you know, given the administration and a lot of the executive action I think does make that political climate a little bit difficult when it comes to actually moving legislation. But you know, still early in this Congress.
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So Yeah, yeah, as you say that Ezra Klein's book Abundance is sort of doing its a sweep of the Democrats who are still somewhat in search of a narrative. This, this isn't a political podcast but okay.
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Right.
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So then comes along may just a few. We're recording this June 13th, Friday the 13th and that's important because we will talk a bit about the big beautiful.
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Bill and where that I'm, I'm in a state but.
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And I'm in a state but less than 14 days ago, or 14 days ago to be precise, the Supreme Court voted. And this is the key bit, eight to zero. I've forgotten which one.
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Gorsuch.
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Gorsuch recused himself eight zero eight to nothing decision in the seven county Infrastructure Coalition versus Eagle County Colorado. And this seems like it's something relatively momentous that actually anyone in the energy and resources sector thinking of investing in the U.S. investing in the U.S. or participating in the U.S. probably is giving a good hard look at and what it means. So can you give us the backdrop to it and kind of help us understand and give us the Pete's Daily digest on what it means?
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Yeah, and I'll caveat that with I am not an attorney, you know, just a policy wonk turned lobbyist who's maybe lived and breathed an unhealthy amount of permitting reform work. So with that caveat I think this.
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Deep in the DC staffer happy hour scene. Yeah, some scuttlebutt here as well.
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Yeah. So. So for better, for better and worse, you know, take it with that grain of salt. I think so. So just to lay out the case first, I think really high level, the Surface Transportation Board is tasked with approving rail lines that connect. Right. So in Utah there was a proposal to build a rail line that would Essentially take, I think it's the Winter Basin or Uinta Basin, which I'm probably mispronouncing, take oil that's currently being produced there and instead of ship it by truck, put it on a rail line and more efficiently, you know, cheaper, get it down to refineries on the Gulf Coast. High level. That was, that was the idea they got held up in court when it was approved by the Surface Transportation Board for failure to look at, you know, would this rail line mean that more oil and gas drilling would happen in the basin because of the reduced cost? Would there be more greenhouse gas emissions and other impacts down in the Gulf? And you know, where should the agency draw the line when they review the project? And again, they were sued not over the decision, but they were sued over. Did they do a good enough job looking really broadly at what all these impacts were?
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This, is this a procedural piece? So have you done under, under nepa? Have you done the correct diligence and procedural pieces to support this, you know, this decision?
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Exactly. And they did over 3600 pages on it. I think they got something like 1500 or maybe closer to 2000 public comments that they collected, reviewed public meeting, sort of the whole multi year long drawn out process. They go through all of this, they approve the line and the D.C. circuit says you didn't look hard enough upstream and downstream. So on the production side and the oil refining side, and you need to go back, you need to take a harder look and then you can consider whether you should still approve it. And of course the agency said, well, we're the Surface Transportation Board. Our job is to look at rail lines. That's why we didn't look at these things and appealed and all the way up to the Supreme Court. So that's, that's sort of the stage setting. And as you said, eight nothing. The court says this shouldn't have been vacated. Go back and you know, the D.C. circuit do this right, figure this out. The EIS is more or less fine. And what's, I think. So it's an 8 nothing decision. And I think what's interesting is a couple big picture things. So the minority opinion that would be, you know, some of the justices appointed by Democratic presidents. So they did vote together. They still agreed in the, in the ruling. But their reasoning essentially was the Surface Transportation Board is not statutorily allowed to look at oil and gas drilling. It's not what they do. They look at rail lines and that should have been the end of it. Sort of. They didn't have authority in the decision making. So basically the argument from you could argue the 8, 0 holding is actually look, if you don't have legal authority to make your decision based on whatever criteria, you don't have to look at it. And I think that's, that's going to be a big impact at the agency level. If you're trying to get something built, get an approval as that filters down, that's a really big deal because you.
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Don'T, you don't have. So in other words, I'm going to go to the transportation board and I, I don't have to go through a procedure that reflects a cascading impact all the way, you know, outside of particular transportation issues. So, so presumably it's going to, you know, make that a lot more streamlined and ring bound on what you have to do procedurally.
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Right.
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So that correct. Certainly lowers costs and then you know, some consultants out there that don't like that but you know that's going to streamline and ring bound defenses. And then, and then the crossover would be obviously from the, and again these aren't actually political fields but the typically the sort of the, the more conservative justices they, they were very clear on, on So I guess the second big key takeaway.
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Yeah. So you know, the, the really again highly recommend it. It's, it's easily readable. There's some, you know, I would argue fun and entertaining lines in the opinion but essentially two things on the majority opinion extremely deferential to agencies. And I think you may have had this come up in prior episodes when people talked about Chevron deference and the loper right decision sort of walking that back. In some ways this is interesting because this says we really need to, in a NEPA case, we really need to defer to the process that the agencies have done and where they draw those lines. If, if they say we looked at X, Y and Z in depth and we didn't look at A, B and C, this essentially says, you know, within reason we need to say that is good enough, that there's, there's not a substance constraint here. We really need to defer to where agencies draw the line. And then on top of that it says nothing in NEPA says you need to be looking at upstream and downstream impacts. You know, they're not directly related. This is sort of an extension of the, you know, the fact that the Surface Transportation Board isn't in charge of, you know, oil drilling or refining in the Gulf. But this goes further and says these are potential future projects. They're geographically Separate, we essentially need to knock it off and look only at the project in front of us. And I think, I think one of the big questions that all that'll be moving forward and you know, the actual permitting attorneys, it's important to notice, right. Like here we're talking about a railway. There is still, I think, going to be some question, you know, if it's the Mineral Leasing act, the mining law, flip any number of other statutes where you're actually trying to say, cross, you know, an Army Corps piece of land because you're building a pipeline or transmission line or you're building a mine out in Nevada or Utah, you know, those statutes do give the agencies there a lot more discretion. And in those cases, they are actually the ones, you know, approving the drilling, approving the mining. And I think, you know, one of the fun features of our legal system, right. Is that different circuit courts are going to have to interpret this and apply it over time. And I think that is one where maybe it's not going to be settled for some time. Exactly how this is going to apply when there is a statute that actually gives authority on the decision side. One other thing I think is really interesting in here, sort of like an underlying bit, you know, one of the huge political fights in the permitting reform process has always been Senator Manchin, generally more on the right people saying, look, if you're going to tell me my review isn't good enough, that's fine, but it doesn't mean my decision has to go away. Sort of a. But for analysis, you know, okay, I didn't look at this frog or I didn't look at this creek, but the decision's still going to be the same. That means you shouldn't vacate it. It's not one of the holdings. But Justice Kavanaugh who wrote the opinion, talks about that pretty extensively, essentially saying, you know, it doesn't necessarily mean that we need to throw one of these out. Even, even if it's not good enough that courts really need to think about would they make a different decision. And I think that's been one of the big political fights when it came to rewriting the statute. And I think here, you know, the, the court seems to be pointing its way to, you know, outside of if there's is legislative action, but leaning towards, hey, that seems like a reasonable interpretation of the law.
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Hello, I'm David Hunt, founder and managing director at Hyperion Search. Founded over a decade ago, Hyperion Search has helped organizations from major utilities to startups recruit their leadership teams and Key individual contributors to accelerate both their growth and the energy transition. Our three main verticals are renewable power, energy storage and E mobility. The energy transition and the talent that delivers it has been our passion since day one. To find out more, visit hyperionsearch.com or.
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Listen to my Leaders in Clean Tech.
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B
Podcast, available on all platforms. Simply stated, this is Justice Kavanaugh. NEPA is a procedural cross check, not a substantive roadblock. The goal of the law is to inform agency decision making, not to paralyze it. I guess, as you say, there's lots to figure out here, but like, does this really change anything or is it reduced perhaps the number of lawsuits that get to this stage because there's going to be some more focus required. But in the end you're still sat with a bill which hasn't clarified some of these issues. There's not total clarification even in these opinions. And we're still in a world where actually if you can get a well funded litigation, you can still hold stuff up. Or is this, are we just talking about this is taking it from 10 years down to a couple years and actually that's meaningful.
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A
I think time will tell, I think is the right answer there. I think it's going to be meaningful. And part of this will have to do with cultural change in agencies sort of absorbing this indirectly. If you're a project manager dealing with one of these and you're running your analysis for whatever agency, you know, how does this filter down into how much time, how many words you put on a page? So there's sort of that impact, which is a downstream impact. But you're right, there's going to be, I think, different circuit courts, different cases where maybe this doesn't get implemented quite as far as you could argue, the opinion goes. But I do think it's a big deal because, you know, one of the things Justice Kavanaugh talks about is, you know, he says fewer projects make it to the finish line. Indeed, fewer projects make it to the starting line. Sort of making the point that as both in the, you know, say the Trump administration's initiatives to make permitting easier, this case and others, you know, maybe some of these projects that didn't even really get to the starting line start doing so. And it's kind of a long run thing. But you know, as people see success, right, like success begets success. And I think, you know, almost that cultural change and then even the market reacting and saying, oh, these projects are actually getting through, you know, starts building, you know, sort of an expectation that you're not going to go back into this litigation doom loop. And that's going to take a couple people kind of going first and getting through the process.
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B
And again, it does seem like there is some change there. As you say, a lot of this thing, you know, the law itself is a living thing and reflects the culture of the times. Right. And I guess there's a recognition now that actually across the board that some of this stuff is just paralyzing our ability to meet decarbonization or indeed energy security. Kind of take your, take your framing pick. Right.
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A
Right. If you read the opinion, it reads almost like sort of an advertisement for this, you know, abundance movement writ large.
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B
Yeah. Which is fascinating.
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A
Right.
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B
You know, in and of itself is actually that Venn diagram coming together. And it was a key topic. We met it, we met up again at the Giga 25, the benchmark event, which was very good. And, and essentially to see two senators from, from either party having the same talking points but with slightly different framing was, was interesting. Well, let's, let's just move on to the final bit. And again we're recording probably the week before, actually, we'll start seeing some of the, the outcomes of, of what the Senate thinks of the big beautiful bill. And I know this is getting a bit policy wonky and weird and so listeners can switch off, but obviously it really is key when it comes to the ira, which was a massive bill as it pertains to the renewables world, the energy transition itself, but also across other biofuels and so forth. Much of that is expected to be culled in the upcoming reconciliation of how this new, new bill absorbs all of that peace. There is obviously a challenge out there that it also gave a shot in the arm to a lot of the critical mineral supply chain, which are very much key and crucial to the, to security as well as, you know, other domestic industries. What is the sense there at the moment, how, how gutting this might be, you know, if you break it down into kind of the wind and solar renewable segment and then the critical mineral segment.
- [34:17]
A
Sure. So as you said, at the risk of being overtaken by events, I think we're broadly expecting the Senate to maybe walk back how far the House has gone with regard to some of these credits on the energy production side, as you say, solar, wind, facing a tough road both in the Congress and with this administration, but expecting at least as of right now, a better landing spot than the House. And again, obviously, project developers, they have built this into their financial models and the exact Impacts, you know, of one developer or another. If, you know, a credit phases out in 2028 versus 2029, the market's going to react there. But as we talked about leaving at the start, at the start here, I don't think anyone really thinks that energy demand is going to go down. And really the question is what happens far downstream, you know, what impact does this have on energy supply and therefore prices and all of that. So I think that's the energy side at a very high level without, you know, boring people on specific credit.
- [35:27]
B
But that doesn't include, I mean, the all of the above bit. Right. So I think, you know, if you're in wind, you're probably feeling quite nervous right now about, you know, projects taken off under the IRA with a substantial expectation that this is law and it will be around for some time. Lots of investment came in from Europe. You know, it was a significant piece of legislation.
- [35:47]
A
Right.
- [35:47]
B
I mean, I would imagine if you're in wind and solar right now, you didn't factor into your economics that the whole thing could go away, I don't think, you know, or no, especially if you got started. So, I mean, I imagine it's gonna be quite a painful, painful couple of weeks.
- [36:01]
A
And that's the big political fight right now, really. You have a variety of senators, you know, Senator Murkowski, Senator Curtis, others really saying, look, we can roll this back. But you know, the House bill had very strict requirements about a project needing to be in operation, be producing power by a set date. You know, we just spent a while talking about permitting here and that's really hard as a project developer to have certainty that you're going to be actually done and, you know, putting power into the grid, some of that's just normal, you know, project permitting. And then you can get into interconnection, you know, actually plugging into the grid. There's, you know, massive backlogs there. So I think one of the big questions is, you know, will some of these members who've been vocal about the need to give at least a reasonable off ramp for project developers, as you said, who put billions of dollars on the line, is that going to be maybe a phase out based on did you start construction? Right. Something that the project developer has at least a bit more control over. And as of right now, I think people are hopeful, but we'll see where it shakes out. But no doubt about it, right. It's a much more challenging environment for those wind, those solar developers versus where they thought things were even a year ago.
- [37:17]
B
Yeah, what about the biofuels piece?
- [37:20]
A
So biofuels, I'll have to admit I mostly try to avoid both because I only know enough to be dangerous. But also it's a very unique place political animal given the agriculture ties and you know, Senator Grassley, other, other Midwestern senators and members in the House who clearly have been very successful, I'll put it that way, in obtaining very serious support for, for biofuels and the actual expansion of the credit.
- [37:48]
B
And then the problem is unfortunately in some ways is that there is a significant possibility that all this just gets swept away as it's kind of a minor element compared to some of the bigger battles that are happening right around Medicare, you know, various benefits programs and so forth.
- [38:05]
A
Right. Medicaid taxes writ large, the deficit.
- [38:08]
B
So a lot of this might be, you know, despite making good policy, that doesn't necessarily mean that it's going to survive.
- [38:14]
A
Right.
- [38:14]
B
But then where there is absolutely agreement or senators and congresspeople, you know, is on the critical minerals side. There is a huge duration mismatch. We'll be getting into that. We have got into that in the past. So actually some of this doesn't really solve the problem. But is there an expectation that that at least is probably the most safest piece of the, any IRA grants?
- [38:37]
A
I'm hopeful to the duration mismatch. I think, you know, one of the, the from my, my point of view, it was important to Senator Manchin. It was one of the policies I put a lot of work into. You know, the 45X, it's a production tax credit. There's a variety of manufacturing pieces, batteries, cad, P CAM battery cells, you name it in there. But there's also a specific critical mineral tax credit, 10% of your cost of production for basically everything on the US Critical mineral list. That credit in an attempt to get at the duration mismatch actually did not expire. It was the only one. The House proposes to wind that down and I think that's one where myself others on behalf of clients now have been really trying to spread the word that the duration mismatch, both how long you need to plan ahead to build a mine run, a processing facility, a four year credit just really doesn't get it done. Especially when we talk about the market context of China, competition. You know, you could pick almost any commodity. Some of the bigger ones, lithium and you know, get down into the weeds into obviously rare earths are in the news, gallium, germanium, where having that, that certainty, going back to certainty, avoiding some of the volatility Here is a, is a really big deal. So we're, we're hoping that comes out very well in the next couple days. But I would say in the administration, there's, there's a view not specific to any one credit, but that, look, we're sort of the, it's not a tax credit, but the credit is. We're getting rid of a lot of the regulatory barriers. Right. And that itself is a cost. Not, not an incorrect view, but some view that, you know, that clearing away of process, making things go faster is worthwhile enough to offset some of these costs. And I think.
- [40:32]
B
Which would be the preferred way. Right. I mean.
- [40:34]
A
Right.
- [40:34]
B
In an ideal world and all the rest of it. Right. I mean, it would presumably save the taxpayer a lot of money rather than potentially betting on bad, bad technology or technologies that don't actually in the end come to fruition.
- [40:46]
A
Right.
- [40:46]
B
You might, as with battery technology we're seeing at the moment. Right. You know, you made a cobalt bet, you might be in a bit more trouble than had you made a manganese bet, for example. But the governments can't predict that technological change, but they can make the glide path smoother when it comes to regulation.
- [41:01]
A
Exactly. And this is, you know, comes into a much broader debate.
- [41:04]
B
Yeah, yeah. We're in danger of cascading, of going.
- [41:07]
A
Into industrial policy and all. And I think the one other thing.
- [41:10]
B
Pure economics as well.
- [41:12]
A
Yeah. I would, I would say is, you know, nuclear energy is one where, you know, there's similar bipartisan consensus and where, you know, if you look at even the House bill and what we're hearing about, you know, the Senate version that, that we'll see shortly, you know, we expect nuclear power to do quite well again because of that, that bipartisan agreement. And even now it's, you know, even this is a purely partisan exercise. You know, the nuclear power side doing quite well.
- [41:39]
B
Yeah. Now the World bank can even lend to power. I mean, taking a step back, though, and perhaps we'll promise an emergency pod once it does actually get voted on and finalized. Because if all of it were to be rolled back or significant parts of it, which seems frankly at the moment quite likely, especially given, as I said, the broader backdrop of deficits and entitlement spending, you can imagine a lots of European companies that sort of did a vault fast and started investing in the US Are going to be very aggrieved and gun shy about any kind of investment over the next couple of decades. There's also the challenge that actually because of that and, or combined with that, you're going to get significant sort of lack of long term competitive advantages in the US as it doesn't keep pace with the energy transition and more importantly I guess in some senses have meet the energy demand that's coming as a result of AI and the electrification of everything as well.
- [42:35]
A
Right.
- [42:35]
B
It might be one of those pivotal moments that look back on as a policy moment that really put the US on the back foot.
- [42:42]
A
Right. And I think, you know, a good example is folks I talk to, you know, on the data center side working in AI over and over again. They look at their projections five years out. Right. And they're not, they're not chip constrained. It's not that they can't build the buildings fast enough. They are power constrained. And so again it's the same story there and you could do the same lens and say look at any number of critical minerals where essentially going to be supply constrained. Especially if you know, just like we can't import power from China if we can't get some of these, these items that there's a, you know, we'll call it a competition consensus around that. That means you can't build the things you want and you can't compete.
- [43:24]
B
Yeah. And there's no incentive for China to, to play ball in a trade war.
- [43:28]
A
Right.
- [43:29]
B
Well Peter, it's always great to have you on and I'll put links to you and your firm Cassidy in the show notes so people can find you and obviously a go to person for, for understanding and support around a lot of these issues. You know, I guess it's, it's one to keep tracking and I think again it's kind of that we, there's some emergent qualities here about both sides coming together about the need for some of these changes and the importance of actually having robust and resilient domestic energy and mineral supply chains that can be seen globally. It is also starting to force a lot of decisions that you know are going to be critical to get that right. And you know, as you say, are far from set in stone at the moment. But yeah, appreciate you as always Peter.
- [44:14]
A
Always a pleasure and I look forward to calmer times. We can get back into, you know, episodes on the history of whale oil and those sorts of things.
- [44:23]
B
Thank you for listening. To find out more about HC Group, our global offices and our expertise in search within the commodities sector, please visit www.hcgroup.com.