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OPPORTUNITIES AND THREATS: Democrats’ clean vehicle credit gives automakers a new measure of certainty they haven’t yet enjoyed in the industry’s history: a decade-long consumer tax credit to encourage more vehicle orders, along with a substantial industrial policy to enable more of the vehicle supply chain to be stood up at home.

At the same time, manufacturers and some on the outside are concerned that the credit’s component sourcing and manufacturing requirements will make things messy, at least in the near term, and potentially serve to limit the uptake of electric and other zero-emission vehicles in contravention of the credit’s express purpose.

Rystad Energy analyst Susan Zou called the credit a “mixed bag of potential opportunities and threats.”

Opportunities: The credit would make many new Tesla and General Motors vehicles eligible for credits that wouldn't otherwise be, as well as some vehicles already on the road.

One of the biggest changes to the credit is the lifting of the per-manufacturer cap on units sold, which currently limits eligibility of the existing tax credit to the first 200,000 units sold.

That cap has kept new Tesla and General Motors sales from being eligible for the credit for years. Toyota just reached the cap earlier this year, and others, including Ford, are forecast to reach 200k units sold later this year.

Additionally, the $7,500 per-vehicle credit is structured to run until 2032, locking in 10 years of access to the credit, rather than having the credit be an unknown variable that has to be intermittently renewed.

The new arrangement would also extend eligibility to used vehicles for the first time, making them eligible for a $4,000 credit if certain ownership history requirements are met (credits for both new and used also have price thresholds and income limits).

Jesse Jenkins, a professor of engineering at Princeton University who specializes in electricity, said the credit as it’s reimagined in the Democrats’ Inflation Reduction Act gives industry “a very long runway to count on, which they've never had before.”

“For most of the major automakers, this is a net positive,” Jenkins told Jeremy. “It's either, they’re not going to get a credit they already don't have, or they're going to have the potential to get a new credit.”

Threats: Provisions designed to facilitate more domestic production of EV battery inputs and to reduce the industry’s reliance on adversaries, especially Chinese mineral processing and battery manufacturing, kick in pretty fast and could make it difficult for automakers to ensure their models are eligible.

The strictures cover mineral extraction, processing, and assembly of batteries and the vehicles themselves, and will require automakers to pivot quickly: In 2023, around half of a vehicle’s battery components would have to be manufactured or assembled in North America in order to be eligible for the credit.

In 2024, half of the critical minerals used in EV batteries would have to be extracted or processed in a country with which the United States has a free trade agreement. Percentages would rise in ensuing years and by 2029, all battery components would have to be made or assembled in North America to be eligible.

“It is very aggressive and in some cases, it's actually overnight,” Jenkins said, noting that the requirement that eligible vehicles be assembled in North America assembly takes effect immediately upon the bill’s signing.

“That’s going to cause some havoc and some uncertainty, and some people might lose out on credits for models that they thought they were going to be able to get,” such as foreign-assembled Hyundai and Nissan models, he said.

For some of the manufacturers targeting luxury buyers, such as Rivian and Lucid, who could otherwise immediately meet the North American-assembled requirement, the credit’s price cap of $55,000 for cars and $80,000 for SUVs and trucks could hold them back until prices fall.

Those companies are onto all this and working to get more customers to lock in orders under the credit’s current terms, as Breanne reported last week.

Welcome to Daily on Energy, written by Washington Examiner Energy and Environment Writers Jeremy Beaman (@jeremywbeaman) and Breanne Deppisch (@breanne_dep). Email [email protected] or [email protected] for tips, suggestions, calendar items, and anything else. If a friend sent this to you and you’d like to sign up, click here. If signing up doesn’t work, shoot us an email, and we’ll add you to our list.

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‘EXTREME HEAT BELT’ IN AMERICA’S FUTURE? At least 100 million Americans are at risk of suffering dangerously high temperatures in the next three decades, according to a new heat model released by the Brooklyn-based research group First Street Foundation.

The study found that, by next year, more than 8.1 million Americans across 50 separate counties could experience one day with a heat index surpassing 125 degrees.

And by 2053, nearly one-third of U.S. residents are expected to live in a so-called “extreme heat belt” stretching from the Gulf Coast to Chicago, with the largest temperature increases expected in southern states including Texas, Arkansas, Louisiana, Missouri, and Florida.

“Increasing temperatures are broadly discussed as averages, but the focus should be on the extension of the extreme tail events expected in a given year,” Matthew Eby, founder and CEO of First Street Foundation, said in a statement.

“We need to be prepared for the inevitable, that a quarter of the country will soon fall inside the Extreme Heat Belt with temperatures exceeding 125 degrees Fahrenheit and the results will be dire,” Eby said. You can find your county’s estimated heat risk here.

BOIL WATER ADVISORIES CONTINUE IN MICHIGAN FOLLOWING WATER MAIN BREAK:  Thousands of Michigan residents remained under a boil water advisory today, as state officials scrambled to fix a break in a 120-inch water transmission main that distributes drinking water from a Lake Huron water treatment facility.

Officials discovered the break early Saturday, the Washington Examiner’s Cami Mondeaux reports, prompting an initial advisory to boil water before use for nearly 1 million residents. Gov. Gretchen Whitmer later declared a state of emergency.

Crews have since isolated the leak, and have a replacement pipe en route from Texas, authorities said, adding that the pipeline is expected to be fully operational in two weeks after crews finish repairs and conduct water quality testing.

JUDGE REINSTATES OBAMA-ERA COAL LEASING MORATORIUM: A federal judge reinstated an Obama-era coal leasing moratorium on Friday, ruling that the NEPA review performed during the Trump administration used to justify revoking the moratorium, which stopped new coal leasing on federal lands, was insufficient.

Last year, Interior Secretary Deb Haaland revoked her predecessor’s order throwing out the moratorium, but the administration declined to reimpose the moratorium. Judge Brian Morris of the Montana District Court ruled on behalf of tribal and environmental plaintiffs, who challenged the decision not to reinstate the moratorium.

Plaintiff groups praised the ruling. Jenny Harbine, managing attorney for Earthjustice’s Northern Rockies office, said the administration “must go further by urgently phasing out the existing coal leases.”

The National Mining Association, which represents coal and other mineral interests, pledged to appeal the ruling. Rich Nolan, NMA’s president and CEO, said the ruling “couldn’t come at a worse time” considering the global energy crisis.

State of coal: For coal interests, the medium- and long-term are not looking especially great. Utilities continue to schedule retirements, and with expanded investment and production tax credits for renewable and other clean energy sources, they will be incentivized to phase out coal even more widely and quickly, concerning coal interest groups that say it will make the grid less reliable.

On the other hand, some utilities are delaying those retirements due to delays in standing up new renewable generation, and Europe’s high natural gas prices and its need to conserve the fuel ahead of winter are driving coal prices and demand (including demand for U.S.-produced coal) sky high.

GERMANS ASKED TO REDUCE GAS USE 20% TO AVOID WINTER RATIONING: Germany’s top energy regulator said the country must cut its gas use by 20% to avoid a crippling shortage this winter, an outcome he warned could risk damaging, longer-term consequences for business and production in Europe’s largest economy.

Klaus Müller, the head of Germany’s BNA, said in an interview with the Financial Times that there is a “serious risk” the country will not have enough gas to last through the winter if it fails to further reduce gas consumption by 20%—up from the previous 15% target.

In order to make up for the losses in Russian gas supply, he said, Germany would need roughly 10 GW of additional LNG supply from other countries, including the U.S. and Europe.

And while Germany cheered the news on Saturday that it has reached its first gas storage milestone (with tanks filled to 75% capacity), Müller made clear that Germany is far from out of the woods.

Even with storage 100% full, he said that any complete cut-off of Russian gas would mean Berlin would have supply to last just two and a half months—even less if it is a particularly cold winter.

“We need enough for at least two winters, not just one,” Müller said. “And it’s not a good option to empty gas storage at the expense of next year.”

EUROPEAN GAS FUTURES SPIKE AS RHINE LEVELS FALL TO RECORD LOWS: Natural gas prices in Europe rose again today amid hot and drought conditions that have caused water levels at Germany’s Rhine River to fall to record-low levels, threatening to further squeeze an already-tight energy market.

Benchmark futures were up this morning by as much as 4.2%, and futures for Dutch TTF, the European benchmark, rose 3.3% on Friday for the fourth straight week of gains. That’s about 10 times higher than the seasonal average of the past five years.

Water levels at the Rhine dropped today to just 11.8 inches, or 30 centimeters, according to government data, and are forecast to remain at similar levels for the remainder of the week. (Most barges will not ship cargo along the waterway when levels drop below 40 cm.)

The Rhine is the most important river for delivery of diesel, coal, and other commodities in Western Europe. If it’s not navigable, analysts warned, utilities could end up using more gas as an alternative–a dangerous situation amid the bloc’s ongoing gas crisis.

Germany “is heavily reliant on the river to transport coal to its power stations,” especially as it deepens its reliance on alternative fossil fuels to replace Russian gas, the company Inspired Energy told Bloomberg. That level is expected to stay high, even if Berlin switches to rail transport, it added.

CLIMATE CHANGE IS INCREASING RISK OF CALIFORNIA ‘MEGAFLOOD’: Climate change has doubled the risk of “megafloods” in California, according to a study published by UCLA climate scientists in the journal Science Advances. 

They said that climate change has already made extreme precipitation in the state twice as likely and that the problem will worsen through the end of the century.

Using a combination of high-resolution weather modeling and existing climate data, researchers simulated two plausible “megastom” scenarios: one taking place in a hypothetical “warmer future climate” and another simulating what would happen if storms took place in today’s climate. The extreme storm sequences were projected to generate between 200%-400% more runoff by 2100, due to more runoff in the Sierra Nevada Mountains and more precipitation falling as rain rather than snow.

“In the future scenario, the storm sequence is bigger in almost every respect,” UCLA climate scientist and the study’s co-author, Daniel Swain, said in a statement. “There’s more rain overall, more intense rainfall on an hourly basis and stronger wind.”

Scientists noted that, in the worst-case scenario, large swaths of major cities, including Stockton, Fresno and Los Angeles, would be underwater. “Every major population center in California would get hit at once — probably parts of Nevada and other adjacent states, too,” Swain said.

These findings have “direct implications for flood and emergency management, as well as broader implications for hazard mitigation and climate adaptation activities,” the group said. Read the study here.

The Rundown

The Hill Opposition builds against plan to turn Naval Academy park on Chesapeake Bay into golf course

Wall Street Journal Alexei Miller, Putin loyalist and Gazprom CEO, fights energy war with Europe

Washington Post As Congress funds high-tech climate solutions, it also bets on a low-tech one: Nature

Financial Times Why the US fossil fuel industry wants to get in on the hydrogen act

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Calendar

TUESDAY | AUGUST 16

4 p.m. Experts from the group Securing America's Future Energy, or SAFE, and the Electrification Coalition will hold a virtual discussion assessing the impact of the IRA, IIJA and the CHIPs Act, including outcomes, opportunities, and implementation challenges for the landmark pieces of legislation. Register for the event here.