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Hi friends and first-time readers. Welcome back to The Station, a newsletter dedicated to all the present and future ways people and packages move from Point A to Point B. I’m your host Kirsten Korosec, senior transportation reporter at TechCrunch.
Let’s get straight to it this week.
Remember please reach out and email me at firstname.lastname@example.org to share thoughts, criticisms, offer up opinions or tips. You can also send a direct message to me at Twitter — @kirstenkorosec.
Micromobbin’ is typically the scooting ground of Megan Rose Dickey. This week, you’ll have to deal with me.
A few micromobility stories got my attention this week largely because they bring up two themes that have developed in 2020: consolidation and the development and deployment of technology aimed at solving challenges with unit economics, regulations and market share.
First up is Bird, which launched a new standalone app called Bird Maps, in Paris and Tel Aviv. Bird Maps, which was created using navigation software from Israeli startup Trailze, will provide turn-by-turn navigation for riders who want to use bike or micromobility lanes for their entire trip. The app is a just a pilot for now. But it could stick around and become available in other cities if it succeeds in attracting more customers and placating cities that are sick of the chaos and sidewalk congestion caused by the misuse of scooters.
Speaking of scooter chaos, micromobility docking startup Swiftmile and remote-controlled scooter repositioning startup Tortoise have partnered to solve two pain points: sidewalk congestion and keeping devices charged.
Swiftmile and Tortoise share many of the same customers. The idea is for Tortoise’s repositioning tech to be used to direct scooters (from companies it has deals with) to a Swiftmile docking station. The system could keep scooters on roads longer and in better shape (they tend to suffer more wear and tear when companies rely on gig workers to charge the products). It could also ease tensions with cities seeking a solution to the unsightly scene of discarded scooters littering sidewalks.
One more tech-centric story worth mentioning is about Bolt Mobility, a company I’ve become more interested in because of how they’ve tweaked their business model. The startup was co-founded by Olympic gold medalist sprinter Usain Bolt and is now led by Julia Steyn, who was formerly the CEO of GM’s now defunct car-sharing service Maven.
Bolt recently expanded to Japan and New York City. This week, it relaunched in Portland with Bolt One, a scooter equipped with front-facing footrests, dual brakes, 10-inch wheels, LED lights and swappable batteries with 25 miles of range.
Two items popped out at me. First, the company has installed NanoSeptic surfaces to its handlebars and brake levers, the two main contact points on a scooter. NanoSeptic has self-cleaning technology that is activated by light to rid surfaces of germs and bacteria, the company told TechCrunch.
And in Portland, it is partnering with local entrepreneur Timothy Robinson to run its local operations. Robinson will employ a local team to rebalance, recharge and when necessary, repair scooters to ensure availability all around the city.
Bolt Mobility tells me that partnering with a local business owner is a new approach. “With their local knowledge, we believe they can best serve cities and their unique transportation needs,” the company told me in an email.
Finally, we turn to Jump, which Uber offloaded to Lime as part of a complex fundraising deal. You might remember that Uber sent thousands of Jump bikes and scooters in the U.S. to the scrap yard for recycling. The word from several sources was that Lime would only accept unused Jump bikes.
Attention then turned to Europe and industry watchers and competitors waited to see if Jump bikes in those markets would suffer the same fate. This week, Lime closed the acquisition of Uber’s micromobility subsidiary Jump in Europe. And as we saw in the U.S. Jump bikes and scooters have disappeared from the streets of London, Paris, Brussels, Rome and other European cities.
Jump bikes and scooters are now sitting in warehouses, waiting for Lime to either redeploy or trash them.
Deal of the week
COVID-19 might be the thread that runs through every business trend in 2020. Half way through the year, one theme is the belief that delivery is worth betting on in the near and long term.
Take DoorDash, the popular American food delivery company and my deal of the week. The company raised about $400 million in a Series H round at a valuation slightly under the $16 billion mark. The round had been expected, although it’s worth noting that the final valuation of the deal came in $1 billion higher than earlier reports had indicated.
DoorDash has aggressively raised capital throughout its life, including a huge Series G in late 2019 that valued it near $13 billion. Lest you forget, the company privately filed to go public earlier this year. Those plans were pushed back likely due to the COVID-19 pandemic and the economic uncertainty that it continues to spread.
The question is then, where does DoorDash go from here? The company is at war with the Uber Eats service, the Postmates delivery service and the Grubhub-Just Eat Takeaway hybrid. It’s also facing a legal battle with San Francisco. The SF district attorney initiated a lawsuit against DoorDash on June 16 over allegations that it illegally misclassified employees as independent contractors. Comments from SF DA Chesa Boudin suggests the city is ready for a protracted fight.
“I assure you this is just the first step among many to fight for worker safety and equal enforcement of the law,” Boudin tweeted this week.
That means capital requirements are not fading away anytime soon. Nor is the ever looming threat — or opportunity, depending on where you sit — of consolidation.
We know that Uber, still smarting from its failed deal to buy Grubhub, is itching to expand the market share of its Eats food delivery business. Uber has stated that consolidation, in its view, is a path to profitability. It also said it “that doesn’t mean we are interested in doing any deal, at any price, with any player.”
DoorDash, loaded with a fresh injection of capital, could bypass private investors and a merger play and opt for door No. 3: public markets. Companies like Nikola Motor and Vroom recently made the leap despite weak economics in their core businesses.
Other deals that got our attention …
Mapillary, the startup that has developed a street-level imagery platform that uses computer vision to automate and scale mapping, has been acquired by Facebook. Mapillary team and project will become part of Facebook’s broader open mapping efforts, TechCrunch’s Steve O’Hear reported. I’ve been following Mapillary because of how its platform could be used in the transportation sector, specifically in the development of autonomous vehicles. Jan Erik Solem, the founder of Mapillary is on a bit of a roll. Solem launched Mapillary in 2014 after selling his first computer vision company to Apple. You can read more about the company in this blog post from Solem.
SuperAnnotate is an interesting little startup that launched in February. The company, which just raised $3 million in seed funding, developed an image annotation platform for labeling teams and data scientists. Basically, it has created a toolkit for manual labeling, a simple communication system, recognition improvement, image status tracking, templates, dashboards and other essential tools. SuperAnnotate is one of those “picks and shovels” companies, a term I use to describe businesses that are poised to make big bucks providing tools for the autonomous vehicle industry. But this platform has applications beyond AVs and can also be used in robotics, retail, satellite imagery, security, and medical imaging.
Splyt, a UK-based company that developed software to simplify ride hailing, raised $19.5 million in a round led by SoftBank. Splyt has raised a total of $35 million.
Volkswagen invested another $200 million into QuantumScape, a Stanford University spinout developing solid-state batteries as the automaker bets on a next-generation technology that will unlock longer ranges and faster charging times in electric vehicles.
Israeli startup CENS, which developed nanotechnology to improve the
performance of batteries used in electric vehicles, drones and solar energy storage plants, raised $1.5 million in a round led by the UK based investor Vincent Tchenguiz at Consensus Group.
The City of Fort Worth approved a $68.9 million economic incentive package for Linear Labs, a startup developing an electric motor for cars, scooters, robots, wind turbines and even HVAC systems. The company is planning to secure a 500,000-square-foot facility for its research and production center that will manufacture electric motors. The four-year-old company was founded by Brad and Fred Hunstable, who say they have invented a lighter, more flexible electric motor. The pair came up with the motor they’ve dubbed the Hunstable Electric Turbine (HET) while working to design a device that could pump clean water and provide power for small communities in underdeveloped regions of the world.
BYD Co., the Chinese auto giant backed by Warren Buffett, secured 800 million yuan ($113 million) in a Series A+ round for its chipmaking arm, BYD Semiconductor.
GoFor Industries, a Canadian startup that developed an on-demand last-mile delivery service for the construction industry, has raised C$9.8 million in seed funding.
Dumpling, a startup based in Seattle and Berkeley, Calif., raised $6.5 million in Series A funding round led by Forerunner Ventures. The startup helps users launch and run independent grocery shopping and delivery businesses.
Bitauto Holdings Ltd., the Chinese car comparison website, agreed to be taken private by an investor group backed by gaming and social media firm Tencent Holdings for $1.1 billion in cash, per Reuters.
TriEye, an Israeli startup that’s working on a sensor technology to help vehicle driver-assistance and self-driving systems see better in poor weather conditions, announced a collaboration with DENSO to evaluate its CMOS-based Short-Wave Infrared camera called Sparrow. Porsche, which took a minority stake in TriEye last year, is also evaluating the Sparrow camera.
This is more of an infrastructure play, but interesting nonetheless. ECOncrete, an Israeli startup that has developed eco-friendly concrete technology used in the construction of breakwaters, seawalls and piers, raised $5 million in a round led by Bridges Israel. Technology investment house Goldacre also participated in the round. ECOncrete part of the company’s RElab 2020 PropTech cohort — its accelerator program.
And under the “lol” category …
Hertz, which filed for bankruptcy last month, halted its $500 million stock offering after the U.S. Securities and Exchange Commission told the rental company it would review its controversial plan to sell shares that could soon be wiped out completely. I am shocked I tell you. Shocked.
Hertz had planned to issue a $500 million stock offering following approval from the U.S. Bankruptcy Court for the District of Delaware . Last week, the court gave Hertz permission to sell up to 246.8 million unissued shares (about $1 billion) to Jefferies LLC.
Layoffs, business disruptions and people
Before we get to the layoffs, it’s worth noting the end of what was supposed to be a long-term alliance between BMW and Mercedes Benz AG to develop next generation automated driving technology.
The agreement was announced just 11 months ago. And now, it’s kaput. The German automakers called the break up “mutual and amicable” and have each agreed to concentrate on their existing development paths. Those new paths may include working with new or current partners.
The partnership was never meant to be exclusive. But it was interesting because it reflected the increasingly common approach among legacy manufacturers to form loose development agreements in an aim to share the capitally intensive work of developing, testing and validating automated driving technology.
BMW also announced it will cut 6,000 jobs in an agreement reached with the German Works Council. The cuts, prompted by sluggish sales caused by the COVID-19 pandemic, will be reportedly accomplished through early retirement, non-renewal of temporary contracts, ending redundant positions and not filling vacant positions, Marketwatch reported.
Grab, Southeast Asia’s largest ride-hailing startup is laying off about 360 people, or slightly less than 5% of its employees. A Grab spokesperson told TechCrunch that the company will not be shutting down offices, and that this is the last organization-wide layoff the company will perform this year. Grab will sunset some “non-core projects,” consolidate functions and reduce team sizes. It is also reallocating more resources to its on-demand delivery verticals.
Volvo Group is cutting 4,100 white-collar jobs globally and about 15% of the cuts will be contractors, per Freight Waves.
Layoffs.fyi has launched a severance tracker. The site said that of the 500 startups with layoffs, 10 of them offered more than 8 weeks of severance pay and more than 4 months of extended healthcare coverage.
A little bird
We hear and see things, but we’re not selfish. We share!
I wandered over to the Federal Motor Carrier Safety Administration website and this popped up. It appears that autonomous vehicle technology company Aurora has filed for a USDOT number from the FMCSA. This caught my eye because for companies to operate commercial vehicles that haul freight along interstates, they must be registered with the FMCSA and must have a USDOT Number.
It doesn’t appear that Aurora has received authorization yet, according to the filing. This should be viewed as a first step and illustrates Aurora’s previously stated intentions to develop technology for self-driving trucks.
Notable reads and other tidbits
Lots to cover here …
Uber said it will manage an on-demand service for Marin County in the San Francisco Bay area with a Software as a Service product as part of the ride-hailing company’s broader strategy to push into public transit.
Transportation Authority of Marin (TAM) will pay Uber a subscription fee to use its management software to facilitate requesting, matching and tracking of its high-occupancy vehicle fleet, starting with a service that operates along the Highway 101 corridor. Marin Transit trips will show up in the Uber app and let users book and even share rides.
This is notable because the deal marks the first SaaS partnership for Uber and a likely pathway moving forward. Remember that Uber recently offloaded its micromobility unit Jump in a deal with Lime and has reshaped its strategy since the COVID-19 pandemic. Uber CEO Dara Khosrowshahi said during the company’s last earnings call that the company is focused on growing Eats, its food delivery business, as well as public transit.
Ford will start offering a hands-free driving feature in the second half 2021, beginning with its new Mustang Mach-E electric vehicle. The hands-free feature, called Active Drive Assist, is part of a larger package of advanced driver assistance features collectively called Ford Co-Pilot360 Active 2.0 Prep Package. The hands-free feature has been anticipated since the Mustang Mach-E, which has a driving monitoring system situated above the steering wheel, was revealed last year.
National Highway Traffic and Safety Administration introduced this week the Automated Vehicle Transparency and Engagement for Safe Testing, or AV TEST Initiative. Those testing automated vehicles can now voluntarily submit information to NHTSA. The announcement included nine companies and eight states that have signed on as the first participants.
Lucid Motors will begin producing its luxury electric vehicle for customers at its new Arizona factory in early 2021, about three months later than expected due to a slowdown caused by COVID-19.
The company, which plans to unveil a production version of the Lucid Air in an online event scheduled for September 9, said construction resumed several weeks ago at its factory in Casa Grande, Arizona, and is on target to complete phase one this year. Lucid Motors has also restarted vehicle development work at its California facility, which was briefly delayed due to shelter-in-place orders.
Lyft said that every car, truck and SUV on its platform will be all-electric or powered by another zero-emission technology by 2030, a commitment that will require the company to coax drivers to shift away from gas-powered vehicles. It’s important to note that after a bit of waffling, Lyft finally answered my question and confirmed that it won’t prohibit drivers on its platform from driving a gas-powered vehicle. The company told me they didn’t think that step was necessary.
The target, which Lyft plans to pursue with help from the Environmental Defense Fund and other partners, will stretch across multiple programs. It will include the company’s autonomous vehicles, the Express Drive rental car partner program for rideshare drivers, consumer rental cars for riders and personal cars that drivers use on the Lyft app. That personal car category will be the tricky one.
MIT Center for Transportation and Logistics and the Toyota Collaborative Safety Research Center released DriveSeg, a new open dataset intended to help accelerate autonomous driving research. The dataset contains pixel-level representations through the lens of a continuous driving scene — allowing researchers to identify more amorphous objects that do not always have uniform shapes. It’s free and can be used by researchers and the academic community for non-commercial purposes.
House Speaker Nancy Pelosi announced plans to bring a $1.5 trillion infrastructure bill called the Moving Forward Act. The bulk of proposed bill, which Pelosi said will be introduced before the July 4 recess, stems from Democrat-led legislation currently making its way through the House that would authorize $494 million to be spent over five years on roads, bridges and transit programs. It also includes $25 billion for drinking water, $100 billion for broadband, $70 billion for clean energy projects, $100 billion for low income schools, $30 billion to upgrade hospitals, $100 billion in funding for public housing and $25 billion for the postal service, The Hill reported.
Motor Trend has a great piece on the experience of the Black motorist and how that has and has not evolved since the Jim Crow era.
GM released a timeline to celebrate the 100-year anniversary of its GM Research and Development department. It’s a fun ride down memory lane and includes the 1964 Electrovair, which was developed to test the viability of electric power for passenger cars.
Russia’s energy war: Putin’s unpredictable actions and looming sanctions could further disrupt oil and gas markets
Russian President Vladimir Putin has not hesitated to use energy as a weapon. An expert on global energy markets analyzes what could come next.
Russia’s effort to conscript 300,000 reservists to counter Ukraine’s military advances in Kharkiv has drawn a lot of attention from military and political analysts. But there’s also a potential energy angle. Energy conflicts between Russia and Europe are escalating and likely could worsen as winter approaches.
One might assume that energy workers, who provide fuel and export revenue that Russia desperately needs, are too valuable to the war effort to be conscripted. So far, banking and information technology workers have received an official nod to stay in their jobs.
The situation for oil and gas workers is murkier, including swirling bits of Russian media disinformation about whether the sector will or won’t be targeted for mobilization. Either way, I expect Russia’s oil and gas operations to be destabilized by the next phase of the war.
The explosions in September 2022 that damaged the Nord Stream 1 and 2 gas pipelines from Russia to Europe, and that may have been sabotage, are just the latest developments in this complex and unstable arena. As an analyst of global energy policy, I expect that more energy cutoffs could be in the cards – either directly ordered by the Kremlin to escalate economic pressure on European governments or as a result of new sabotage, or even because shortages of specialized equipment and trained Russian manpower lead to accidents or stoppages.
Dwindling natural gas flows
Russia has significantly reduced natural gas shipments to Europe in an effort to pressure European nations who are siding with Ukraine. In May 2022, the state-owned energy company Gazprom closed a key pipeline that runs through Belarus and Poland.
In June, the company reduced shipments to Germany via the Nord Stream 1 pipeline, which has a capacity of 170 million cubic meters per day, to only 40 million cubic meters per day. A few months later, Gazprom announced that Nord Stream 1 needed repairs and shut it down completely. Now U.S. and European leaders charge that Russia deliberately damaged the pipeline to further disrupt European energy supplies. The timing of the pipeline explosion coincided with the start up of a major new natural gas pipeline from Norway to Poland.
Russia has very limited alternative export infrastructure that can move Siberian natural gas to other customers, like China, so most of the gas it would normally be selling to Europe cannot be shifted to other markets. Natural gas wells in Siberia may need to be taken out of production, or shut in, in energy-speak, which could free up workers for conscription.
Restricting Russian oil profits
Russia’s call-up of reservists also includes workers from companies specifically focused on oil. This has led some seasoned analysts to question whether supply disruptions might spread to oil, either by accident or on purpose.
One potential trigger is the Dec. 5, 2022, deadline for the start of phase six of European Union energy sanctions against Russia. Confusion about the package of restrictions and how they will relate to a cap on what buyers will pay for Russian crude oil has muted market volatility so far. But when the measures go into effect, they could initiate a new spike in oil prices.
Under this sanctions package, Europe will completely stop buying seaborne Russian crude oil. This step isn’t as damaging as it sounds, since many buyers in Europe have already shifted to alternative oil sources.
Before Russia invaded Ukraine, it exported roughly 1.4 million barrels per day of crude oil to Europe by sea, divided between Black Sea and Baltic routes. In recent months, European purchases have fallen below 1 million barrels per day. But Russia has actually been able to increase total flows from Black Sea and Baltic ports by redirecting crude oil exports to China, India and Turkey.
Russia has limited access to tankers, insurance and other services associated with moving oil by ship. Until recently, it acquired such services mainly from Europe. The change means that customers like China, India and Turkey have to transfer some of their purchases of Russian oil at sea from Russian-owned or chartered ships to ships sailing under other nations’ flags, whose services might not be covered by the European bans. This process is common and not always illegal, but often is used to evade sanctions by obscuring where shipments from Russia are ending up.
To compensate for this costly process, Russia is discounting its exports by US$40 per barrel. Observers generally assume that whatever Russian crude oil European buyers relinquish this winter will gradually find alternative outlets.
Where is Russian oil going?
The U.S. and its European allies aim to discourage this increased outflow of Russian crude by further limiting Moscow’s access to maritime services, such as tanker chartering, insurance and pilots licensed and trained to handle oil tankers, for any crude oil exports to third parties outside of the G-7 who pay rates above the U.S.-EU price cap. In my view, it will be relatively easy to game this policy and obscure how much Russia’s customers are paying.
On Sept. 9, 2022, the U.S. Treasury Department’s Office of Foreign Assets Control issued new guidance for the Dec. 5 sanctions regime. The policy aims to limit the revenue Russia can earn from its oil while keeping it flowing. It requires that unless buyers of Russian oil can certify that oil cargoes were bought for reduced prices, they will be barred from obtaining European maritime services.
However, this new strategy seems to be failing even before it begins. Denmark is still making Danish pilots available to move tankers through its precarious straits, which are a vital conduit for shipments of Russian crude and refined products. Russia has also found oil tankers that aren’t subject to European oversight to move over a third of the volume that it needs transported, and it will likely obtain more.
Traders have been getting around these sorts of oil sanctions for decades. Tricks of the trade include blending banned oil into other kinds of oil, turning off ship transponders to avoid detection of ship-to-ship transfers, falsifying documentation and delivering oil into and then later out of major storage hubs in remote parts of the globe. This explains why markets have been sanguine about the looming European sanctions deadline.
One fuel at a time
But Russian President Vladimir Putin may have other ideas. Putin has already threatened a larger oil cutoff if the G-7 tries to impose its price cap, warning that Europe will be “as frozen as a wolf’s tail,” referencing a Russian fairy tale.
U.S. officials are counting on the idea that Russia won’t want to damage its oil fields by turning off the taps, which in some cases might create long-term field pressurization problems. In my view, this is poor logic for multiple reasons, including Putin’s proclivity to sacrifice Russia’s economic future for geopolitical goals.
Russia managed to easily throttle back oil production when the COVID-19 pandemic destroyed world oil demand temporarily in 2020, and cutoffs of Russian natural gas exports to Europe have already greatly compromised Gazprom’s commercial future. Such actions show that commercial considerations are not a high priority in the Kremlin’s calculus.
How much oil would come off the market if Putin escalates his energy war? It’s an open question. Global oil demand has fallen sharply in recent months amid high prices and recessionary pressures. The potential loss of 1 million barrels per day of Russian crude oil shipments to Europe is unlikely to jack the price of oil back up the way it did initially in February 2022, when demand was still robust.
Speculators are betting that Putin will want to keep oil flowing to everyone else. China’s Russian crude imports surged as high as 2 million barrels per day following the Ukraine invasion, and India and Turkey are buying significant quantities.
Refined products like diesel fuel are due for further EU sanctions in February 2023. Russia supplies close to 40% of Europe’s diesel fuel at present, so that remains a significant economic lever.
The EU appears to know it must kick dependence on Russian energy completely, but its protected, one-product-at-a-time approach keeps Putin potentially in the driver’s seat. In the U.S., local diesel fuel prices are highly influenced by competition for seaborne cargoes from European buyers. So U.S. East Coast importers could also be in for a bumpy winter.
This article has been updated to reflect conflicting reports about the draft status of Russian oil and gas workers.
Amy Myers Jaffe does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.spread pandemic covid-19 oil india european europe germany poland russia ukraine eu china
Industry groups call to block WTO IP waiver expansion to Covid-19 therapeutics
The WTO’s TRIPS Council in mid-October is expected to debate whether to extend the IP waiver for Covid-19 vaccines to therapeutics and diagnostics too.
The WTO’s TRIPS Council in mid-October is expected to debate whether to extend the IP waiver for Covid-19 vaccines to therapeutics and diagnostics too.
While the Biden administration backed the original vaccine waiver, which critics note has not done much to expand access to vaccines as demand has dried up, US trade officials haven’t offered any perspective yet on whether to expand the waiver to Covid treatments.
The US Chamber of Commerce, as well as industry groups BIO and EFPIA, this week expressed “strong opposition” to any expansion of the WTO TRIPS waiver to therapeutics or diagnostics, arguing that waived IP protections damage the nation’s ability to innovate and compete.
Illinois-based IP attorney Kevin O’Connor at Neal, Gerber & Eisenberg told Endpoints News in a phone interview that he doesn’t think the vaccine waiver has done much so far.
“I don’t think it was the right solution for a demand problem,” O’Connor said. And an extension to therapeutics “would double down” on the same concept, except small molecule manufacturing is more straightforward than vaccine manufacturing. There’s also the question of whether there is a need for an extension given the voluntary licensing already in place.
BIO also noted that the expansion of a TRIPS waiver to therapeutics can create problems for therapeutics used for other indications too as these other indications “may be their only path to financial viability and sustained investment to fund future R&D initiatives.”
The industry group also noted the lack of a “supply and demand challenge globally that justifies the extension of an IP waiver” considering the fact that manufacturers are supplying therapeutics at a rate that outpaces demand.
The US Chamber of Commerce also noted that in the case of Covid-19 vaccine IP, “the waiver’s realization came long after its ostensible purpose was mooted by a large and growing surplus of COVID-19 vaccine supplies.”
But Public Citizen’s Peter Maybarduk told Endpoints these are “specious arguments and scare tactics,” adding, “Pharma is worried and that is a good thing for people.”
WTO members and developing countries pledged support for the waiver extension last summer, according to a read out of a meeting. Some even called for this extension to be discussed “with a sense of urgency given the fact that many least developed countries (LDCs) lack access to life-saving drugs and testing therapeutics.”
But other member countries “cautioned that more time was needed to conduct domestic consultations on a possible extension of the waiver to therapeutics and diagnostics” while:
vaccine testing covid-19
Some members also flagged the importance of an evidence-based negotiation as there was no evidence that intellectual property did indeed constitute a barrier to accessing COVID-19 vaccines. Some also reiterated the need for members to fully make use of all the flexibilities that already exist in the TRIPS Agreement (including compulsory licensing) before requesting new flexibilities.
Three reasons a weak pound is bad news for the environment
Financial turmoil will make it harder to invest in climate action on a massive scale.
The day before new UK chancellor Kwasi Kwarteng’s mini-budget plan for economic growth, a pound would buy you about $1.13. After financial markets rejected the plan, the pound suddenly sunk to around $1.07. Though it has since rallied thanks to major intervention from the Bank of England, the currency remains volatile and far below its value earlier this year.
A lot has been written about how this will affect people’s incomes, the housing market or overall political and economic conditions. But we want to look at why the weak pound is bad news for the UK’s natural environment and its ability to hit climate targets.
1. The low-carbon economy just became a lot more expensive
The fall in sterling’s value partly signals a loss in confidence in the value of UK assets following the unfunded tax commitments contained in the mini-budget. The government’s aim to achieve net zero by 2050 requires substantial public and private investment in energy technologies such as solar and wind as well as carbon storage, insulation and electric cars.
But the loss in investor confidence threatens to derail these investments, because firms may be unwilling to commit the substantial budgets required in an uncertain economic environment. The cost of these investments may also rise as a result of the falling pound because many of the materials and inputs needed for these technologies, such as batteries, are imported and a falling pound increases their prices.
2. High interest rates may rule out large investment
To support the pound and to control inflation, interest rates are expected to rise further. The UK is already experiencing record levels of inflation, fuelled by pandemic-related spending and Russia’s war on Ukraine. Rising consumer prices developed into a full-blown cost of living crisis, with fuel and food poverty, financial hardship and the collapse of businesses looming large on this winter’s horizon.
While the anticipated increase in interest rates might ease the cost of living crisis, it also increases the cost of government borrowing at a time when we rapidly need to increase low-carbon investment for net zero by 2050. The government’s official climate change advisory committee estimates that an additional £4 billion to £6 billion of annual public spending will be needed by 2030.
Some of this money should be raised through carbon taxes. But in reality, at least for as long as the cost of living crisis is ongoing, if the government is serious about green investment it will have to borrow.
Rising interest rates will push up the cost of borrowing relentlessly and present a tough political choice that seemingly pits the environment against economic recovery. As any future incoming government will inherit these same rates, a falling pound threatens to make it much harder to take large-scale, rapid environmental action.
3. Imports will become pricier
In addition to increased supply prices for firms and rising borrowing costs, it will lead to a significant rise in import prices for consumers. Given the UK’s reliance on imports, this is likely to affect prices for food, clothing and manufactured goods.
At the consumer level, this will immediately impact marginal spending as necessary expenditures (housing, energy, basic food and so on) lower the budget available for products such as eco-friendly cleaning products, organic foods or ethically made clothes. Buying “greener” products typically cost a family of four around £2,000 a year.
Instead, people may have to rely on cheaper goods that also come with larger greenhouse gas footprints and wider impacts on the environment through pollution and increased waste. See this calculator for direct comparisons.
Of course, some spending changes will be positive for the environment, for example if people use their cars less or take fewer holidays abroad. However, high-income individuals who will benefit the most from the mini-budget tax cuts will be less affected by the falling pound and they tend to fly more, buy more things, and have multiple cars and bigger homes to heat.
This raises profound questions about inequality and injustice in UK society. Alongside increased fuel poverty and foodbank use, we will see an uptick in the purchasing power of the wealthiest.
Interest rate rises increase the cost of servicing government debt as well as the cost of new borrowing. One estimate says that the combined cost to government of the new tax cuts and higher cost of borrowing is around £250 billion. This substantial loss in government income reduces the budget available for climate change mitigation and improvements to infrastructure.
The government’s growth plan also seems to be based on an increased use of fossil fuels through technologies such as fracking. Given the scant evidence for absolutely decoupling economic growth from resource use, the opposition’s “green growth” proposal is also unlikely to decarbonise at the rate required to get to net zero by 2050 and avert catastrophic climate change.
Therefore, rather than increasing the energy and materials going into the economy for the sake of GDP growth, we would argue the UK needs an economic reorientation that questions the need of growth for its own sake and orients it instead towards social equality and ecological sustainability.
The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.economic recovery economic growth pandemic government debt housing market pound mitigation gdp recovery interest rates uk russia ukraine
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