The week of Monday, October 2: The net zero debate, electric vehicles, antitrust, rising interest rates, and much, much more.
The week of Monday, October 2: The net zero debate, electric vehicles, antitrust, rising interest rates, and much, much more.
One of the more effective techniques used by advocates of net zero is the claim that the “science is settled” (we can discuss what that really means — less than those who cite it would like — at some other point), and that there are therefore no alternatives other than to participate in the ruinous and reckless “race to net zero.” But scientific agreement over the existence of man-made climate change does not mean there is a scientific consensus over what to do about it, or (except, maybe, for those who believe that it is a short-term existential threat) how much priority to attach to it. At that point, however much technocrats, activists, ESG rent seekers, the U.N., that noted scientist, the Pope, and all the rest, might object, climate moves from being a scientific to a political question.
And then there is the awkward fact that large parts of the world, including major greenhouse gas (GHG) emitters such as India, China, and Russia, do not attach nearly so much importance to climate change as the West. All three countries have superb scientists, who will doubtless have passed on their views on climate change to their governments and yet their governments’ conclusion as to what should be done about it is at odds with those setting climate policy in the West.
And so, turning to some recent news items, here’s one from the Wall Street Journal:
SINGAPORE—A pledge by China two years ago to stop building new coal plants overseas won applause from global climate activists, but Beijing’s decision to press ahead with some projects has spurred questions about whether the world’s largest carbon emitter is going back on its word.
This year, China and Pakistan resurrected long-dormant plans for a coal plant in Gwadar, a port city that is at the center of an economic corridor Beijing is seeking to develop. China is also forging ahead with plans for new coal-fired power plants in Indonesia, where the government wants them to supply energy for processing nickel, a metal used to make batteries for electric cars…
Those would be the “clean cars” we hear so much about.
Scroll down a little further:
Pakistan and Indonesia say they are choosing to go forward with coal plants in some places because they can ensure a stable and affordable power supply now, and the countries lack alternatives that are financially and technically feasible.
Or turn to the Financial Times:
Russia has warned it will oppose a global deal to reduce the use of fossil fuels, as tensions with western powers following Moscow’s invasion of Ukraine threaten to derail this year’s UN climate summit. The US and EU member states are among a large group of countries calling for a timeline to phase out the use of fossil fuels where emissions are not captured and stored ahead of the COP28 climate summit, which begins in late November in Dubai. However, in a submission to the UN’s climate body, Russia said: “We oppose any provisions or outcomes that somehow discriminate or call for phaseout of any specific energy source or fossil fuel type.”
Under the circumstances, for the West to participate in a race to net zero which it would lose economically and geopolitically by winning, makes no sense. The sacrifices that racing to net zero will involve will have about as much impact on the climate as sacrificing oxen to Thor to head off a thunderstorm, even if both, for a while, might provide some psychological comfort. But this race is more than a superstitious exercise in futility. If the sacrifice to Thor didn’t work out, all that was lost were a few unfortunate oxen. The waste created by the race to net zero will be far more damaging. The gigantic misallocation of resources it demands will leave humanity infinitely less well equipped to deal with any problems that a changing climate may generate than would otherwise be the case.
According to the U.N.’s Intergovernmental Panel on Climate Change, the planet has reached a point where, whatever we do now, there are going to be adverse consequences from humanity’s existing impact on the climate. Indeed, we are frequently told that those consequences are already with us. There are times when it seems as if every storm reported on NPR is a harbinger of the apocalypse. That doesn’t mean that the West should abandon its attempts to reduce GHG emissions or to develop technologies that can accelerate or even reverse that process, but it does mean that a much greater priority should be put on adaptation. We should, to take some examples, build more sea walls, bury more electric cables and, as New York was recently reminded, do more to stormproof our cities. Such work will be of value whatever happens to the climate and will create more jobs than any green new deal. And, in many cases, it will, critically, pay for itself. Renewables should still have their place, but one that is further down the pecking order.
Adaptation is what humanity has done for millennia in response to the challenges that “mother” nature throws at us. The wealthier we become the more effective our adaptation. Amsterdam is about six feet below sea level, and it flourishes. In the last century, the Dutch reclaimed a large amount of land from the Zuider Zee, dams bring water to America’s southwest, the list goes on. The number of those who have died from natural disasters. According to Bjorn Lomborg, climate-related deaths have fallen by 99 percent over the past century, and that is despite the way that population growth has moved many more people into harm’s way, such as, say, Florida’s hurricane country. The wealth that has made this possible is, for the most part, a product of economic growth. Past performance is not, of course, a guarantee of future success, but it seems self-evident that it will continue to be true that our best protection, ultimately, against the elements is wealth. Forget all the happy talk about a dynamic green economy. For the most part, it is, at least for now, a parasite feeding off the wealth created by earlier generations. And its innovations are mainly aimed at producing products that — if we are lucky — will, for now, mainly reproduce technologies we already have. And the brake that net zero will put on economic growth will weaken our ability to manage a changing climate.
To call for a halt in this race to net zero, or at least a change of speed or course, is the way to go. But to those steering climate policy, even taking small steps in this direction is treated as shoving the planet towards the scaffold, as the hysterical response to some (very) modest changes recently introduced by British Prime Minister Rishi Sunak revealed all too clearly.
Others who question net zero are denounced as pawns or hirelings of the fossil fuel companies, “deniers,” or, perhaps worst of all, conservatives. Well, perhaps not, the worst. Even further down the climate establishment’s taxonomy of depravity lurk… “populists.”
Writing for the Financial Post, Terence Corcoran:
Financial Times columnist Gideon Rachman described the policy pullback as a reflection of rising “populist” opposition to the hard economic risks created by national and global plans to impose a green transition to net zero carbon emissions. Resistance to rising prices and other impacts of climate policy is growing across Europe. In the United States, said Rachman, “the populist right is already out in full cry.”
Portraying people who do not support climate policies and programs as populist mobs storming the barricades is nothing more than an attempt to marginalize the views of an emerging majority that has a pretty clear picture of what is being foisted upon society in the name of climate.
For one thing, the rising opposition to the green transition to net zero is a sign that voters are not buying into the fire-and-brimstone rants of UN Secretary-General Antonio Guterres. At the UN’s Climate Ambition Summit last week, Guterres rolled out one of his typical bits of religious hysteria. With fossil fuels and climate change “humanity has opened the gates of hell,” he said. We are heading toward “a dangerous and unstable world.”
Maybe voters are not ready to pay a fortune to avoid going to hell. Or perhaps they suspect it’s the green deals that are leading the world into an economic inferno. Some 54 per cent of the British public are more worried about rising energy costs than net zero.
At the World Petroleum Congress event last week in Calgary, a parade of global corporations and nations issued warnings about the perils of the UN-led green energy transition. The chief executive officers of ExxonMobil and Aramco said the global economy will continue to need more oil and gas to maintain economic growth and deliver energy to regions, especially developing nations. Here’s what they said, as reported by Reuters.
Under the threat of the UN’s green energy transition, global investment in new oil and gas exploration and development has hit a plateau, scared off by government policies. “If we don’t maintain some level of investment in the industry, you end up running short of supply which leads to high prices,” ExxonMobil chief executive officer Darren Woods said. Oil and gas reserves are depleting at five to seven per cent annually, and output will decline if companies stop investing to replace them.
Aramco chief executive officer Amin Nasser said: “The current transition shortcomings are already causing mass confusion across industries that produce and or rely on energy.” As a result, long-term planners and investors “do not know which way to turn.”
Noted populist BlackRock’s Larry Fink, recently had this to say (via Oilprice.com):
There will be no energy transition unless we can find new technologies that bring down the cost of renewables, BlackRock CEO Larry Fink told Bloomberg’s Dani Burger on Friday at the Berlin Global Dialogue forum.
“We are not going to have a transition unless we can find technologies to bring down the competitive cost of renewables. We cannot do that.”
Fink, in essence, is saying that, in planning a “transition” of this nature, c must follow b, must follow a, a sequence normal when a shift in, say, energy supplies is left to the invisible hand. But that’s not how central planners, such as those steering this transition, go about their business. Directives are issued, often with absurd timetables for compliance (another characteristic of central planning), and the human and technological resources that are needed if the directives are to have any chance of success will somehow just appear. Well, maybe they will, or maybe they won’t. The connection between central planning and magical thinking is insufficiently explored.
Corcoran:
Voters are also growing more aware of the massive cost of the electric transition. The EU electricity industry said last week that the average annual investments needed to upgrade Europe’s electricity grids from now to 2050 will need to rise at least 84 per cent higher than in 2021. Repeat: the “average annual investment” every year beginning now needs to be 84 per cent higher than 2021 levels. To pay for that — equal to $800 billion per year — Europe will face higher electricity prices and require major tax-funded subsidies.
Sooner or later, the implementation of net zero is going to lead to major political unrest. Sunak, a spreadsheet-wielding authoritarian in thrall to bien-pensant opinion, is not the only politician doing a little backtracking. Via the Daily Telegraph, here is France’s President Macron, another unlikely populist:
Emmanuel Macron on Monday ruled out banning gas boilers as he outlined plans to reach France’s emission goals without imposing too much of a burden on citizens.
The French president defended what he called “an ecology based on progress”, which did not require “a cure that is incompatible with a productive and social model such as ours”.
The Financial Post’s Corcoran connects the Biden administration’s declining popularity to voter displeasure over the costs of decarbonization. I’m not so sure, although higher energy costs have certainly contributed to the electorate’s sour mood. As yet, however, not enough voters have connected the dots between those higher costs (and increasing signs of instability in the grid) with America’s own trudge to net zero. When they do, they are unlikely to be happy. If I had to guess, the real crunch will come when drivers feel that they are being forced to buy electric vehicles, a government intervention into an area — car ownership and the freedom to just get up and drive — that plays a central role in Americans’ sense of themselves.
I’m a road runner honey
And you can’t keep up with me
I’m a road runner honey
And you can’t keep up with me
Come on, let’s race
Baby baby, you and meAnd half-hour stops for some electricity.
Last line added in 2023.
The Forgotten Book
Capital Matters has a fortnightly feature, The Forgotten Book, which is written by our new National Review Institute fellow, the writer and historian, Amity Shlaes. We live in an age of short attention spans, and one of Amity’s objectives is to introduce readers to books or other primary sources that warrant a second look.
With her Capital Matters column, Amity will dedicate herself to sharing with Capital Matters readers older, forgotten books, along with new books that aren’t getting the attention they perhaps warrant.
Her latest column can be found here, and is focused on the prevalence of collectivism in our universities, something else William F. Buckley Jr. noted while he was at Yale, one of the baleful consequences of its persistence (despite a pushback which made some progress for a while) has, in recent years, helped create a space for a revived collectivism on the right:
Samuelson suggested that the era of the individual had passed and supplied as evidence the observation that “the businessman has never returned to his previous position of prestige.” Bowman and Bach rated free-market individualism “impractical of application.” Americans wanted “cradle to grave” security supplied by Washington, Samuelson wrote. Inequalities in Russia, noted Bowman and Bach, “need not be as great as the inequalities currently existing in the United States.” And so on. Benjamin Anderson, the most thoughtful scholar of the Great Depression, and Ludwig von Mises, the guru of bureaucratic damage, went ignored at Yale. Likewise bypassed was Friedrich von Hayek, whose Road to Serfdom was proving a runaway best seller on Main Street and Wall Street.
The teachers did their own damage…
The Capital Record
We released the latest of our series of podcasts, the Capital Record. Follow the link to see how to subscribe (it’s free!). The Capital Record, which appears weekly, is designed to make use of another medium to deliver Capital Matters’ defense of free markets. Financier and National Review Institute trustee, David L. Bahnsen hosts discussions on economics and finance in this National Review Capital Matters podcast, sponsored by the National Review Institute. Episodes feature interviews with the nation’s top business leaders, entrepreneurs, investment professionals, and financial commentators.
In the 139th episode, David talks to Capital Record listeners about the capital stress the bond market is under as yields are flying high and people want to know why. This podcast exists to defend capital markets, and sometimes that means a finance nerd like David needs to do a little explaining.
No Free Lunch
Earlier this year, David Bahnsen launched a new six-part digital video series, No Free Lunch, here online at National Review. In it, we bring the debate over free markets back to “first things” — emphatically arguing that only by beginning our study of economics with the human person can we obtain a properly ordered vision for a market economy…
The series began with a discussion with Fr. Robert Sirico of the Acton Institute. Later guests include Larry Kudlow, Dennis Prager, Dr. Hunter Baker, Ryan Anderson, Pastor Doug Wilson, and Senator Ted Cruz.
Yes, the six-part series now has seven parts.
Enjoy.
The Capital Matters week that was . . .
The Great Financial Crisis
The Lehman Brothers and AIG failures are often considered causes of the stock-market crash and recession, but the week of those failures, the stock market actually rose. The benign market reaction at the time suggests they may be more accurately considered as markers of the real-estate crisis that, by September 2008, had been unfolding for over a year.
The fundamental cause of the Great Financial Crisis (GFC) can be seen as too much finance, too much debt…
Electric Vehicles
Neither of these stories point to there being anything “wrong” with electric vehicles, but they are yet another reminder that attempting to force their adoption at a pace imposed from above, rather than letting the demand grow organically from below, is a serious, and very expensive mistake, made all the more grotesque by the fact that it will have little or no effect on the climate…
China dominates battery technology, accounting for over 70 percent of global electric-vehicle-battery-production capacity. CATL, as the largest producer in the industry, profits from close relations with the Chinese Communist Party (CCP).
If people bought EVs the way they buy cars with internal combustion engines, Uncle Sam would not have to subsidize producers to make EVs and fund tax credits for consumers to purchase them. Ford receives no subsidies for production of America’s bestselling vehicle, the F-150 pickup truck, and purchasers receive no tax credits for buying them. But subsidies are needed for EVs, and they shouldn’t go to Chinese battery companies…
Municipal Finance
Birmingham’s city council has become the seventh English local government to declare a fiscal emergency since 2020, and a recent report suggests that more could follow. Although similar financial distress may not be imminent for U.S. cities and counties, local-government struggles across the pond still offer lessons. With 1.14 million constituents, Birmingham is one of the largest local governments in Europe. Media reports characterizing the council’s financial situation as tantamount to bankruptcy are thus cause for concern…
Medicare
A new report released by the Congressional Budget Office (CBO) on September 28 demonstrates the failure of central planners in Washington to reform Medicare.
CBO’s report analyzes the Center for Medicare and Medicaid Innovation (CMMI), a government office created by the Affordable Care Act (also known as “Obamacare”) whose mission is to test new ways of paying for and delivering health-care services in federal health programs through pilot programs called “models.” These models are required by law to reduce costs and/or improve quality of care, which they pursue by enacting major policy changes…
Interest Rates
Surprising as it may seem given the headlines, real interest rates (net of inflation) are not high (I’m using the ten-year Treasury as benchmark), but they are quite a bit higher than they have been. The September average was some 1.7 percent (it’s around that now). That’s well below the levels seen in the 1990s, as are nominal rates. The 1990s economy is generally fairly fondly remembered. Such numbers need not be the end of the world.
But what’s different now is that rates are rising after a long period in which they were kept artificially low…
With debt to GDP at 94 percent, such a large amount of short-term debt, and no signs from Congress of being willing to reduce primary deficits, continued rising interest rates could become very messy, very quickly. That’s why Cochrane is correct that “the US should quickly move its debt to extremely long maturities.” If the existing maturity structure were longer, it would reduce the rollover costs…
Antitrust
The FTC attempts to justify its narrowly defined market, but those justifications are not persuasive. Excluding brick-and-mortar competitors because of the 24/7 nature of Amazon ignores 24-hour Walgreens, 7-Elevens, and others where retail sales take place. Walmart, included in the FTC’s market definition of competitors to Amazon, previously offered 24-hour stores but, after the Covid-19 pandemic, changed that policy to allow for enhanced cleaning of their stores. That the retail behemoth has not gone back to being open around the clock but retains the capability to do so suggests that the overnight hours may not be a significant source of revenue and not a relevant distinguishing factor for the FTC to cite. (Plus, Walmart.com is still an option for consumers at 2 a.m.) At the very least, the FTC would have to prove orders made on Amazon in the wee hours of the night are significant enough to raise antitrust concerns.
Regulation
California has long been a handy backup for activists seeking to implement progressive policies when these fail federally. Last Wednesday, as Securities and Exchange Commission (SEC) chairman Gary Gensler took heat from Congress for the commission’s long-delayed climate-disclosure rule, California’s own climate-disclosure regime took center stage…
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