Climate Policies: Real Economic Damage Fighting Imaginary Problem

 

Sir Ian Byatt describes the self-induced plight of the UK, the nation perhaps most dangerously undermined by ill-advised energy policies supposedly to control future weather. Climate change is not the problem, but policies to fight it are. This blog has noted reports from Australia, Canada, France, Germany, the Netherlands, and the US (links below), with UK now added. H\T to Climate Scepticism for providing the text of his presentation UK Economy mired in Green Aspirations. Excerpts below with my bolds and images.

Successive British governments embrace the official policy consensus. Pressure groups, the environmental NGOs, and the science lobby, including the Royal Society (nullius in verba?) have persuaded the establishment, including the current Prince of Wales, that the UK should be an international example of virtuous behaviour.

The UK is unique in setting targets for reduction in CO2 emissions in legislation, with government claims to be on target to meet them.

Parliament, with cross-party support, passed a Climate Change Act in 2008 stipulating a 60% reduction in CO2 emissions from 1990 levels by 2050. This was increased to 80% during the passage of the Bill. An independent Parliamentary Committee was established to recommend five-yearly carbon budgets designed to achieve these objectives; this committee has recommended a reduction of 57% in CO2 emissions by 2030.

January 2017 actual low carbon generation and demand (top) . Note that the Y-axis scale is daily markers. There are two key observations. The first is that low carbon generation does not yet get close to satisfying 100% of UK demand. Any wind curtailment must therefore be down to local grid congestion, especially in Scotland. The second is that the residual is dominated by the diurnal demand cycle which means that high carbon dispatchable power is not yet adversely challenged by the current level of renewable penetration.

From Energy Matters: Centrally Planned UK Generation Scenarios for 2030

The cost of meeting these targets, in the form of levies, taxes and subsidies, has been estimated by Peter Lilley, one of the handful of MPs who voted against the Bill. He calculates a cumulative cost of over £10,000 per household between 2014 and 2030.[ Peter Lilley £300 Billion: the cost of the Climate Change Act Global Warming Policy Foundation 2016. Already £327 per household, rising to £1390 in 2050.]

These costs, estimated before the shale revolution, and excluding the costs of the EU renewable energy directive, would bear particularly heavily on vulnerable companies and poorer households, while benefitting landowners who rent out their land to suppliers of renewable energy.

Policies are also highly interventionist. Ministers have killed the competitive wholesale market in electricity supply, which, following privatisation, had reduced electricity prices. The choice of electric power generation is now made by ministers not the market; the additional costs being loaded on to customers via higher prices.

Environmental pressure groups provide both the inspiration for the virtuous and the votes for the aspiring politician. They emphasise “the tragedy of the commons”, not the power of innovation. They stress the consensus in science, not its challenges and its search for new information.  With virtue comes certainty; rules crowd out compromises, negating the value of cost-benefit analysis, which has become a tool to convince rather than to question.

We need to change the whole storyline, making environmental and climate policy consistent with the pursuit of higher productivity and higher income for the people. Unhappily, economists are failing to do this.

Such a shift should be supported by a focus on incentives and constraints, particularly institutional incentives and constraints, closely linked to the resolution of political and social conflicts.

This should include more honest calculations of the incremental costs of expanding electrical power networks, fully allowing for all system costs, including back-up power, not just costs of types of generator, and incorporating the incremental costs of transmission and unpredictable intermittency.
Getting economic analysis back into political, social and decision making will involve incorporating the particularities of human behaviour at both the individual and collective levels. This is not an easy task; but a convincing intellectual victory must respect the conflicts and confusions of our fractured world.

Resources:

Killing the Energy Goose

Climate Policies Failure, the Movie

Climate Policies Gouge the Masses

Bonn COP23 Briefing for Realists

Climate Costs in Context

Speaking Truth About Power

Germany’s Green Energy Meltdown

 

Climate Shell Game

This post updates the guerrilla warfare conducted by anti-fossil fuel activists against corporations by means of shareholder resolutions.

Update Dec. 6 below:  Investor Activism is also Bad for Pensioners

Background

Last year activists took a scalp from Exxon Mobil when a resolution passed requiring the Board to include business risk assessment from global warming/climate change. The cascade of suppositions underlying that proposal reveals the flimsy logic beneath these financial maneuvers. Details are in the post: How Climate Law Relies on Paris

A New Front is Opened

The Exxon success depended on proxy shares voted in large blocks by firms with huge assets, especially BlackRock and Vanguard. This year pressure was applied to wealth funds to pass “2°C Shareholder Resolutions.” This is basically a proposal that corporations subscribe to the Paris accord, and submit themselves to emission reduction targets, not only regarding their own operations, but also emissions arising from the use of their products (Hello petroleum companies!).

Storming Shell Castle

In May this Paris Subscription ploy was soundly defeated at the Shell annual meeting, and activists are disappointed both by the result and the voting by wealth managers.  Reuters reported Shell shareholders reject emissions target proposal.

The flavor of this campaign is in the text of the resolution and management’s recommendation from the Royal Dutch Shell Annual Meeting Shareholder Information:

 2°C Resolution Highlights:

Shareholders support Shell to take leadership in the energy transition to a net-zero-emission energy system. Therefore, shareholders request Shell to set and publish targets for reducing greenhouse gas (GHG) emissions that are aligned with the goal of the Paris Climate Agreement to limit global warming to well below 2°C.

This shareholder resolution is intended to express shareholder support for a course towards a net-zero-emission energy system. The why of a course towards a net-zero-emission energy system is clear: increasing costs of the extraction of fossil fuels, decreasing costs of generating renewable energy, and the global political pledge to stop global warming. The how and the what are up to the management of Shell. It is up to them to set GHG emission reduction targets and to develop activities to attain these targets.

We the shareholders request that the company publish company-wide greenhouse gas (GHG) emission reduction targets according to the following 3 scopes:

Scope 1: direct emissions from the facilities under Shell’s operational control or the equity boundary,
Scope 2: indirect emissions from the facilities of others that provide electricity or heat and steam to Shell’s operations,
Scope 3: emissions that Shell estimates come from the use of Shell’s refinery products and natural gas products.

Shell Management Comments (Excerpts)

Your Directors consider that Resolution 21 is not in the best interests of the Company and its shareholders as a whole and unanimously recommend that you vote against it.

Shell welcomes and strongly supports the Paris Agreement, and supports the aspiration of transitioning towards a net-zero emissions world by 2050. We will work together with governments and stakeholders towards meeting this aspiration and we commit to report on steps taken.

However, this resolution demonstrates fundamental misunderstanding of the necessary solutions to achieving the Paris goals. The resolution is unreasonable with regard to what the Company can be held accountable for and would be ineffective or even counterproductive for the following reasons:

We are convinced we have all the required flexibility to adapt and remain relevant and successful, no matter how the energy transition will play out. We believe that by tying our hands in the early stages of this evolution, this resolution would weaken the Company and limit our flexibility to adapt.

We are already willing and able players in the energy transition in ways that are uniquely suited to our skills, reach and ambition – all with the ultimate objective of maintaining a sustainable business model. We aim to reduce the greenhouse gas intensity of our own operations over time. From this year we are making part of our remuneration conditional on managing greenhouse gasses.

To achieve a net-zero emissions world requires the widespread transformation of the energy system. . .It demands collective action across the energy system. To impose targets on a single supplier in this complex system does not only fail to address the actual challenge (as it will not reduce system emissions overall because customers will simply turn to alternative suppliers); it would also undermine our ability to play an active role in the transition and would hinder long-term value creation for the Company and its shareholders.
The Battle Mounts Against Electricity Companies

The “Blame and Shame” campaign is exemplified in a report today from advocacy enterprise Preventable Surprises, Missing in Action: Missing 55% fail to step up on climate by Casey Aspin, 5 December 2017.  The taste of sour grapes comes through in the summary:

When the world’s two largest money managers, BlackRock and Vanguard, threw their weight behind a successful 2°C scenario resolution at Exxon last spring, the media hailed a shift in attitudes toward climate risk and, more specifically, the risk of assets being stranded by the need for rapid emissions reduction. Preventable Surprises has released a report scoring the ten largest investors in utilities on their proxy voting record in the sector.

It highlights the contradiction between the Exxon vote and those cast in the utility sector, the largest source of greenhouse gas emissions in the US. BlackRock and Vanguard voted against 2°C resolutions at all nine US utilities targeted by shareholders for increased climate risk disclosure. In response to our questions, both asset managers provided statements expressing a preference for private engagement over public proxy votes.

Private engagement lacks accountability, transparency, or metrics. That is why the Task Force on Climate-Related Financial Disclosure (TCFD) recommended this year that all publicly traded companies provide the level of transparency sought in the 2°C scenario resolutions, which ask companies to disclose how they are managing the risks and opportunities that arise from aligning with the Paris Agreement. The TCFD is seeking to reduce systemic risk in financial markets–a goal shared by Preventable Surprises.

It is alarming that the two largest utilities investors could not find a single US utility where climate risk management was weak enough to merit public support for a 2°C resolution. Many coal-dependent US utilities have not only resisted the transition to renewable generation (which is both cleaner and now cheaper in many markets), they also have fought government policy aimed at reducing emissions.

Private engagement does not work in a sector where coal plants are subsidised by ratepayers in highly regulated states, increasing the risk of stranded assets. Fiduciary responsibility dictates that both portfolio risk and planetary risk require more forceful stewardship than the largest investors have shown to date. We hope the owners of the assets managed by Vanguard and BlackRock use this report to discuss with their managers how they are assessing risk in the most fossil fuel-intensive sector in America.

Summary

It is no surprise that energy companies are unwilling to vote themselves out of business, even while espousing belief in global warming/climate change. And it appears that wealth fund managers are down with risk assessments, but not for setting emissions reduction targets. They must know that any such commitments will bring the heavy legal artillery lobbing massive lawsuits in the name of accountability.

Update Dec. 6 :  Investor Activism is also Bad for Pensioners

From article at RealClearMarkets: Pension Funds’ Rush to Go Green Costs Retirees Their Green

For index fund managers and pension fund leaders to push an environmental agenda on the companies they invest in potentially entails more risk and lower returns on the wealth of those whose money they hold. According to a report released this week by the American Council for Capital Formation (ACCF), the California Public Employees Retirement System (CalPERS) — the nation’s largest public pension fund – has ramped up its focus on such ventures. The result: environmentally-driven funds made up four of the nine worst performing funds in the CalPERS portfolio and represented none of the system’s 25 top-performing funds this past year. As this focus on ESG-efforts has increased, CalPERS has moved from a $3 billion pension surplus in 2007 to a reported $138 billion deficit today. Yet those who manage the fund remain unwilling to put their own money on the line; the personal investment portfolios of the fund’s Chief Investment Officer and at least two other senior executives report no ESG-related investments at all. What’s up with that?

The ACCF report also highlights the role that CalPERS plays in convincing (some might say pressuring) other large institutional investors to join alongside it in attacking companies it invests in via the submission of shareholder proposals. BlackRock, which generates many millions in management fees from CalPERS each year, and which is currently vying to run the pension fund’s $26 billion private equity arm, voted alongside CalPERS on putatively ESG-related proposals for the first time in its history this past proxy season. According to Bloomberg, the combined assets of BlackRock and Vanguard alone are set to top $20 trillion by 2025. These two own basically everything in the universe. If activist funds like CalPERS are able to force passive funds like those controlled by BlackRock and Vanguard to join its ESG-masked-as-corporate-governance crusade, we’re in for a heck of a ride. And not in a good way.

It may be tempting to urge public pension managers to take a more proactive role and bet against companies whose products some of us, for whatever reason, disapprove of — or for those managers to use their positions to influence the business decisions of firms in which they have a stake. However, it would be much better for government workers, retirees, and taxpayers today and in the future if the investors managing the money of public pensions prioritized sound financial policy above all else.

Climate Activists storm the bastion of Exxon Mobil, here seen without their shareholder disguises.

 

November Arctic Refreezing

Given the fluctuations in daily sea ice measurements, climatology typically relies on monthly averages. November daily extents are now fully reported and the 2017 November monthly results can be compared with years of the previous decade.  MASIE showed 2017 reached 9.7M km2, 0.2M below the 9.9M November 10 year average.  SII was slightly lower at 9.5M for the month.  The 10 year average for SII is about 200k km2 lower than MASIE, with a similar differential appearing in 2017.  In either case, one can easily see the Arctic ice extents have not declined in the last decade.  MASIE shows 2017  matching 2007, higher than 2012 by 200k km2, and 844k km2 more than 2016.

Sea Ice Index statistics are from recently released SIIv.3.0,  as reported in Sea Ice Index Updates to v.3.0.

The graph below shows November comparisons through day 334 (Nov. 30).

Note that 2017 in both MASIE and SII tracked the 10 year average, slightly lower throughout.  SII is now about 240k km2 less than MASIE. 2012 grew strongly to approach the 10 year average, recovering after being decimated by the August Great Arctic Cyclone. 2007 lags behind, and the lackluster 2016 recovery is also evident.

The narrative from activist ice watchers is along these lines:  2017 minimum was not especially low, but it is very thin.  “The Arctic is on thin ice.”  They are basing that notion on PIOMAS, a model-based estimate of ice volumes, combining extents with estimated thickness.  That technology is not mature, with only a decade or so of remote sensing. The image below from AARI shows widespread thick ice at end of November 2017.

The formation of ice this year shows solid concentrations in the central Arctic.  Watch the November refreezing of Arctic marginal seas from the center outward.

Click on image to enlarge.

At the top, open water in Chukchi is shrinking while neighboring Beaufort and East Siberian seas freeze completely. On the left, Hudson Bay starts with fast ice on the western shore, now growing extent strongly.  On the right, Kara ice cover is 90% complete.

The table shows ice extents in the regions for 2017, 10 year averages and 2016 for day 334. Decadal averages refer to 2007 through 2016 inclusive.

Region 2017334 Day 334
Average
2017-Ave. 2016334 2017-2016
 (0) Northern_Hemisphere 10966755 11073358 -106603 10123083 843672
 (1) Beaufort_Sea 1070445 1069141 1304 1070445 0
 (2) Chukchi_Sea 560938 852508 -291570 720442 -159503
 (3) East_Siberian_Sea 1068113 1085310 -17197 1087137 -19024
 (4) Laptev_Sea 897845 897809 36 897845 0
 (5) Kara_Sea 843397 794994 48403 486630 356767
 (6) Barents_Sea 248423 266718 -18295 56217 192206
 (7) Greenland_Sea 512025 546103 -34078 434402 77623
 (8) Baffin_Bay_Gulf_of_St._Lawrence 728933 695198 33735 722702 6231
 (9) Canadian_Archipelago 853109 852805 303 853180 -71
 (10) Hudson_Bay 774499 561038 213460 331472 443027
 (11) Central_Arctic 3189555 3205221 -15667 3144344 45210

NH extent is close to average with the only large deficit in Chukchi.  Most seas are nearly average with a large surplus in Hudson offsetting Chukchi.  Both seas are now refreezing strongly.

Summary

Earlier observations showed that Arctic ice extents were low in the 1940s, grew thereafter up to a peak in 1977, before declining.  That decline was gentle until 1994 which started a decade of multi-year ice loss through the Fram Strait.  There was also a major earthquake under the north pole in that period.  In any case, the effects and the decline ceased in 2007, 30 years after the previous peak.  Now we have a plateau in ice extents, which could be the precursor of a growing phase of the quasi-60 year Arctic ice oscillation.

Background on MASIE Data Sources

MASIE reports are generated by National Ice Center from the Interactive Multisensor Snow and Ice Mapping System (IMS). From the documentation, the multiple sources feeding IMS are:

Platform(s) AQUA, DMSP, DMSP 5D-3/F17, GOES-10, GOES-11, GOES-13, GOES-9, METEOSAT, MSG, MTSAT-1R, MTSAT-2, NOAA-14, NOAA-15, NOAA-16, NOAA-17, NOAA-18, NOAA-N, RADARSAT-2, SUOMI-NPP, TERRA

Sensor(s): AMSU-A, ATMS, AVHRR, GOES I-M IMAGER, MODIS, MTSAT 1R Imager, MTSAT 2 Imager, MVIRI, SAR, SEVIRI, SSM/I, SSMIS, VIIRS

Summary: IMS Daily Northern Hemisphere Snow and Ice Analysis

The National Oceanic and Atmospheric Administration / National Environmental Satellite, Data, and Information Service (NOAA/NESDIS) has an extensive history of monitoring snow and ice coverage.Accurate monitoring of global snow/ice cover is a key component in the study of climate and global change as well as daily weather forecasting.

The Polar and Geostationary Operational Environmental Satellite programs (POES/GOES) operated by NESDIS provide invaluable visible and infrared spectral data in support of these efforts. Clear-sky imagery from both the POES and the GOES sensors show snow/ice boundaries very well; however, the visible and infrared techniques may suffer from persistent cloud cover near the snowline, making observations difficult (Ramsay, 1995). The microwave products (DMSP and AMSR-E) are unobstructed by clouds and thus can be used as another observational platform in most regions. Synthetic Aperture Radar (SAR) imagery also provides all-weather, near daily capacities to discriminate sea and lake ice. With several other derived snow/ice products of varying accuracy, such as those from NCEP and the NWS NOHRSC, it is highly desirable for analysts to be able to interactively compare and contrast the products so that a more accurate composite map can be produced.

The Satellite Analysis Branch (SAB) of NESDIS first began generating Northern Hemisphere Weekly Snow and Ice Cover analysis charts derived from the visible satellite imagery in November, 1966. The spatial and temporal resolutions of the analysis (190 km and 7 days, respectively) remained unchanged for the product’s 33-year lifespan.

As a result of increasing customer needs and expectations, it was decided that an efficient, interactive workstation application should be constructed which would enable SAB to produce snow/ice analyses at a higher resolution and on a daily basis (~25 km / 1024 x 1024 grid and once per day) using a consolidated array of new as well as existing satellite and surface imagery products. The Daily Northern Hemisphere Snow and Ice Cover chart has been produced since February, 1997 by SAB meteorologists on the IMS.

Another large resolution improvement began in early 2004, when improved technology allowed the SAB to begin creation of a daily ~4 km (6144×6144) grid. At this time, both the ~4 km and ~24 km products are available from NSIDC with a slight delay. Near real-time gridded data is available in ASCII format by request.

In March 2008, the product was migrated from SAB to the National Ice Center (NIC) of NESDIS. The production system and methodology was preserved during the migration. Improved access to DMSP, SAR, and modeled data sources is expected as a short-term from the migration, with longer term plans of twice daily production, GRIB2 output format, a Southern Hemisphere analysis, and an expanded suite of integrated snow and ice variable on horizon.

http://www.natice.noaa.gov/ims/ims_1.html

Footnote

Some people unhappy with the higher amounts of ice extent shown by MASIE continue to claim that Sea Ice Index is the only dataset that can be used. This is false in fact and in logic. Why should anyone accept that the highest quality picture of ice day to day has no shelf life, that one year’s charts can not be compared with another year? Researchers do this, including Walt Meier in charge of Sea Ice Index. That said, I understand his interest in directing people to use his product rather than one he does not control. As I have said before:

MASIE is rigorous, reliable, serves as calibration for satellite products, and continues the long and honorable tradition of naval ice charting using modern technologies. More on this at my post Support MASIE Arctic Ice Dataset