Investors Resisting Corporate Climate Activism

Jerry Bowyer writes at Real Clear Markets Return-Focused Investors Are Starting to Notice the Politicization of Corporations.   Excerpts in italics with my bolds and added images.

We monitor and analyze proposals placed before shareholders for annual meetings held by publicly traded companies for funds, financial advisors and individual stockholders. For far too long, investors who are actually focused on returns have thrown annual proxies into the wastebasket while highly organized activist groups motivated chiefly by political considerations have been using shares as a mechanism to promote their own particular brand of social change. Recently, however, return-focused investors have begun to notice the degree to which a small minority has been politicizing corporate life, and a backlash has clearly formed against that.

One of the main issues has been increasing attempts to use shareholder engagement against fossil fuel usage, which came to a head last year when three anti-oil board members were elected to board seats at Exxon, a major oil company (Activist firm Engine No. 1 claims third Exxon board seat (cnbc.com)). A small activist fund received some assists in this campaign from a number of government employee pension funds and Blackrock. There was understandable backlash from public pension plans of energy-producing states, which received media coverage. Blackrock executives have tried to walk back some of the more heated rhetoric from CEO Larry Fink when dealing with energy-friendly clients.

Climatists storming the Exxon Bastion, here seen without their shareholder disguises.

What we are seeing so far in the early phase of this year’s annual shareholder meeting season is a spate of proposals, typically from political activist groups, pushing more aggressive anti-carbon measures. We’re also seeing investors rejecting such proposals. For example, as of this writing, the tentative vote counts for Royal Bank of Canada show shareholders voting down all of the items placed on the ballot by activists, including several having to do with fossil fuels. This is consistent with the pattern we’ve seen so far.

We’ll leave aside self-imposed fossil fuel divestment plans put forward by management under the moniker “Climate Action Plan”, as we’ve dealt with that issue here (How “sustainable investing” emboldens Putin | Analysis News (christianpost.com)). This analysis is focused on activists’ recent attempts to go even further in opposition to fossil fuels. In general, management teams have opposed these types of proposals, but it is arguable that they are somewhat responsible for bringing them about: advocates frequently cite public statements about environmental commitments and statements about the risks of climate change made by the company and argue that they are simply asking the company to live up to its public posturing.

Managers of these companies are beginning to see that public political pronouncements
do not assuage, but rather embolden, activist demands.

Let’s look at some of the proposals which are showing up on proxies this year:

♦  Annual Advisory Vote Policy on the Bank’s Environmental and Climate Change Action Plan and Objectives

Climate action plans in general have not been rigorously shown to be of benefit to shareholders, nor even to reduce GHG emissions (since nothing prevents other banks from financing the fossil fuels companies which would be de-banked by the proposed plan). So adding an extra level of institutional pressure to managers in the form of automatic annual votes is not warranted. If there is adequate support for a vote in any given year, shareholders of even modest scale can place it on the ballot.

♦  Annual Advisory Vote Policy on the Bank’s Environmental and Climate Change Action Plan

The proposal fails to make a rigorous case for shareholder benefit. The proposal is ostensibly modeled on the Paris Accords, but the Paris Accords are a proposal for regulations which governments would impose on industry, not for limitations which industry would impose on itself. When businesses, for example banks, limit customers on some basis other than profitability, that likely subtracts from shareholder value. And the limitation fails to decrease carbon emissions unless there are broad global restrictions on carbon emissions. Such arbitrary (from a revenue point of view) restriction of potential customers for banking services doesn’t shrink emissions, it simply transfers that business opportunity to other companies and countries. 

♦  Set Up a Climate Change and Environment Committee.

The proposal is for the board to set up a standalone committee focusing exclusively on environmental issues. The support statements tend to be thinly argued, doing little more than asserting that climate change is an important issue and navigating it is a matter of some complexity. In some cases boards of directors have argued against such resolutions by pointing out that there are several committees already which deal with environmental issues, including risk committees. To the degree that environmental issues are specifically of shareholder concern and not just general social concern, it is because of the potential risks, therefore environmental concerns seem most properly housed in the risk committee where they typically reside. There, environmental risks can be analyzed in relation to all risks, not elevated above them as a unique concern above all other risks.

♦  Avoid Bank Participation in Pollution-Intensive Asset Privatizations

When we have seen this proposal it has come from a labor union which tends to engage on political issues. This appears to be an anti-privatization measure with an environmental element added perhaps to get broader support. Financing of privatization is a standard banking practice because it is of potential benefit to shareholders. Whether privatization is beneficial or detrimental to society as a whole is a matter of long debate. In addition, in the case we’ve seen, the proponents make no argument to establish that an operation currently operated by government, which produces environmental impact, would become more environmentally harmful if it were transferred to the private sector, and so it provides no environmental reason why banks should not engage in the otherwise profitable business of financing such transfers.

♦  Update the Bank’s Criteria for Sustainable Finance to Preclude Fossil Fuel Activity and Projects Opposing Indigenous Peoples

This resolution was submitted by an activist group, Investors for Paris Compliance, on behalf of two shareholders (this is a common practice in regards to ESG proxy proposals). This proposal strongly overreaches standard climate plans, in that it precludes, rather than just reduces, investment in certain energy sources. In addition, the inclusion of the indigenous peoples element seems tangential to the main issues. Per comments made live at the shareholder’s meeting for Royal Bank of Canada, this is not about situations in which indigenous people actually own the property and therefore can legally block the projects. The rhetoric has instead invoked situations in which indigenous peoples opposed development on land they did not own, and were arrested for protesting on the property of others. It can reasonably be postulated that this is an attempt to bolster the anti-fossil fuels agenda by tapping into the indigenous people’s cause which is currently quite prominent in Canadian politics.

It seems plausible that the politicization of corporate governance in and around climate change may well have gone farther than corporate managers, in this case, Canadian banks, are willing to go in terms of sacrificing profit for the protection of alleged “reputational risk”. Even more interesting is the fact that a largely Canadian investor base also seem unenthusiastic about such proposals.

Jerry Bowyer is the President of Bowyer Research, an economic and financial research and consulting firm.

Supply Chains Doomed by Carbon Accounting

Vince Bielski explains how proposed SEC accounting for CO2 emissions will grind product supply chains to a halt.  His Real Clear Investigations article is The Green U.S. Supply-Chain Rules Set to Unspool and Rattle the Global Economy. Excerpts in italics with my bolds and added images.

Making a box of Cocoa Puffs is a complicated global affair. It could start with cocoa farms in Africa, corn fields in the U.S. or sugar plantations in Latin America. Then thousands of processors, transporters, packagers, distributors, office workers and retailers join the supply chain before a kid in Minnesota, where General Mills is based, pours the cereal into a bowl.

Now imagine the challenge that General Mills faces in counting the greenhouse gas emissions from all of these people, machines, vehicles, buildings and other products involved in this Cocoa Puff supply chain – then multiply that by the 100-plus brands belonging to the food giant.

Thousands of public companies may soon have such a daunting task to comply with a new set of climate rules proposed by the Securities and Exchange Commission.

Hailed by prominent environmental groups as a long sought victory, the sweeping plan released in late March would force companies to grapple with the unpredictable impact of climate change by disclosing reams of new information to investors. What are your company’s climate risks, such as severe weather, and the possible financial impacts? How have the threats affected your business strategies and what’s the plan to avoid the dangers? The most consequential and controversial piece of the SEC’s proposed regulations would require corporations to calculate their total greenhouse gas footprint, including from the supply chain.

The regulations also carry political weight for Democrats in the runup to the midterms in November. The Biden administration and centrist Sen. Joe Manchin of West Virginia are trying once again to breathe life into clean energy legislation that died earlier this year amid a feud between them. If this latest effort at compromise fails – with Manchin reportedly looking for federal support for fossil fuels as well as renewable energy – then much of President Biden’s ambitious climate agenda will be left riding on the SEC proposal.

SEC head Gary Gensler says shareholders are demanding climate risk disclosures to make smarter investment decisions and hold companies accountable for “greenwashing” their operations. The regulations will also provide investors in the Environmental, Social, Governance (ESG) movement more leverage in their ongoing campaigns to pressure companies to reduce their carbon footprints.

While many companies like Walmart and business groups like the Chamber of Commerce generally support the idea of required climate disclosures, they object to what they see as the SEC’s heavy-handedness in standardizing rules across the economy. The Chamber is calling for flexibility so companies can customize their climate disclosures based on what’s relevant to their businesses and investors.

Measuring the global supply chain is a tall order — “mind-boggling and certainly unprecedented.” Pixabay

The biggest beef from companies is the rule that would require them to calculate and disclose supply chain emissions, called Scope 3.

Big companies have thousands of suppliers operating in hundreds of countries, making the task of coming up with a reasonable accounting enormously complicated. First of all, many suppliers of products and services are private companies not under the control of the SEC. They may refuse to cooperate in a count because of the costs and the implications that they might have to change their business practices to reduce emissions, said Professor Gerald Patchell, who has analyzed the problems of supply chain reporting.

Another obstacle is that many smaller suppliers, like General Mills’ cocoa farmers in Africa, don’t have the capacity to measure the emissions from their own fertilizers, tractors and farming practices. So companies will have to rely on broad country or industry averages that likely don’t reflect the actual emissions created by the suppliers, according to researchers.

“The data that companies will be asked to collect from thousands of suppliers is mind-boggling and certainly unprecedented,” said Patchell, who researches environmental policy and business. “It’s an idealized concept of what can actually be done by a company.”

The upshot is that regulations meant to bring clarity to investors on climate risk may end up providing highly unreliable emissions disclosures, leaving them “worse off,” wrote SEC Commissioner Hester Peirce, a Trump appointee who voted against the 500-page proposal. It “forces investors to view companies through the eyes of a vocal set of stakeholders, for whom a company’s climate reputation is of equal or greater importance than a company’s financial performance.”

“Government’s view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.” — Ronald Reagan

Resources

SEC Agency Aims to Legislate US Climate Policy

SEC Warned Off Climate Disclosures Rule

 

 

ESG Funds Buy Russian Over Canadian Oil

More evidence that ESG investing is poppycock is revealed in Jeff Lagerquist’s Yahoo Finance article Why ESG funds ‘shockingly’ buy Russian oil instead of Canadian crude.  Excerpts in italics with my bolds.

Russia’s war on Ukraine continues to expose uncomfortable realities for environmental, social and governance-focused (ESG) investments, prompting calls for the asset management industry to rethink the loosely-defined term as analysts point to “shocking” holdings within some funds.

A new report from CIBC Capital Markets shows many of the 10 largest energy holdings across ESG funds have pared down or exited investments in Canada’s oil sands, while half stayed invested in Russia. At the end of 2021, the bank found ESG funds owned twice as much Russian oil and gas as Canadian oil and gas.

“Perhaps most shockingly, the ratio of dollars held in Gazprom (a Russian state-owned energy firm) was six times that of Suncor,” the CIBC analysts wrote in research published on Monday.

According to the report, the big four Russian energy companies, NK Lukoil, Novatek, Gazprom and NK Rosneft, accounted for about 0.2 per cent of the global ESG holdings. That’s double the size of investments in Canada’s TC Energy (TRP.TO)(TRP), Suncor Energy (SU.TO)(SU) and Canadian Natural Resources (CNQ.TO)(CNQ), the bank said.

“Russia and Saudi Arabia may well emit less CO2 per produced barrel of oil equivalent than some North American firms, but they also invariably have less robust social and governance oversight,” the CIBC analysts wrote.

“This says nothing of the reality many of their energy entities are de-facto state controlled and often aligned (read: weaponized) with foreign policy objectives – many of which will be an affront to mainstream ESG investors.”

Several of the world’s largest companies and institutional investors have moved to cut ties to Russia in recent weeks, amid increasingly violent attacks on Ukraine’s population. ESG funds held at least US$8.3 billion in Russian assets before Russia invaded Ukraine, according to data compiled by Bloomberg.

Those include the country’s financial firms. Bloomberg News recently reported that Vanguard Group and Northern Trust upped their stakes in Russia’s leading bank through their respective index-based ESG funds in January, as Vladimir Putin’s forces amassed on Ukraine’s borders.

Vlad Tasevski, chief operating officer and head of product at Purpose Investments, says these examples show the need to rebalance the trio of ESG priorities. He says the environmental “E” in ESG is being over-emphasized, likely due to the greater challenge of measuring the social and governance variables, compared to hard carbon emissions data.

Tasevski isn’t overly surprised by the lack of enthusiasm for Canadian fossil fuel producers across ESG funds. He says Canadian producers have been “overwhelmingly negatively impacted by the ESG movement,” even as the industry has worked to shrink its carbon footprint, and invested in technology like carbon capture and storage.

CIBC says global flows into ESG funds were down more than 50 per cent through the first two months of this year, after setting records in 2020 and 2021. The bank says flows out of ESG funds have outpaced net outflows from other asset classes.

 

SEC Agency Aims to Legislate US Climate Policy

Jay Clayton and Patrick McHenry explain in their Wall Street Journal article The SEC’s Climate-Change Overreach.  Excerpts in italics with my bolds and added images.

Congress shouldn’t palm off its responsibility for social and economic policy
on financial regulators.

The Securities and Exchange Commission will propose sweeping new rules this week requiring publicly traded, and perhaps even private, companies to disclose extensive climate-related data and additional “climate risks.”

Setting climate policy is the job of lawmakers, not the SEC, whose role is to facilitate the investment decision-making process.

Companies choose how best to comply and thrive under those polices, and investors decide which business strategies to back. That approach addresses many societal issues—think vaccines—and enhances global welfare. Taking a new, activist approach to climate policy—an area far outside the SEC’s authority, jurisdiction and expertise—will deservedly draw legal challenges.

What’s worse, it puts our time-tested approach to capital allocation, as well as the agency’s independence and credibility, at risk.

Understanding and addressing global climate change is one of the most complex and significant issues of our time. Some predict we face inevitable catastrophe, while others say the costs of the transition to a “net-zero world” outweigh the benefits  We know four things for sure.

♦  First, implementing an economywide emissions-reduction policy will have a profound impact on the domestic energy, labor, transportation and housing markets, among others. Many jobs will be destroyed while others are created. Some businesses will close while others will flourish. Even if the long-term benefits outweigh the costs, near-term stresses on working Americans are inevitable and will be distributed unequally.

♦  Second, leaving policy decisions this significant to a single regulator—or even a patchwork of regulators—has failed time and again. Tellingly, there is no indication that the SEC has meaningfully coordinated with any of the other relevant federal agencies and departments on the policy choices embedded in its proposed rules.

♦  Third, Russia’s war against Ukraine demonstrates again the clear and longstanding links between energy policy, global stability and competing national interests. America’s ability to lead on the global stage depends on our economic and military strength, and energy policy is a key to both. These issues are far outside a financial regulator’s depth and mandate.

♦  Fourth, the body that the Constitution prescribes for weighing the relevant trade-offs in this area is Congress. Congress, duly elected by and responsible to the people, is precisely where climate policy, in all its complexities and consequences, should be resolved. Yet over decades, elected leaders have pushed hard policy questions to federal agencies staffed by unelected bureaucrats, whose decisions are reviewed only by unelected judges.

This is at best bad for democracy and at worst unconstitutional.

Demanding that the SEC “act on climate change” allows politicians to say that they are working on their constituents’ behalf without accepting responsibility for the hard choices involved in crafting policy.

Executive branch and independent agencies, including the Environmental Protection Agency; the Transportation, Labor, State and Treasury departments; and other financial regulators, have a role to play. They should work to inform Congress during the policy-making process and then implement legislative mandates in their respective areas of expertise.

Unfortunately, because the SEC has decided to move forward unilaterally, the debate will shift not to Congress, where it belongs, but to the courts. The commission’s chosen path will allow the political buck-passing to continue and delay thoughtful, appropriate and democratically accountable policy.

If and until Congress acts on climate policy, the message to regulators must be clear: Stay in your lane.

Mr. Clayton served as SEC chairman, 2017-20. Mr. McHenry, a North Carolina Republican, is ranking member of the House Financial Services Committee.

See Background Post SEC Warned Off Climate Disclosures

Big Oil Embraces Its Demise for the Honor of Saving the Planet.

Robert Romano asks and answers the pressing energy question in his Daily Torch article Why aren’t oil companies drilling more? Look no further than the ESG goals in their corporate annual reports. Excerpts in italics with my bolds and added images.  H/T John Ray

The largest oil producers in the U.S. do not appear to have major plans to increase production through 2025, a review of U.S. Energy Information Agency (EIA) data and corporate reports of U.S.-based oil companies reveals, despite oil prices being over $100 per barrel and inflation raging at 7.9 percent the last twelve months.

According to EIA, U.S. oil production will reach 12 million barrels per day in 2022 and 12.6 million barrels per day in 2023, a return to pre-Covid production levels that peaked at 12.9 million barrels per day in Nov. 2019.

But what about over the long term? A look at top U.S. oil producers reveals that these companies have been pivoting away from carbon-based energy for years. In short, they’re going green.

[ExxonMobil and Chevron are two examples where] explicit Environmental, Social and Governance (ESG) goals are being pursued by the largest oil companies in the U.S., particularly goals to support the Paris Climate Accords and to reduce carbon emissions to zero.

In both companies’ cases, the strategies short-term include deploying carbon capture technologies as well as reducing onsite carbon emissions on existing production facilities, and more investment in green energies.

Long term, however, they are sealing the fate of carbon-based energies, by embracing an investment model that calls for their extinction.

Ultimately, that will mean almost no oil production or consumption, a goal that would be contrary to an oil company’s continued existence and profitability.

ESG investing has increased dramatically the past decade via private retirement funds regulated under the Employment Retirement Income Security Act (ERISA) thanks to a regulation by the Obama Labor Department in 2015.

In addition, the $762 billion federal Thrift Savings Plan (TSP) for federal employee retirees will begin investing in ESG funds in 2022, following state government employee retirement funds in California, New York, Colorado, Connecticut, Maine, Maryland and Oregon.

The combination of these incentives and subsidies has led to an unprecedented rise of ESG investment: $38 trillion out more than $100 trillion global assets under management, will grow to $53 trillion by 2025, according to Bloomberg News. That’s about one-third of all assets under management, not necessarily seeking profitability, but to save the world.

BlackRock, a hedge fund with more than $9 trillion of assets under management, have placed green activists onto the board of Exxon to make it a “not-oil” company, thanks to ESG. Other hedge funds like Vanguard also make significant ESG investments.

But it has led to catastrophe. Besides making Europe and the West increasingly dependent on energy from adversaries like Russia, inflation is on fire. Thanks to the energy crisis, even major ESG beneficiaries like Tesla CEO Elon Musk are calling for an increase in oil and gas production in a bid to offset Russia, writing on Twitter on March 8: “Hate to say it, but we need to increase oil & gas output immediately. Extraordinary times demand extraordinary measures.”

Musk is right. It’s time to expand production dramatically. But ESG won’t let us. That’s a big problem.

The net result of these policies incentivizing and subsidizing ESG investments has been to restrict capitalization and financing to carbon-based oil, coal and natural gas energies in favor of green energies such as solar, wind and electric vehicles — and endangering the West.

As it turns out, energy security is national security, and with ESG, we do not have energy security.

See also Wake Up and Smell the Fossil Fuel Insanity

Wake Up and Smell the Fossil Fuel Insanity

Terry Etam writes a BOE Report Column: The world faces both a hydrocarbon shortage and a divest fossil fuels movement. What next, oil patch? Excerpts in italics with my bolds and added images.

Today’s question is one only the hydrocarbon crowd can answer:  What’s your game plan from here forward?

 There are a thousand occupations and situations, each with its own decision tree.  Despite the potential variance, it’s still a valid question, because we globally we are at a crossroads of some major significance. The well-being of much of the world’s population depends on what the hydrocarbon industry does over the next few years. At the same time, the pressure is building for the hydrocarbon industry to shrink and wither (as in the wildly successful divest fossil fuels campaign, or banks cutting back on oil/gas loans to curry favour with Those That Matter).

The question is not an easy one given the dramatic reframing of the hydrocarbon industry over the past few years. We used to be the good guys, the world’s fuel providers, a dynamic and entrepreneurial and fast-moving assembly of doers.

Then the narrative changed, and the industry went from relative obscurity to Public Enemy Number One. By 2019, public animosity towards it reached a peak, with orchestrated mass protests around the globe. 2020 brought a near-death experience as Russia and OPEC decided to decimate prices in a battle for market control, and all the anti-hydrocarbon protesters switched from protesting to cheering, famously claiming that “oil was dead”, that oil prices would never recover because EVs were causing rapid demand destruction, and that the humane thing to do now was to justly transition all hydrocarbon workers to other industries.

Even typing that stuff now sounds like an alien experience, like walking around in a crowd without a mask.

The reason those conversations feel so outdated is because, today, it is clear that oil is about as dead as the internet. Some will of course say that high oil prices will hasten a transition to renewables, and that is true that it will make renewables more cost competitive (though still no match on the reliability front).

But consider that a rapid transition to renewables is impossible from a mining perspective alone.

The IEA has said that a global Net Zero 2050 transition would require four times the number of critical mineral mines by 2040 (a virtual impossibility when governments are making mining harder everywhere).  And the Geological Society of Finland calculated that a full transition via renewables/EVs would require more critical metals and minerals than there are known global reserves.

If you are still on the fence as to whether hydrocarbons’ days are numbered, consider that Germany, the world’s most advanced energy-transition country, just days ago mused that drilling for new oil/gas deposits in the arctic sounds like a pretty good idea.

Consider also that this is the new-ish Green-led government saying this. Keep in mind also that any arctic development takes years at a minimum, so these developments have nothing to do with this immediate crisis. If Germany is plotting decade-length oil/gas developments, that tells you all you need to know about the demise of hydrocarbons. There isn’t one.

But that doesn’t answer the question at hand. What will people in the industry do? Will they bolt and get retrained in something else? There are a variety of situations of course, but one is far more ominous than the others. Here’s a bit of a dissection.

Process people will most likely keep processing; any occupations that are in perpetual flow states will likely not stop because of a lack of employees. If you are a gas marketer or pipeline scheduler or refinery manager, there isn’t a visible break point in the continuity of business.

But producers are different. Much different. Next year’s barrel of production won’t necessarily and automatically appear as part of a continuous flow. A lot of very capable brain power needs to be enacted, crews hired and managed, etc. Finding and developing new oil/gas flows is a choice.

If no one chooses to find and produce more petroleum, the flow slows, then stops. If geological talent dries up/retires/moves on, new production doesn’t just happen. Same with drilling crews or completions experts or – dare I say it – truckers.

Anti-hydrocarbon sentiment rums deep in academic institutions, yet it is those very institutions new employees will have to navigate if they are to land in the oil patch. It is no longer “just another option”. There is stigma attached to petroleum programs.

There is venom coming your way from complete strangers. It should then be no surprise that students are acting accordingly; they are going elsewhere. In one US study, from 2016-19, the US petroleum engineering student count fell by 60 percent, and no doubt has fallen further since. Even here in the heart of the Canadian oil patch, the University of Calgary has suspended the petroleum engineering program after the student count fell to an all time low of 10 – and that’s over a two year period.

What if no one chooses to look for oil anymore? Yes, ten thousand western elites will cheer wildly, but billions of trucker-grade people around the world that need that fuel for survival will say WTF, or some such local equivalent.

Those ten thousand western elites will tell all the global plebeians Hey, don’t worry! Solar panels are on the way. And the billions will say Yeah…but can I get a fridge that has power for more than six hours a day? And western elites will say Nope! But don’t worry batteries are on the way. And billions of those plebeians will say Great! When? And western elites will say Battery storage is cheaper than its ever been! And the plebes will say Great! When? And western elites will say Death to fossil fuels! And the plebes will ponder in awe the presumed mysticism and superiority of elite non-sequiturs, little conversational re-directs that the great unwashed masses simply aren’t worthy of comprehending, and then they will starve to death.

And the hydrocarbon producers will be sitting there wondering what to do next. They’ll answer the phone and second cousin Moonbeam from Toronto or San Francisco will be shrieking about how you’re killing the planet.  But you’ll turn on the news and hear that it is a moral imperative to produce more oil since all you oil guys are rolling in money which will be true.  But then the politicians will be saying ‘We’ll take that windfall money btw and then whatever is left better be going into green projects.  But yes you had better increase production right now and we mean right now but only for this year and then everyone should divest fossil fuels.  And we’ll see you in court for all the emissions you’ve unilaterally created over the past century, and maybe the fines will be deductible from the windfall tax and maybe not.  We’ll let you know when we’re good and ready.’.

If this sounds melodramatic it isn’t. In fact, the situation is far more critical than it sounds, in terms of global impact: there is a multi-trillion dollar behemoth of a fuel system that keeps humanity alive. It is 80 per cent hydrocarbon-based. There is at present no substitute. Most parts of that system function conditionally – they require a non-stop flow of hydrocarbons.

The various components of this huge system have “something to do” because, and only because, a relatively small group of people and entities at the origin of that system, the upstream, choose to keep it full. This small group looks at seismic, looks at well logs, drills wells, does production plans, builds small scale infrastructure to bring this energy life-blood on stream. Without those few people the system withers just as does a plant pulled from the ground.

A lack of expertise and/or interest in bringing new hydrocarbons to market will mean that the world’s supply dries up. Good, the ten thousand activists will say. Good, you might say, let’s see who needs who. But these other seven-plus billion won’t be too thrilled at all. No fuel, no fertilizer, no food. All because of choices we’ve made here in the west.

So? Will you continue to power the world or not? A lot of hungry mouths are desperate to hear a yes. Those in power here in the west, the ones that control your economic destiny, have a crazed and volatile look in their eyes as they try to figure it all out, but are publicly unable to support you because they’ve been kicking you in the ribs for a long time and it’s kind of hard at that point to stop and call all the other kickers bullies.

Don’t look at me, I have no idea what happens next. All I can say is that at the point it becomes optional, I will choose not to put my head in the vise any longer. I suspect I am not alone.

Postscript on Petroleum Companies \Outlook and Viability

Outlook 2022: Oil Industry from Proshare

Chart 22: Global oil demand (mb/d) 2019 -2022

Source: OPEC, Proshare Research * OPEC’s Predictions

In the OECD countries, there were larger-than-expected oil demands in H1 2021. However, oil demand struggled to recover to the pre-pandemic level due to lower demand for industrial and transportation fuels for the rest of the year. Oil demand within the OECD for 2021 mirrored the slow phase of economic growth due to supply chain disruptions and the uptick in COVID-19 cases.

Meanwhile, non-OECD’s oil demand in 2021 fluctuated for the better part of the year on demand swings from China and India. China’s crude imports started the year relatively high but fell to an average of 8.9 mb/d in October, the lowest since February, as refiners lacked import quotas and mobility remained limited on the back of the Zero-Covid-19 policy implemented in the country. India’s crude imports also fell to an average of 4.0 mb/d in October, following 2 months of successive gains. Thus, the Covid-19 and supply chain induced soft patches in H2 2021 across Asia impacted considerably on the global oil demand in 2021.

Illustration 30: Determinants of Crude Demand in 2021

Oil Supply

The global oil supply for the year 2021 was driven mainly by the decision of OPEC+, which strived to achieve balance in the oil market.

The share of OPEC in global oil production stood at about 27.7% in 2021, with an average production of about 26.32 mb/d (see chart 24 below).

Chart 24: Global Oil Supply (mb/d) 2019 – 2022

Source: OPEC, Proshare Research * OPEC’s Predictions

Oil Prices

The tightness in the market kept oil prices elevated in 2021. Despite the lingering Covid-19 pandemic, demand had more robust fundamentals while supply was constrained by underinvestment, low spare capacity, and outages. The global oil market began the new year 2021 with a price rally above the 2020 average, and both benchmark contracts reached their 2021 highest in October, with Brent at US$86.70 and WTI at US$85.41 per barrel. Brent price averaged US$71.2 per barrel in 2021, up by 63.3% Y-o-Y above the US$43.6 per barrel average in 2020. Brent increased from about US$51 per barrel in January 2021 to about US$79 per barrel in December 2021, representing a gain of about +55% YTD (see chart 25 below).

Chart 25: Brent Crude Price in 2021 (US$/barrel)

Source: Oilprice, Proshare Research

 

 

 

 

 

Federal Climatists Target US Personal Pension Funds

The green tentacles of global warming/climate change activism are closing in on personal retirement funds. Rupert Darwall writes at Tennessee Star The Biden Administration’s ERISA Work-Around. Excerpts in italics with my bolds and added images.

Rising inflation threatens the value of Americans’ retirement savings. Now the Biden administration is finalizing a rule to loosen safeguards under the Employee Retirement Income Security Act of 1974 (“ERISA”) that protect private retirement savings. The new rule, “Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights,” stems from President Biden’s May 20, 2021, Executive Order on Climate-Related Financial Risk, which directed senior White House advisers to develop a strategy for financing the administration’s net-zero climate goals, including the use of private savings.

Predictably, Wall Street is cheering the prospect of undoing ERISA safeguards. According to one analysis, 97% of comment letters support the proposal. But as I show in my RealClear Foundation report The Biden Administration’s ERISA Work-Around, it’s the remaining three percent that should give the Department of Labor (DOL) cause to rethink its deeply flawed approach.

Under ERISA, retirement savings must be invested for the exclusive purpose of providing retirement benefits.

The May 2021 executive order illustrates the very danger that ERISA’s exclusive-purpose rule is designed to guard against. To achieve the goals set out in the order, DOL is instructed to “suspend, revise or rescind” two Trump-era rules designed to uphold ERISA’s exclusive-purpose rule.

The stratagem adopted by DOL to carry this out is breathtaking in its audacity. The effect of the rule—if finalized as proposed—is to embed ESG investing in retirement plans and nullify the clear, unambiguous intent of ERISA’s exclusive-purpose rule. It’s audacious—and it’s high risk. In December, GOP senators Pat Toomey, Mike Crapo, Richard Burr, and Tim Scott warned the Secretary of Labor, Martin Walsh, against the proposed rule’s use of “inchoate” ESG terminology and reminded him that in 2020, DOL had been convinced by its review of public comments that the term is “not a clear or helpful lexicon for a regulatory standard.”

ESG—environmental, social, and governance—investing embodies two incompatible propositions.

The first is that investing should be about more than financial returns and have regard to wider societal concerns. In a January 2022 interview with Barron’s, Amy Domini, who cofounded KLD Research & Analytics in 1984, objected to rules that require investing based solely on economic value. “We have got to get rid of this concept of economic value,” Domini told Barron’s. “I don’t care if I’ve got an extra 50 bucks in my pocket if it’s dangerous to walk down the sidewalk, or if my grandson has leukemia because the water system is so polluted.”

The second ESG proposition contradicts the first. Far from sacrificing financial returns, ESG investing boosts them. “Our investment conviction,” BlackRock states in its comment letter to DOL, “is that incorporating sustainability-related factors—which are often characterized and grouped into ESG categories—can provide better risk-adjusted returns to investors over the long-term” (emphasis added).

BlackRock’s corporate strategy is to market ESG-style investment products to millennials, who, BlackRock believes, are less interested in financial returns than boomers. In his 2019 letter to CEOs, BlackRock CEO Larry Fink cited a survey of millennials. When asked what the primary purpose of businesses should be, 63% more said “improving society” than said “generating profit.” Three years later, in his 2022 letter to CEOs, Fink was pivoting away from ESG and undercutting BlackRock’s special pleading to DOL. “Make no mistake,” Fink wrote, “the fair pursuit of profit is still what animates markets; and long-term profitability is the measure by which markets will ultimately determine your company’s success.”

According to Jonathan Berry, DOL’s former Acting Assistant Secretary for Policy under the previous administration, career staff at DOL’s Employee Benefits Security Administration (EBSA) initiated secretive private meetings after the November 2020 election to build support and find cause to overturn the 2020 rules. Who were these parties? In its comment letter on the proposed rule, BlackRock lets the cat out of the bag in praising DOL for its “thoughtful analysis of the challenges presented by the 2020 rules” and for incorporating feedback from a “wide range of stakeholders.”

The outcome was a DOL press release on March 10, 2021, announcing the nonenforcement of the two 2020 rules. “These rules have created a perception that fiduciaries are at risk if they include any environmental, social and governance factors in the financial evaluation of plan investments,” said Ali Khawar, EBSA Principal Deputy Assistant Secretary. In fact, references to ESG had been removed from the text of the 2020 Financial Factors rule. Far from ruling out consideration of any ESG factor, its preamble accepted that “ESG considerations may present issues of material business risk or opportunities.” Why hasn’t DOL issued a FAQ and held a public meeting to dispel misperceptions about the 2020 rule?

Because the White House has instructed DOL to nix the rule.

The proposal also seeks to rewrite the December 2020 DOL rule on proxy voting in order to push fiduciaries to outsource their voting to the proxy-advisory duopoly of Institutional Shareholder Services and Glass, Lewis and their bias in support of ESG-type goals in proxy votes. Furthermore, the proposed replacement rule doesn’t tackle the vexed issue of “empty voting,” when, for example, the likes of three big index-tracker providers vote proxies in respect of shares that they don’t have an economic interest in. Shouldn’t DOL be clarifying that ERISA fiduciaries have a duty to investigate the voting policies of firms to which they delegate voting authority?, asks RealClear Foundation senior fellow Bernard Sharfman and Manhattan Institute’s James Copland.

Failure to do so, they suggest, could constitute grounds for a legal challenge under the Administrative Procedure Act.

In their letter to Secretary Walsh, the four GOP senators also invoke the specter of the rule having its fate decided by the courts. “The use of such [ESG] terminology in the proposal is arbitrary and capricious under the Administrative Procedure Act,” the senators warn. As drafted, the proposed rule would invert the primacy of statute law over executive-agency rulemaking.

It would also fundamentally alter the nature of American capitalism, corralling capital for political ends, enabled by multitrillion-dollar investment advisers eyeing the prospect of higher fees.

Will the rule of law prevail?

 

Financial Systems Have Little Risk from Climate

At John Cochrane’s blog readers can access studies showing how activists like Mark Carney are distorting and exploiting imaginary risks to the financial system from global warming/climate change.  Firstly Cochrane discusses a current Federal Reserve research document How Bad Are Weather Disasters for Banks?   Excerpts in italics with my bolds and images are from his blog article Fed Courage

How Bad Are Weather Disasters for Banks?

Kristian S. Blickle, Sarah N. Hamerling, and Donald P. Morgan

Federal Reserve Bank of New York Staff Reports, no. 990 November 2021

Abstract

Not very. We find that weather disasters over the last quarter century had insignificant or small effects on U.S. banks’ performance. This stability seems endogenous rather than a mere reflection of federal aid. Disasters increase loan demand, which offsets losses and actually boosts profits at larger banks. Local banks tend to avoid mortgage lending where floods are more common than official flood maps would predict, suggesting that local knowledge may also mitigate disaster impacts.

Key words: hurricanes, wildfires, floods, climate change, weather disasters, FEMA, banks, financial stability, local knowledge

In addition to the paper’s good analysis, there is a useful literature review,

Our main findings are generally consistent with the few papers that study the bank stability effects of disaster. Looking across countries, Klomp (2014) finds that disasters do not effect default risk of banks in developed countries. Brei et al. (2019) find that hurricanes (the most destructive weather disaster) do not significantly weaken Caribbean banks. Koetter et al. (2019) finds increased lending and profits at German banks exposed to flooding along the Elbe River. The study closest to ours by Noth and Schuewer (2018) finds default risk increases at U.S. banks following disasters but the effects are small and short-lived. Barth et al. (2019) find higher profits and interest spreads at U.S. banks after disasters but did not look at bank risk.

Based on four case studies of extreme disasters and small banks, FDIC (2005) concluded that …”historically, natural disasters did not appear to have a significant negative impact on bank performance.”

This is a courageous paper to write, and to write so clearly. The fantasy of “climate risks to the financial system” is passed around and around in order to justify using financial regulation to implement this Administration’s climate policies, centering on defunding fossil fuel development and subsidizing deployment of particular technologies such as electric cars and windmills. Documenting that this particular emperor has no clothes takes great courage.

As a small indicator of the forces at work, Treasury Secretary Janet Yellen offered an eloquent summary of a the “whole-of-government’ effort to integrate climate into financial regulation

“FSOC is recognizing that climate change is an emerging and increasing threat to U.S. financial stability. This report puts climate change squarely at the forefront of the agenda of its member agencies..”

News that climate change is not a threat to financial stability will not go down well.

Governor Lael Brainard, currently a leading candidate for Fed Chair, is a strong proponent of “climate risks to the financial system.” = Just read here speeches. Here, for example,

Climate change is projected to have profound effects on the economy and the financial system, and it is already inflicting damage.

We can already see the growing costs associated with the increasing frequency and severity of climate-related events.

Here,

It is increasingly clear that climate change could have important implications for the Federal Reserve … Given the implications of climate change for both individual financial institutions and the financial sector as a whole...,

Climate change and the transition to a sustainable economy also pose risks to the stability of the broader financial system. …

And a hint of the vast institutional commitment to these ideas

To complement the work of the SCC, the Federal Reserve Board is establishing a Financial Stability Climate Committee (FSCC) to identify, assess, and address climate-related risks to financial stability.

“We looked and there is nothing here” is not going to go down well. It’s hard to publish papers and get jobs as climate and finance researchers these days if you come up with the “wrong” answers.

New Zealand Study Confirms Financial System Safety from Climate Change

A commenter at the blog provided a link to another recent NZ study Climate Change and the risk to Financial Stability.  Reality or overreaction? Excerpts in italics with my bolds.

The Reserve Bank is not alone in suggesting that climate change could represent some kind of existential threat to the financial system. Over recent years a number of central banks, supervisors and international financial institutions have made claims that global warming poses a serious risk to financial stability. The Network for Greening the Financial System (NGFS), a club of central banks and supervisors, is pushing a more coordinated international approach. Further, the Ministry for the Environment (MfE) has identified financial stability as one of the two major economic risks in its recent Climate Change Risk Assessment report.

At first sight it is difficult to understand what is driving the Reserve Bank’s concern. The physical risks from climate change to the New Zealand economy are small, and over the period up to 2100 the benefits of a warmer climate may well exceed the costs. While there will be some impacts as the economy adapts to a zero carbon future, economies have always been changing and, with some exceptions, financial systems have been able to accommodate those changes. To cite an obvious example, the US substantially shifted from horse to motorized transport in the space of 20 years, without any one being in charge or worrying about systemic risk to the financial system.

As the physical effects of climate change are slow-moving and relatively predictable over relevant time horizons, we should expect the financial systems to adapt to this changing world, and readily accommodate the impacts of climate events such as a slowly rising sea levels and the occasional stronger storms.

The issue we address in this report is whether climate change is such an exception to this benign adaptation picture, that central banks and supervisors need to respond to the ‘challenge’ with some urgency. Or is this just a case of the Reserve Bank wanting to be seen to be ‘relevant’ and getting into the action in what is one of the biggest issues of our time?

The main purpose of this report is to assess the papers on the Bank’s list and other relevant documents on the impact of climate change on financial systems. We have also focused on climate change risk disclosures, which have become a flavour of the month in regulatory quarters, and are set to become mandatory for larger New Zealand institutions.

The focus of our analysis is on the banking sector, which is the core of the New Zealand financial system. We have paid less attention to risks to the insurance sector because it is generally accepted it can readily manage climate risks by adjusting its exposures and pricing.

Our conclusions are very clear. We have reviewed a large number of documents and despite the best efforts of many supervisors none have been able to come up with convincing evidence that climate change represents a threat, let alone a systemic threat. For example a very recent full scale stress test for France found that the transition costs to a zero carbon economy would at most be four or five basis points and that it did not matter whether the transition was early or late. The physical risks from climate change were so slight that they could not be analysed.

We did find a disturbing pattern of exaggerations and misrepresentations. For example the Bank of England instructed banks, when stress testing, to assume that all river flooding defences would be removed, in an effort to inflate the costs of future flooding events. The United Nations Environment Programme used climate change assumptions for 2100 to assess financial system impacts for 2025 and 2045.

Climate change does not represent some kind of existential threat to the New Zealand financial system.

The Governnor is over-reacting. This climate change ‘hysteria’ is mostly noise, but it might have some efficiency costs for the system, which could be avoided if a more measured approach is taken. The Reserve Bank’s role should be to correct and hose down ill-informed responses, not to create them.

Footnote:

Background from John H. Cochrane writing on central banks mistaken preoccupation with global warming/climate change at post Deception: Climate Financial Risk

Also Cochrane’s remarks at European Central Bank’s Conference on Monetary Policy. Synopsis at post Bankers Should Mind Their Own Business, not the Climate

 

 

David Hay Explains “Greenflation”

A two part series at Evergreen financial advisers analyses the market effects of the intensified push for “green” energy.  Excerpts in italics with my bolds.  The two posts are:

Green energy: A bubble in unrealistic expectations?
David Hay / October 8, 2021
As I have written in past EVAs, it amazes me how little of the intense inflation debate in 2021 centered on the inflationary implications of the Green Energy transition. Perhaps it is because there is a built-in assumption that using more renewables should lower energy costs since the sun and the wind provide “free power”.

Green Energy: A Bubble in Unrealistic Expectations, Part II
David Hay / October 15, 2021
This is part two of our discourse regarding green energy and its profound – and somewhat misunderstood – impact on the global economy. In this issue, we specifically home in on China and how that country’s immense power needs are affecting the energy ecosystem at large.

Part I Green Bubble Summary:
  • BlackRock’s CEO recently admitted that, despite what many are opining, the green energy transition is nearly certain to be inflationary.
  • Even though it’s early in the year, energy prices are already experiencing unprecedented spikes in Europe and Asia, but most Americans are unaware of the severity.
  • To that point, many British residents being faced with the fact that they may need to ration heat and could be faced with the chilling reality that lives could be lost if this winter is as cold as forecasters are predicting.
  • Because of the huge increase in energy prices, inflation in the eurozone recently hit a 13-year high, heavily driven by natural gas prices on the Continent that are the equivalent of $200 oil.
  • It used to be that the cure for extreme prices was extreme prices, but these days I’m not so sure. Oil and gas producers are very wary of making long-term investments to develop new resources given the hostility to their industry and shareholder pressure to minimize outlays.
  • I expect global supply to peak sometime next year and a major supply deficit looks inevitable as global demand returns to normal.
  • In Norway, almost 2/3 of all new vehicle sales are of the electric variety (EVs) – a huge increase in just over a decade. Meanwhile, in the US, it’s only about 2%. Still, given Norway’s penchant for the plug-in auto, the demand for oil has not declined.
  • China, despite being the largest market by far for electric vehicles, is still projected to consume an enormous and rising amount of oil in the future.

In fact, despite oil prices pushing toward $80, total US crude output now projected to actually decline this year. This is an unprecedented development. However, as the very pro-renewables Financial Times (the UK’s equivalent of the Wall Street Journal) explained in an August 11th, 2021, article: “Energy companies are in a bind. The old solution would be to invest more in raising gas production. But with most developed countries adopting plans to be ‘net zero’ on carbon emissions by 2050 or earlier, the appetite for throwing billions at long-term gas projects is diminished.”

Thus, if he’s right about rising demand, as I believe he is, there is quite a collision looming between that reality and the high probability of long-term constrained supplies. One of the most relevant and fascinating Wall Street research reports I read as I was researching the topic of what I have been referring to as “Greenflation” is from Morgan Stanley. Its title asked the provocative question: “With 64% of New Cars Now Electric, Why is Norway Still Using so Much Oil?”

Coincidentally, that’s been the experience of the overall developed world over the past 10 years, as well; petroleum consumption has largely flatlined. Where demand hasn’t gone horizontal is in the developing world which includes China. As you can see from the following Cornerstone Analytics chart, China’s oil demand has vaulted by about 6 million barrels per day (bpd) since 2010 while its domestic crude output has, if anything, slightly contracted.

Here’s a similar factoid that I ran in our December 4th EVA, “Totally Toxic”, in which I made a strong bullish case for energy stocks (the main energy ETF is up 35% from then, by the way): “(There was) a study by the UN and the US government based on the Model for the Assessment of Greenhouse Gasses Induced Climate Change (MAGICC). The model predicted that ‘the complete elimination of all fossil fuels in the US immediately would only restrict any increase in world temperature by less than one tenth of one degree Celsius by 2050, and by less than one fifth of one degree Celsius by 2100.’ Say again? If the world’s biggest carbon emitter on a per capita basis causes minimal improvement by going cold turkey on fossil fuels, are we making the right moves by allocating tens of trillions of dollars that we don’t have toward the currently in-vogue green energy solutions?”

Part II Green Bubble Summary:
  • About 70% of China’s electricity is generated by coal, which has major environmental ramifications in regards to electric vehicles.
  • Because of enormous energy demand in China this year, coal prices have experienced a massive boom. Its usage was up 15% in the first half of this year, and the Chinese government has instructed power providers to obtain all baseload energy sources, regardless of cost.
  • The massive migration to electric vehicles – and the fact that they use six times the amount of critical minerals as their gasoline-powered counterparts –means demand for these precious resources is expected to skyrocket.
  • This extreme need for rare minerals, combined with rapid demand growth, is a recipe for a major spike in prices.
  • Massively expanding the US electrical grid has several daunting challenges– chief among them the fact that the American public is extremely reluctant to have new transmission lines installed in their area.
  • The state of California continues to blaze the trail for green energy in terms of both scope and speed. How the rest of the country responds to their aggressive take on renewables remains to be seen.
  • It appears we are entering a very odd reality: governments are expending resources they do not have on weakly concentrated energy. And the result may be very detrimental for today’s modern economy.
  • If the trend in energy continues, what looks nearly certain to be the Third Energy crisis of the last half-century may linger for years.

Lest you think I’m being hyperbolic, please be aware the IEA (International Energy Agency) has estimated it will cost the planet $5 trillion per year to achieve Net Zero emissions. This is compared to global GDP of roughly $85 trillion. According to BloombergNEF, the price tag over 30 years, could be as high as $173 trillion. Frankly, based on the history of gigantic cost overruns on most government-sponsored major infrastructure projects, I’m inclined to take the over—way over—on these estimates.

Moreover, energy consulting firm T2 and Associates, has guesstimated electrifying just the US to the extent necessary to eliminate the direct consumption of fuel (i.e., gasoline, natural gas, coal, etc.) would cost between $18 trillion and $29 trillion. Again, taking into account how these ambitious efforts have played out in the past, I suspect $29 trillion is light. Regardless, even $18 trillion is a stunner, despite the reality we have all gotten numb to numbers with trillions attached to them. For perspective, the total, already terrifying, level of US federal debt is $28 trillion.

Regardless, as noted last week, the probabilities of the Great Green Energy Transition happening are extremely high. Relatedly, I believe the likelihood of the Great Greenflation is right up there with them.

Further, one of my other big fears is that the West is engaging in unilateral energy disarmament. Russia and China are likely the major beneficiaries of this dangerous scenario. Per my earlier comment about a stealth combatant in the war on fossil fuels, it may surprise you that a past NATO Secretary General* has accused Russian intelligence of avidly supporting the anti-fracking movements in Western Europe. Russian TV has railed against fracking for years, even comparing it to pedophilia (certainly, a most bizarre analogy!).

Solutions include fast-tracking small modular nuclear plants; encouraging the further switch from burning coal to natural gas (a trend that is, unfortunately, going the other way now, as noted above); utilizing and enhancing carbon and methane capture at the point of emission (including improving tail pipe effluent-reduction technology); enhancing pipeline integrity to inhibit methane leaks; among many other mitigation techniques that recognize the reality the global economy will be reliant on fossil fuels for many years, if not decades, to come.

If the climate change movement fails to recognize the essential nature of fossil fuels, it will almost certainly trigger a backlash that will undermine the positive change it is trying to bring about. This is similar to what it did via its relentless assault on nuclear power which produced a frenzy of coal plant construction in the 1980s and 1990s. On this point, it’s interesting to see how quickly Europe is re-embracing coal power to alleviate the energy poverty and rationing occurring over there right now—even before winter sets in.

When the choice is between supporting climate change initiatives on one hand and being able to heat your home and provide for your family on the other, is there really any doubt about which option the majority of voters will select?

 

Beware the Green Bubble Popping

David P. Goldman writes at Asia Times Green bubbles threaten to pop stock markets.  Excerpts in italics with my bolds.

Magical US thinking of a Green agenda financed by endless amounts of printing-press money will only end in tears

Prices for all energy commodities jumped during the past month, some by record margins, as a global energy shortage set off a scramble for gas, coal and oil. Brent crude has doubled in the past year, Newcastle coal has quadrupled, and Netherlands natural has risen seven-fold.  There are many small reasons for the global energy squeeze, and one big one:

Investment in hydrocarbons has collapsed under pressure from the Green agenda adopted by international consensus.

Energy investment in the United States has dwindled as large institutional investors boycott fossil fuel investments. China’s critical electricity shortage is the result of draconian regulation of coal mining, exacerbated by Beijing’s punitive ban on Australian coal imports.

The idea is fanciful that the world can re-direct US$100 trillion in capital investment during the next 30 years to reduce carbon emissions to zero by 2050, as the International Energy Agency has proposed. . . To put in context what this number implies, the entire free cash flow of the world’s private corporations would barely make up a third of the Global Reset investment budget.

The political pressure of the Green agenda has virtually wiped out investment in the US oil and gas industry. Capital expenditures for US exploration and development companies during 2021 (and projected for 2022) are only a fifth of the 2015 peak of $150 billion.

Meanwhile, oil and gas companies are sitting on mountains of cash. The free cash flow of the oil and gas industry will rise to $50 billion next year, the highest on record. In 2015 the oil and gas industry showed negative free cash flow because it borrowed to expand production.

Now oil and gas companies are paying down debt and returning cash to shareholders rather than take hydrocarbons out of the ground.

Virtually the whole of the world’s political elite has signed on to the carbon neutrality agenda, including the government of China, which appears to believe that support for carbon neutrality (which China has pledged by 2060) will mitigate hostility to China in the West.

But the energy market suggests that the hard reality of supply constraints will overwhelm the Green agenda before it gets started.

The cost of shelter, which comprises about two-fifths of the US Consumer Price Index, continues to rise at a record pace in the United States. This hasn’t turned up in the official data, because it takes time for old rental leases to expire and new leases to be written.

But several additional percentage points of inflation are now programmed into US inflation for the next two years.

As the Fed forced down the “real” interest rate, by reducing its overnight rate to zero and by purchasing hundreds of billions of dollars in TIPS, investors were forced into stocks.

At some point, the Fed’s game is going to come to an end. The magical thinking of a green agenda financed by endless amounts of printing-press money will be followed by a nasty hangover. Rates will rise and the asset bubble will pop.

Exactly when that will happen is beyond anyone’s capacity to forecast, but the unpleasant September in US equity markets was a foretaste of what we can expect.

A worker installs polycrystalline silicon solar panels as terrestrial photovoltaic power project starts on November 17, 2015 in Yantai, China. Photo: Getty