Climate Finance

What’s Wrong with ESG Investing? Plenty

Posted on by Ron Clutz

Investors Sour on ESG Activism

Andy Puzder explains how bogus and damaging is ESG investing.  Perhaps others are getting the memo.  WSJ reports with a sad tone what is actually good news that investors are pushing back against ESG political correctness. Their article is: ESG Blowback: Exxon, Chevron Investors Reject Climate Measures  Excerpts in italics with my bolds.

An investor-driven climate change push at some of the
world’s largest oil companies has stalled out.

On Wednesday, Exxon Mobil and Chevron’s shareholders struck down a raft of proposals urging the companies to cut greenhouse-gas emissions derived from fuel consumption, put out new reports on climate benchmarks and disclose certain oil-spill risks, among other initiatives.

The votes were abysmal for climate activists. All but two of the 20 shareholder proposals for the two companies garnered less than 25% of investors’ vote, according to preliminary results, with some performing much worse than similar proposals put forward last year.

Zero Carbon zealots attacking ExxonMobil, here seen without their shareholder disguises.

Among the most controversial proposals were those that would have had the companies adopt targets for reducing emissions including those from third-party consumption of their products, such as when drivers burn gasoline in their cars, also known as Scope 3 emissions. Those received only 11% and 10% of the vote among Exxon and Chevron investors, respectively, compared with 27% and 33% for similar proposals last year.

In recent weeks, similar climate proposals failed to win over most shareholders
at annual meetings of British oil and gas giants BP and Shell in London.

Investment strategies linked to ESG, short for environmental, social and corporate-governance issues, had gained momentum in recent years, particularly following the onset of the pandemic in 2020. Investors pressed oil companies to show how they were working to reduce their climate footprint, set long-term environmental goals and curtail the flaring of unwanted natural gas.

In 2021, investment firm Engine No. 1 prevailed in a historic proxy battle against Exxon, winning three board seats at the company’s annual meeting with the backing of investment firms, Vanguard, State Street and BlackRock. The firm argued that Exxon needed to form a better strategy to prepare for the world’s anticipated energy transition.

After the defeat, Exxon adopted a so-called net zero commitment — a goal to reduce
or offset greenhouse-gas emissions from its operations to zero by 2050.

But Wednesday’s votes demonstrated how some shareholders have backed off pushing major oil companies to embrace certain climate goals. Investors said many voices pushing ESG measures have been drowned out following Russia’s war in Ukraine, which caused oil and gas prices to skyrocket as global supplies were crimped.

Mark van Baal, founder of environmental activist group Follow This, said shareholders missed an opportunity at the annual votes. Investors know that avoiding climate disaster will require global emissions to fall by almost half by 2030, he said, but many are focused on short-term profits. [Note: van Baal is wrong about disaster–see Even 3°C Warming Can’t Stop World Prosperity. ]

The industry and its allies have said some countries, particularly in Europe, were too quick to move away from fossil fuels toward clean energy sources such as solar and wind. A movement against climate activism has gained political traction in the U.S., particularly among Republican voters. Entrepreneur Vivek Ramaswamy, a candidate for the Republican presidential nomination, has made anti-ESG policies a central plank of his campaign.

The pushback against ESG measures has also hit investment firms such as BlackRock,
which have faced potential boycotts in Texas and other red states.

Republican officials in Florida, Texas, Louisiana and South Carolina pulled more than $4 billion in pension and investment funds from BlackRock starting last year. BlackRock brought in $230 billion from U.S. clients in 2022.

It wasn’t immediately clear how BlackRock, State Street and Vanguard voted at the meetings this week.  State Street and BlackRock declined to comment. Vanguard didn’t immediately respond to a request for comment.

Investments in fossil fuels pushed many oil companies to record profits last year, which lured back some investors who had fled after years of meager returns from the industry. Exxon Chief Executive Darren Woods said Wednesday the company had benefited from investing in fossil fuels when others pulled back.

Even in Europe, energy executives have shown a willingness to alienate clean-energy investors to tailor strategies to the thirst for fossil fuels. BP and Shell’s record full-year 2022 profits and hefty returns to investors have attracted new investors, and won back some who were dubious of their energy-transition strategies, executives said.

Shell and BP executives have said their strategies are consistent with targets to lower global emissions, while also helping supply the oil and gas still demanded in coming years globally. Exxon and Chevron have said they support the emissions targets set by the Paris climate accords and reducing emissions from their operations.

But Woods and other industry executives have argued some climate-related proposals would backfire or leave the economy worse off. Woods said several proposals rejected Wednesday would have required the company to assume the world will cut carbon emissions at a much faster pace than observers have projected.

“Some [would] go so far as to force us to decrease oil and gas development,” he said. “This would do nothing to reduce global demand.”

What is actually beyond debate is not that we are in a climate crisis
but that if we don’t stop destroying our conventional energy economy,
we are going to be in a civilizational crisis.

Insurers Playing the Climate Card

Posted on by Ron Clutz

You’re probably seeing headlines like this one from The Hill Insurers pull back as US climate catastrophes intensify.   H/T Mark Krebs.  As usual, the Climate Card is a coverup for others who really are to blame for losses.  The linked article starts to look under the carpet, and I will dig deeper in this post.

Firstly, they label weather events as climate castastrophes in order to blame them on everyone else.  

From The Hill:

This month Farmers Insurance announced that it will no longer write new property insurance policies in Florida, citing “catastrophe costs … at historically high levels.” AIG also recently stopped issuing policies along the Sunshine State’s hurricane-vulnerable coastline.

State Farm, meanwhile, said in May, that it would impose a moratorium on new policies in California due to “rapidly growing catastrophe exposure.”

Mark Friedlander, director of corporate communications at the Insurance Information Institute, said that dozens of firms have reduced their presence in Louisiana, including 50 that have stopped writing new policies in the state’s hurricane-prone parishes.

Then in the article details, there are other factors causing claims, including bad governance

He noted that while Farmers made headlines, it’s the 15th insurer to stop writing new policies in Florida in the last 18 months. Although most of those companies have not pulled out of the state outright, he added, three have.

“Insurers are in many ways the first movers” in response to trends like extreme weather and natural disasters, Keys said. “They have a significant amount of money at stake, so they’re very exposed to the downside.”

Florida is in a unique position, Friedlander said, because of a combination of high fraud rates and widespread litigation, which both compound the cost of insurance on top of the climate risks. A state law enacted this year creates a backstop for property insurance in hopes of alleviating some costs, but it’s not yet clear how effectively it will counteract those factors, which have been building for years.

“The difference is in California and Louisiana, [insurance costs are] primarily climate-driven,” he said. “They don’t have the manmade factors we have here in Florida.”

“There isn’t an equivalent for wildfires in California, so the risks in California are borne much more directly. [Note:  Refers to California wildfires, which are uniquely a problem in that woke state which refuses to apply forestry management best practices.]

Insurance Industry Intends to Leverage Climate Fear

“The industry’s taking the approach now of what’s called predict and prevent, meaning being proactive to address climate risk and make sure insurance coverage reflects that and make sure homes and business take preventative action,” Friedlander told The Hill.

Keys also noted that the decisions don’t mean the insurers will never write policies or operate in the state again. Rather, he said, they should be understood as a way for insurers to negotiate, both on what they can charge in premiums and what factors they can weigh.

“It’s not that [insurers] don’t want to do business in your state, it’s that [they]
don’t want to do business at the current premiums [they] can charge.” 

Soaring School Insurance Costs Show How This Works

From Education Week Schools’ Insurance Costs Are Soaring—And Climate Change Isn’t the Only Reason.  Excerpts in italics with my bolds.

School districts are just like homeowners, renters, drivers, and small businesses—they need insurance, even as it’s become prohibitively expensive.

The 900-student Davis district in southern Oklahoma spent $61,000, or roughly $68 per student, on liability insurance for the 2019-20 school year. Last school year, the cost for the same coverage was $150,000, or $167 per student.  Next school year, it’ll be $261,000, or $290 per student. That’s a 328 percent jump just in two years.

Why is the cost of insurance rising so precipitously? Several factors provide clues.

For one, climate change is causing more frequent natural disasters that affect school district operations and require insurance companies to pay out. And it’s not only districts in hard-hit areas that see higher premiums as a result.

Districts’ coverage costs are increasingly determined by what’s happening nationally, not just in their own communities, said Kelli Hanson, executive director of the Schools Insurance Group, which provides insurance to schools in California.

“The more hurricanes we have in Florida, we’re impacted. The more flooding in the Midwest, we’re impacted,” Hanson said.  [Cashing in on Climate?]

Meanwhile, new laws allowing more lawsuits over sexual abuse are putting school districts in an unflattering legal spotlight—while also contributing to higher insurance premiums because of the added legal liability. In California, for instance, a new law passed in 2019 dramatically extends the statute of limitations for plaintiffs to sue over child sexual abuse, including in schools.

The growing frequency of cybercrimes is another factor putting districts at risk. The Shanksville-Stonycreek district in southwestern Pennsylvania saw cybersecurity insurance costs triple after a hacker got access to some of the district’s files in 2019, said Sidney Clark, the district’s business manager and board secretary.

And some districts have adopted controversial policies that are alienating their providers altogether. In Iowa, at least two districts nearly lost insurance coverage recently after they announced that they would be allowing teachers to carry guns on campus. After consulting with other providers who also wouldn’t commit to coverage, both districts have since nixed the policy.

In Oklahoma, one of two main providers of school property and casualty insurance shut down during the pandemic. As a result, Moring said, he has no choice but to sign up with the Oklahoma School Insurance Group (OSIG), no matter what its coverage plan looks like.

In turn, OSIG has struggled to keep rates down for the hundreds of districts in its membership, said Rick Thomas, a retired superintendent who has served as OSIG’s executive director for the last school year.

Over the last three years, Thomas said, OSIG has raised from $14 million to $30 million the amount of money it pays out to districts directly before seeking reimbursement from re-insurers—external companies that charge higher premiums.

School districts aren’t entirely powerless to stop insurance costs from swelling. In many cases, providers want to see that districts are proactively preparing for the unlikeliest scenarios.

Schools with safety plans with details on how they’ll deal with wildfires—what they’re doing to keep shrubbery away from buildings, how they’ll evacuate if necessary, for instance—are more likely to receive favorable insurance coverage, Hanson said.

Background from Previous Post Banking on Climate Alarm

The media are again amping up claims of bad weather to be feared from “climate change.” It is Whack-A-Mole time again, so here is a complete debunking of such media reports, compiled to refute a particularly bad speech by Mark Carney Governor of the Bank of England. H/T Friends of Science

Fact Checking Mark Carney’s Climate Claims is a useful reference document written by Steven Kopits of Princeton Energy Advisors. A few examples below show his systematic dismantling of the alarmist narrative by referencing publically available sources, many of them on government or corporate sites.

Temperatures Rising


We do have long-time series data for Central England, extending back to 1772. To the extent this measurement is reliable and can be extrapolated to hemispheric averages, it shows a step-up of about 1 deg Celsius from 1980 to 2005, which supports Governor Carney’s assertions. On other hand, it also shows a drop of 0.5 deg Celsius from 2005 to the present—which does not.

Sea Levels

As with just about every other metric the Governor mentions, we have data. Sea level is measured by tide gauges, and also by satellites. Satellite measurements suggest that sea level has been rising steadily by roughly 3 mm / year, which equates to about 1 foot per century.

Weather-related Insurance Losses

SOURCE: MUNICH RE NATCAT SERVICE

Hurricanes account for 75% of catastrophic losses, with typhoons representing an additional 8%. Thus, hurricanes and typhoons represent $6 of every $7 paid out in ‘top ten’ catastrophic weather-related insurance claims.

And this in turn tells us a great deal about the nature of insurance. Where do insured hurricane losses occur? Principally in the United States. Where do insured typhoon losses occur? Principally in Japan and Taiwan. Why these places? Because all of these are wealthy countries. Hurricane and typhoon losses will be greater where there is, first, a concentration of physical assets, and second, where those assets are valuable. In other words, in the advanced countries exposed to hurricanes and typhoons.

In this, no country is more exposed than the United States. Of overall losses due to top ten catastrophic weather events, nearly 2/3 occurred in the United States alone.

Insured Weather-related Losses

SOURCE: MUNICH RE NATCAT SERVICE

Indeed, if we restrict this to insured losses (including floods and tornadoes), the US accounts for 84% by itself.  Thus, if we are speaking of insured weather-related losses, as a practical matter we are speaking of hurricane damage in the US.  The rest is largely incidental.  For example, Superstorm Sandy caused more insured losses in one event than the cumulative and collective top ten catastrophic, weather-related losses from Europe, China, and Japan since 1980.  And Sandy was only the second worst insurance event in recent times. 

Now, why are US losses so great? Is it due to the number or strength of storms making landfall in the United States?

GLOBAL HURRICANE FREQUENCY SOURCE: RYAN MAUE

In fact, there is no such pattern discernible in the data. Indeed, the last few years have seen fewer than average hurricanes globally, with a recovery to up-cycle numbers in the last year or so.

Rather, reinsurance data hints at the source of losses: higher payouts for assets in harm’s way. 

INSURED LOSSES AS A PERCENT OF OVERALL LOSSES, TOP TEN LISTS, 1980-2014 SOURCE: MUNICH RE NATCAT SERVICE

Further, more and more expensive assets are exposed to hurricanes in particular.  In the US, for example, ever more people are living on the coasts, and beach front property has become prized and expensive.  One need only look out the window on a flight approaching Miami International Airport to be appalled at the sheer concertation of high-end housing built just above sea level on islands dotting Florida’s Atlantic Coast.   How long until a hurricane wipes a good number of these off their foundations?  And what kind of insurance losses will that involve?

Indeed, an examination of catastrophic losses suggests a decisive role for government policy.  Hurricane Katrina, which destroyed New Orleans in 2005, represents alone more than one-quarter of all insured top ten losses globally since 1980.  In just one event. 

The article goes on to deal with other claims regarding Floods, Droughts, Tornadoes, and Wildfires before reaching this conclusion.

Summing Up

In his speech to London’s insurance community, Mark Carney, Governor of the Bank of England, asserted a series of claims about climate change. Some of these are widely accepted. The climate does change. The world has warmed. Atmospheric CO2 has increased, half of the increment due to human activities.

Beyond this, there is no consensus, and indeed, the available data in many cases directly refutes the Governor’s more extreme assertions. There is no consensus that humans are the primary drivers of climate change. As we can see, sea levels, for example, were rising well before the 1950s date Carney gives as the start of modern anthropogenic warming.

Importantly, the increase in losses since the 1980s is more likely to reflect expanded insurance coverage, increasing payouts as a percent of losses incurred, and an increased number of assets with higher values placed in harm’s way. Losses increases have not occurred due to increases in hurricane, tornado, flooding, drought or fire frequency or strength, at least not in the United States, which represents the lion’s share of insurance claims. In many cases, either frequency or intensity of weather-related events has actually declined. Sea level rise has not accelerated, not as measured by either satellites or tide gauges. Sea level has been rising for well over 100 years, and continues on that pace.

Like so many other economists, Governor Carney seems to operate under the assumption that current CO2 levels are just on the edge of some catastrophic acceleration. For some reason, 320 ppm of atmospheric CO2 is safe, but 540 ppm is not, because there is some precipice—an inflection point or boundary—between here and there. The limit is not 1,000 ppm, or 5,000 ppm, or 42,448 ppm, but right here, right now. A little more CO2, a trace more of a harmless trace gas, and we are doomed.

The climate is complex and the future uncertain. It is possible the worst fears may prove correct. Nevertheless, such an assertion is not supported by the historical data, not for US droughts, floods, tornados, hurricanes or fires. But it does show up. In politics. If sea levels were 20 cm higher in New York and this contributed to the damage from Superstorm Sandy, well, any middling analyst could have predicted the rise back in 1940, just as we can predict today that sea levels will be one foot higher a century hence. The failure was not of CO2 emissions, but squarely a failure of governance. And that goes doubly so for the fate of New Orleans. If Governor Carney wanted to make a constructive proposal, he should have called for Lloyds to create macro audits of risk zones and censure or refuse to insure jurisdictions where governance is not up to par. If insurers had refused to insure New Orleans unless the levees were sound, they could have saved themselves $30 bn in payouts and probably twice that in losses.

As an analyst, I find Mr. Carney’s speech is truly dismaying. For the Governor of the Bank to claim that climate change is leading to rapidly rising insurance claims is, at best, a critical failure of analysis. As discussed above, insurance claims are a function of a number of factors, including the type and country of the weather event, as well as the extent of insurance coverage and payout ratios. A hurricane in the US may see one hundred times the payouts of a major flood in India. Payouts will rise as a function of nominal GDP, as both inflation and the value and concentration of assets will play a crucial role in overall losses. The specific path of a storm can also be decisive for global averages. It goes without saying that a storm which strikes in Philadelphia, marches up the New Jersey coast, slams into the Manhattan and turns towards New Haven is going to cost a bundle. That same storm hitting, say, rural Mississippi would cause a fraction of the monetary damages. And this matters, because Superstorm Sandy caused more insured damages than all the leading weather events in Europe, Japan, and China combined. Single events can move long-term global averages.

If the Bank missed this, it is not because the necessary data is hard to find. Information on weather-related events is readily and publicly accessible on the internet. Almost every graph I use above relating to hurricanes, tornadoes, floods and droughts comes from the US government itself. Apparently, the Bank of England could not be bothered to consult the underlying climate data before making hyperbolic claims. Thus, at best, the Bank was careless with data analysis.

A worse interpretation of events suggests that Mr. Carney was willing to blindly accept the conventional wisdom, the ‘consensus of scientists’ regarding global warming, without any will or curiosity to dig deeper and form a personal view. One can only hope that monetary policy in the UK is not informed by such superficiality or passivity.

The very worst interpretation is that Mr. Carney is in fact aware of the source data, but chose to make hysterical claims to promote a personal political agenda. I cannot imagine a more ill-considered idea. For those of us who consider central bank independence sacred, the appearance of a national bank taking sides in a highly charged political debate—and doing so with scant regard for the underlying data—will establish the Bank of England as partisan and the political opponent of conservative politicians. Given that Janet Yellen, the Chairman of the US Federal Reserve Bank, hails from Berkeley, a hot bed of climate activism, should the Republican Party consider the Fed also its opponent? If so, I can assure you, the Republicans will find some support to ‘audit’ the institution.

At the end of the day, political neutrality is a pre-condition for central bank independence. If a political party deems the central bank to be an opponent, then it will take measures to gain political control over the bank, with the result that monetary policy itself may become politicized. If the Bank nevertheless feels compelled to champion a particular side in a political debate, its analysis must be water-tight and its communication, impartial. That Governor Carny violated both dictums is simply stunning and a huge blow to the prestige of the Bank of England. It was a very bad call indeed.

More anti-alarmist information at Climate Whack-A-Mole

Social Cost of Carbon Game

Posted on by Ron Clutz

Ross McKitrick writes at Financial Post Junk Science Week —The Social Cost of Carbon game.  H/T John Ray Excerpts in italics with my bolds.

Estimates of the SCC championed by Guilbeault are not science

Environment Minister Steven Guilbeault recently announced that the Social Cost of Carbon (SCC), or the dollar value of supposed damages associated with each tonne of carbon dioxide emissions, is about $247, nearly five times higher than the old estimate of $54. He made it sound like a discovery, as if a bunch of experts had finally been able to measure something they previously only guessed at.

Like when scientists were finally able to measure the mass of an electron or the age
of the Earth, now finally we can measure the SCC.

But in reality there has been no breakthrough in economics comparable to those physics breakthroughs. Countless SCC estimates already exist ranging from small negative amounts (i.e. carbon dioxide emissions are beneficial) to many thousands of dollars per tonne. Every such estimate is like a complex “if-then” statement: if the following assumptions hold, then the SCC is $X. Yale economist William Nordhaus won the 2018 Nobel Memorial Prize in economics for developing some of the first methods for combining all the “if” statements into systems called Integrated Assessment Models or IAMs. And using conventional economic and climate modelling methods, he tended to get pretty low SCC values over the years, which has long been a sore point among climate activists and the politicians who share their agenda.

But economists are on the case. The $247 figure referenced by Guilbeault comes from a new report from the Biden administration that tossed out all the previous models, including Nordhaus’s, and instead cobbled together a set of new models that when run together yield much higher SCC values.

In many ways the new models are just like the old ones.

For example they persist in using an Equilibrium Climate Sensitivity of 3 degrees C. This refers to the warming expected from doubling the amount of CO2 in the atmosphere. The authors cite the Sixth Assessment Report of the Intergovernmental Panel on Climate Change as the basis for this decision, apparently unaware that that estimate has already been shown in the climate literature to be flawed. Using the IPCC’s own method on updated data yields a sensitivity estimate of about 2.2 C or less, and as I have shown in a recent publication this is enough to cause the SCC estimate in a standard model to drop to nearly zero.

The biggest boosts to the new SCC figure hailed by Guilbeault come from revisions to agricultural productivity impacts and mortality costs from climate warming. The evidence for large negative agricultural impacts comes from a 2017 article by Frances Moore and co-authors that looked at the combined effects of CO2 fertilization and warming, concluding the net effect would harm global agriculture. Oddly, they used the same data as a 2014 study by Andrew Challinor and co-authors who had found the opposite: the combination of increased CO2 and warming would have much more benign, and in some cases even beneficial, results.

How did Moore et al. get different results from the same data? They used a different statistical model but unfortunately didn’t provide evidence showing it is better than the one Challinor used, so it’s unclear whose results are stronger. But we know whose are more popular. The Biden administration team referred only to the Moore study and left out any mention of the Challinor one, and it is a safe assumption that the reviewers didn’t notice the omission. See how the game is played?

Regarding the mortality effect, the report relies on evidence in a new study that apparently shows that warming will mean fewer deaths from cold and more from heat, and the combined effect globally is a much larger overall death toll than previously thought. The study is by an impressive team led by economist Tamma Carleton and 15 co-authors. In their preface they thank 17 research assistants, four project managers, 13 reviewers and seminar participants at 20 prestigious academic institutions around the world. It’s a high-quality piece of work, but like tens of thousands of other splashy climate impacts studies it relies for its headline conclusions on the discredited RCP8.5 emissions scenario.

How did all those prestigious researchers and reviewers miss this flaw?

The authors compiled mortality data from selected countries around the world and matched them to temperature records, then built a statistical model to extrapolate over the entire world. They used some clever economic modelling to estimate the beneficial effects of adaptive behaviour (like installing air conditioning) as well as the costs. Then they estimated a “mortality function” that spits out the number of additional deaths between now and the year 2300 attributable to each additional tonne of emissions, both from warming itself and the costs of adaptation. To compute this number the authors needed emissions and income projections out to 2300.

No uncertainty ranges are shown and reported, as for creating the recommendation datasets for CMIP5, central estimates have been assumed closely in line with central estimates in IPCC AR4. (SCP45to3PD). No uncertainty ranges are shown and reported, as for creating the recommendation datasets for CMIP5, central estimates have been assumed closely in line with central estimates in IPCC AR4. https://www.pik-potsdam.de/~mmalte/rcps/

For this they used two scenarios: the extreme, coal-blackened Dickensian fiction called RCP8.5, and a mid-range emissions projection called RCP4.5. In my 2020 JSW column I discussed the efforts of climate analysts to convince their colleagues to stop using the RCP8.5 scenario because of its unrealistic assumptions. Interestingly the Biden administration report moves away from both RCP scenarios and focuses on a new one from Resources for the Future (RFF) which, through most of the rest of this century, projects emissions even below RCP4.5.

But in the main text of the Carleton paper it highlights mortality estimates associated with an RCP8.5 future. Basically we all die a fiery death. If you want to know what the results are using RCP4.5, you will need to track down the 113-page online-only appendix and navigate to page A75, then transfer a table full of numbers to a spreadsheet so you can compare the outcomes.

The two figures on this page summarize what they show. With no adaptation, under the RCP8.5 emissions scenario each tonne of CO2 kills 221 people per hundred thousand (100k) between now and 2300, with the uncertainty range shown by the whisker line. Under RCP4.5 each tonne kills 40 people per 100k. I estimated what their model would yield using the RFF scenario: the effect drops further to 18 people per 100k, and the number is not significantly different from zero.

The second figure reports results if adaptive behaviour is assumed. Under RCP8.5 the mortality rate per 100k drops to 85 people, under RCP4.5 it drops to 14 and under the RFF scenario it drops to five, and the latter two estimates are not significantly different from zero, which means that there is no statistically valid reason to add the mortality effect to an SCC model.

Another step in the analysis is to place a value on these deaths, which depends on things like age and income in every place. Digging further into the online appendix (p. A100), if they stick with RCP4.5 but use a variant that predicts higher income growth the value of the mortality effect goes negative, which means taking account of the lives saved or lost due to warming leads to a lower SCC.

No mention of this in Guilbeault’s announcement.

Thus I reiterate that SCC estimates are if-then statements. They are not intrinsically true or false: what matters is the credibility of the assumptions.

♦  If emissions follow the RCP8.5 scenario (which they won’t), and
♦  if people don’t adapt to climate change (which they will), and
♦  if CO2 and warm weather stop being good for plants (which is unlikely),
    then the SCC could be five times larger than previously thought.

More likely it isn’t, and very well could be much smaller.

See Also Biden’s Arbitrary Social Cost of Carbon: What You Need to Know

 

Green Schemes Broken by Reality

Posted on by Ron Clutz

James E. Hanley provides a roundup of failed Green expensive ventures in his Real Clear Policy article Green Projects Hit Iron Wall.  Excerpts in italics with my bolds and added images.

Developers looking to build thousands of wind turbines off the Mid-Atlantic and New England coast are coming up against a force even more relentless than the Atlantic winds: the Iron Law of Megaprojects, offering a warning of the trouble ahead for green-energy projects.

The Iron Law, coined by Oxford Professor Bent Flyvbjerg, says that “megaprojects” — which cost billions of dollars, take years to complete, and are socially transformative — reliably come in over budget, over time, over and over.

From Boston’s Big Dig to California’s high-speed rail to
New York’s 12 years-overdue and 300% over-budget East Side Access rail project,
big boondoggles routinely demonstrate the validity of the rule.

Offshore wind projects are not immune to the Iron Law, regularly experiencing vast cost overruns before a single watt is generated.

The New York state government, looking to replace oil- and gas-fired powerplants with hundreds of wind towers off Long Island, set out in 2019 to create an offshore wind supply chain from scratch, beginning with a massive state-funded turbine fabrication facility about 100 miles north of New York City on the Hudson River.

Port of Albany factory’s fate at stake as leaders race for a solution The $700 million-plus project is expected to create work for generations, but hopes are dwindling that more funding will become available

Ground still hasn’t even been broken, but the budget certainly has: The price of that Port of Albany facility has already doubled from $350 million to $700 million. An additional $100 million may be needed for equipment costs, raising the final price tag to $800 million.

It’s been billed the future hub for wind power infrastructure. So far, though, the only thing that continues to get billed over and over in recent years is the Connecticut taxpayer.

A similar situation is playing out in New London, Connecticut, where a state-funded pier facility being built to support that state’s offshore wind buildout has more than doubled in price from an original estimate of $95 million to $250 million.

Commonwealth Wind Declares that the largest offshore wind farm in the state’s pipeline “cannot be financed and built” under existing contracts,

And in Massachusetts, developer Commonwealth Wind has asked the state to scrap its power purchase guarantees and rebid the project, arguing that inflation and supply chain problems mean the project is not financially viable under its current contracts.

Big projects tend to exceed their cost projections for many reasons. One is the unanticipated, and sometimes unprecedented, complexity of these projects. Further uncertainties and costs arise from the challenge of navigating the red tape of the modern regulatory state. In addition, there is the risk of inflation for projects that take years, sometimes decades, to develop.

Underlying all these is often a failure to spend enough time on careful planning
that treats reality as a fundamental constraint.

But sometimes project sponsors may simply worry that accurate cost projections could scare away public support at the outset, and choose to employ what Prof. Flyvbjerg politely calls “strategic misrepresentation.”

As former San Francisco Mayor Willie Brown said, “If people knew the real cost from the start, nothing would ever be approved. . . . Start digging a hole and make it so big, there’s no alternative to coming up with the money to fill it in.”

If that sounds too cynical, note that the current Chair of the Connecticut Port Authority has admitted that when officials first proposed the pier facility, they already knew it would cost more than they were claiming.

Ironically, the New York and Connecticut projects aren’t even big enough to be considered megaprojects, and yet even they have run into the Iron Law of being over budget and behind schedule. The challenges won’t diminish with bigger and more ambitious green energy projects.

In New York, the state’s huge Climate Leadership and Community Protection Act — of which the Port of Albany project is the first substantial investment — is projected to cost between $270 and $290 billion. At that price it is a gigaproject composed of numerous individual megaprojects.

The benefits, mostly in the form of greenhouse gas reductions, are supposed to be up to $415 billion. But if the overall cost of the policy climbs by merely 55 percent, which is in the normal range for megaprojects (and much less than the Port of Albany cost overrun), the costs will exceed the benefits, creating a net loss for New Yorkers.

If costs balloon to twice the initial estimates, which is not uncommon, the state stands to spend more than more than a hundred billion dollars more than gained in benefits That would be a loss of over $30,000 per New York household by 2050.

And that’s assuming the benefits are as good as promised. It gets even worse if,
as is common, the benefits have been overstated.

The tale of megaprojects is a cautionary one for the whole country as we attempt to transition away from fossil fuels. Cost estimates for a nationwide transition span from $4.7 trillion to over $60 trillion – almost three times U.S. GDP. Such uncertainty should give us pause for thought before jumping wildly into the financial unknown.

If we’re not careful, we may be digging Willie Brown-style holes, and politically and financially we may find ourselves in too deep to ever get ourselves out.

NYT Makes 12 out of 12 False Claims Against Lomborg’s Book

Posted on by Ron Clutz

Bjorn Lomborg set the record straight at LinkedIn The New York Times’ stunningly false and deceptive hit piece to preserve climate alarmism.  Excerpts in italics with my bolds.

The piece consists of Stiglitz enumerating four specific and compounding mistakes that I apparently make, and then another six separate observations. I will go through all of them below, starting with the four mistakes.

My first “mistake”

My first mistake is that I draw “heavily on the work of William Nordhaus of Yale University, who came up with an estimate of the economic cost to limiting climate change to 1.5 to 2 degrees Celsius above preindustrial levels.” Instead the High-Level Commission on Carbon Prices, which Stiglitz co-authored, showed that 1.5°C-2°C goals “could be achieved at a moderate price.”

This is triply wrong. I don’t rely on Nordhaus for the cost on limiting temperature rise for 1.5°C to 2°C, simply because Nordhaus does not make that estimate. Nordhaus explicitly writes, as Stiglitz would know had he read Nordhaus or my book: “A limit of 2°C appears to be infeasible with reasonably accessible technologies even with very ambitious abatement strategies.”

Secondly, Stiglitz claims that his report estimates “a moderate price” for reaching the Paris agreement. This is false. There is no estimate of the total economic cost of a 2°C or 1.5°C target in his High-Level Commission on Carbon Prices.

Compounding Stiglitz’ error is the fact that the background report for his high-level commission does indeed list the UN Climate Panel cost estimate for reaching 1.5-2°C at more than 4% of GDP by 2100 (p2), which makes Nordhaus’ 1.38% GDP economic cost at the lowest temperature scenario of 2.35°C by 2100 substantially smaller (not larger, as Stiglitz claims).

Stiglitz throughout his piece neglects to inform the reader that Nordhaus is not just any old economist, but actually the only climate economist to get the Nobel prize for his work on climate economics. For reference, Stiglitz got his Nobel prize in economics for analyses of markets with asymmetric information like the selling and buying of used cars.

For the first mistake, Stiglitz makes two false claims and no correct, relevant claims.

My second “mistake”

My second mistake is “Nordhaus’s and Lomborg’s underestimation of the damage associated with climate change.” Stiglitz is in reality informing us that he knows much better than the world’s only climate Nobel economist.

But curiously, Stiglitz never tells us what the right cost is. As such, Stiglitz makes an absurd claim, essentially asserting he knows better than the best peer-reviewed evidence — but just couldn’t be bothered to share that knowledge publicly.

Stiglitz gives one indication of his knowledge on this matter. He claims that a significant part of the cost of climate change “includes more extreme weather events — more intense hurricanes, more droughts, more floods, with all the devastation to life, livelihood and property that accompanies them. Yet, again, he seems to have forgotten to actually acquaint himself with the best evidence on the science and economics of extreme weather events. As the leading researcher on economic impacts of extreme weather events says, Stiglitz is “just wrong.”

But more importantly, Stiglitz is just cherry-picking and ignoring the actual data. He picked the costliest recent data point and he neglects that the trend for the US (and similarly for the world) is declining.
Stiglitz is simply doubly wrong on his only indication of how Nobel Laureate Nordhaus and I should be wrong, so for the second mistake, Stiglitz makes two false, one unsubstantiated and no correct, relevant claims.

My third “mistake”

Stiglitz suggests that “A third critical mistake, compounding the second, is not taking due account of risk.”  Ah, if only the world’s only actual Nobel laureate in climate economics had thought of incorporating risks.

Of course, Stiglitz could still have quibbled about a different way to model risk, and added his own take on this. But he does not. He simply — and falsely — suggests that Nordhaus or I have not taken this obvious point into consideration.

Specifically, Stiglitz assuredly tells us that the best damage estimates are underestimates because “as we learn more about climate change these best estimates keep getting revised, and, typically, in only one direction — more damage and sooner than had been expected.”   No, they do not. This is the kind of claim one makes if one gets most of one’s climate information from news media.

For the third mistake, Stiglitz makes two false, one unsubstantiated and no correct, relevant claims.

My fourth “mistake”

Stiglitz seems to claim that Nordhaus and I use a discount parameter that is too low for his liking. I cite the whole paragraph, because it is unclear what his actual point is except a rant against the Trump administration:

Stiglitz apparently suggests that Nordhaus and I use a 7 percent discount rate to spew out the numbers that are in my book. This is demonstrably false. Perhaps Stiglitz knows he’s fibbing, given that he settles for criticizing Trump and then conflating the 7% with the “models Lomborg loves.”

Instead, Nordhaus’ discount rate is calibrated to the real interest rates, meaning a 4.8% discount rate in 2015, declining to 3.5% in 2100.

As he would know, having been World Bank chief economist, it is one thing what rich, liberals in Manhattan want for a discount rate. Most of the rest of the world has much higher discount rates. When we worked with the government of Haiti, the central bank decided on 12% (even contemplating 20%), while Ghana decided 8%.

For the fourth mistake, Stiglitz makes one false and no correct, relevant claims.

Other claims

Media drives alarmism

He seems to brush off my points that the hyperventilating media is one of the main causes of alarmism simply by saying “fake news”: 

For example, I outline how New York Times claims that South Vietnam by 2050 will “all but disappear” because it will be “underwater at high tide.”  While the story was reported in almost all media, it was clearly incorrect. Because almost all of South Vietnam is already under the high tide mark today, and almost all of South Vietnam is already well-protected today:

Regulation

Stiglitz claim that I miss discussing good regulations as a way to tackle climate.  

More importantly, Stiglitz seems to have missed at least the last third of my book. Here I talk about

1. Innovation: how we should invest $100 billion per year in green R&D (regulation, not taxation)

2. Adaptation: regulation like zoning, building regulation and more pervious city surfaces (to ensure less flooding)

3. Geoengineering: which will be almost entirely a regulatory approach

4. Prosperity: mostly about better policies including regulatory policies

Stiglitz’ claim that I ignore regulation is blatantly false.

Wall Street underwater

Almost bizarrely, Stiglitz chides me for not including in my book that Wall Street could be underwater by 2100:

The research very clearly shows that at least when an area has sufficient value (as Wall St and surrounding areas certainly have) all will be safeguarded through adaptive policies (like sea walls etc.).  I even show this in a graph in the book, based on this paper. We only see significant flooding when we disregard adaptation:

So when Stiglitz chides me for not including that Wall Street might be underwater in my book, it is because such a claim would be false. His is a good example of bad information from hyperventilating media.

Copenhagen Consensus

Stiglitz writes a slyly derogatory paragraph about the think tank I work for, Copenhagen Consensus:

The paragraph doesn’t seem to say anything but that the experts are conservative and that we didn’t include any “true experts” on climate science.

On his first claim, we have worked with more than 300 of the world’s top economists and seven Nobel Laureates. Our main focus is all the world’s problems, not just climate change, so many are experts in the economics of malaria, infrastructure, water, education etc.   We certainly don’t have a ‘conservative’ bias — we’ve actually invited Stiglitz to be a member of several eminent panels together with his Nobel colleagues. But it also shows that Stiglitz seems to be suggesting that only liberal economists such as himself can be trusted to help set priorities for the world.

On his second claim, we have worked with many climate economists, and when we did our big climate consensus, we worked with 27 of the world’s top climate economists, publishing the results as a book with Cambridge University Press, which even got a favorable quote from the IPCC’s chairman (“This book provides not only a reservoir of information on the reality of human induced climate change, but raises vital questions and examines viable options on what can be done to meet the challenge.”).

Stiglitz’ derogatory two claims are simply incorrect.

Lack of prioritization

One of the key points of my book (and the Copenhagen Consensus’ work) is that we have to prioritize. No matter the amount of resources available, there is never enough to do everything, and hence we have to make sure we spend resources where they can do the most good first.  The allocation of scarce resources with alternative uses, of course, is the key definition of economics.

Obviously, money from a tax can be used on many things (some of which I’m sure Stiglitz wouldn’t like), but they can still only be used once. And the point is, that with more stringent climate policies, GDP will be slightly lower, hence there will be less in total to spend.

The new IPCC report shows end-of-world

Stiglitz finally claims that because I cite the UN Climate Panel so often, one could believe I might be right. But, he comforts his readers, “nothing could be further from the truth”:

What I say in the book is also what is in the IPCC 2018 1.5°C report.

Then Stiglitz goes on to make the exact scare scenario in which the media excels and that I have criticized. The 60 feet sea level rise is from a world in an entirely different part of the state space. He knows very well that such statistics are only meant to scare but not informative for what will happen for us, in this part of the state space. That, of course, is exactly what the IPCC reports are about. They talk about a high outcome of 3 feet of sea level rise by 2100. The only reason to throw out 60 feet is to scare people silly.

Summary

Making 12 substantial criticisms of my book and that they are all false, is quite an achievement. It is hard not to conclude that Stiglitz’ review of my book is a deceptive and false hit piece. It is perhaps not surprising that Stiglitz actually said that he was going to give the book a bad review even before he read it. In many ways, it seems like he still hasn’t read it.

I have asked New York Times to rectify this terrible article. 

 

 

ESG Battle Over Italian Energy Giant

Posted on by Ron Clutz

Enel, Italy’s largest energy utility is in the news with conflict over appointing a new CEO because  aspirations differ between ESG investors and the Italian government.   There are headlines like these:

Norway’s oil fund rejects Rome’s candidate for Enel chair, Financial Times

Wanted! Investors demand Italy hire renewable expert, global networker to run Enel, Zawya

Government board nominations for Enel run into opposition, msn

Enel confirms 2023 guidance, enters press blackout on nominations, Reuters

MILAN (Reuters) – Italy’s biggest utility, Enel, confirmed its full-year guidance and entered a press blackout period ahead of a May 10 shareholder vote on a challenged board shake-up.

The group, whose main shareholder is Italy’s Treasury with nearly a 24%-stake, is at the centre of a governance row that will be decided at the AGM scheduled for next Wednesday.

The Treasury has proposed a new management, putting forward a slate of six new candidates and ousting current Enel CEO Francesco Starace, who has been at the helm since 2014.

Hedge fund Covalis, which holds around 1% in Enel, presented an alternative list of nominees, criticising the process under which the government picked its candidates.  Covalis said the system that led to the government’s nominations “undermines investor confidence, erodes value and is out of line with international standards of best practice in shareholder democracy”.[Would those best practices be ESG?]

Proxy adviser Frontis Governance has urged shareholders to back the candidates promoted by Covalis and reject names put forward by the Treasury, in a report tailored for Switzerland’s Ethos, a group of pension funds and other investors.

On the financial side, Enel’s ordinary earnings before interest, taxes, depreciation and amortization (EBITDA) in the first quarter rose 22% to 5.5 billion euros above an analyst consensus of 5.4 billion euros.  Net debt at the end of March was 58.9 billion euros, down from 60.1 billion euros at the end of last year.

Starace described the results in the first three months of 2023 as outstanding and said the group had already exceeded half of its 21 billion euro ($23 billion) asset sale target unveiled last November.

The state-controlled group intends to focus its business on the core markets of Italy, Spain, the United States, Brazil, Chile and Colombia.

Wanted! Investors demand Italy hire renewable expert, global networker to run Enel,  Zawya

Expertise in renewables and an international focus are what investors want to see from a new head of state-controlled Enel, as Italy’s government screens candidates to replace the energy group’s long-serving chief executive.

Prime Minister Giorgia Meloni’s administration is determined to oust current CEO Francesco Starace, several sources told Reuters. In charge since 2014, Starace is in the crosshairs of Meloni’s inner circle as he is deemed too independent.

Meloni’s office is also concerned about the group’s debt pile. But sources familiar with the matter said that head hunters hired by the Treasury are finding it tricky to put forward potential successors with the broad range of skills required to run one of Europe’s largest utilities.

With almost 60 Gigawatt of installed capacity, Enel is one
of the world’s biggest players in renewable energy

Starace won plaudits for his commitment to green energy. However, investors and the government grew restless over a debt pile that had grown to around 60 billion euros ($65.40 billion) in 2022 from 45.5 billion in 2020, when Starace was reappointed for a third term.

The company, which has been hit by soaring gas prices and government measures capping bills to shield consumers, saw net profit slip to 5.4 billion euros last year, from 5.6 billion euros in 2021.

The new CEO should not sacrifice the group’s exposure to North America and confirm its dividend policy, a number of investors said.

“People in Italy may prefer that Enel focuses on making things as much as possible in its home country and not investing so much abroad, but the company has no choice… if it wants to attract foreign investors,” said Vincent McEntegart, multi-asset investment manager at Aegon Asset Management, an Enel shareholder with assets under management worth $311 billion.

For Enel, U.S. President Joe Biden’s green energy subsidy package could mean double digit returns in North America compared with single digit in Europe, McEntegart said, adding such returns would underpin the group’s attractive dividend policy.

Since Starace was appointed CEO in May 2014, Enel has increased its
installed renewable energy capacity to 59 GW from 36 GW at the end of 2013.

Starace’s mantra has been electrification of consumption and digitalisation of grids and he said last year he wanted to leverage a renewed focus on energy security around the world to accelerate the group’s exit from natural gas. The group currently plans to become carbon free in 2040.

“My priorities for the new CEO would be to continue to roll out renewables and accelerate the exit from gas,” Simone Siliani, the director for Italy’s Fondazione Finanza Etica, told Reuters.  Finanza Etica, which is an active investor on ESG issues, has been holding a tiny stake in Enel since 2008.

“Enel can make the difference if Italy wants to meet its decarbonisation goals,” added Siliani.

Summary: 

Once again we have climatist financiers using ESG to push zero carbon against the mission of providing secure and affordable energy that citizens need.

 

 

Experts Were the Covid Crisis in 2020

Posted on by Ron Clutz

John Tamny makes the case that authoritarian government is a poor substitute for free people managing themselves facing a public health threat.  He writes at Real Clear Markets Dear Washington Post Editorial Board, the Experts Were the Crisis In 2020.  Excerpts in italics with my bolds and added images.

The quote from Tolstoy’s War and Peace is a useful way to begin addressing the Washington Post editorial board’s confident assertion that “’A collective national incompetence in government’” was at the root of the U.S.’s alleged failure vis-à-vis the coronavirus in 2020. According to the Post quoting from a recently released report (“Lessons from the Covid War”), “The United States started out ‘with more capabilities than any other country in the world,’ but “it ended up with 1 million dead.” Were he still around, one guesses Tolstoy would mock the conceit of the Post’s editorialists.

That’s the case because “the thing that matters most to any man” is “the saving of his own skin.” That this needs to even be said speaks to how wrongheaded the Post’s editorial board’s approach to the virus was, and still is. It implies we have dead because government didn’t act properly, as though free people eager to live were unequal to a virus that the right kind of collective governmental action was more than equal to. Ok, but what was government going to do? Better yet, what if the virus had struck in 2015 when Barack Obama was still in the White House. What would he have done? Would he have instructed a virus that was spreading faster than the flu to take a “time out”?

The simple truth missed by the Post is that as humans
we’re wired to preserve ourselves.

On the matter of life and the presumption of death, government is excess. Whatever solution Obama might have come up with, or whatever Donald Trump did come up with, or (try not to laugh) whatever Joe Biden, Nancy Pelosi and Chuck Schumer would have done if the virus had revealed itself in 2021 would have been vastly unequal to the solutions crafted by free people.

Deep down the Post’s editorialists must know the above is true. Indeed, it’s not that the Soviet Union lacked experts, or that Cuba lacks experts now. The problem was and is that the remarkable knowledge of very few very smart people will never measure up to the collective knowledge of the citizenry. That’s why communism failed so impressively in the Soviet Union, and it’s why it fails in Cuba. Translated for those who need it, the people are the market and markets work. As I make plain in my 2021 book When Politicians Panicked, the problem was experts and politicians substituting their limited knowledge for that of the people. That was the crisis. Not so, according to the Post and the report they cite.

Supposedly the “leaders of the United States could not apply their country’s vast assets effectively enough” such that “1 million died.” Wrong. Over and over again. To see why, imagine if 10 million Americans had died in March of 2020. Can the Post editorial board think of what government might have done that would have somehow improved on a feverish individual desire to survive against long odds? The simple truth glossed over by the Post is that the more threatening a virus is (and the Post seems to view what most didn’t know they were infected with as wildly threatening), the more superfluous government action is.

Really, who reading this ever needs to be forced to avoid behavior that might result in sickness, or even death? And if the reply to this question is that some people DO need to be forced, you’re making the best case of all for unfettered freedom. Think about it. Those who reject expert opinion are the most crucial “control group” as a virus spreads. By going against the grain, we learn from their freely arrived at actions if the virus is as lethal as presumed, or not, how it spreads, how to perhaps avoid its spread, and all manner of other important bits of information suppressed by one-size-fits-all national solutions.

It cannot be stressed enough that free people crucially produce information. Instead of allowing them to produce it in abundance in 2020, the response arrived at by Democrats and Republicans was to lock people in their homes, thus blinding a nation “with more capabilities than any other country” to the best approaches to a spreading virus. Please keep all of this in mind with the report’s assertion that the “most important and fundamental misjudgment” about the virus was how it spread. You think? Of course, the muscular assertion ignores yet again that if knowing how a virus spreads is of utmost importance, the only credible answer is freedom.

Consider the latter in light of the statement of the obvious that all advances in medicine have always been born of matching doctors and scientists with the abundant fruits of wealth creation. In 2020, rather than encourage the very wealth creation that has long been the biggest foe of death and disease (by far), panicky politicians quite literally chose economic contraction as a virus mitigation strategy. Historians will marvel at the abject stupidity of the U.S. political class, but not the Post’s editorialists or the authors of a report that the editorialists remarkably find insightful.

Rather than acknowledge the obvious about government and experts as the crisis, the Post editorialists and the experts they kneel before bemoaned a national abdication of “wartime responsibilities.” One gets the feeling Tolstoy would chuckle yet again. In his words, “The course of a battle is affected by an infinite number of freely operating forces (there being no greater freedom of operation than on a battlefield, where life and death are at stake), and this course can never be known in advance; nor does it ever correspond with the direction of any one particular force.”

In short, on matters of life and death government control
is wretched, crisis-inducing excess.

 

Obviously Climate Policies Are Inflationary

Posted on by Ron Clutz

 

Rupert Darwall explains how central bankers avert their eyes from the obvious in his Real Clear Energy article Inflation, Net Zero, and the Bank of England. Excerpts in italics with my bolds and added images.

A central banker tiptoes toward the inflationary consequences of Net Zero.

“What a banker,” read the unsubtle headline in the Sun. “BoE official on £190k salary says Brits must accept they’re worse off.” The Mail agreed. “BoE chief risks fury as he says Brits must accept they are poorer.” What sparked the tabloids’ outrage was a Columbia Law School podcast with Huw Pill, the Bank of England’s chief economist and a member of the Bank’s interest-rate-setting Monetary Policy Committee. Pill made the uncontroversial point that higher energy prices were making Britons worse off, but that attempts by workers and firms to recoup the real spending power they’d lost risked embedding inflation.

Pill’s analysis should have been directed at his fellow central bankers,
who let inflation slip the leash.

In his Geneva speech, Pill says that central bankers need to assess structural factors likely to prevent inflation falling back to target. “If a rise in energy prices is seen as permanent, it is more likely to trigger greater intrinsic inflation,” he argues. If it does, it would “justify a stronger tightening of monetary policy.” Not mentioned by Pill, however, are the effects of climate policy and net zero on energy costs and prices – and therefore the persistence of inflation on an economy being subjected to a multi-decadal program of decarbonization.

Climate policies drive up energy costs through two channels.

The first are policies forcing energy companies to replace hydrocarbons with inefficient, inferior lower-carbon alternatives, notably wind and solar. Were such technologies superior and capable of delivering greater efficiencies, there would be no need for government intervention promoting their adoption. The second channel is by progressively constricting the sources of energy supply, for example by Environmental, Social and Governance (ESG) investors preventing investment in new oil and gas fields, thereby increasing the market share of OPEC plus Russia.

In Britain’s case, powering past coal meant increased dependence on natural gas to keep the lights on. As Pill notes, all market transactions involve distribution of some “economic surplus” between the parties; “the more effective the seller is in extracting that economic surplus, the higher the resulting economic price will be.” Unfortunately for Britain and the rest of Europe, Vladmir Putin and Gazprom have a much better understanding of how energy markets work than Western politicians who made their continent vulnerable to surplus extraction through the myopic pursuit of net zero.

With the Bank of England, it’s not so much myopia as wilful blindness to any possibility of a link between climate policies and inflation. In a speech this month unironically asking “Climate action: a tipping point?,” Sarah Breeden, the bank’s executive director for financial stability and risk, describes its role as creating a regulatory framework that encourages markets “to allocate capital to support real economy decarbonization,” i.e., to worsen the supply constraints on hydrocarbon energy. At the November 2022 G20 meeting in Bali, Deputy Governor Sir Dave Ramsden spoke of the need to avert climate catastrophe. “Among all the shocks – many unprecedented – facing the global economy today, the challenge of climate change is the most profound and far reaching,” Sir Dave declared, in the very month it was announced that consumer price inflation in Britain had reached 11.1 percent.

From the governor on down, the Bank of England became obsessed with conjuring up specters of climate risk as threats to financial stability, all the while blanking out any possibility that climate change policy might threaten attainment of the bank’s inflation mandate. Less than two years ago, Andrew Bailey, the bank’s governor, was talking of net zero as a way of regenerating capital and raising productivity. “These positive effects should be larger in countries like the UK that are net importers of energy,” Bailey asserted – the opposite of what the bank’s chief economist is now saying.

Alarm bells should be ringing in Threadneedle Street. Giving evidence to a House of Lords inquiry on the Bank of England independence, former chancellor George Osborne cast doubt on making climate goals one of the bank’s objectives. His former Labour opponent, Ed Balls, who helped design the arrangements making the bank independent in 1997, went further, arguing that it didn’t make sense to give the bank a role for which it had no tools, and suggesting that climate had become a distraction from its core mission on price and financial stability.

Climate is worse than a distraction:
misjudgement and misanalysis of climate-change policy is a key factor
in the Bank of England losing control of inflation.

Fed Models Weather, Fails at Bank Stress Testing

Posted on by Ron Clutz

Mish reports on the US Federal Reserve’s latest incompetence at his blog The Fed Models the Weather Although It Can’t Even Stress Test Treasuries.  Excerpt in italics with my bolds. H/T Tyler Durden

The Fed has conducted a “pilot climate scenario analysis exercise”.
Let’s take a peek inside this laughable event.

On January 10, Fed Chairman said the Fed ‘will not be a climate policymaker’. 

Under guise that it’s just a stress test model and not a policy setting model, the Fed announced details on its Pilot Climate Scenario Risk Analysis Program on January 17.

As described in the instruction document released today, the six largest U.S. banks will analyze the impact of scenarios for both physical and transition risks related to climate change on specific assets in their portfolios. To support the exercise’s goals of deepening understanding of climate risk-management practices and building capacity to identify, measure, monitor, and manage climate-related financial risks, the Board will gather qualitative and quantitative information over the course of the pilot, including details on governance and risk management practices, measurement methodologies, risk metrics, data challenges, and lessons learned.

“The Fed has narrow, but important, responsibilities regarding climate-related financial risks – to ensure that banks understand and manage their material risks, including the financial risks from climate change,” Vice Chair for Supervision Michael S. Barr said. “The exercise we are launching today will advance the ability of supervisors and banks to analyze and manage emerging climate-related financial risks.”

Climate Results Are In

Please consider the WSJ report The Fed’s Climate Studies Are Full of Hot Air by David Barker.

This year the Fed is forcing big banks to produce complex reports on their climate vulnerability in a “pilot project” that is sure to expand and might lead to lending restrictions. A query of the Fed’s listing of recent publications returns hundreds of research papers, press releases and policy statements related to climate change.

With all this effort, one might hope the Fed would produce high-quality research on climate change. But I took a close look at two Fed studies on the subject and found shockingly poor analysis. These studies on the effect of temperature on U.S. and world economic growth are cited without a hint of skepticism and widely lavished with media attention.

Recently I published a critique of a study from the Federal Reserve Board claiming that a year of above-normal temperatures in countries around the world makes economic contraction more likely. The original study used sophisticated statistical techniques but failed to report that its primary finding was statistically insignificant. My request to the study’s author for computer code to reproduce the paper’s results went unanswered.

I managed to write the code from scratch and exactly replicate the results, allowing me to run additional tests that the author didn’t report. The author’s primary result—that temperature has a bigger effect in bad than in good economic times—turned out to be statistically insignificant. Additional analysis showed that there is no reliable effect of temperature on growth at all.

There are two main reasons why the Fed study appeared at first to show a statistically significant effect of temperatures on economic growth. First, each country in the sample had equal weight in the analysis. China had the same weight as St. Vincent though China’s population is 13,000 times as large. Equal weighting means that some small countries with unusual histories of economic growth greatly influenced the results.

The paper’s results disappeared when countries like Rwanda and Equatorial Guinea—which had economic catastrophes and bonanzas unrelated to climate change—were omitted. Omitting similar countries representing less than 1% of world gross domestic product was enough to eliminate the paper’s result.

The only thing to learn from the Fed’s research is that climate propaganda is spreading fast, and when it comes to climate, academic economists are no more deserving of trust than are other supposed scientists and experts. The Fed’s time would be better spent on more urgent matters, like improving its botched regulation of the banking system.

The author, David Barker, has taught economics and finance at the University of Chicago and the University of Iowa and worked as an economist at the Federal Reserve Bank of New York. He has a doctorate in economics from the University of Chicago.

Hoot of the Day

♦  The Fed cannot even model US Treasuries. Its stress-free test would have failed to identify the imploded Silicon Valley Bank as a problem

♦  Yet, for political reasons, the Fed is now attempting to stress test the weather.

♦  To get the desired results, the Fed study gave St. Vincent, Rwanda, and Equatorial Guinea the same weight as China and the United States. 

♦  The Fed should throw this nonsense in the garbage and stress test commercial real estate, interest rates, accelerated QT, and things that it has clearly neglected. 

See Also Financial Systems Have Little Risk from Climate

Mish:  One of my readers accurately commented, that “Modeling the impact of bad climate policy would be more useful.”  Of course that presumes the Fed has any idea just how bad, and inflationary, our climate policy is.

 

Postscript on Cycle of Democracies:

 

 

 

Dark Money Grabbing Your Nat Gas

Posted on by Ron Clutz

Robert Bryce reports on the wealthy and shadowy push against domestic use of natural gas in his substack article The Dark Money Behind The Gas Bans.  Excerpts in italics wtih my bolds and added images

The big-money donors behind the gas bans are hiding their identities, and their funding,
behind an extensive dark money network.

 

Last Tuesday, Rewiring America announced that it has hired Georgia politician Stacey Abrams to help the group “launch and scale a national awareness campaign and a network of large and small communities working to help Americans go electric.”

In a press release, Abrams, who will hold the title of “senior counsel” said she is “excited to join Rewiring America to share the benefits of electrification and ensure families get their fair share. I look forward to working together as we build the tools that will transform everyday Americans from energy consumers to energy moguls.”

Stacey Abrams and Saul Griffith. Photo credits: Gage Skidmore (L) and Jeff Kubica.

Abrams, a Democrat who served in the Georgia House of Representatives for 11 years, ran for governor of Georgia two times but failed in both attempts against Republican Brian Kemp. Abrams famously refused to concede in the 2018 race and claimed the election was “stolen.”

Rewiring America is part of the NGO-industrial-corporate-climate complex that, as I reported here last month, is now spending some $4.5 billion per year to promote anti-industry policies. While their agendas vary, the anti-industry NGOs are generally trying to:

♦  mandate increased use of weather-dependent renewables,
♦  hinder (or stop) hydrocarbon production,
♦  prevent the construction of new hydrocarbon infrastructure,
♦  mandate building electrification, and of course,
♦  ban the use of natural gas in homes and businesses.

As I explained in January, Rewiring America’s mission to electrify everything, ban the use of natural gas in homes and businesses, (and gas stoves), is part of a years-long, lavishly funded campaign that is being bankrolled by some of the world’s richest people. But here’s the pernicious part: the big-money donors backing Rewiring America, and other groups pushing the gas bans, are hiding their identities behind a dark money network of NGOs that are purposely obscuring their funding and the groups they are bankrolling.

Although it is impossible to know exactly how much dark money is being shuffled among groups like the Windward Fund, Rewiring America, and others, my tally shows that just four of the dark money NGOs behind the gas bans have combined budgets of about $820 million. Thus, as you can see in the graphic below, by themselves, those four anti-industry groups are spending about 83% of the amount that is being spent by the top 25 NGOs that support traditional energy sources.

Indeed, despite claims from legacy media outlets about the influence of the hydrocarbon sector, the truth is undeniable: the overwhelming majority of the money, media coverage, and momentum in the debate over energy policy and climate change is on the side of the anti-hydrocarbon and anti-nuclear energy NGOs.

And one of their top priorities is banning the use of
natural gas in homes and businesses.

On its website, Rewiring America cites Griffith’s 2020 book, which is also called Rewiring America, in which he claims “we can still address the threat of climate change, but only if we respond with a massive war-time mobilization effort to transform the fossil fuel economy into a fully electrified one, run on wind, solar, and other renewable energy sources.”

Note the lack of any mention of nuclear energy. Also unmentioned: attempting to run the economy on weather-dependent renewables would require paving vast tracts of rural America with obscene numbers of noisy, 600-foot-high, bird- and bat-killing wind turbines and endless oceans of landscape-ravaging solar panels. Also unmentioned: attempting to electrify everything would require doubling or tripling the amount of electricity produced in the country, an effort that would require mining, smelting, and fabrication of staggering amounts of copper, steel, aluminum, and other metals. Also unmentioned: nearly all of the alt-energy supply chains depend on China.

Has Griffith or Rewiring America been lobbying federal officials? If it has, the group has not registered to do so. A search of federal lobby records for the U.S. House of Representatives shows no record for Griffith or Rewiring America. A similar search of lobby registration for the U.S. Senate turned up no records.

Windward’s flood of cash is not coming from foundations. Instead, most of it is coming from super-rich individuals. The first listing on Schedule B of its 990 shows a donation of $59 million from an unnamed person. Other individuals kicked in sums of $24 million, $20 million, $16 million, $14 million, $13 million, $10.5 million, $10 million, $10 million, $9 million, $6 million, and $6 million respectively.  Thus, more than two-thirds of the Windward’s 2021 revenue came from about a dozen unnamed plutocrats. Windward’s 990 also shows that it is giving grants to dozens of small climate-focused NGOs around the country.

Energy Foundation lists more than 100 staff on its website. Its board members include Gina McCarthy, who was a climate advisor to President Biden. Before that job, McCarthy headed the Natural Resources Defense Council, the giant anti-nuclear NGO that shamelessly cheered about its role in the premature closure of the Indian Point nuclear plant in New York.

In an ironic statement, given the amount of dark money that is being deployed by the anti-industry industry, McCarthy claimed, “Now it has moved from denial, but the dark money is still there. The fossil fuel companies are still basically trying their best to make sure that people don’t understand the challenge of climate.”

There is much more to be written about the dark money that is driving the anti-industry industry, the unaccountable parasitic force that employs thousands of lawyers, strategists, pollsters, and fundraisers, who are pushing policies like natural gas bans. I will close this piece by recounting a claim Abrams made in the press release put out by Rewiring America last Tuesday. She said that families across the country are living “too close to the economic edge,” and that “few understand how much money they can save with a little help to upgrade their homes and vehicles.”

Hogwash.

Banning natural gas and forcing consumers to buy EVs will impose regressive energy taxes on consumers. In addition to the high cost of replacing existing appliances with electric ones, the cost of operating an all-electric home is higher than that for a home that uses natural gas. As for EVs, good luck finding a Tesla in the barrio. An average EV now sells for about $66,000. That’s Benz and Beemer territory.

Last March, in the Federal Register, the Department of Energy published its annual estimate for residential energy costs. As you can see in the graphic above, on a per-Btu basis, electricity costs about 3.5 times more than natural gas. The fuel is, by far, the cheapest form of in-home energy, costing less than half as much as fuels like kerosene, propane, and heating oil. That point was bolstered again last October when the Department of Energy published its Winter Fuels Outlook, which predicted that heating with electricity this winter would cost about 46% more than heating with natural gas.

The DOE’s numbers make it clear that Rewiring America’s agenda of forced electrification will result in higher energy bills for consumers. And low- and middle-income Americans will pay the biggest price because they will be forced to spend a larger percentage of their disposable income on energy than wealthy consumers.

Abrams may have found a new job at Rewiring America. Good for her. But does she really understand the economics of what she will be promoting? The facts are clear: attempting to electrify everything will impose new regressive taxes on the poor. And no amount of spin, or dark money, can change that fact.