Friday, January 15, 2021

GWPF Newsletter: African nations planning 1250 new coal and gas power plants, new study reveals


India to invest $55 billion in clean coal 'to become $5-trillion economy'

In this newsletter:

1) African nations planning 1250 new coal and gas power plants, new study reveals
GWPF & Power Engineering International, 13 January 2021

2) Lack of reliable electricity threatens Africans’ future
GWPF -- Energy Justice

3) India to invest $55 billion in clean coal "to become $5-trillion economy"
Bloomberg, 11 January 2021
4) Winter coal shortages reveal China's energy vulnerabilities
Jamestown Foundation, 12 January 2021
5) 'Cheap' Renewables: German consumers had to paid record $38 billion for green power growth in 2020
Bloomberg, 12 January 2021
6) Vijay Raj: EU’s Carbon Border Taxes and Joe Biden’s Clean Energy plans: A double threat for developing countries
Global Warming Policy Forum, 14 January 2021 
7) Bill Blain: Will the green economy trigger the next crash?
CapX, 11 January 2021
8) Rupert Darwall: Climate risk and financial stability
Real Clear Energy, 11 January 2021

Full details:

1) African nations planning 1250 new coal and gas power plants, new study reveals
GWPF & Power Engineering International, 13 January 2021

Of Africa’s 2500 planned power-generation projects, half are coal and gas power plants, Oxford University study reveals

Africa’s current and predicted 2030 electricity capacity mix by fuel type. “Fossil fuels will continue to dominate generation capacity, accounting for 62% of the total and half of all newly commissioned capacity.” Source: Alova et al. 2020
Fossil fuels to dominate Africa’s energy mix this decade – report

A new study into Africa’s energy generation landscape uses a state-of-the-art machine-learning technique to analyse the pipeline of more than 2,500 planned power plants and their chances of successful commission.

The study shows the share of non-hydro renewables in African electricity generation is likely to remain below 10% in 2030, although this varies by region.

The research, published in Nature Energy, from the University of Oxford predicts that total electricity generation across the African continent will double by 2030, with fossil fuels continuing to dominate the energy mix – posing potential risk to global climate change commitments.  

“Africa’s electricity demand is set to increase significantly as the continent strives to industrialise and improve the wellbeing of its people, which offers an opportunity to power this economic development through renewables,” says Galina Alova, study lead author and researcher at the Oxford Smith School of Enterprise and the Environment.

Aloya adds: “There is a prominent narrative in the energy planning community that the continent will be able to take advantage of its vast renewable energy resources and rapidly decreasing clean technology prices to leapfrog to renewables by 2030 – but our analysis shows that overall it is not currently positioned to do so.”

The study predicts that in 2030, fossil fuels will account for two-thirds of all generated electricity across Africa. While an additional 18% of generation is set to come from hydro-energy projects.

Full story
2) Lack of reliable electricity threatens Africans’ future
GWPF -- Energy Justice
Heart of Darkness: Why electricity for Africa is a security issue

In a deeply personal paper, South African journalist Geoff Hill describes the struggle of ordinary Africans to make survive and to make a living.

From the migrant workers hawking blankets at traffic lights, to the poignant tale of a funeral far from the city lights, Hill take the reader on a fascinating journey through the inequities of modern-day Africa.

Fossil fuels bring hope
Hill’s focus is on hope and, most importantly how lack of access to cheap and reliable electricity destroys it. Without power, there is no hope for the people in the countryside, who flock to the cities in search of a better life. Without power the countryside becomes denuded of its population.

And worse, without power and without hope, some will be tempted by crime and terrorism. As Hill says in his title, energy is a security issue.
“For those of us who lived through the 1960s, 70s and 80s, with coups and tyrannies across Africa, things are so much better now, and freedom is on the march across the continent. But looking down at night from a plane, there’s still that problem you can see on the cover of this essay: spots of light and mile after mile of darkness.”— Geoff Hill

Read the report

Heart of Darkness: Why electricity for Africa is a security issue

3) India to invest $55 billion in clean coal "to become $5-trillion economy"
Bloomberg, 11 January 2021
India's federal home minister says coal power will be key to achieving India’s ambition of becoming a $5 trillion economy. 

India expects to invest 4 trillion rupees ($54.5 billion) in clean coal projects over the next decade as it seeks to tap domestic energy sources and curb imports, federal home minister Amit Shah said.
The investment will be made in clean coal facilities, including coal gasification and coal-bed methane, Shah said at a signing ceremony to develop new mines. He said coal power will be key to achieving India’s ambition of becoming a $5 trillion economy, a goal he said would be reached despite setbacks due to Covid-19. Emissions from burning coal can be made cleaner but not totally erased.

India, the world’s third-biggest emitter of greenhouse gases, expects coal to remain its dominant energy source for decades, even as large parts of the world shun the dirtiest fossil fuel, which is blamed for contributing to global warming and air pollution. The South Asian nation has defended its use of the fuel while also embracing large-scale renewable energy projects to transition to clean energy.

“We have to meet a target to become a $5-trillion economy, and for that, we have to exploit our coal reserves,” Shah said to the winning bidders of India’s first auction of coal blocks for commercial mining. “We should look at exploiting our coal reserves under the ground in the next thirty years to speed up economic growth. Looking at the rapid growth in alternative energy sources, the sooner we exploit these reserves, the better for us.”
Full story
4) Winter coal shortages reveal China's energy vulnerabilities
Jamestown Foundation, 12 January 2021

Amid the coldest winter recorded since 1966, provinces across the People’s Republic of China (PRC) struggled with the worst electrical blackouts seen in nearly a decade.

A picture taken of streetlights extinguished along Chouzhou North Road in Yiwu, Zhejiang Province due to temporary power outages on December 17 was widely shared on Chinese social media (Image Source: 21st Century Business Herald).

More than a dozen cities across Zhejiang, Hunan, Jiangxi, Shaanxi, Inner Mongolia, and Guangdong provinces imposed limits on off-peak electricity usage in early December, affecting city infrastructure and factory production. Analysts expect power shortages to persist through at least mid-February (SCMP, December 23, 2020). Officials have repeatedly assured the public that residential heating would not be affected and that China’s electrical supply remained “stable” and “sufficient,” even as energy spot prices continued to rise into the new year.

In one concerning sign, coal power plants outside of Beijing restarted production at the end of the year to supply the city’s increased winter heating demands after being put into reserve in 2017. China’s capital had previously been “coal-free” for three years (Twitter, December 29, 2020). During an executive meeting of the State Council on January 8, Chinese Vice Premier Li Keqiang signaled the central government’s prioritization of energy security, declaring, “we must give priority to ensuring the people’s safety and warmth through the winter, and intensify efforts to ensure energy security and stability” (State Council, January 9).
The proximate causes for China’s electricity shortages differed across provinces. Overall, coal production stoppages and reduced imports combined with higher-than-usual industrial production and seasonal heating needs contributed to restrict the domestic coal supply and send prices skyrocketing (Caixin, December 28, 2020).

The map shows relative densities of coal production across China’s provinces, based on extrapolation from 2015 data (Image source: Stratfor).

Coal usually fuels more than half of China’s electricity production; this winter, China’s coal shortages have put increased pressure on its oil and natural gas supplies as well (OilPrice, January 7). A lack of adequate national gas storage facilities has failed to keep up with demand even as an increasing number of users are planned to transfer their heating needs from coal to gas in order to meet decarbonization goals set under the 13th Five Year Plan (2016-2020) (Yicai, December 24, 2020). In summary, a combination of factors have contributed to stretch China’s energy supply this winter, resulting in historic power shortages causing widespread concern. This has come just as the country has tried to establish itself as a “self-reliant” global powerhouse and undermined its narrative of successfully recovering from the ongoing COVID-19 pandemic. [...]


A white paper titled “Energy in China’s New Era” published on December 21 underscored China’s continued prioritization of “developing high-quality energy in the new era” and deepening the green reform of China’s energy system (SCIO, December 21, 2020). But even as the central government has moved forward with the February launch of a long-awaited emissions trading scheme (ETS) to curb carbon production, it is still grappling with the basic tasks of ensuring energy security (SP Global, January 6) and keeping spot prices for coal, oil, and gas down.

In response to the December power shortages, the NDRC increased coal and gas production quotas, while the NEA ordered state power grids to optimize operating procedures and increase supply (, January 8; China Daily, December 19, 2020). The NDRC also reportedly gave power plants approval to import coal “without clearance restrictions (except for Australia)” in mid-December in an apparent bid to stabilize prices (Twitter, December 12, 2020; SCMP, December 16, 2020). Given that China’s power consumption growth is expected to hit a three-year high in 2021, China’s leadership will struggle to prioritize the stabilization of electricity supplies for industrial production and heating amid an unusually severe winter, and its efforts are likely to come into direct conflict with competing political priorities to reduce foreign energy dependence while simultaneously achieving ambitious decarbonization goals (SX Coal, December 22, 2020).

Full post
5) 'Cheap Renewables': German consumers had to paid record $38 billion for green power growth in 2020
Bloomberg, 12 January 2021

Germany [i.e. German consumers] paid a record sum to foster green electricity last year as new wind, solar and biomass plants weathered the worst of the coronavirus crisis afflicting other sections of the economy.

The rising costs of supporting renewables has become a friction point as the nation struggles with Covid-19. The subsidy is paid directly by consumers in electricity bills, helping make German retail power costs the highest across the European continent.
The money channeled to green energy rose to almost 31 billion euros ($38 billion) in 2020, a 13% jump from a year earlier, according to data published Tuesday by the nation’s grid operators. Green power’s share of Germany’s energy mix rose to 46% last year from about 43% in 2019.

Over the next two years, the government plans to slice a third off the costs that consumers pay by using some of the nation’s budget to share the burden. Cross-party consensus is emerging in parliament and among lobbies such as the BDI industry group that the current green funding regime can’t be sustained this decade.
Full story
6) Vijay Raj: EU’s Carbon Border Taxes and Joe Biden’s Clean Energy plans: A double threat for developing countries
Global Warming Policy Forum, 14 January 2021

The introduction of the European Union’s Carbon Border Taxes and Joe Biden’s announcement of Clean Energy plans has raised double alarm in developing countries.


The new European Carbon Border Adjustment Mechanism (CBAM) law will impact all countries exporting to EU, especially those countries without carbon pricing mechanisms. Countries like India, China, Indonesia, Philippines, and even developed ones like Australia, Poland are likely to significantly affected by the CBAM.

Climate Justice and Carbon Border Taxes
The European Commission introduced the idea of CBAM in December 2019, as part of its EU Green Deal. The CBAM is likely to become a reality in 2021. But the EU’s large-scale climate-sanction through its CBAM will be treated with hostility in India, China and most developing countries.

Developing countries will view the CBAM as incompatible and inconsistent with the climate justice principle, a principle that is recognised by the parties of Paris Agreement, allowing developing countries to continue to use fossil fuels as well as receiving $100 billion p.a. in climate funds.

Big developing economies like India, Brazil, and China have always argued that the per capita emissions in the U.S. and EU are much higher than their own economies, and thus have rejected attempts by developed nations to introduce carbon border taxes in the past.
A CBAM at this juncture will cause more frictions among the nations and lead to greater objections to the commonly agreed goals under the Paris Climate Agreement.
Potential impact of CBAM and responses in India
India has called for a legal analysis of the deal to make sure that the proposed taxations from EU and U.S. do not impact its industries and economy.

Morgan Stanley’s review predicts that a carbon tax of $40 per ton of emissions will increase the cost of producing aluminum by more than 20% in China and India.

As a response to these taxes from EU and the U.S., the developing countries may introduce taxes of their own as a counter-measure to absorb the damage from the loss in export revenue and to signal their displeasure.
India and U.S. for example were involved in a tax-tussle during Trump’s term, where India reacted to U.S. taxations with counter-taxes on U.S. imports. EU imports a wide range of commercial and industrial products from India including chemicals, fabric, cement, and metals, and the CBAM will affect all these industries. The CBAM would impact most large industries in these sectors except for few Indian cement producers like Dalmia Bharat and Ambuja Cements as they’ve already taken measures to reduce carbon emissions.

Biden’s plans and energy use in developing countries
To make things more challenging, similar climate policies announced by the incoming Biden administration means that countries like India should also prepare for an US-influenced disruption in the fossil fuel sector.
Biden administration is likely to roll out its clean energy plan which has called for policies and actions that will aim to achieve a “carbon free power sector by 2035”.

The official page states that the policy will be “one that will put the United States on an irreversible path to achieve net-zero emissions, economy-wide, by no later than 2050.”

It remains to be seen how this transition policy will apply to the U.S. exports of oil, gas, and coal, especially for importers like India. The Trump administration highly favoured the production and export of oil, and it is still unclear if it will be the same during Biden’s administration.

Source: US Energy Information Administration
The U.S. petroleum exports doubled between 2015 and 2019. Among its biggest customers are developing countries like India, Brazil, and Mexico. All these countries could see a disruption in oil imports under Biden administration.

Likewise, the US natural gas exports were on an increase in the past three years. Among the developing countries, Mexico, India and Chile were the biggest importers of US Liquid natural gas in 2019.

India particularly has been heavily reliant on US oil and gas. India’s LNG imports from U.S. skyrocketed from around 21,000 million cubic feet in 2017 to around 92,000 million cubic feet in 2019.  

A Biden administration constraint on US oil and gas production would put the Indian oil and gas sector in trouble, especially when they have begun to move away from their traditional suppliers in Middle East like Iran.

But it is quite uncertain as to how fossil fuel exports or the trade relationships will evolve in the next few years. India, for example, has expressed its interest in resuming oil imports from Venezuela and Iran, as it believes that a Biden administration would ease the sanctions that currently restrict oil exports from these countries to India.

The EU meanwhile struck a major trade deal with Beijing during the final days of 2020 despite all the rhetoric surrounding CBAM and reservations expressed by Biden’s energy team. It will give European companies greater access to Chinese markets.

EU’s desire to make financial gains through a trade deal with China, despite the latter’s active involvement in the growth of fossil fuel market in Asia and Africa, shows the EU’s hypocrisy when it comes to walking the talk on CO2 emissions. It makes their CBAM hypocritical and selective policy that has turned a blind eye to the largest consumer of fossil fuels in the world.

Given the complexity of the fossil fuel trade relationships, the West’s defiant stand to reduce fossil fuel consumption, and EU’s surprising decision to make a significant trade deal with the biggest fossil fuel consumer China, it is difficult to predict the impact of CBAM and the Clean Energy plan on the overall trade relationships.

The CBAM will likely cause industry-level adjustments in major fossil fuel countries like India, which may eventually lead to compromised growth and prolongation of the deadlines to achieve developmental targets. It will eventually impact the consumers and the economy which is already reeling under the impact of COVID-19 lockdown.

Carbon imperialism, geopolitical tensions, and trade relationships

Besides the direct energy impact and subsequent disruption to the economy, EU and Biden’s carbon tax moves may also pave way for geopolitical tensions. India, for example, is a crucial ally for the U.S. in Asia, and the former may view these carbon taxes as a disruptive element in its relationship with the West.

The CBAM and similar taxes from the Biden administration may alienate developing countries like India and make them increase their trade relationships with global fossil fuel giants like China. In fact, China is already the biggest fossil fuel enabler, building coal plants in Africa and Asia. Despite the border issues, India may look at China as a more favourable trade partner, should the carbon taxes turn out to be disruptive. China is India’s second biggest export market, the US being the number one. But if carbon taxes kick in, things may change. Even the border scuffle in 2020 did not deter Indian exports to China which went up by 16%.

India has always been against the imposition of tough carbon laws. In 2017, the Chief Economic Advisor to the India’s Prime Minister, Arvind Subramaniam, slammed the Western powers for their restrictive energy policies that they were trying to impose on developing countries like India. He called it a form of “Green Imperialism”, where the Western powers like the U.S. and the EU were trying to exert economic control over the country by trying to restrict fossil fuel use which has been acting as India’s economic lifeline. 

With the advent of the CBAM, the fears expressed by India’s former economic advisor is becoming a reality. But India in all likelihood will not allow the CBAM to burden its economy. Speaking at an event this week, India’s Home Minister Amit Shah said,“the coal sector will be the largest contributor to India’s ambition of being a $5 trillion economy.” He added that State run and private firms will invest around Rs 4 trillion in India’s coal sector.
7) Bill Blain: Will the green economy trigger the next crash?
CapX, 11 January 2021

All it takes for a financial crash is a couple of snowflakes to roll down the hill and trigger an avalanche. One sector it might start is in renewables.  

Back in the last century, I spent a large part of my investment career packaging up financial assets, like mortgages, into bonds – securitisation. I was heavily involved with the acquisition financing of a US home lender which went spectacularly wrong a few years later when we discovered to our shock and absolute horror – about the same time everyone else did – that all assumptions behind sub-prime mortgage lending were pants. Pretty much ended my career in big banks.

Sub-prime was a small, but very significant part of the asset-backed securities (ABS) market. When it tumbled it shook markets to the core. Everyone believed securitisation worked because it did. The arbitrage for smart players was that very few people actually bothered to check or do the due diligence on the piles of ABS cack they had bought. The book, the film (and I am sure there is a probably also a pie), The Big Short, summed up the delusional madness of believing complex investment instruments don’t go wrong because they have been so carefully planned and constructed. They don’t ever go wrong…right up to the moment they do. And once you realise it, you also realise it was blindingly obvious from the get-go just how flawed they were.
I suspect it’s all about to happen again. All it takes for a financial crash is a couple of snowflakes to roll down the hill and trigger an avalanche. One sector it might start is in renewables.  

I absolutely believe climate change is the biggest challenge humanity faces, and if we address it badly we really are rubber-ducked. But, if you we’re trying to get to a truly green, sustainable global economy – you would not start from here!

Let’s consider wind power. We’re all familiar with modern wind turbines. They have proven popular investments, and the spreads are so tight no one is particularly minded to regard them as high-risk. Investors believe they are licences to print money. The Government tells us the UK is blessed by near costless wind-power, and in a few years’ time we’ll be getting most of our energy for free from UK’s abundant wind. 

It’s a great and compelling message. We desperately want to believe that wind is the solution because we are, deep down, all green. Windpower, lithium batteries and solar farms in the Arctic circle all make perfect sense… (You can probably sense a sarcasm warning looms.) 

If you believe in wind  power then don’t, whatever you do, read ‘The Costs of Offshore Wind Power: Blindness and Insight’.  Written back in September, the report might make you quite unhappy about the current direction and prospects for the Green Economy. The authors describe how costs are escalating, rather than declining as promised. Operating and maintenance costs have risen even faster than they were anticipated to fall! Gas prices will look impossibly cheap compared to renewables if the true facts are ever revealed.

How about this for a quote from the report: “This leads to the prospect of what is not so much a car crash as a motorway pile up in the fog of ignorance.”

The report suggests the narrative that “wind power is getting cheaper and more efficient all the time” is complete nonsense.  The majority of the 350-odd UK wind farms will need a bail out. The Government’s approach to green power completely underestimates the long-term operating and maintenance costs and drop-off which means most wind projects are massively overpriced, and we’re still years away from carbon neutral.
If author Professor Gordon Hughes is correct – and I see no reason not to believe him – then the UK will be in serious crisis over its carbon-neutral green energy costs. The knock-on in terms of future decarbonisation efforts will be huge, it will change the maths for a ‘green hydrogen’ powered future, and change the pricing and timing outlook for gas and even coal-fired power.

I’ve done my own digging, and wind investments just don’t perform like promised in the fancy brochures.  

If you maintain a very traditional windmill very, very carefully it might last a couple of hundred years. If you build them quick out of plastics, keep them light and pump them out vast numbers, then you are going to spend lots of time and money maintaining them. Checking and replacing bearings gets more and more difficult the bigger they get. You need to check for hairline stress fractures on the blades. Because of the rotational movement, they put additional pressure on the foundations and sink into the bottom. And all these things get much, much more difficult if you stick the thing in the middle of the English Channel, North Sea or Atlantic approaches where salt-water literally eats them. 

The brutal reality is offshore wind is far less efficient than promised and requires much more expensive maintenance. They break down, sink into their foundations and don’t generate anything like the power expected. For all the due diligence, they simply won’t ever make any money unless the price at which they sell energy is dramatically increased – at which point they make zero sense.

This will feel very familiar to many investors who have seen all the blithe assumption about operating and maintenance costs on all kinds of technological green marvels fail to meet expectations. Biowaste generators, biomass, thermal pellets – you name it, and the rosy assumptions failed to materialise because the difficulties in making them work and keeping them working were glossed over by the promoters.
Most of the smart money already knew that about renewables and is deeply sceptical. The not-so-smart money still laps the deals up. Sadly, renewables is likely to become another charming but flawed investment thesis. I am no stranger to investment madness – three times I’ve invested in airships and lost my dosh every time.

The big problem is we really do need to address climate change, which means energy prices have to rise to keep the inefficient windfarms working, meaning a less efficient economy.

And it’s not just renewables that are attracting big bids because someone else is assumed to have checked that they actually work. There are a host of other green assumptions that are unlikely to stand up to rigorous testing.

Full post
8) Rupert Darwall: Climate risk and financial stability
Real Clear Energy, 11 January 2021

The spurious case for regulators greening the financial system.

Shortly before her nomination as Treasury secretary in the Biden administration, Janet Yellen appeared on a Bloomberg New Economy panel discussing the role of central banks as the world struggles to emerge from the Covid-19 pandemic. The panel revealed a sharp difference of opinion between Yellen and one of her predecessors – Larry Summers, President Clinton’s second Treasury secretary. “Don’t we think that central banks really need to be careful about holding out the idea that they are relevant to sectoral issues involving differentials between one sector or another like environmental protection?” Summers asked. The environment is not within central banks’ “proper remit,” Summers suggested; having the Fed make special efforts to buy green bonds was “a confusion.”

“On sustainable goals, I think it does make sense for supervisors to be taking the risks from both climate-related risks and the risk of changes in prices and stranded assets,” Yellen replied, articulating what has become the consensus among central bankers and financial regulators. As Villeroy de Galhau, governor of the Banque de France, puts it, “climate change is part of our mandate for financial stability, but also for monetary policy.” De Galhau’s bank was behind the creation of the Network of Central Banks and Supervisors for Greening the Financial System, founded in December 2017 on the second anniversary of the Paris Agreement.

Thanks to the Trump presidency, American regulators are coming late to the party. The Fed joined the greening network only after Trump’s election defeat. The exception is the Commodity Futures Trading Commission (CFTC), one of whose commissioners has compared the impact of climate change on financial markets to the 2008 subprime crisis. In September, the CFTC produced a 196-page report on climate risk and financial stability. Being first out of the blocks gives the CFTC climate bragging rights, and its report will likely serve as the reference point for the greening of financial regulation and the Fed under the Biden administration.

The CFTC report, Managing Climate Risk in the U.S. Financial System, is an important document. As has become standard, it construes two main types of climate risk as threats to financial stability: those arising directly from the physical impacts of man-made climate change and those arising from climate policies. It’s not sufficient that these affect corporate cash flows and the value of financial assets. For these to constitute a genuine threat to financial stability, it is necessary to assume that markets also fail to price these risks.

There is a tone of the lady doth protest too much to the report’s discussion of the physical impacts of climate change. “Like others, I see what is already happening – entire regions burned by increasing wildfire, larger storms, more frequent floods,” Bob Litterman, who chaired the committee responsible for the report and spent 23 years at Goldman Sachs in risk management, writes in the foreword. The only problem: the data don’t support Litterman’s claim. “When I hear climate change discussed it’s suggested that it’s a major reason and it’s not,” Scott Stevens of the University of California, Berkeley, told Michael Shellenberger in reference to last year’s California wildfires.

Litterman’s claim about larger storms is falsified by the data. Accumulated Cyclone Energy (ACE) measures the intensity and frequency of tropical storms and cyclones and indicates the damage potential of a storm season. According to Ole Humlum, global ACE data show no clear trend for the entire period from 1970. Bjorn Lomborg points out that 2020 was indeed an extraordinary year for hurricane activity – one of the weakest of the last forty years, with global ACE just 76% of the 1980-to-2010 average.

The CFTC report contains a chart showing a rising incidence of inflation-adjusted, $1 billion disaster events since 1980 – a function of the greater intensity and frequency of extreme weather events, the commission claims. This conclusion is a travesty, something one might expect from an activist NGO rather than a financial regulator. (In fact, Litterman is also a vice chair of the World Wildlife Fund.) As Lomborg explains in a 2020 paper, “all kinds of disasters are likely to become bigger as there are more people and more wealth in the path of danger,” in what is known as the Expanding Bull’s-Eye Effect.

The report’s fear-mongering purpose is evidenced by its promotion of the widely discredited RCP8.5 warming scenario in order to help “shape awareness among policymakers” – i.e., to scare them. The damaging effects of climate change are manifested through extreme weather. Though the enhanced greenhouse effect is global, weather remains local. It’s thus inherently implausible that a concatenation of local weather events across a bi-coastal continental land mass subject to different weather systems will wreak such havoc as to constitute a systemic shock to the financial system. There’s a sound of barrels being scraped at the report’s implication that Silicon Valley and Wall Street could be hit so badly by simultaneous but separate extreme weather events that they cause a catastrophic shock.

Perhaps the sole benefit of the Covid pandemic is showing just how resilient and adaptable humans are if they’re allowed to be. The report’s statement that a world racked by “frequent and devastating shocks from climate change cannot sustain the fundamental conditions supporting our financial system” isn’t supported by any evidence – and on examination turns out to be preposterous.

The report also presents a weak case for the second category of climate risk – those arising from the destruction of business value from climate-change policies. Climate policies are hardly new. Germany passed it first Renewable Energy Act twenty years ago, so it’s surprising that the CFTC didn’t analyze what impact these measures had on financial markets. The German power generators had been given free carbon credits, but from a peak in January 2008 to August 2015, the three quoted generators lost between 59% and 85% of their market value. Nonetheless, the DAX 30 index of German blue-chip companies rose by 39%. The market worked. No evidence of threats to financial stability there.

Much of the CFTC report consists of a financial regulator telling investors how to do their job – and making a mess of it. It recommends imposition of a mandatory, standardized disclosure framework, and then, in the same paragraph, says that the understanding of climate risk remains “at an early stage.” Companies are reluctant to disclose climate risk data because of concerns about being disadvantaged, the CFTC claims. Yet only a few pages before, it suggests that companies that do disclose would enjoy improved market confidence in their management, valuations, and cost of capital. Disclosure is essential, but ambiguity as to when climate change rises to the threshold of materiality is the primary barrier to disclosure. Got all that?

As analysis, the report is an incoherent mess.But to accuse the CFTC of making bricks without straw would be to miss the point. The CFTC makes no secret of seeing its job as finding ways to channel capital toward net-zero investments. When financial regulators and central bankers start playing climate politics under the guise of promoting financial stability, they lose focus on their core responsibility. Markets thrive on diverse, often conflicting, views of the future. They over-heat when a single view predominates. Savage corrections can follow. Perhaps that’s what Summers alluded to when he spoke of confusion. If so, confusion is what we’re in for over the next four years. And therein lies the true threat to financial stability.

Rupert Darwall is a senior fellow of the RealClear Foundation and author of The Climate Noose.

The London-based Global Warming Policy Forum is a world leading think tank on global warming policy issues. The GWPF newsletter is prepared by Director Dr Benny Peiser - for more information, please visit the website at

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