In this newsletter:
1) Go woke ... First Republic Bank goes under and is sold to JPMorgan in third major bank failure of 2023
NBC News, 1 May 2023
2) Paul Tice: The Lehman moment for the ESG movement
Washington Examiner, 9 April 2023
3) Tilak Doshi: Central banks and ESG investing: A fatal combination of incompetence and overreach
Forbes, 29 April 2023
4) Green energy transition will keep inflation high, Norway’s oil fund chief warns
The Epoch Times, 26 April 2023
5) Germany’s Finance Minister pushes back on another part of EU Green Deal
Bloomberg, 27 April 2023
6) Poland's pushback on EU climate goals no surprise, but a worry
Reuters, 27 April 2023
7) Britain will be unable to keep the lights on with net zero power, MPs warn
The Daily Telegraph, 28 April 2023
8) BP's climate rebel shareholders get less support than two years ago
Reuters, 27 April 2023
9) Rupert Darwall: Inflation, Net Zero, and the Bank of England
Real Clear Energy, 27 April 2023
10) Cargo ship arrives in Germany with large hole after striking wind farm
The Maritime Executive, 26 April 2023
11) Jerry A. Coyne and Anna I. Krylov: The ‘Hurtful’ Idea of Scientific Merit
The Wall Street Journal, 28 April 2023
12) And finally: Former energy minister and chair of Net Zero Review Chris Skidmore takes £80k role with decarbonisation firm
National World, 24 February 2023
Full details:
1) Go Woke .... First Republic Bank goes under and is sold to JPMorgan in third major bank failure of 2023
NBC News, 1 May 2023
It's the largest lender to collapse since the 2008 financial crisis — bigger even than Silicon Valley Bank, which went under in March.
First Republic Bank has been taken over by federal regulators and will be sold to JPMorgan — making it the third major bank to go under in less than two months.
The Federal Deposit Insurance Corporation (FDIC) ) announced simultaneously Monday morning that it had seized the bank and that JPMorgan Chase, the largest bank in America, would be purchasing substantially all of the bank's assets and deposits.
A spokesperson for the Treasury Dept. sought to reassure the markets and the public after First Republic, with $229.1 billion in total assets at the time of closure, eclipsed Silicon Valley Bank ($209.0 billion at the time of closure) to become the second largest bank failure in American history.
“The banking system remains sound and resilient, and Americans should feel confident in the safety of their deposits and the ability of the banking system to fulfill its essential function of providing credit to businesses and families,” they said in a written statement.
The intervention comes days after First Republic reported losing about 40% of its deposits in the first quarter of this year. Amid rising interest rates and after the failures of Silicon Valley Bank and Signature Bank earlier this year, a growing cohort of depositors sought to move their money to banks seen as safer and offering more attractive returns.
Among medium-sized banks, First Republic was most affected by the trend: As of mid-March, about 70% of its deposits were uninsured, according to Bank of America, meaning they were larger than the FDIC’s $250,000 guaranteed limit.
That compares with a median of 55% uninsured deposits for medium-sized banks and the third-highest level after SVB and Signature Bank.
Despite a $30 billion infusion from 11 peer banks in mid-March, First Republic couldn't stop the bleeding: Its stock fell more than 75% over the past 30 days.
Full story
2) Paul Tice: The Lehman moment for the ESG movement
Washington Examiner, 9 April 2023
As the current banking crisis continues to roll through the global financial system, one common denominator among all the bank failures to date has been corporate ESG policies promoting climate action, diversity, equity, and inclusion, and other progressive initiatives.
Silicon Valley Bank, the first bank to collapse, lent to more than 1,500 start-up climate tech firms, the majority of which had no cash flow or ability to service bank debt. Most of the directors on the bank’s board had no banking experience but were instead chosen for the DEI boxes that they ticked.
Signature Bank, the second institution to be seized by federal regulators, prided itself on being “the first bank in the United States to have an openly gay man on the board” and held internal seminars on the use of proper pronouns in the workplace. The bank was also an official supporter of the Task Force on Climate-Related Financial Disclosures and had started to disclose its lending portfolio emissions as the first step toward a net-zero banking model.
First Republic Bank, which recently required a $30 billion bailout from its industry peers to stay afloat, became the first large U.S. bank to stop lending to the fossil fuels industry back in 2021, achieving carbon neutrality that same year.
Even Credit Suisse, the most systemically important bank to fail thus far, believed in “sustainable finance for a better world” and did its part to direct capital toward the achievement of the United Nations’ Sustainable Development Goals for 2030. The Swiss bank also actively promoted its transgender “allyship” by having a high-profile, non-binary, gender-fluid section head within its Global Markets Technology group.
In response, the hashtag “GoWokeGoBroke” has gone viral over the last month. But sustainability activists have been quick to argue that ESG was not the direct cause of any of the recent bank collapses. Technically speaking, this is a valid point. Rising interest rates, hot deposits, and faulty asset-liability management doomed Silicon Valley, Signature, and First Republic, whereas Credit Suisse was a slow-motion, scandal-ridden management train wreck for years.
Nonetheless, the recent spate of bank failures may still spell the end for ESG on Wall Street since, in all of the above cases, a corporate focus on ESG was more than just a distraction and time-sink for executives and employees. It was symptomatic of more deep-seated fundamental operating problems with these financial institutions, and clearly a comorbidity of weak management.
Touting one’s sustainable finance credentials now correlates with bad “G” governance under the ESG system’s own rubric. It raises a red flag for analysts to perform enhanced due diligence around any financial firms that fully embrace ESG. Shareholder activists scoping out poorly run corporate targets and hedge funds looking for short candidates should probably start including a pro-ESG filter in their initial screening criteria.
Investors would be well advised to charge more for the capital that they allocate to banks that publish glossy hundred-page sustainability reports and splash 17-color pinwheels across all their corporate presentations, which is ironic since this is the antithesis of what the ESG movement is trying to accomplish.
At the very least, the recent run of bank collapses offers still more proof that ESG does not lead to better business performance or investment outcomes. This is fatal to the core ESG argument that activist groups have been making for years that such policies “build long-term value” for companies and investors.
While a showy sustainable image may attract the marginal millennial customer or consumer during good times, such corporate virtuosity won’t prevent a bank run when the going gets tough. No matter how much the two terms are conflated, sustainability (or the appearance thereof) is not the same thing as financial solvency, with the latter being the only thing that really matters to investors and the markets.
Ever since the bankruptcy of Lehman Brothers triggered the 2008 global financial crisis, Wall Street has been bracing for the next “Lehman moment,” often mistaking minor volatility events for something more catastrophic. While the current problems centered in the bank market are likely to continue spreading, the more-seismic systemic shock this time around may be to the progressive ESG movement.
Overlooked in all the Lehman post-mortems over the past 15 years has been the failed investment bank’s own ESG policy proclivities toward the end.
In the last few years of Lehman’s existence, its president and COO, Joe Gregory, spent almost all his time promoting diversity and inclusion programs at the company. Instead of meeting with clients and participating in quarterly earnings calls, Gregory regularly hosted internal off-site conferences where he lectured the firm’s managing directors on how clients and customers wanted to “see people that looked like them on the other side of the table,” as opposed to the best bid or best execution.
During the 2000s, race and gender considerations increasingly factored into Lehman’s management and personnel decisions, even as the company’s decision-making became more sclerotic and its proprietary risk tolerance and balance sheet leverage both spun wildly out of control.
As with today’s vintage of failing banks, ESG was not a direct cause of Lehman’s collapse, just a coincident indicator. ESG history is now repeating itself.
The last financial crisis in 2008 spurred Wall Street to double down on sustainability to burnish its ethical image and counter criticism of the industry for taking government bailout money after wrecking Main Street. Hopefully, the current banking crisis flushes ESG out of the financial system once and for all.
3) Tilak Doshi: Central banks and ESG investing: A fatal combination of incompetence and overreach
Forbes, 29 April 2023
Silicon Valley Bank, the first bank to collapse, lent to more than 1,500 start-up climate tech firms, the majority of which had no cash flow or ability to service bank debt. Most of the directors on the bank’s board had no banking experience but were instead chosen for the DEI boxes that they ticked.
Signature Bank, the second institution to be seized by federal regulators, prided itself on being “the first bank in the United States to have an openly gay man on the board” and held internal seminars on the use of proper pronouns in the workplace. The bank was also an official supporter of the Task Force on Climate-Related Financial Disclosures and had started to disclose its lending portfolio emissions as the first step toward a net-zero banking model.
First Republic Bank, which recently required a $30 billion bailout from its industry peers to stay afloat, became the first large U.S. bank to stop lending to the fossil fuels industry back in 2021, achieving carbon neutrality that same year.
Even Credit Suisse, the most systemically important bank to fail thus far, believed in “sustainable finance for a better world” and did its part to direct capital toward the achievement of the United Nations’ Sustainable Development Goals for 2030. The Swiss bank also actively promoted its transgender “allyship” by having a high-profile, non-binary, gender-fluid section head within its Global Markets Technology group.
In response, the hashtag “GoWokeGoBroke” has gone viral over the last month. But sustainability activists have been quick to argue that ESG was not the direct cause of any of the recent bank collapses. Technically speaking, this is a valid point. Rising interest rates, hot deposits, and faulty asset-liability management doomed Silicon Valley, Signature, and First Republic, whereas Credit Suisse was a slow-motion, scandal-ridden management train wreck for years.
Nonetheless, the recent spate of bank failures may still spell the end for ESG on Wall Street since, in all of the above cases, a corporate focus on ESG was more than just a distraction and time-sink for executives and employees. It was symptomatic of more deep-seated fundamental operating problems with these financial institutions, and clearly a comorbidity of weak management.
Touting one’s sustainable finance credentials now correlates with bad “G” governance under the ESG system’s own rubric. It raises a red flag for analysts to perform enhanced due diligence around any financial firms that fully embrace ESG. Shareholder activists scoping out poorly run corporate targets and hedge funds looking for short candidates should probably start including a pro-ESG filter in their initial screening criteria.
Investors would be well advised to charge more for the capital that they allocate to banks that publish glossy hundred-page sustainability reports and splash 17-color pinwheels across all their corporate presentations, which is ironic since this is the antithesis of what the ESG movement is trying to accomplish.
At the very least, the recent run of bank collapses offers still more proof that ESG does not lead to better business performance or investment outcomes. This is fatal to the core ESG argument that activist groups have been making for years that such policies “build long-term value” for companies and investors.
While a showy sustainable image may attract the marginal millennial customer or consumer during good times, such corporate virtuosity won’t prevent a bank run when the going gets tough. No matter how much the two terms are conflated, sustainability (or the appearance thereof) is not the same thing as financial solvency, with the latter being the only thing that really matters to investors and the markets.
Ever since the bankruptcy of Lehman Brothers triggered the 2008 global financial crisis, Wall Street has been bracing for the next “Lehman moment,” often mistaking minor volatility events for something more catastrophic. While the current problems centered in the bank market are likely to continue spreading, the more-seismic systemic shock this time around may be to the progressive ESG movement.
Overlooked in all the Lehman post-mortems over the past 15 years has been the failed investment bank’s own ESG policy proclivities toward the end.
In the last few years of Lehman’s existence, its president and COO, Joe Gregory, spent almost all his time promoting diversity and inclusion programs at the company. Instead of meeting with clients and participating in quarterly earnings calls, Gregory regularly hosted internal off-site conferences where he lectured the firm’s managing directors on how clients and customers wanted to “see people that looked like them on the other side of the table,” as opposed to the best bid or best execution.
During the 2000s, race and gender considerations increasingly factored into Lehman’s management and personnel decisions, even as the company’s decision-making became more sclerotic and its proprietary risk tolerance and balance sheet leverage both spun wildly out of control.
As with today’s vintage of failing banks, ESG was not a direct cause of Lehman’s collapse, just a coincident indicator. ESG history is now repeating itself.
The last financial crisis in 2008 spurred Wall Street to double down on sustainability to burnish its ethical image and counter criticism of the industry for taking government bailout money after wrecking Main Street. Hopefully, the current banking crisis flushes ESG out of the financial system once and for all.
3) Tilak Doshi: Central banks and ESG investing: A fatal combination of incompetence and overreach
Forbes, 29 April 2023
The argument that climate change presents systemic risks to the financial system is implausible. The only real systemic risk related to climate is likely not from “climate change” that occurs with great natural variation over time and space but from the very climate policy responses to the hobgoblins of our own making.
With British inflation clocking in at 10.1 percent, or over five times the level targeted by the Bank of England, criticisms of the central bank’s remit to support “net zero” climate goals have been coming in thick and fast, as Bloomberg reported on Tuesday. The article was headlined: “Scrap Bank of England’s Climate Mandate, Balls and Osborne say.”
One of the key architects of UK central bank independence, Ed Balls – an adviser to former Chancellor of the Exchequer Gordon Brown when the Labour Party made the bank independent in 1997 – said it “doesn’t make any sense” to give the BOE a role for which it has no tools. “It concerns me, the idea that you start to throw into the mix objectives which aren’t really affected sensibly by the instrument the bank has – which is interest rates.” Bloomberg also reported that Paul Tucker, a former BOE deputy governor, and John Vickers, a former BOE chief economist, suggested that net zero has been a distraction.
Mr. Balls was speaking at the House of Lords’ economic affairs committee inquiry into the independence of the BOE on Tuesday. At the meeting, ex-Conservative Chancellor George Osborne agreed with Balls. Both were of the view that climate goals should be stripped from the Bank of England’s remit to remove any distractions from its focus on inflation and financial stability. Failing to prevent double-digit inflation, critics argue that the bank should not distracted by such policy “baubles.”
Central Banks: What Happened To Taking The Punchbowl Away?
The world’s central banks have historically operated under narrow mandates to safeguard financial stability by overseeing the financial system of private and public-sector banks and managing liquidity and interest rates. One has the rather droll image of central bankers as those whose job was to “take away the punch bowl just when the party gets going’”. The narrow mandate for central banks was to avert financial crisis and achieve price stability by utilizing its tools of credit creation and interest rate guidance.
In recent years, however, central banks as well as multilateral financial institutions such as the World Bank and the IMF are increasingly involved in efforts to enhance the role of “stakeholder capitalism” in capital markets. With the US, EU and UK push to “fight climate change”, there has been much discussion on the role of central banks in addressing risks associated with climate change and in supporting the development of green finance.
Reflecting this development, Mark Carney, the previous Governor of the Bank of England was appointed UN special envoy for climate action and finance in 2020 to galvanize action among financial institutions in the lead up to the global climate talks due to take place in Glasgow in November 2021. The appointment of Mark Carney as UN special envoy reflects efforts in the EU to link central banks and multilateral development banks and financial institutions directly to ESG (environmental, social and governance criteria) and “green finance”.
Multilateral financial institutions such as the World Bank, the Asian Development Bank, the European Investment Bank and the International Monetary Fund are increasingly involved in efforts to enhance the role of ESG and “stakeholder capitalism” in capital markets. They have either already stopped, or plan to end soon, the funding of fossil fuel-based projects. The IMF – originally established to further international monetary cooperation, safeguard global financial stability and encourage the expansion of trade and economic growth — supports the Network of Central Banks and Supervisors for Greening the Financial System (NGFS) to promote the climate agenda promoted by the EU and the US. The Biden administration’s Secretary of the Treasury Janet Yellen plans to push lenders to adopt "green" lending policies. According to Yellen, the US federal government will “need to seriously look at assessing the risk to the financial system from climate change”.
The US Federal Reserve recently joined the NGFS to mobilize mainstream finance for the transition toward a “sustainable” economy and to share and identify best practices in the supervision of climate-related risks. According to the 2020 Financial Stability Report, the Federal Reserve will:
“monitor and assess the financial system for vulnerabilities related to climate change through its financial stability framework. Moreover, Federal Reserve supervisors expect banks to have systems in place that appropriately identify, measure, control and monitor all of their material risks, which for many banks are likely to extend to climate risks.”
European Central Bank (ECB) President Christine Lagarde said that she wants “to look at all the business lines and the operations in which we are engaged in order to tackle climate change.” The ECB will now pursue policies to favour European banks and private sector companies to fund “green” projects. The ECB will start accepting bonds linked to “sustainability” goals as part of the Ms. Lagarde’s drive to press ahead with the green agenda. Similarly, Governor Andrew Bailey suggested in 2021 that the Bank of England might also weigh green concerns more heavily in its corporate-bond portfolio.
The definitions of “green” and “sustainability” remain to be operationalized with clear metrics. There were some 70 different ESG rating agencies and 600 ESG ratings by 2020. Perhaps the most confounding feature of assessing ESG investments relates to the vague and amorphous character of “social equity”, “environmental justice” and “sustainability” concepts. There is no single, universally agreed upon list of what factors to consider when looking into the ESG commitments of a given corporate entity.
Risky Move By Bank Regulators
Beyond the traditional objectives of price stability and avoiding financial crises, should governments support a vastly expanded remit for their central banks? Should financial regulators arrogate climate change tasks among their functions? The move by regulators such as the US Federal Reserve and the Securities and Exchange Commission to incorporate “green finance” poses key risks. By allowing regulations to tilt the financial playing field in favor of business deemed “green” and “sustainable”, whatever they might mean, the impartiality of financial regulators towards different regions, sectors and industries across an economy is fatally compromised. In noting this dangerous ‘mission creep’ of central banks, Professor John Cochrane in a recent testimony to the US Senate Committee on Banking, Housing and Urban Affairs warned that the boardrooms of central banks and securities regulators risk becoming politicized.
By straying from its core mission and authority in financial regulations to support climate goals which are based on contentious, uncertain and highly complex climate science models, a financial regulator’s actions will undermine its credibility and betray its independence. When unelected governors and financial agency heads engage in climate policy, it is an invitation for special interests to encroach into the heart of the financial system and degrade its ability to fulfil their legitimate role to ensure sound money, stem financial crises and ensure competition and transparency in the financial and securities sectors.
Climate policy is beyond the scope of any financial regulator’s expertise. Given the uncertainty within the climate science community itself, there is no reason to believe that they can have any greater understanding of climate risks. Government appointed finance bureaucrats are surely not competent in adjudicating the enormous uncertainties and complexities underlying climate models. Financial regulators have no experience or expertise in environmental policy. The considerable power of the financial authorities over investment decisions and corporate behaviour risks the politicization of the capital allocation process and fundamentally undermine the efficiency of capital markets. This would undermine the very engine of market capitalism itself.
A country’s response to climate change is more properly decided by elected leaders who would enact policies through a consultative legislative process after having engaged with specialized environmental and scientific agencies. Climate science, we need to be reminded, is not “settled”. Given the global nature of adapting to climate change, international negotiations would be part of that process. And to avoid an ideologically inspired “consensus” in science, elected leaders would be well advised to have a “red team-blue team” approach to getting scientific evidence marshalled if legislative remedies are called for.
The argument that climate change presents systemic risks to the financial system is implausible. Systemic financial crises occur when the banking system as a whole loses its reserve margins and capital in short order, leading to a run on its short-term debt. There is no shortage of real systemic risks with unsustainable debt, accelerating inflation, collapse in international trust on the US dollar — a fiat currency – as a reserve currency for international transactions, and a global sovereign debt crisis when the US government runs out of borrowing capacity.
One could add other possible non-economic shocks that can lead to catastrophic outcomes to the financial system which have nothing to do with the climate: bioterrorism causing infection fatality rates of 10% or more rather than the covid pandemic’s estimated rates within the 0.15 – 0.20% range, massive cyberattacks that disable national grids and IT infrastructure, or escalation of wars into tactical, then theatre, nuclear attacks by a series of mistakes or perceived provocations.
The Real Systemic Climate Risk Is Climate Policy
Extreme weather – floods, hurricanes, heat waves, cold snaps – present no systemic risk and are well handled by insurance markets and adaptive measures such as dykes, drainage systems, robust construction technologies and the like. Over the past century, with economic growth and modern technologies, deaths from extreme weather events has dropped by 96% globally. Indeed, the only real systemic risk related to climate is likely not from “climate change” that occurs with great natural variation over time and space but from the very climate policy responses to the hobgoblins of our own making.
It will not be the first time that great nations fulfil apocalyptic prophecies of their own making. Let us not allow central bankers to be lead players in all of this.
4) Green energy transition will keep inflation high, Norway’s oil fund chief warns
The Epoch Times, 26 April 2023
“Greenflation is inevitable,” say Deutsche Bank economist Eric Heymann and thematic research analyst Luke Templeman.
Climate change will keep inflation stubbornly high and result in low investment returns for an extended period, Nicolai Tangen, the head of Norway’s $1.3 trillion oil fund, is warning.
Tangen told the Financial Times on April 25 that “inflation is going to be tough to get down,” alluding to a multitude of factors, such as rising labor costs and higher food prices. These, he noted, could keep inflation elevated for years.
A part of the “mosaic,” according to Tangen, is that the exorbitant investments being made in the green energy transition and the deglobalization initiative currently occurring also will add to inflation pressures.
The idea of “greenflation”—that is, the transition to green energy to achieve climate change goals that will contribute to inflation—has been a common discussion in economic circles.
But is it largely an unfounded concern, or is it an accurate expectation?
The Threat of Greenflation
Isabel Schnabel, a member of the executive board of the European Central Bank (ECB), told a panel in March 2022 that the transition to a green economy will come with a cost: higher prices. But the German economist conceded that it’s necessary to shift to a net-zero economy.
However, she explained that greenflation would lead to fiscal and monetary consequences, forcing policymakers to help families grappling with rising energy prices.
“As more and more industries switch to low-emission technologies, greenflation can be expected to exert upward pressure on prices of a broad range of products during the transition period,” Schnabel stated.
“The transition to this new steady state will not come for free,” she said, adding that the price of this “new age of energy inflation … is worth paying.”
Schnabel isn’t the only one warning about greenflation.
TD Bank published a research note on March 22 explaining that the global economy should “expect moderately higher inflation as a result of the transition to net-zero emissions.” The paper noted that there would be four factors that would trigger green inflation: greater global capital investment, higher demand for commodities (e.g., carbonate, cobalt, nickel), green premiums, and carbon pricing.
“While inherently imprecise, we estimate these factors will increase trend inflation by 25–50 basis points (bps) over the next decade,” the report stated. “The confluence of greenflation plus the reflationary effect of deglobalization is likely to more than counterbalance the deflationary impact of tech. Consequently, inflation and nominal interest rates will probably be higher and more volatile, especially relative to the levels of the last two decades.”
Many market experts agree that strengthening demand for the so-called green metals would support higher prices. However, industrial metals have been mixed so far this year. Nickel prices are trading at decade highs, cobalt has slumped nearly 33 percent year to date, and lithium carbonate has tumbled to an 18-month low.
“Greenflation is inevitable,” say Deutsche Bank economist Eric Heymann and thematic research analyst Luke Templeman.
The bank’s report noted that it needs to be clarified how much of the enormous amount of money needed to achieve the worldwide net-zero goal is inflationary. But climate policy issues, rising commodity prices, environmental, social, and governance (ESG) compliances, weather-related events, and interest rates could also exacerbate greenflation concerns.
Full story
5) Germany’s Finance Minister pushes back on another part of EU Green Deal
Bloomberg, 27 April 2023
With British inflation clocking in at 10.1 percent, or over five times the level targeted by the Bank of England, criticisms of the central bank’s remit to support “net zero” climate goals have been coming in thick and fast, as Bloomberg reported on Tuesday. The article was headlined: “Scrap Bank of England’s Climate Mandate, Balls and Osborne say.”
One of the key architects of UK central bank independence, Ed Balls – an adviser to former Chancellor of the Exchequer Gordon Brown when the Labour Party made the bank independent in 1997 – said it “doesn’t make any sense” to give the BOE a role for which it has no tools. “It concerns me, the idea that you start to throw into the mix objectives which aren’t really affected sensibly by the instrument the bank has – which is interest rates.” Bloomberg also reported that Paul Tucker, a former BOE deputy governor, and John Vickers, a former BOE chief economist, suggested that net zero has been a distraction.
Mr. Balls was speaking at the House of Lords’ economic affairs committee inquiry into the independence of the BOE on Tuesday. At the meeting, ex-Conservative Chancellor George Osborne agreed with Balls. Both were of the view that climate goals should be stripped from the Bank of England’s remit to remove any distractions from its focus on inflation and financial stability. Failing to prevent double-digit inflation, critics argue that the bank should not distracted by such policy “baubles.”
Central Banks: What Happened To Taking The Punchbowl Away?
The world’s central banks have historically operated under narrow mandates to safeguard financial stability by overseeing the financial system of private and public-sector banks and managing liquidity and interest rates. One has the rather droll image of central bankers as those whose job was to “take away the punch bowl just when the party gets going’”. The narrow mandate for central banks was to avert financial crisis and achieve price stability by utilizing its tools of credit creation and interest rate guidance.
In recent years, however, central banks as well as multilateral financial institutions such as the World Bank and the IMF are increasingly involved in efforts to enhance the role of “stakeholder capitalism” in capital markets. With the US, EU and UK push to “fight climate change”, there has been much discussion on the role of central banks in addressing risks associated with climate change and in supporting the development of green finance.
Reflecting this development, Mark Carney, the previous Governor of the Bank of England was appointed UN special envoy for climate action and finance in 2020 to galvanize action among financial institutions in the lead up to the global climate talks due to take place in Glasgow in November 2021. The appointment of Mark Carney as UN special envoy reflects efforts in the EU to link central banks and multilateral development banks and financial institutions directly to ESG (environmental, social and governance criteria) and “green finance”.
Multilateral financial institutions such as the World Bank, the Asian Development Bank, the European Investment Bank and the International Monetary Fund are increasingly involved in efforts to enhance the role of ESG and “stakeholder capitalism” in capital markets. They have either already stopped, or plan to end soon, the funding of fossil fuel-based projects. The IMF – originally established to further international monetary cooperation, safeguard global financial stability and encourage the expansion of trade and economic growth — supports the Network of Central Banks and Supervisors for Greening the Financial System (NGFS) to promote the climate agenda promoted by the EU and the US. The Biden administration’s Secretary of the Treasury Janet Yellen plans to push lenders to adopt "green" lending policies. According to Yellen, the US federal government will “need to seriously look at assessing the risk to the financial system from climate change”.
The US Federal Reserve recently joined the NGFS to mobilize mainstream finance for the transition toward a “sustainable” economy and to share and identify best practices in the supervision of climate-related risks. According to the 2020 Financial Stability Report, the Federal Reserve will:
“monitor and assess the financial system for vulnerabilities related to climate change through its financial stability framework. Moreover, Federal Reserve supervisors expect banks to have systems in place that appropriately identify, measure, control and monitor all of their material risks, which for many banks are likely to extend to climate risks.”
European Central Bank (ECB) President Christine Lagarde said that she wants “to look at all the business lines and the operations in which we are engaged in order to tackle climate change.” The ECB will now pursue policies to favour European banks and private sector companies to fund “green” projects. The ECB will start accepting bonds linked to “sustainability” goals as part of the Ms. Lagarde’s drive to press ahead with the green agenda. Similarly, Governor Andrew Bailey suggested in 2021 that the Bank of England might also weigh green concerns more heavily in its corporate-bond portfolio.
The definitions of “green” and “sustainability” remain to be operationalized with clear metrics. There were some 70 different ESG rating agencies and 600 ESG ratings by 2020. Perhaps the most confounding feature of assessing ESG investments relates to the vague and amorphous character of “social equity”, “environmental justice” and “sustainability” concepts. There is no single, universally agreed upon list of what factors to consider when looking into the ESG commitments of a given corporate entity.
Risky Move By Bank Regulators
Beyond the traditional objectives of price stability and avoiding financial crises, should governments support a vastly expanded remit for their central banks? Should financial regulators arrogate climate change tasks among their functions? The move by regulators such as the US Federal Reserve and the Securities and Exchange Commission to incorporate “green finance” poses key risks. By allowing regulations to tilt the financial playing field in favor of business deemed “green” and “sustainable”, whatever they might mean, the impartiality of financial regulators towards different regions, sectors and industries across an economy is fatally compromised. In noting this dangerous ‘mission creep’ of central banks, Professor John Cochrane in a recent testimony to the US Senate Committee on Banking, Housing and Urban Affairs warned that the boardrooms of central banks and securities regulators risk becoming politicized.
By straying from its core mission and authority in financial regulations to support climate goals which are based on contentious, uncertain and highly complex climate science models, a financial regulator’s actions will undermine its credibility and betray its independence. When unelected governors and financial agency heads engage in climate policy, it is an invitation for special interests to encroach into the heart of the financial system and degrade its ability to fulfil their legitimate role to ensure sound money, stem financial crises and ensure competition and transparency in the financial and securities sectors.
Climate policy is beyond the scope of any financial regulator’s expertise. Given the uncertainty within the climate science community itself, there is no reason to believe that they can have any greater understanding of climate risks. Government appointed finance bureaucrats are surely not competent in adjudicating the enormous uncertainties and complexities underlying climate models. Financial regulators have no experience or expertise in environmental policy. The considerable power of the financial authorities over investment decisions and corporate behaviour risks the politicization of the capital allocation process and fundamentally undermine the efficiency of capital markets. This would undermine the very engine of market capitalism itself.
A country’s response to climate change is more properly decided by elected leaders who would enact policies through a consultative legislative process after having engaged with specialized environmental and scientific agencies. Climate science, we need to be reminded, is not “settled”. Given the global nature of adapting to climate change, international negotiations would be part of that process. And to avoid an ideologically inspired “consensus” in science, elected leaders would be well advised to have a “red team-blue team” approach to getting scientific evidence marshalled if legislative remedies are called for.
The argument that climate change presents systemic risks to the financial system is implausible. Systemic financial crises occur when the banking system as a whole loses its reserve margins and capital in short order, leading to a run on its short-term debt. There is no shortage of real systemic risks with unsustainable debt, accelerating inflation, collapse in international trust on the US dollar — a fiat currency – as a reserve currency for international transactions, and a global sovereign debt crisis when the US government runs out of borrowing capacity.
One could add other possible non-economic shocks that can lead to catastrophic outcomes to the financial system which have nothing to do with the climate: bioterrorism causing infection fatality rates of 10% or more rather than the covid pandemic’s estimated rates within the 0.15 – 0.20% range, massive cyberattacks that disable national grids and IT infrastructure, or escalation of wars into tactical, then theatre, nuclear attacks by a series of mistakes or perceived provocations.
The Real Systemic Climate Risk Is Climate Policy
Extreme weather – floods, hurricanes, heat waves, cold snaps – present no systemic risk and are well handled by insurance markets and adaptive measures such as dykes, drainage systems, robust construction technologies and the like. Over the past century, with economic growth and modern technologies, deaths from extreme weather events has dropped by 96% globally. Indeed, the only real systemic risk related to climate is likely not from “climate change” that occurs with great natural variation over time and space but from the very climate policy responses to the hobgoblins of our own making.
It will not be the first time that great nations fulfil apocalyptic prophecies of their own making. Let us not allow central bankers to be lead players in all of this.
4) Green energy transition will keep inflation high, Norway’s oil fund chief warns
The Epoch Times, 26 April 2023
“Greenflation is inevitable,” say Deutsche Bank economist Eric Heymann and thematic research analyst Luke Templeman.
Climate change will keep inflation stubbornly high and result in low investment returns for an extended period, Nicolai Tangen, the head of Norway’s $1.3 trillion oil fund, is warning.
Tangen told the Financial Times on April 25 that “inflation is going to be tough to get down,” alluding to a multitude of factors, such as rising labor costs and higher food prices. These, he noted, could keep inflation elevated for years.
A part of the “mosaic,” according to Tangen, is that the exorbitant investments being made in the green energy transition and the deglobalization initiative currently occurring also will add to inflation pressures.
The idea of “greenflation”—that is, the transition to green energy to achieve climate change goals that will contribute to inflation—has been a common discussion in economic circles.
But is it largely an unfounded concern, or is it an accurate expectation?
The Threat of Greenflation
Isabel Schnabel, a member of the executive board of the European Central Bank (ECB), told a panel in March 2022 that the transition to a green economy will come with a cost: higher prices. But the German economist conceded that it’s necessary to shift to a net-zero economy.
However, she explained that greenflation would lead to fiscal and monetary consequences, forcing policymakers to help families grappling with rising energy prices.
“As more and more industries switch to low-emission technologies, greenflation can be expected to exert upward pressure on prices of a broad range of products during the transition period,” Schnabel stated.
“The transition to this new steady state will not come for free,” she said, adding that the price of this “new age of energy inflation … is worth paying.”
Schnabel isn’t the only one warning about greenflation.
TD Bank published a research note on March 22 explaining that the global economy should “expect moderately higher inflation as a result of the transition to net-zero emissions.” The paper noted that there would be four factors that would trigger green inflation: greater global capital investment, higher demand for commodities (e.g., carbonate, cobalt, nickel), green premiums, and carbon pricing.
“While inherently imprecise, we estimate these factors will increase trend inflation by 25–50 basis points (bps) over the next decade,” the report stated. “The confluence of greenflation plus the reflationary effect of deglobalization is likely to more than counterbalance the deflationary impact of tech. Consequently, inflation and nominal interest rates will probably be higher and more volatile, especially relative to the levels of the last two decades.”
Many market experts agree that strengthening demand for the so-called green metals would support higher prices. However, industrial metals have been mixed so far this year. Nickel prices are trading at decade highs, cobalt has slumped nearly 33 percent year to date, and lithium carbonate has tumbled to an 18-month low.
“Greenflation is inevitable,” say Deutsche Bank economist Eric Heymann and thematic research analyst Luke Templeman.
The bank’s report noted that it needs to be clarified how much of the enormous amount of money needed to achieve the worldwide net-zero goal is inflationary. But climate policy issues, rising commodity prices, environmental, social, and governance (ESG) compliances, weather-related events, and interest rates could also exacerbate greenflation concerns.
Full story
5) Germany’s Finance Minister pushes back on another part of EU Green Deal
Bloomberg, 27 April 2023
The European Union’s Green Deal plans are once again facing pushback from a junior party within Germany’s governing coalition.
Christian Lindner, Germany’s finance minister and chairman of the pro-business FDP party, signaled his opposition to more climate ambition under the bloc’s Energy Performance of Buildings Directive — rules designed to bring one of the most energy-intensive sectors in line with its climate-neutrality objectives.
“If the efficiency standards currently being considered had to be implemented, this would mean many billions of euros in additional costs for Germany within a few years,” Lindner said in an interview with the German magazine WirtschaftsWoche published Thursday. “I don’t think further increases are necessary for climate policy or economically viable.”
The intervention comes just weeks after the FDP almost brought down rules designed to effectively ban the sale of new combustion-engine cars in the EU from 2035, and highlights growing concern around the cost of the transition to climate neutrality by the middle of the century. Lindner’s remarks could also inflame tensions with the two other parties in Germany’s ruling coalition, most notably the Greens.
A spokesperson for the Economy Ministry, led by Greens Vice Chancellor Robert Habeck, said it was too early to comment as discussions on the proposal in the EU are still ongoing.
Other countries, like Italy, have also signaled concern about the EU building proposals.
Lindner said that German subsidies for more sustainable forms of heating should be “technology-neutral,” geared around the system being replaced rather than what will be installed. The aim isn’t to subsidize “individual technologies or manufacturers,” such as heat pumps, he said.
Full story
6) Poland's pushback on EU climate goals no surprise, but a worry
Reuters, 27 April 2023
Poland's rejection of this week's reform of the European carbon market was widely expected as the country is by far the region's most coal-dependent major economy and stands to see business costs climb under the revamped climate laws.
But as a major supplier of vehicles, electric batteries, machinery, furniture and metals to Germany, France and other European nations, Poland is also a fast-growing and important driver of the overall regional economy.
As such, European lawmakers will likely feel conflicted about the passing of the legislation, which received support from 24 of the European Union's 27 members but may cause economic harm to an important trade partner.
Poland's main objections to the more aggressive EU climate goals are mainly about timing rather than any disagreement over the merits of reducing emissions.
Indeed, Poland has some of the most aggressive green energy capacity goals in Europe, with solar capacity seen climbing by 340% and wind generation by more than 2,000% by 2030, according to data from Refinitiv.
The key issue is that its economy remains heavily reliant on coal over the near term, with roughly 70% of its electricity coming from coal in 2022, according to think tank Ember.
Full story
7) Britain will be unable to keep the lights on with Net Zero power, MPs warn
The Daily Telegraph, 28 April 2023
Christian Lindner, Germany’s finance minister and chairman of the pro-business FDP party, signaled his opposition to more climate ambition under the bloc’s Energy Performance of Buildings Directive — rules designed to bring one of the most energy-intensive sectors in line with its climate-neutrality objectives.
“If the efficiency standards currently being considered had to be implemented, this would mean many billions of euros in additional costs for Germany within a few years,” Lindner said in an interview with the German magazine WirtschaftsWoche published Thursday. “I don’t think further increases are necessary for climate policy or economically viable.”
The intervention comes just weeks after the FDP almost brought down rules designed to effectively ban the sale of new combustion-engine cars in the EU from 2035, and highlights growing concern around the cost of the transition to climate neutrality by the middle of the century. Lindner’s remarks could also inflame tensions with the two other parties in Germany’s ruling coalition, most notably the Greens.
A spokesperson for the Economy Ministry, led by Greens Vice Chancellor Robert Habeck, said it was too early to comment as discussions on the proposal in the EU are still ongoing.
Other countries, like Italy, have also signaled concern about the EU building proposals.
Lindner said that German subsidies for more sustainable forms of heating should be “technology-neutral,” geared around the system being replaced rather than what will be installed. The aim isn’t to subsidize “individual technologies or manufacturers,” such as heat pumps, he said.
Full story
6) Poland's pushback on EU climate goals no surprise, but a worry
Reuters, 27 April 2023
Poland's rejection of this week's reform of the European carbon market was widely expected as the country is by far the region's most coal-dependent major economy and stands to see business costs climb under the revamped climate laws.
But as a major supplier of vehicles, electric batteries, machinery, furniture and metals to Germany, France and other European nations, Poland is also a fast-growing and important driver of the overall regional economy.
As such, European lawmakers will likely feel conflicted about the passing of the legislation, which received support from 24 of the European Union's 27 members but may cause economic harm to an important trade partner.
Poland's main objections to the more aggressive EU climate goals are mainly about timing rather than any disagreement over the merits of reducing emissions.
Indeed, Poland has some of the most aggressive green energy capacity goals in Europe, with solar capacity seen climbing by 340% and wind generation by more than 2,000% by 2030, according to data from Refinitiv.
The key issue is that its economy remains heavily reliant on coal over the near term, with roughly 70% of its electricity coming from coal in 2022, according to think tank Ember.
Full story
7) Britain will be unable to keep the lights on with Net Zero power, MPs warn
The Daily Telegraph, 28 April 2023
Britain will struggle to keep the lights on using only net zero electricity as the roll-out of green energy lags far behind target, MPs have warned.
Falling investor confidence and bureaucratic delays mean Britain’s efforts to produce entirely clean electricity are at risk of stalling, MPs on the cross-party Business Select Committee said.
They are calling on the government to come up with a “coherent, overarching plan” to boost green supplies — or risk missing climate targets.
Demand for electricity is expected to soar as households buy electric cars and heat pumps.
Darren Jones, the Labour MP who chairs the committee, said: “Ministers think that publishing strategies and releasing social media videos will deliver the energy infrastructure the country needs.
“Its failed before and it keeps failing. Without a coherent, overarching delivery plan, the Government risks undermining the UK’s ability to generate, store and distribute the fossil fuel free electricity the country needs to hit net zero.”
The Government wants to decarbonise the power system by 2035, as part of efforts to slash carbon emissions to “net zero” across the economy by 2050.
Britain has made significant progress in cutting emissions from its electricity system, with wind turbines now producing roughly a quarter of electricity across the year.
However, production is still dominated by gas-fired power stations, which supply more than a third of annual electricity and are a large source of carbon dioxide emissions.
Ministers want to change this by boosting the amount of electricity generated from wind turbines and nuclear power stations instead.
Gas-fired power stations are likely to still play a role but would need to be fitted with new technology to capture their emissions, or burn hydrogen instead.
The overhaul will require billions of pounds of investment in new power stations, as well as new technology to help cope with greater levels of intermittent wind power on the system.
However, the MPs on the business committee pointed to policies deterring investors, such as windfall taxes, as well as delays for new projects to connect to the electricity grid and “a cumbersome planning regime”.
They warned that investors are being lured abroad, with the US offering billions of dollars of subsidies.
Full story
8) BP's climate rebel shareholders get less support than two years ago
Reuters, 27 April 2023
Falling investor confidence and bureaucratic delays mean Britain’s efforts to produce entirely clean electricity are at risk of stalling, MPs on the cross-party Business Select Committee said.
They are calling on the government to come up with a “coherent, overarching plan” to boost green supplies — or risk missing climate targets.
Demand for electricity is expected to soar as households buy electric cars and heat pumps.
Darren Jones, the Labour MP who chairs the committee, said: “Ministers think that publishing strategies and releasing social media videos will deliver the energy infrastructure the country needs.
“Its failed before and it keeps failing. Without a coherent, overarching delivery plan, the Government risks undermining the UK’s ability to generate, store and distribute the fossil fuel free electricity the country needs to hit net zero.”
The Government wants to decarbonise the power system by 2035, as part of efforts to slash carbon emissions to “net zero” across the economy by 2050.
Britain has made significant progress in cutting emissions from its electricity system, with wind turbines now producing roughly a quarter of electricity across the year.
However, production is still dominated by gas-fired power stations, which supply more than a third of annual electricity and are a large source of carbon dioxide emissions.
Ministers want to change this by boosting the amount of electricity generated from wind turbines and nuclear power stations instead.
Gas-fired power stations are likely to still play a role but would need to be fitted with new technology to capture their emissions, or burn hydrogen instead.
The overhaul will require billions of pounds of investment in new power stations, as well as new technology to help cope with greater levels of intermittent wind power on the system.
However, the MPs on the business committee pointed to policies deterring investors, such as windfall taxes, as well as delays for new projects to connect to the electricity grid and “a cumbersome planning regime”.
They warned that investors are being lured abroad, with the US offering billions of dollars of subsidies.
Full story
8) BP's climate rebel shareholders get less support than two years ago
Reuters, 27 April 2023
LONDON, April 27 (Reuters) - An activist resolution urging BP to set tougher climate targets was rejected by shareholders on Thursday, although it enjoyed more support than last year after the energy company rowed back on plans to cut oil and gas output.
The resolution filed by activist group Follow This, which the board urged voters to oppose, won the support of 16.75% of votes at the annual general meeting, according to preliminary results.
That compared with 14.9% last year but was below the 20.6% backing it received in 2021.
The meeting in London was interrupted several times by climate protesters, with several being carried out by security.
BP Chief Executive Bernard Looney in February rowed back on plans to slash oil and gas output and carbon emissions, angering climate activists but spurring a share price surge.
Full story
9) Rupert Darwall: Inflation, Net Zero, and the Bank of England
Real Clear Energy, 27 April 2023
A central banker tiptoes toward the inflationary consequences of Net Zero.
The resolution filed by activist group Follow This, which the board urged voters to oppose, won the support of 16.75% of votes at the annual general meeting, according to preliminary results.
That compared with 14.9% last year but was below the 20.6% backing it received in 2021.
The meeting in London was interrupted several times by climate protesters, with several being carried out by security.
BP Chief Executive Bernard Looney in February rowed back on plans to slash oil and gas output and carbon emissions, angering climate activists but spurring a share price surge.
Full story
9) Rupert Darwall: Inflation, Net Zero, and the Bank of England
Real Clear Energy, 27 April 2023
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 had made a similar case in a speech in Geneva earlier this month. For an energy importer like the UK, the rise in natural gas prices represented a substantial deterioration in Britain’s terms of trade, making the average UK resident worse off. Firms and households will seek to pass on those higher costs to their customers and their employers. But at the aggregate level, “attempts to shift the unavoidable cost to someone else are self-defeating,” Pill argued. “All they achieve is to create additional nominal demand pressures that ultimately will create inflation and endanger the achievement of the inflation target.”
Pill’s mistake is not his analysis but his directing these comments to the wrong audience. Attempts by politicians to talk down inflation in the 1970s ended up making those who said them objects of ridicule. “My fellow Americans,” President Ford told Congress in his October 1974 Whip Inflation Now speech, “ten days ago I asked you to get things started by making a list of 10 ways to fight inflation and save energy, to exchange your list with your neighbors, and to send me a copy.” It is rational for economic actors to use their market power to attempt to deflect rising costs onto others. No amount of speechifying will change that. Resulting wage-price spirals are not their fault; the culpability falls on those who misjudged the persistence of inflation pressure. It’s no surprise, therefore, that Pill’s remarks garnered hostile headlines.
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. [...]
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.
Full post
10) Cargo ship arrives in Germany with large hole after striking wind farm
The Maritime Executive, 26 April 2023
Pill had made a similar case in a speech in Geneva earlier this month. For an energy importer like the UK, the rise in natural gas prices represented a substantial deterioration in Britain’s terms of trade, making the average UK resident worse off. Firms and households will seek to pass on those higher costs to their customers and their employers. But at the aggregate level, “attempts to shift the unavoidable cost to someone else are self-defeating,” Pill argued. “All they achieve is to create additional nominal demand pressures that ultimately will create inflation and endanger the achievement of the inflation target.”
Pill’s mistake is not his analysis but his directing these comments to the wrong audience. Attempts by politicians to talk down inflation in the 1970s ended up making those who said them objects of ridicule. “My fellow Americans,” President Ford told Congress in his October 1974 Whip Inflation Now speech, “ten days ago I asked you to get things started by making a list of 10 ways to fight inflation and save energy, to exchange your list with your neighbors, and to send me a copy.” It is rational for economic actors to use their market power to attempt to deflect rising costs onto others. No amount of speechifying will change that. Resulting wage-price spirals are not their fault; the culpability falls on those who misjudged the persistence of inflation pressure. It’s no surprise, therefore, that Pill’s remarks garnered hostile headlines.
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. [...]
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.
Full post
10) Cargo ship arrives in Germany with large hole after striking wind farm
The Maritime Executive, 26 April 2023
Germany’s water police are investigating what they believe may be the first case in which a working merchant ship underway struck a North Sea wind farm.
The captain of the vessel according to the police has so far not explained how his vessel received a hole the “size of a barn door” forward on the starboard side of the ship.
The general cargo ship Petra L. (1,685 dwt) is registered in Antigua and Barbuda for a German owner which is listed as MP Shipping of Hamburg in the Equasis database. The 39-year-old vessel departed Szczecin, Poland on April 22 loaded with 1,500 tons of gain bound for Antwerp. Three days later early on the morning of April 25, she arrived in Emden, Germany, and port authorities noticed the gapping hole and reported it to the police.
Media reports said the water police were initially investigating the incident on the theory that the vessel had hit a floating object. Police reports are saying that the hole measures approximately 10 feet by 16 feet (3 meters by 5 meters) penetrating the hull. They reported that there were three officers and three crewmembers working aboard the vessel. None of them were injured.
Full story
11) Jerry A. Coyne and Anna I. Krylov: The ‘Hurtful’ Idea of Scientific Merit
The Wall Street Journal, 28 April 2023
Ideology now dominates research in the U.S. more pervasively than it did at the Soviet Union’s height.
The captain of the vessel according to the police has so far not explained how his vessel received a hole the “size of a barn door” forward on the starboard side of the ship.
The general cargo ship Petra L. (1,685 dwt) is registered in Antigua and Barbuda for a German owner which is listed as MP Shipping of Hamburg in the Equasis database. The 39-year-old vessel departed Szczecin, Poland on April 22 loaded with 1,500 tons of gain bound for Antwerp. Three days later early on the morning of April 25, she arrived in Emden, Germany, and port authorities noticed the gapping hole and reported it to the police.
Media reports said the water police were initially investigating the incident on the theory that the vessel had hit a floating object. Police reports are saying that the hole measures approximately 10 feet by 16 feet (3 meters by 5 meters) penetrating the hull. They reported that there were three officers and three crewmembers working aboard the vessel. None of them were injured.
Full story
11) Jerry A. Coyne and Anna I. Krylov: The ‘Hurtful’ Idea of Scientific Merit
The Wall Street Journal, 28 April 2023
Ideology now dominates research in the U.S. more pervasively than it did at the Soviet Union’s height.
Until a few months ago, we’d never heard of the Journal of Controversial Ideas, a peer-reviewed publication whose aim is to promote “free inquiry on controversial topics.” Our research typically didn’t fit that description. We finally learned of the journal’s existence, however, when we tried to publish a commentary about how modern science is being compromised by a de-emphasis on merit. Apparently, what was once anodyne and unobjectionable is now contentious and outré, even in the hard sciences.
Merit isn’t much in vogue anywhere these days. We’ve seen this in the trend among scientists to judge scientific research by its adherence to dominant progressive orthodoxies and in the growing reluctance of our institutions to hire and fund scientists based on their ability to propose and conduct exciting projects. Our intent was to defend established and effective practices of judging science based on its merit alone.
Yet as we shopped our work to various scientific publications, we found no takers—except one. Evidently our ideas were politically unpalatable. It turns out the only place you can publish once-standard conclusions these days is in a journal committed to heterodoxy.
The crux of our argument is simple: Science that doesn’t prioritize merit doesn’t work, and substituting ideological dogma for quality is a shortcut to disaster. A prime example is Lysenkoism—the incursion of Marxist ideology into Soviet and Chinese agriculture in the mid-20th century. Beginning in the 1930s, the U.S.S.R. started to enforce the untenable theories of Trofim Lysenko, a charlatan Russian agronomist who rejected, among other things, the existence of standard genetic inheritance. As scientists dissented—rejecting Lysenko’s claims for lack of evidence—they were fired or sent to the gulag. Implementation of his theories in Soviet and, later, Chinese agriculture led to famines and the starvation of millions. Russian biology still hasn’t recovered.
Yet a wholesale and unhealthy incursion of ideology into science is occurring again—this time in the West. We see it in progressives’ claim that scientific truths are malleable and subjective, similar to Lysenko’s insistence that genetics was Western “pseudoscience” with no place in progressive Soviet agriculture. We see it when scientific truths—say, the binary nature of sex—are either denied or distorted because they’re politically repugnant.
We see it as well in activists’ calls to “decolonize” scientific fields, to reduce the influence of what’s called “Western science” and adopt indigenous “ways of knowing.” No doubt different cultures have different ways of interpreting natural processes—sometimes invoking myth and legend—and this variation should be valued as an important aspect of sociology and anthropology. But these “ways of knowing” aren’t coequal to modern science, and it would be foolish to pretend otherwise.
In some ways this new species of Lysenkoism is more pernicious than the old, because it affects all science—chemistry, physics, life sciences, medicine and math—not merely biology and agriculture. The government isn’t the only entity pushing it, either. “Progressive” scientists promote it, too, along with professional societies, funding agencies like the National Institutes of Health and Energy Department, scientific journals and university administrators. When applying for openings as a university scientist today, job candidates may well be evaluated more by their record of supporting “social justice” than by their scientific achievements.
But scientific research can’t and shouldn’t be conducted via a process that gives a low priority to science itself. This is why we wrote our paper, which was co-authored by 27 others, making for a group as diverse as you can imagine. We had men and women of various ages, ethnicities, countries of origin, political affiliations and career stages, including faculty from community colleges and top research universities, as well as two Nobel laureates. We provided an in-depth analysis of the clash between liberal epistemology and postmodernist philosophies. We documented the continuing efforts to elevate social justice over scientific rigor, and warned of the consequences of taking an ideological approach to research. Finally, we suggested an alternative humanistic approach to alleviating social inequalities and injustices.
But this was too much, even “downright hurtful,” as one editor wrote to us. Another informed us that “the concept of merit . . . has been widely and legitimately attacked as hollow.” Legitimately?
In the end, we’re grateful that our paper will be published. But how sad it is that the simple and fundamental principle undergirding all of science—that the best ideas and technologies should be the ones we adopt—is seen these days as “controversial.”
Mr. Coyne is a professor emeritus of ecology and evolution at the University of Chicago. Ms. Krylov is a professor of chemistry at the University of Southern California.
12) And finally: Former energy minister and chair of Net Zero Review Chris Skidmore takes £80k role with decarbonisation firm
National World, 24 February 2023
Merit isn’t much in vogue anywhere these days. We’ve seen this in the trend among scientists to judge scientific research by its adherence to dominant progressive orthodoxies and in the growing reluctance of our institutions to hire and fund scientists based on their ability to propose and conduct exciting projects. Our intent was to defend established and effective practices of judging science based on its merit alone.
Yet as we shopped our work to various scientific publications, we found no takers—except one. Evidently our ideas were politically unpalatable. It turns out the only place you can publish once-standard conclusions these days is in a journal committed to heterodoxy.
The crux of our argument is simple: Science that doesn’t prioritize merit doesn’t work, and substituting ideological dogma for quality is a shortcut to disaster. A prime example is Lysenkoism—the incursion of Marxist ideology into Soviet and Chinese agriculture in the mid-20th century. Beginning in the 1930s, the U.S.S.R. started to enforce the untenable theories of Trofim Lysenko, a charlatan Russian agronomist who rejected, among other things, the existence of standard genetic inheritance. As scientists dissented—rejecting Lysenko’s claims for lack of evidence—they were fired or sent to the gulag. Implementation of his theories in Soviet and, later, Chinese agriculture led to famines and the starvation of millions. Russian biology still hasn’t recovered.
Yet a wholesale and unhealthy incursion of ideology into science is occurring again—this time in the West. We see it in progressives’ claim that scientific truths are malleable and subjective, similar to Lysenko’s insistence that genetics was Western “pseudoscience” with no place in progressive Soviet agriculture. We see it when scientific truths—say, the binary nature of sex—are either denied or distorted because they’re politically repugnant.
We see it as well in activists’ calls to “decolonize” scientific fields, to reduce the influence of what’s called “Western science” and adopt indigenous “ways of knowing.” No doubt different cultures have different ways of interpreting natural processes—sometimes invoking myth and legend—and this variation should be valued as an important aspect of sociology and anthropology. But these “ways of knowing” aren’t coequal to modern science, and it would be foolish to pretend otherwise.
In some ways this new species of Lysenkoism is more pernicious than the old, because it affects all science—chemistry, physics, life sciences, medicine and math—not merely biology and agriculture. The government isn’t the only entity pushing it, either. “Progressive” scientists promote it, too, along with professional societies, funding agencies like the National Institutes of Health and Energy Department, scientific journals and university administrators. When applying for openings as a university scientist today, job candidates may well be evaluated more by their record of supporting “social justice” than by their scientific achievements.
But scientific research can’t and shouldn’t be conducted via a process that gives a low priority to science itself. This is why we wrote our paper, which was co-authored by 27 others, making for a group as diverse as you can imagine. We had men and women of various ages, ethnicities, countries of origin, political affiliations and career stages, including faculty from community colleges and top research universities, as well as two Nobel laureates. We provided an in-depth analysis of the clash between liberal epistemology and postmodernist philosophies. We documented the continuing efforts to elevate social justice over scientific rigor, and warned of the consequences of taking an ideological approach to research. Finally, we suggested an alternative humanistic approach to alleviating social inequalities and injustices.
But this was too much, even “downright hurtful,” as one editor wrote to us. Another informed us that “the concept of merit . . . has been widely and legitimately attacked as hollow.” Legitimately?
In the end, we’re grateful that our paper will be published. But how sad it is that the simple and fundamental principle undergirding all of science—that the best ideas and technologies should be the ones we adopt—is seen these days as “controversial.”
Mr. Coyne is a professor emeritus of ecology and evolution at the University of Chicago. Ms. Krylov is a professor of chemistry at the University of Southern California.
12) And finally: Former energy minister and chair of Net Zero Review Chris Skidmore takes £80k role with decarbonisation firm
National World, 24 February 2023
The MPs new employer could stand to benefit from recommendations put forward in the Net Zero Review
The former minister who wrote the government’s review of Net Zero climate policy has started a second job with a firm specialising in decarbonisation and clean technology.
Chris Skidmore became an adviser to the London-based Emissions Capture Company on 3 January, before his long-awaited Net Zero Review had even been published. His role will involve “providing advice on the global energy transition and decarbonisation”.
One of the primary recommendations of the Net Zero Review was to review “incentives for investment in decarbonisation,” which could see companies like Skidmore’s new employer benefit significantly.
The former energy minister will earn almost as much through the second job as his £84,000 MP salary, for the equivalent of up to two days’ work per week. Skidmore has another ‘second job’ as a non-executive director at an online education company.
Full story
The former minister who wrote the government’s review of Net Zero climate policy has started a second job with a firm specialising in decarbonisation and clean technology.
Chris Skidmore became an adviser to the London-based Emissions Capture Company on 3 January, before his long-awaited Net Zero Review had even been published. His role will involve “providing advice on the global energy transition and decarbonisation”.
One of the primary recommendations of the Net Zero Review was to review “incentives for investment in decarbonisation,” which could see companies like Skidmore’s new employer benefit significantly.
The former energy minister will earn almost as much through the second job as his £84,000 MP salary, for the equivalent of up to two days’ work per week. Skidmore has another ‘second job’ as a non-executive director at an online education company.
Full story
The London-based Net Zero Watch is a campaign group set up to highlight and discuss the serious implications of expensive and poorly considered climate change policies. The Net Zero Watch newsletter is prepared by Director Dr Benny Peiser - for more information, please visit the website at www.netzerowatch.com.
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