In this newsletter:
1) Britain is on the brink of another 1973-style disaster
The Daily Telegraph, 18 January 2024
2) Drax gets go-ahead for carbon capture project at estimated £40bn cost to bill-payers
The Guardian, 17 January 2024
3) EV sales run out of juice in Europe as Germans tighten their belts
The Wall Street Journal, 18 January 2024
4) China's 2023 coal output hits record high
Reuters, 17 January 2024
5) John Kerry’s climate-change flop
The Wall Street Journal, 17 January 2024
6) China set to launch a price war on UK electric vehicle market
The Times, 18 January 2024
7) Electric cars suffer ‘unsustainable’ depreciation in secondhand market
The Daily Telegraph, 18 January 2024
8) Richard Lindzen: What is climate?
Net Zero Watch, 18 January 2024
9) Allison Schrager: The Virtue Economy is over
Bloomberg, 16 January 2024
10) You switched the lights on. Traders made billions of dollars
Bloomberg, 18 January 2024
11) And finally: Net Zero jobs - Germany’s last solar panel producer prepares to close shop
EurActiv, 18 January 2024
Full details:
1) Britain is on the brink of another 1973-style disaster
The Daily Telegraph, 18 January 2024
By Sam Ashworth-Hayes
Between the race to net zero, the failures of the Bank, and the dysfunction of the British state, we could be well on our way to a repeat of 1973.
The decade got off to a bad start. A pandemic raced around the world, exploding out of China where health authorities were uncooperative with the rest of the world.
Energy shocks and war in the Middle East dealt a brutal blow to the global economy, driving inflation and unemployment up as Britain tipped into recession.
This toxic combination – stagflation – hit a country mired in political turmoil. Union strikes brought workplaces to a grinding halt. An irate public turned on an unusually fractious political system that delivered five governments and four prime ministers in ten years.
To date, the 2020s have closely tracked the 1970s. If Keir Starmer wins the next election, the parallels will be near-perfect though, hopefully, not too perfect. After all, 1973-74 has a credible case for being Britain’s worst two-year stretch in the last century: inflation reached 9pc, the country entered a two-year recession driven by fuel shortages, a three-day week was imposed.
And to top it all off, England failed to qualify for the world cup.
Perhaps it was this line of thinking that saw the markets react so jumpily to Wednesday’s inflation data. The FTSE 100 dropped almost 2pc on Wednesday after inflation rose month-on-month for the first time since February 2023, from 3.9pc to 4pc.
This might have struck some as an overreaction; the rise was driven in large part by an increase in tobacco duty, and core inflation stayed steady. But it reflects a growing unease that Britain’s economy is on a knife edge. The Bank of England appears to be in no hurry to cut rates down from 5.25pc, preferring instead to play it safe.
Inflation has proved troublingly persistent. It hasn’t helped that the economy has been battered by a series of shocks – lockdowns and a sharper rebound than anticipated, the Russian invasion of Ukraine and resulting rise in energy prices, the attacks on shipping in the Red Sea.
But Britain has also proven itself quite capable of triggering inflationary pressures on its own: Covid restrictions led to the Government borrowing roughly £400bn more than it collected in revenue.
What made 1973 so painful was the combination of policy failures and economic shocks. When oil prices soared, the government turned towards coal. In turn, unionised miners promptly started to badger for higher wages, hoping to stave off the effects of inflation. The predictable result was a series of strikes, and the eventual restriction of commercial energy supplies to three days per week.
These limits on energy rippled through the British economy, bringing activity to a grinding halt. Consumers found themselves effectively using their cash to bid for a smaller and smaller set of goods, driving prices up even as economic activity stagnated.
It’s not impossible to picture a comparable scenario unfolding in modern Britain. The mechanisms would be different; to begin with, despite all the drama and inconvenience strikes have generated over the last year, the unions are a greatly reduced force in British politics. In the 1970s, they could claim to represent roughly half of all workers. Today, the figure is around a fifth.
Instead, the most likely route to disaster is through government policy. Imagine, briefly, that supplies of foreign fossil fuels to Europe are disrupted again. Energy prices rise across the continent. Britain’s labour market appears to take this in stride.
Without union bargaining tactics keeping real wages high, inflation is allowed to eat away at wages, keeping people employed. The system is working as intended, until a spanner is thrown in the works by the new Labour government.
Faced with a choice between raising benefits in line with inflation, or in line with average wages, it chooses the former, bending or outright breaking its fiscal rules in the process. This doesn’t just drive consumer demand (and prices) upwards; it makes work relatively less appealing.
We’ve seen over the last two years that in this situation, some Britons will choose the path of least resistance, particularly with record tax burdens eating away at the incentive to work.
Things could be worse if Starmer persists in his plan to make the electricity grid zero-carbon by 2030. Britain has already come perilously close to blackouts, with the National Grid paying people to use less energy as supply is run ever tighter against demand.
Right now, Britain makes it through dark, windless days by turning to fossil fuel generators – mainly gas power plants. These could be manipulated into net-zero compliance through carbon capture and storage, but as intermittent renewables account for an ever larger share of generation and demand grows – particularly as gas heating is phased out for heat pumps – we may find we need more than the existing capacity to back up our grid.
It’s difficult to see Labour opting for the construction of new fossil fuel power plants. Nuclear projects, admirable as they are, have proven incredibly difficult to wrangle through Britain’s congested planning system. That leaves us with a creeping probability of blackouts, even without the added push of a sudden surge in global energy prices.
The final nail in the coffin would be a monetary policy blunder.
In the 1970s, both the government and Bank of England believed inflation could be managed without raising interest rates. The right way to combat it, so they thought, was with price controls, tax changes, and other fiscal measures. The result was that, by 1975, inflation was running at almost 23pc, a level unmatched in the preceding 700 years.
Despite Governor Andrew Bailey’s repeated pleas for workers to forego pay rises, the modern Bank of England understands perfectly well that controlling inflation is the responsibility of monetary policymakers. The problem is that they’re not very good at it; the Bank’s miserable record over the last two years should put to rest the idea that any surge in inflation would be swiftly tamed.
That leaves us needing a shock to set the crisis in motion.
Regrettably, there’s no shortage of possible flashpoints. Military action in the Middle East still holds the potential for a wider regional spillover. With 12pc of global trade making its way through the Suez Canal, and 20pc of global oil consumption through the Strait of Hormuz, any wider war could prove the catalyst for a deep contraction in supply, and a sudden surge in prices. The same goes for the possibility of a Chinese invasion of Taiwan, and the inevitable East-West decoupling that would follow.
And these are just the obvious problems; the thing about shocks is that they are, by their nature, hard to predict. Between the race to net zero, the failures of the Bank, and the dysfunction of the British state, we could be well on our way to a repeat of 1973.
2) Drax gets go-ahead for carbon capture project at estimated £40bn cost to bill-payers
The Guardian, 17 January 2024
Scheme to convert biomass units could become one of world’s most expensive energy projects, experts say
Drax has received permission from the government to fit carbon capture technology to its wood-burning power plant, in a project that could cost bill-payers more than £40bn.
The energy secretary, Claire Coutinho, on Tuesday approved the project to convert two of its biomass units to use the technology.
Analysts have predicted that the revamp of the North Yorkshire site could be one of the most expensive energy projects in the world.
The project could add about £1.7bn to energy bills every year if the company acts on plans to fit all four of its biomass units with carbon capture technology, or a total of more than £43bn, according to Ember, a climate thinktank.
In addition, the government is expected within days to extend a lucrative bill-payer-backed subsidy scheme that last year paid Drax more than £600m to burn trees for electricity until the end of the decade.
The decision is likely to anger environmentalists, who have campaigned against burning imported wood pellets and have opposed the multi-billion-pound subsidies paid to Drax over the past 12 years.
Full story
3) EV sales run out of juice in Europe as Germans tighten their belts
The Wall Street Journal, 18 January 2024
BERLIN—Germany’s new-car market went into a free fall in December, led by a near halving of new electric-vehicle sales, pulling the sale of new EVs in the broader European Union down for the first time since early 2020.
Automotive executives in Germany have been warning about an approaching cliff in EV sales for months, blaming the impending gloom on a combination of high manufacturing costs at home and a government decision to end incentives for consumers.
The European Automobile Manufacturers’ Association, known as ACEA, said Thursday that sales of new EVs collapsed in Germany last month, when fully electric-car sales plunged 48% and plug-in hybrid sales tumbled 74%. Overall, new-car sales in the country declined 23% in December, compared with growth rates of 14.5% and 11% in France and Spain respectively.
The ACEA data showed that most of Europe was either still growing or muddling through in December as German car sales ran off the road. New-car registrations in the region, a proxy for actual sales, fell 3.3% in December compared with a year ago. Registrations finished the month at about 867,000. Sales rose 14% to 10.5 million for the entire year.
Sales of fully electric cars fell 17% in December, but took a market share of 18.5%. In 2023, fully electric-car sales rose 37% to more than 1.5 million with 15% of the market share.
Analysts warned that the December sales period could mark a negative watershed moment for the industry, threatening to slow Europe’s adoption of electric vehicles, threatening to slow Europe’s adoption of electric vehicles when the EU is racing to ban the sale of new conventional cars that burn gas and diesel by 2035.
Full story
4) China's 2023 coal output hits record high
Reuters, 17 January 2024
BEIJING, Jan 17 (Reuters) - China's coal output reached a record high in 2023, data from the statistics bureau showed on Wednesday, amid an ongoing focus on energy security and a rise in demand after pandemic-related restrictions eased.
The world's biggest coal producer mined 4.66 billion metric tons of the fuel last year, up 2.9% from a year earlier, according to the National Bureau of Statistics.
For December, output reached 414.31 million tons, nearly flat with November's 414 million tons and up 1.9% from the year-earlier level.
Daily output over the month was 13.36 million tons, slipping from November's record high daily average of 13.8 million tons.
The country's overall power generation, which is dominated by coal-fired plants, rose 8% year-on-year in December.
Analysts are predicting another modest coal production increase in 2024. The rate of growth has slowed over the past year, following an energy security push that drove a ramp-up of output beginning in 2021.
Full story
5) John Kerry’s climate-change flop
The Wall Street Journal, 17 January 2024
Despite his pleas, China keeps building more coal power. Mr. Kerry’s problem has been a failure to recognize reality, which is typical of America’s climate lobby.
John Kerry has announced he’ll soon step down as President Biden’s climate envoy to join the 2024 re-election campaign, and maybe he’ll fare better in that job. If he doesn’t, Mr. Biden will be a one-termer.
For three years Mr. Kerry has been preoccupied with getting China to reduce its greenhouse gas emissions. But excluding emissions from land use and forestry, China’s emissions rose 13% between 2015 and 2023, according to Climate Action Tracker estimates. U.S. emissions fell by some 9% over the same period.
You can’t say Mr. Kerry hasn’t tried to persuade China, including the use of green flattery. “China has produced more renewable energy, more solar and wind than any other country,” he said last year.
But China’s CO2 emissions have still soared as demand for electricity surged. In 2022 China accounted for 53% of the world’s coal generation, the Ember think tank says, and new permits for coal power plants in 2022 reached “the highest level since 2015.” That’s the year Beijing signed the Paris climate accord Mr. Kerry negotiated, promising to reduce its emissions starting in 2030.
Global Energy Monitor tracks worldwide coal-fired power plants of 30 megawatts or more and reports that as of July 2023 China had 305 coal-fired power stations announced or in the works. Together they’ll be able to generate some 391.7 gigawatts—about 70% of the world’s total coal-fired capacity currently announced, planned, permitted or under construction.
Or take coal mining. Reuters reported Wednesday that China’s coal output reached a record high in 2023 as it mined some 4.66 billion metric tons. Global Energy Monitor says China had plans in 2022 for 217 coal mines with a capacity of at least 900,000 metric tons, which would represent nearly 57% of all new coal mine additions in the works globally.
“It is unrealistic to completely phase out fossil fuel energy,” Chinese climate envoy Xie Zhenhua said in September. That follows President Xi Jinping’s declaration in 2022 that China’s carbon goals “can’t be detached from reality,” according the state-run People’s Daily.
Mr. Kerry’s problem has been a failure to recognize reality, which is typical of America’s climate lobby.
6) China set to launch a price war on UK electric vehicle market
The Times, 18 January 2024
Chinese brands will launch a price war and will capture a sixth of the UK electric car market by 2030, according to Auto Trader.
With BYD, China’s largest electric car manufacturer, having overtaken Tesla as the world leader in zero-emission vehicles and with Shanghai Automotive’s MG brand already out-selling Volkswagen and BMW in the segment in Britain, a new order is coming, according to the online car-buying platform’s latest The Road to 2030 report.
It says that Chinese brands have the pricing power from their low-cost manufacturing bases to change the market amid the so-called ZEV mandate, the government’s new regulation now in force that requires all manufacturers to sell at least 22 per cent of their cars this year as zero-emission vehicles or face financial penalties.
The prediction is that Chinese brands will take 16 per cent of all UK electric car sales by 2030, by which time it is suggested that 80 per cent of all new car sales will be zero emission. That represents a significant potential shift in the market: at present, popular Japanese car brands, led by Toyota and Nissan, in total account for less than 16 per cent of the British market.
Auto Trader identifies pricing power as the key to growth. While Chinese electric cars have been priced at a premium in Britain, their manufacturers have the capability to mount a price war as competition heats up.
According to Auto Trader’s research, he price the BYD Dolphin model launched in Britain starts at £25,000. However, in China it is the equivalent of £13,000. The price gap is said to be even bigger for Great Wall Motor’s ORA 03, also known as the Funky Cat, which is marketed in the UK at £31,000, but is on sale in China at £12,000.
Full story
7) Electric cars suffer ‘unsustainable’ depreciation in secondhand market
The Daily Telegraph, 18 January 2024
Used EV prices drop 23pc in one year, according to Auto Trader
Electric cars lose as much as half of their value after just three years on the road, new figures show, as the rate of depreciation far outstrips conventional equivalents.
Research from Auto Trader said there were “unsustainable levels of depreciation” in the electric car market, with used prices of battery-powered vehicles dropping by 23pc in the last year alone.
The online vehicle marketplace said a motorist buying a £50,000 electric car could expect to lose £24,000 in value over three years, while a similarly priced petrol car could lose £17,000.
The value of used electric cars has dropped dramatically in the last 12 months after Covid-related supply shortages eased and as rising electricity prices hit demand.
This coincided with petrol prices falling to a two-year low.
Auto Trader’s latest report warned that “residual values of electric cars remain unsustainably low”.
It said that the price of used electric cars could come under further pressure this year as thousands of motorists return vehicles acquired on three-year leases and as manufacturers cut the price of new vehicles.
Full story
8) Richard Lindzen: What is climate?
Net Zero Watch, 18 January 2024
This is a guest post by Professor Richard Lindzen.
We are generally told that the following defines ‘climate’…
Actually, we are not looking at ‘average temperature’. Averaging Mt. Everest and the Dead Sea makes no sense. Instead, we average what is called the temperature anomaly. We average the deviations from a 30-year mean. The figure shows an increase of a bit more than 1°C over 175 years. We are told by international bureaucrats that when this reaches 1.5°C, we are doomed. In all fairness, even the science report of the UN’s IPCC (i.e. the WG1 report) and the US National Assessments never make this claim. The political claims are simply meant to frighten the public into compliance with absurd policies. It remains a puzzle to me why the public should be frightened of a warming that is smaller than the temperature change we normally experience between breakfast and lunch.
My puzzlement becomes clearer when one includes the data points in Figure 1, as shown in Figure 2. This was first noted by Stanley Grotch, and updated by John Christy and I).
Figure 2 Temperature anomalies at individual stations as well as the mean.
We see that the data points are spread pretty densely over a range of about 16°C – over an order of magnitude greater than the range of the mean. The change in Figure 1 looks big simply because the data points are left out and the scale is expanded by over an order of magnitude.
What exactly does this say about climate? In point of fact, the Earth has dozens of different climate regimes. This is shown in Figure 3 showing the Koppen climate classification for the period 1901-2010. Each of these represents different interactions with their environments. Are we really supposed to think that each of these regimes responds in lock-step with the global mean temperature anomaly? On the contrary, Figure 2 tells us that at any given time, there are almost as many stations cooling as are warming.
Figure 3 Koppen climate classification.
Of course, the notion that global average temperature anomaly constitutes ‘climate’ is attractive due to its simplicity.
Unfortunately, that doesn't mean that it is correct.
9) Allison Schrager: The Virtue Economy is over
Bloomberg, 16 January 2024
The virtue bubble has not peaked; it is starting to deflate.
For the last few years, the ESG movement has affected both how people invest and what they buy. Now the acronym (it stands for environmental, social and governance) is becoming a “dirty word.” Companies are scrubbing it from their websites, and CEOs are no longer mentioning it in their speeches. And if there is an acronym that that sparks even stronger feelings than ESG, it is DEI (which stands for diversity, equity and inclusion, and is part of the S and G in ESG). Depending on your view, DEI is either a cure for America’s structural racism or proof that the fight against it has gone too far. In either case, its power is also fading; firms facing narrowing profit margins are cutting jobs in DEI departments.
In many ways the economics of these acronyms never made much sense. The ESG investment thesis promised almost all upside and no downside — and once the costs became apparent, it became much less compelling. For evidence that DEI is a bubble, look no further than Bill Ackman’s attack of it: As my Bloomberg Opinion colleague Beth Kowitt notes, short sellers make their living by popping bubbles.
At the same time, almost every bubble starts as something worthwhile. If the question is how to preserve what was valuable about ESG and DEI in the first place, then the answer may lie in how these initiatives evolve over the next few years. Do they merely try to rebrand themselves? Or do their supporters take a hard look at their objectives and adjust?
What’s certain is that virtue has become a major industry in the last decade. Investments in sustainable assets grew from $22.8 trillion in 2016 to $35.3 trillion in 2020, but fell to $30.3 trillion in 2022.1 The DEI industry is worth as much at $9 billion.
But while the intentions of DEI and ESG are noble — a cleaner environment, schools and workplaces free from discrimination — the execution was problematic. Whether a company is complying with ESG standards, and thereby worthy of inclusion in a ESG investment fund, is more a value judgment than an objective assessment. Putting DEI into practice, meanwhile, led to situations like candidates for academic jobs being required to express support for ideas and strategies they might not agree with.
This doctrinaire approach alienated many people, and opposition arose in political and legal channels. Laws in some states now prohibit the use of DEI considerations in government jobs, for example, and some public pension plans are restricted from investing in ESG funds.
There is another reason the ESG and DEI bubbles are bursting: The economic case for them was never strong. Investors were promised ESG funds that would produce higher returns by avoiding certain investments, but they haven’t always outperformed the market.
Full post
10) You switched the lights on. Traders made billions of dollars
Bloomberg, 18 January 2024
A new breed of traders is upending Europe's energy markets. As governments spend billions on energy subsidies, there’s a real danger of privatizing the gains and socializing the losses
Before dawn on a recent autumn day, fog set in over large swaths of Eastern Europe. In any other financial market, the weather wouldn’t have mattered much. Perhaps a few delayed flights, maybe some traffic jams, most of little consequence. But in Europe’s electricity bazaar, bad weather equals money.
More than 1,000 kilometers away from the fog, a small group of largely anonymous trading firms based in Denmark was ready to pounce. As soon as the infrared picture from a Meteosat weather satellite arrived at their headquarters, computers automatically dissected it, feeding the data into complex trading algorithms.
With minimal human intervention, the machines bought millions of euros worth of electricity contracts. Their bet? Short-term power prices in Hungary would climb just after sunrise as the fog meant that solar electricity generation would be much lower than expected. It happened as they predicted. For a few minutes, until the fog lifted, electricity prices spiked, and the computers made money.
This scene — recounted to me by the those who oversaw the computers that morning — is emblematic of a new breed of traders who are upending Europe’s energy markets largely out of sight. They’re mixing computer wizardry and meteorological acumen with the upheaval of the green energy transition and the impact of Russia’s invasion of Ukraine. And they’re making bank.
“It’s ridiculous the amount of money they are making,” says Mogens P. Sorensen, a former power trader turned consultant. “There are billions being made trading electricity in Europe.”
Where state-owned utilities once dominated, today high-flying startups full of terribly smart PhDs and young engineers sporting hoodies are running things. Call it the “Silicon Valley” of European energy trading. Like its namesake in California, computers — automated trading desks, in industry parlance — rule. But in this case, the headquarters are two picturesque towns in northern rural Denmark, Aarhus and Aalborg, more than three hours by train from Copenhagen.
Only five years ago, the industry was small, with the top firms making combined net income of about $100 million per year, at best. Today, it’s a juggernaut — the same companies produced about $5 billion in combined profits in 2022, according to a Bloomberg Opinion review of their annual accounts.
Despite the riches, the traders aren’t household names. Outside the industry, few, if any, have heard much about firms like Danske Commodities A/S, Norlys Energy Trading A/S, MFT Energy A/S, Centrica Energy Trading A/S, InCommodities A/S and Nitor Energy A/S. Most of them are privately owned, controlled by a handful of their senior executives, who are worth, dozens, and in some cases, hundreds of millions of dollars. And yet, for Europeans, these are the companies helping to keep the lights on. They’re the ones smoothing out supply and demand on the grid by responding to oscillations in the weather, buying and selling power in advance, with consumers often paying the price.
This short-term electricity trading is a key part of Europe’s push toward renewable energy and fight against the climate crisis. But with governments spending billions on energy subsidies, essentially propping up demand and traders’ business, there’s a real danger of privatizing the gains and socializing the losses — though the industry denies this.
Despite their bewildering growth, the independent electricity trading firms have received very relatively attention from policymakers. Perhaps many saw them as a Danish issue, rather than a truly regional concern. But everyone in Europe should be attentive. The key will be to ensure the industry helps the development of renewable energy and the stabilizing of energy prices for families and businesses. Making a profit from trading is legitimate, but earnings mustn’t come at the expense of a functioning grid.
Full story
11) And finally: Net Zero jobs - Germany’s last solar panel producer prepares to close shop
EurActiv, 18 January 2024
Meyer Burger, the last producer of solar modules in Germany, has announced plans to close down and relocate to the US, fuelling political debates on whether the industry deserves long-term state support to ensure its survival.
Vice-Chancellor Robert Habeck’s plan to entice solar module manufacturers back onto German soil by offering generous state subsidies is faced with a dead-end.
Within the fractuous government coalition, the liberal FDP party is blocking plans to grant a “resilience bonus” to would-be manufacturers, amid a continued budget crisis caused by a ruling from Germany’s top court last month which blew a €60 billion hole in the country’s finances.
Now, the Swiss module producer Meyer Burger is threatening to relocate to the US entirely, putting 500 jobs at risk.
Following losses of about €133 million in 2023, “the company is preparing to close down module production in Germany”, Meyer Burger said in a statement on Wednesday (17 January).
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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