The week of February 19, 2024: The growing net zero mess, AI, antitrust, the debt, and much, much more.
The week of February 19, 2024: The growing net zero mess, AI, antitrust, the debt, and much, much more.
The worries about what trying to reach the goal of hitting net zero greenhouse gas (GHG) emissions by 2050 will entail are not going away. As I mentioned in last week’s Capital Letter:
For as long as 2050 was a long way away, net zero sounded (to many) like a well-intentioned goal worth aiming for. But as 2050 draws closer, the net zero ratchet is turning more rapidly, and people are beginning to notice, as the ratchet squeezes them.
So far, most of the pushback has been coming from Europe’s farmers, but, as the ranks of the squeezed are increased, it won’t stop there.
For example, there’s the steel industry in the U.K.
The Daily Telegraph (February 26, 2022):
Crippling climate change levies are forcing Britain’s steelmakers to cut production after a doubling in the cost of carbon emissions in just nine months.
Record carbon prices are making it “all but impossible to increase production competitively” once emissions permits have been used as steelmakers struggle to take on producers in less climate-friendly countries, according to UK Steel.
The industry group estimates that costs are increased by £175 for every additional tonne of steel produced above their free emissions permits, equivalent to around 30pc of current steel prices globally.
Liam Halligan in the Daily Telegraph (January 28, 2024) (emphasis added):
Earlier this month, Tata Group rejected union proposals to safeguard thousands of jobs at its Port Talbot plant – the UK’s biggest steel works.
The Indian conglomerate is proceeding with plans, backed by £500m of UK taxpayers’ money, to replace two of Britain’s four remaining traditional blast furnaces with greener, less-labour intensive electric arc furnaces (EAFs). The other two UK blast furnaces, at British Steel’s plant in Scunthorpe – owned by China’s Jingye Group – are also closing.
Port Talbot has been a steel town since the turn of the last century when the UK dominated global production. The loss of 2,500 of the 4,000 jobs at the plant has hit the locality hard as I discovered on a visit to this proud south Wales town the day the news was confirmed.
Tata says because blast furnaces use emission-heavy coking coal, shifting to EAFs will help the UK reach its “net zero” targets. Union leaders call this a “green smokescreen” to cut jobs, arguing – with some justification – Tata’s plans will be worse for the environment.
Britain produced just 5.6 million tonnes of steel last year but used 8.9 million – the rest was imported. Reliance on overseas producers is now set to rise. China made over a million tonnes of steel last year, over half of global production. Add in India and Japan and Asia’s share of global steelmaking rises to two-thirds.
Another net zero gift to China, it seems, to add to all the others, from solar panels to electric vehicles.
Halligan:
So Britain will end up shipping yet more steel, much of it made in blast furnaces elsewhere, halfway across the world in diesel-powered freight ships – hardly an environmental improvement.
Tata has also been accused of “gross hypocrisy” for citing “net zero” in south Wales, while preparing to open a new coke-burning blast furnace at its Kalinganagar industrial complex in eastern India…
While the sector now supports just 29,000 jobs directly, the median salary is £39,637, up to 60pc above regional averages across Wales, Yorkshire & Humberside, the West Midlands and the North East, where jobs are concentrated. So steelmaking provides well-paid jobs in parts of the country that need them most…
In Port Talbot, when I mentioned the claim ministers make that blast furnace closures would reduce UK carbon emissions by 1.5pc, the responses were often unprintable.
Sooner or later, the “race” to net zero is going to trigger major political trouble.
Halligan returns to the topic of Britain’s high cost of electricity:
Ministers often boast that renewables now generate around 40pc of the UK’s electricity – among the highest shares in the Western world. But that heavy reliance incurs massive costs, given the need to cope with the inherent intermittency of renewable power.
Tackling this conundrum means building more nuclear capacity to provide “baseload” reliable energy, while developing technologies that allow renewable energy to be stored.
Building nuclear capacity takes time. Developing technologies that don’t yet exist takes, well, who knows? But net-zero enthusiasts such as former British prime ministers Theresa May and Boris Johnson didn’t bother to take such considerations into account. That was hardly a surprise. Central planners — and that’s what these “Conservatives” were — tend to find it hard to think things through. The result was that the U.K. has poured a fortune into wind power without putting in place a reliable system to back it up. Instead, Johnson chose bluster and boasting, talking of a green industrial revolution, and transforming the U.K. into “the Saudi Arabia of wind.” He appears not have noticed that Saudi Arabia exports most of its oil. The idea that the U.K. will become a supplier of wind energy to the world was always ludicrous, its absurdity made more evident still by the difficulties that have plagued Britain’s efforts to power itself with wind. There’s a lesson to be learned there, but not one that the Biden administration appears to have noticed.
Halligan:
Achieving “net zero” should be all about designing and implementing policies that spark the steady development and adoption of low-carbon technologies that work. Instead, we are rushing to close down industrial processes, with all the resulting social fall-out, in a way that won’t cut emissions anyway.
Central planning is what it is.
In another article for the Daily Telegraph, Halligan writes about the deindustrialization that the race to net zero is already starting to bring in its wake. He has plenty to say about the threat to the European auto sector (from Chinese imports) posed by the attempt to impose EVs on car buyers in the name of net zero, but deindustrialization will not stop there.
Halligan:
Instead of sparking a manufacturing renaissance in Europe, the pursuit of net zero is leading instead to imminent deindustrialisation. It might be starting with the mighty automotive industry, in which the Continent once led the world, but it is being repeated again and again elsewhere.
Indeed only this week a group of major European industries launched the “Antwerp declaration”, calling on the EU to relax regulations, lower energy costs and increase investment, while it still has some industry left.
Signed by 73 major companies, from 17 sectors including chemicals, pharmaceuticals and engineering, it argued that “sites are being closed, production halted, people let go…Europe needs a business case urgently.”
Here’s the problem, however. All the major European governments, including the UK of course, are still fanatically committed to net zero, and that stops them from responding properly.
The signatories of the Antwerp declaration clearly recognized the reality of deindustrialization and the risk of more to come (how could they not?). Bloomberg’s John Ainger and Ewa Krukowska put it this way:
[H]igh energy costs and US and Chinese subsidies have raised fears over the future of European heavy industry. That’s being particularly felt in Germany, the continent’s economic powerhouse, amid warnings that its days as an industrial superpower are coming to an end. The EU as a whole is in an extended period of near-stagnation.
But the Antwerp group backed off from a direct opposition to net zero. One of its members, Jim Ratcliffe, the billionaire founder, chairman and CEO of the INEOS chemicals group, told Bloomberg that “Europe is right with its zero-carbon goals — no one is challenging that.” But he also maintained that “the answer isn’t decarbonizing by de-industrializing.” If that’s so, what is the answer?
It appears that the Antwerp group wants to work toward net zero, but with the support of a subsidy regime resembling that now on offer in the U.S. That might work as an exercise in damage mitigation but is far from being a recipe for long-term economic growth, as the U.S. will discover soon enough. Put another way, the Antwerp group wanted a crutch, not a cure. As was explained in a Bloomberg report,they were looking for the EU “to make energy cheaper, cut red tape and boost clean tech funding.” They warned that “Europe risks losing out to China and the US in the race to supply the technologies needed to roll out renewables and slash industrial emissions.”
Some of the items on the group’s wish list, such as cutting red tape, are reasonable enough, but unless its leaders are being deliberately ambiguous (which is quite possible), others come with problems. Cheaper energy will be hard to secure so long as Europe continues to move ahead with vast investments in renewables (particularly wind power), at their current stage of development, as these need to be supported by a cost structure which will keep energy prices high. The only outstanding question will be who pays the bills: industry, the private consumer, or the taxpayer.
What this group should be looking for instead is a sharp reduction in subsidized spending on the installation of renewables, and a sharp increase in spending on research intended to make them work more effectively or, for that matter, on other alternative energy technologies. A good portion of the money saved could be used to boost spending on the construction of nuclear power stations, (the group endorses nuclear power), preferably as a primary source of energy on the French model, or, failing that, as a source of the baseload power essential if renewables are to be taking a leading role.
And the group should insist that any energy transition be arranged in a logical fashion. Europe (and the U.S.) currently risk moving toward grids that are dangerously unstable. If there is to be increased reliance on renewables, this transition needs to be carried out at a pace (there should be no “race”) which allows the necessary back-ups to be put in place first: B should follow A.
Above all, the Antwerp group should have insisted on the primacy of growth. The best weapon that humanity has against whatever the climate may throw against us is wealth. Economic growth will generate the prosperity that we may need to enable us to cope with a less congenial climate, rising ocean levels, and all the rest. Building better sea defenses for low-lying coastal cities is one example that comes to mind. And economic growth will generate the wealth to fund the research needed to come up with cleaner and more efficient energy systems. To the extent that growth continues to be held back by the pursuit of a target (net zero greenhouse gas emissions by 2050) that is almost certainly already out of reach, the “race” to net zero is, for the most part, self-defeating.
Europe’s industrialists can ask for whatever they want, but will Brussels listen? Undaunted by the problems that the race to net zero has either encountered or caused, the EU Commission is now promoting a new interim plan to cut 90 percent of emissions by 2040. Current estimates are that this might cost $1.6 trillion a year between 2031 and 2040. As the writer of a Bloomberg report put it, “it’s not fully clear where all that money will come from.”
The plan recommended by the European Commission would put the world’s largest trading bloc at the forefront of global climate efforts and require a significant overhaul of its economy and trade. Yet it’s likely to face intense debate among member states and the broader public — particularly as the region is lagging on its existing goals.
The Commission is the EU’s executive/bureaucratic arm. This means that its 2040 plan will have to be approved by the EU parliament and (effectively) the leaders of the EU’s member states. Prior to that, the plan will have to be fleshed out by the new Commission appointed after EU parliamentary elections in June. The non-establishment Right seems set (at the moment) to do well in these elections, and it’s none too fond (to put it mildly) for the Commission’s net zero policies. That said, while the results of the election may well change the balance of the parties within the parliament, that change will only go so far. Most MEPs will still be likely to go along (more or less) with the Commission’s plans. The key question will be how less is less. If the center-right European People’s Party (EPP), the largest singlegrouping in the parliament, feels sufficiently threatened by ascendant parties to its right, it may well call for watering down of the Commission’s plans. It has already shown some unease about the scope of the Commission’s existing climate policy.
Subject to ratification by the EU parliament, the men and women who will make up the next (2024-2029) Commission will be appointed by the EU Council (a body made up of the leaders of the EU’s member states). How those leaders will react to a surge by the non-establishment right is anyone’s guess, but, if enough of those them sense that the race to net zero is running into political trouble, the result may be some (probably modest) de-greening of the Commission.
The person who decides which commissioner is given which job is the Commission’s president, a position currently held by Ursula von der Leyen. The president is nominated by the EU Council, but that choice must “take account” (it’s complicated) of the EU parliamentary elections, and ultimately has to be approved by the EU parliament. Von der Leyen (who is a member of Germany’s center-right CDU) has been put forward by the EPP, and barring an upset, is most likely to win another term. If the election results do show a surge by the non-establishment right, that may take the support of the Greens. However, as Ralph Schoellhammer observed in Unherd, that is unlikely to be a problem, given the importance von der Leyen has attached to climate policy.
As he notes, von der Leyen even spoke at a “degrowth” conference (lightly camouflaged as a “Beyond Growth” conference) held at the EU parliament last year. While she did not endorse degrowth (a concept interpreted in different ways, but which have in common the notion that GDP growth should be deprioritized), von der Leyen’s speech gives a clear sense of the direction in which she wants the EU to keep going:
I today want to concentrate on one point, and that is a point that the report [The Club of Rome’s notorious Limits to Growth] got right beyond any doubt: That is the clear message that a growth model centred on fossil fuels is simply obsolete. This assessment has been confirmed, time and again. The recent IPCC report is just the latest reminder that we need to decarbonise our economies as quickly as possible…
We know that our children’s future depends not only on GDP indicators but on the foundations of the world we build for them. It was Robert Kennedy back in the 1960s who famously said that GDP ‘measures everything, except that which makes life worthwhile: the health of our children, or the joy of their play’. And I am sure had he given his speech today, Kennedy would have included the sound of birdsong and the joy of breathing clean air.
Birdsong!
All in all, despite some tactical retreats, most recently the shape of concessions to the EU’s mutinous farmers, it seems unlikely that Brussels will be abandoning net zero any time soon. If there is to be change, it will have to come from politicians in the EU member states, the U.K. and elsewhere, and that will take much more pressure from voters than we have seen to date (or are likely to see in the EU parliamentary elections). And that, in turn, may take yet more evidence of the economic destruction that the race to net zero is leaving in its wake. If I had to guess, the auto sector may be the breaking point, but there are (and there will be) plenty of others to choose from.
A sometimes overlooked reason that economies will be hit by net zero is its impact on productivity, one aspect of which Rupert Darwall included in a recent article for the Spectator. Darwall was writing about the U.K., but the wider implications are obvious enough:
However, the Treasury’s most egregious misstep concerns its analysis of the implications of Net Zero for productivity growth. Although it acknowledges that extent to which additional investment will translate into additional GDP is ‘uncertain’, it argues that Net Zero offers the opportunity for innovation, as if there is no opportunity cost to innovation. ‘All other things being equal’, the Treasury says, ‘additional investment will translate into additional GDP growth’. Other things aren’t equal, as Net Zero policies are forcing investment into less productive means of generating electricity…
Publicly available data, which the Treasury didn’t bother analysing, shows that between 2009 and 2020 there was a 28.3 per cent decline in output per unit of generating capacity. In 2009, one megawatt (MW) of generating capacity produced 4,312 MWh of electricity. In 2020, 1MW of capacity generated 3,094 MWh of electricity. Producing less with more is the fundamental fact of the energy transition…
That doesn’t seem good.
But at least this will be worth it, right?
Bjorn Lomborg in the Wall Street Journal (November 29, 2023):
While media coverage tends to hype the benefits of climate policy, it plays down the costs, which Mr. Tol’s analysis shows are substantial. Based on the latest cost estimates of emission reductions from the United Nations climate panel, he finds that fully delivering on the 1.5-degree Paris promise will cost 4.5% of global GDP each year by midcentury and 5.5% by 2100. This means that likely climate policy costs will be much higher than the likely benefits for every year throughout this century and into the next. Under any realistic assumptions, the Paris agreement fails a basic cost-benefit test…
This is borne out in the second Climate Change Economics study. The peer-reviewed paper from MIT economists identifies the cost of holding the temperature’s rise below 1.5 degrees as well as that of achieving net zero globally by 2050. The researchers find that these Paris policies would cost 8% to 18% of annual GDP by 2050 and 11% to 13% annually by 2100.
Climate economic models all show that moderate policies make sense—initial carbon cuts are cheap and prevent the most damaging temperature rise—but net zero doesn’t. Averaged across the century, delivering the Paris climate promises would create benefits worth $4.5 trillion (in 2023 dollars) annually. That’s dramatically smaller than the $27 trillion annual cost that Paris promises would incur, as derived from averaging the three cost estimates from the two Climate Change Economics papers through 2100..
Oh.
The Forgotten Book
Capital Matters has a fortnightly feature, The Forgotten Book, which is written by our new National Review Institute fellow, the writer and historian, Amity Shlaes. We live in an age of short attention spans, and one of Amity’s objectives is to introduce readers to books or other primary sources that warrant a second look.
With her Capital Matters column, Amity will dedicate herself to sharing with Capital Matters readers older, forgotten books, along with new books that aren’t getting the attention they perhaps warrant.
Her latest column can be found here , and discusses the historical fiction of Ruta Sepetys.
Here’s an extract:
What schools don’t teach keeps adults up at night. Those exceptional schools that do deliver traditional history — home schools, parochial schools, charters — still number too few to provide consolation.
Historical fiction can make up for what schools fail to deliver. But over recent decades the Young Adult market has favored fantasy over fact. A kind of miracle therefore has been the breakthrough of Ruta Sepetys…
The Capital Record
We released the latest of our series of podcasts, the Capital Record. Follow the link to see how to subscribe (it’s free!). The Capital Record, which appears weekly, is designed to make use of another medium to deliver Capital Matters’ defense of free markets. Financier and National Review Institute trustee, David L. Bahnsen hosts discussions on economics and finance in this National Review Capital Matters podcast, sponsored by the National Review Institute. Episodes feature interviews with the nation’s top business leaders, entrepreneurs, investment professionals, and financial commentators.
In the 158th episode, David is joined this week by Anthony Scaramucci. They discuss what is needed to protect the free society we aspire to have. What are the dangers being posed by the left and the right? Do we need Teddy Roosevelt to come back? David and Anthony walk through the circumstances that plague our desire for greater opportunity and prosperity and bat around a few ideas and solutions. A truly fascinating conversation between two good friends.
The Capital Matters week that was . . .
Energy
The Biden administration recently announced a pause in approvals for new liquified-natural-gas exports (LNG). Raising the bar for approving 16 pending gas-export projects to include a complete life-cycle environmental assessment could ironically derail President Biden’s own energy and environmental agenda with grave domestic and international ramifications….
Transportation
Yesterday, NR reported on an effort by some truck drivers to stop making deliveries in New York City to protest a judge’s ruling against Donald Trump. Here’s the substance of the protest…
Childcare
The Trudeau government’s multibillion-dollar takeover of Canada’s child-care sector continues to be a horrendous failure.
Tax
John Hendrickson & Jonathan Williams:
In 2022, Iowa confirmed its position as a leader in the state flat-tax revolution by phasing out the nine-bracket progressive income tax and replacing it with what will ultimately be a 3.9 percent flat tax in 2026. As a result of conservative budgeting and pro-growth tax reforms, Iowa’s fiscal foundation is strong. This provides a historic opportunity for Iowa to make the tax code more competitive and enact permanent tax relief. Iowa’s governor, Kim Reynolds, and the Iowa house and senate have each proposed significant tax-reform measures that would put Iowa on the map as a leader in economic competitiveness for years to come…
AI
When a new technology comes along, government has to catch up with what researchers and businesses are already doing. The ongoing AI boom is the latest example of this phenomenon. Legislatures at the national and state levels are debating various pieces of legislation about how AI may be used. And the courts are figuring out how AI fits into the U.S. legal framework…
Well, it seems that Google’s Gemini AI tool went and said (or “drew”) the quiet part aloud…
Ridicule — fullhearted, fullmouthed derision — can be one of life’s most pleasurable pastimes: Google shouldn’t take it too personally. While every industry and brand seems to be converging towards entertainment, the tech mammoth commanded social-media attention across the English-speaking world for a long day and a night. This accomplishment is not to be sneezed at. When its new AI chatbot, Gemini, becomes available in other languages, the globe’s the limit. Twenty twenty-four’s the year…
Net Zero
It’s good to see attention being drawn to the irresponsibility of the politicians in Britain (above all then–prime minister Theresa May) who committed the U.K. to net zero (greenhouse gases) by 2050. It should be stressed that they did so with broad cross-party enthusiasm. There was little thought, and almost no debate, just self-congratulation. And, as Blanchard stresses, the public was given no clue as to what net zero would cost. When voters discover the truth, their enthusiasm for the current trajectory of net-zero policies is likely to fade very rapidly. This will likely mean major political trouble to come…
Regulation
One of the most frustrating aspects of the attitude of people who see more government as the solution to every problem we have today (whether it be the high cost of raising children, protecting the semiconductor supply chain, or workers’ attachment to the workforce) is that they aren’t willing to do the hard work of cleaning up the mess the government made in the first place before calling for more government actions…
Pharmaceuticals
The FDA recently allowed drugs to be imported into the United States from Canada — a move intended to give American patients access to cheaper medicines. But the price impact in the U.S. will be minimal, while the long-term negative consequences will be severe.
William Smith & Robert Popovian:
The pharmacy benefit management (PBM) industry has begun placing advertisements to convince conservatives that its business practices are fiscally conservative and promote budgetary discipline in D.C. But don’t be fooled….
Antitrust
The legendary coach John Heisman began each season by holding up a football and asking: “What is this? It is a prolate spheroid, an elongated sphere in which the outer leather casing is drawn tightly over a somewhat smaller rubber tubing. Better to have died as a small boy than to fumble this football.”
The U.S. Supreme Court took the same tone in its 2021 unanimous spanking, I mean opinion, concerning the National Collegiate Athletic Association (NCAA) in NCAA v. Alston. The Court noted that the Sherman Antitrust Act unequivocally outlaws “the restraint of trade.” But the NCAA had long acted as if it had a better standard than the plain meaning of a foundational federal law…
Subsidies
It’s an ironclad rule of politics that one can find an economic-impact study supporting any government program, no matter how misguided the program is. That’s especially true when the program in question is supported by powerful interest groups and politicians.
The Affordable Connectivity Program (ACP) is no exception…
The Debt
The most likely outcome at this point, if the commission is actually enacted, is that it makes many sensible recommendations, a few less sensible ones, and is generally ignored by Congress, at least at first. But it would be good to demonstrate that there’s some work being done on getting the debt under control. And if (when) a debt crisis does arise in the future, it would be good to have some ideas on the shelf from a commission that both parties signed up for to help solve the problem…
Electric Vehicles
There are two main things to notice about Källenius’s comments.
The first is concerns pricing. If what Källenius is saying holds true for other European carmakers, that means (as Europe moves toward banning sales of new gas cars by 2035) that greenflation (in this case, relating to the price of cars) is going, as promised, to be with us for some time. Alternatively, either (cheap) Chinese EVs are going to have to fill the gap or European car buyers will buy (new or used) traditional cars for as long as they can (although that will push up their prices, too). And if Chinese EVs do fill that gap, that will mean disaster for the European auto sector, with economic and, ultimately, political consequences that will not be pretty…
Labor
There is simply no amount of money that will ever satisfy teachers’ unions. They are monopolistic organizations that represent workers in a monopolistic industry that can’t go out of business. They can ask for whatever they want, and they always want more. The only real constraint is whether the politicians who control the purse strings will accede to their demands, which is why they spend millions of dollars and mobilize thousands of volunteers every election cycle to get sympathetic politicians elected.
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