“Woke” Capitalists High on ESG

Rupert Darwall writes at The Hill BlackRock’s choice: Investment fiduciary or political activist? Excerpts in italics with my bolds.

Something more disruptive and longer lasting than COVID-19 is at work in BlackRock’s New York offices — and its implications may well extend beyond one financial firm and its shareholders.

Astonishingly, BlackRock now threatens to vote against directors who don’t incorporate its views on environmental and social issues, the “E” and the “S” in ESG social-investing criteria. (The “G” stands for “governance.”) BlackRock says it will take a “harsh view” of companies that fail to provide it with the hard data it demands, even though Fink himself tells corporate CEOs that such reporting requires “significant time, analysis and effort.” And it proposes to make good on its threat by aligning its proxy vote with single-issue activist campaigners when it judges a company is not effectively dealing with an issue it deems “material” or might not be dealing with ESG issues “appropriately.”

Unsurprisingly, BlackRock camouflages this shift with language about its fiduciary duty to its customers — American savers and investors. “BlackRock’s primary concern is the best long-term economic interest of shareholders,” its investment stewardship guidelines state. “We do not see it as our role to make social, ethical, or political judgments on behalf of clients.”

It’s hard keeping up the pretense, though — and sometimes the mask slips. The goal cannot be transparency for transparency’s sake, Fink says: “Disclosure should be a means to achieving a more sustainable and inclusive capitalism.” Companies must commit to serving all their stakeholders and embrace purpose, as distinct from profit. This goal is nothing if not controversial. It also is inherently political.

In their critique of the Business Roundtable’s recent adoption of such stakeholder capitalism, former Secretary of State George Shultz and his coauthors suggest that the demotion of profit and shareholder accountability should be seen as a response to a resurgence of a socialist impulse in American politics; it will result in decisions that sacrifice shareholder value and is a formula for endless legal wrangling and litigation. In a March 2020 working paper, “The Illusory Promise of Stakeholder Governance,” Harvard Law School’s Lucian Bebchuk and Roberto Tallarita conclude that the stakeholderism advocated by the Business Roundtable and BlackRock should be viewed “largely as a PR move.”  Yet, what may have started out as a sham, pain-free PR exercise to signal E&S virtue has morphed into something of a monster, with real-world consequences for BlackRock, the companies it invests in, its customers and for society in general.

This raises the question of the demarcation between the rightful domains of democratic politics and business.

BlackRock’s contention that its stewardship engagement is not about making political judgments on behalf of its clients falls apart when it comes to climate, reflecting its capitulation to shareholder activists. At a minimum, BlackRock is imposing its political judgment on companies about climate regulation that future presidents and future Congresses might or might not enact. Given the tortured political and judicial history of attempted climate legislation and regulation in the U.S., this is an unusually difficult call to make.

In fact, BlackRock goes much further. In January, BlackRock joined Climate Action 100+ (the clue’s in the name) to press companies to “take necessary action on climate change,” a formulation that dispenses with any pretense that BlackRock is doing anything but acting as a political activist with a $3 trillion equity portfolio.

Thus, BlackRock and its shareholder activists are using corporate governance statutes to usurp regulatory functions that properly belong to government. Whatever BlackRock’s motives in allowing itself to be strong-armed by shareholder activists – expediency, political benefit or poor judgment – the outcome is that BlackRock is subordinating its core responsibility as an investor fiduciary to political activism.

This incurs a double democratic deficit: The first is not formally soliciting its clients’ permission to use their money to advance BlackRock’s new political agenda; the second is bypassing the democratic process of electing officials to political positions to pass laws and appoint regulators. Whatever one’s views on climate change and ESG in general, the means used by shareholder activists and BlackRock’s capitulation to them amount to an abuse of corporate governance structures put in place to protect shareholders and not intended to be a channel for political campaigning by other means.

Addendum from the Financial Times

Excluding oil from the definition of fossil fuels is everything but straightforward,’ says MEP Paul Tang © Essam Al-Sudani/Reuters

Investors blast EU’s omission of oil from ESG disclosures

Under draft proposals for the EU’s sustainable disclosure regime, the European authorities responsible for banking, insurance and securities markets define fossil fuels as only applying to “solid” energy sources such as coal and lignite.

This means asset managers and other financial groups would have to follow tougher disclosure requirements for holdings in coal producers than for oil and gas company exposure.

The huge rise in popularity of ESG investing over the past decade has prompted regulators to take measures to confront the risk of greenwashing.

The latest EU proposals represent a significant watering down of its ambitious sustainable disclosure rules, which aim to give end investors clear information on the environmental, social and governance risks of their funds.

But critics also argue they risk undermining the EU’s commitment to becoming a world leader in sustainable finance, a key priority for the bloc as it seeks to tie the coronavirus recovery to creating a greener economy.

See also Financiers Failed Us: Focused on Fake Crisis

 

Coal Needed to Power Recovery

By Conor Bernstein explains at Real Clear Energy  For Energy, Affordability, Reliability, and Balance Matter More Now Than Ever.  Excerpts in italics with my bolds.

While we are still in the throes of the crisis, it’s essential we already plan for the recovery. Affordable, secure and reliable power will be all the more important as the nation tries to get back on its feet.

But, if we aren’t careful, near-term market conditions could accelerate retirements of additional well-operating coal plants, further eroding the balanced electricity mix that has long ensured affordable, reliable power in markets across the country.

Even before the onset of the COVID-19 crisis, cracks were emerging in regional grids where fuel security and balance have been traded for increased reliance on just-in-time fuel delivery. Shrinking reserve margins, flirtations with rolling blackouts and spiking wholesale electricity prices are becoming far too common for comfort.

Michigan offers the latest evidence of the challenges emerging from the pivot away from coal. Just a week ago, the region’s grid operator, MISO, reported that capacity prices for the Lower Peninsula maxed out in their annual capacity auction. With a shrinking reserve margin, clearing prices for the capacity auction jumped 10 times what they had been a year ago.

This comes as Michigan utilities have closed more than a dozen coal plants since 2016 and have more retirements scheduled.

Wholesale electricity prices are going up just when consumers and industry need support for economic recovery. The timing couldn’t be worse. Michigan is turning to costly energy imports to ensure reliability. The takeaway should be clear: the shift away from coal – often driven by state policy – is coming with real costs.

As policymakers, regulators and utilities grapple with the ramifications of the pandemic, pumping the brakes on further plant retirements is a logical step to hedge against uncertainty and to ensure our balanced, affordable and reliable electricity mix doesn’t become another victim of this unprecedented moment.

Indiana, even before the crisis, had already moved to require additional review of proposed retirements to ensure utilities weren’t passing unnecessary costs onto consumers while weakening the reliability of the grid. A thoughtful, do-no-harm approach to the electricity sector is exactly what’s needed across the country as we confront the uncertainty of the months ahead.

The past several years have seen a shift away from what we know works – balance, certainty, fuel security – to increased reliance on thinner margins, weather-dependent resources and the inherent vulnerability of just-in-time fuel delivery. With global supply chains turned upside down, with chaos wreaking havoc across the oil and gas sector, and the economy shaken to the core, the era of flying by the seat of our pants into the unknown and of utilities filing a record number of rate cases needs to end.

Time and again, grid operators overestimate capacity additions while underestimating retirements. That kind of miscalculation, in a perilous moment like this, could prove disastrous. Now, more than ever, we need smart policymaking that puts reliability, resilience and affordability first. Ensuring we maintain essential coal generating capacity and properly value the security and balance it brings to the grid must be a priority.

See Also New York Nukes Itself

Surprise! Carbon Fuels are Plentiful, not Scarce.

Brentan Alexander writes at Forbes $40 Oil Will Return: This Isn’t The End Of Fossil Fuels. Excerpts in italics with my bolds and images.

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Yesterday, May futures for WTI crude, a benchmark often used for U.S.-sourced oil, crashed into negative territory for the first time ever. It was the last day to trade a May contract, and with storage space filling up as oil demand craters, contract holders with nowhere to put the oil they were obligated to physically accept were forced to pay to have somebody take contracts off their hands. This moment represents a stunning new chapter in the ongoing oil crisis that has seen record drops for oil consumption and prices globally. Spot prices in May will remain depressed, and the June market is likely to be painful as well. It may seem like the days of $40 oil are behind us, and that we’re witnessing the beginning of the end for oil as the lifeblood of the global economy. We aren’t:

Oil will one day return to $40 a barrel, but the last few weeks have demonstrated in hyperdrive how the oil endgame will play out.

It seems that oil isn’t the precious commodity it has been made out to be. Much ink has been spilled on the concept of peak oil, wherein dwindling reserves of oil cause rising prices as the marketplace becomes more and more supply-constrained. In the endgame scenario, supply shocks send prices soaring to levels that force global economies to find alternative fuels, renewable energy, or otherwise. A key issue with the peak oil theory is that ‘reserves’ are only counted if they’re known to exist and can be extracted with current technology.

As prices soared to upwards of $100 a barrel around 2008, many wondered if the high prices were here to stay, and if peak oil was coming to pass. Instead, high prices were just the motivation needed to unlock a bit of American ingenuity. Within 10 years, new technology unlocked vast fields of oil and gas throughout Texas, Pennsylvania, and the Dakotas. The ‘reserves’ in the United States multiplied, oil prices dropped, and the United States regained its status as the world’s leading producer of oil.

Peak oil, it turns out, is a story of peak demand.

As some economies of the world begin to face the realities of climate change, new renewable and net-zero (or negative!) technologies have emerged and will emerge to supplant fossil oil. At first, these technologies require higher fossil prices, government programs, or both, to compete in the market. But as they mature and grow, prices come down. Demand for fossil will drop accordingly. And at some point, so little demand will exist for crude oil that producers will have to pay somebody to take if off their hands or stop producing it altogether.

This market conversion has already begun. Tesla has proven electric vehicles can out-perform and out-sexy the incumbents. Biorefineries are being built to turn household trash in to jet fuel. Governments are taking action to incentivize cleaner fuels. Nevertheless, action thus far has been spotty at best and despite the current market, peak oil demand has not yet come to pass.

The unprecedented demand destruction caused by COVID-19 will eventually subside as the threat of the pandemic wanes. The public will fly again, drive again, and buy plastic again; oil demand will ratchet up again. Shuttered wells won’t restart, stored oil will be drawn down, OPEC will maintain supply controls to balance government budgets, and prices will rise to $40 or more again. But someday, hopefully in the not too distant future, oil will again find itself in decline when a different (and more permanent) source of demand destruction weans the global economy off of fossil carbon for good.

Comment:

This article makes a distinction between short and long term energy supply and demand.  Thus the price drop yesterday signifies a present glut of carbon fuels.  Climate activists can not count on the supply of fossil fuels falling as long as they are plentiful and inexpensive.  For example, others note coal reserves exceed 100 years at current rates of consumption, and will remain attractive for electrical power production.  In the absence of economical substitute energy sources, modern societies for years to come will depend on companies providing carbon-based fuels.

As Bjorn Lomborg has long maintained, this is the time to invest in advanced energy technologies, including nuclear, to engineer price-competitive energy alternatives and achieve an orderly transition for future generations.  It is not a time for short-term bad bets on immature wind and solar tech that do not scale to societies’ need for reliable affordable energy.

BTW, Bill Gates also shares and funds this perspective:

Financiers Failed Us: Focused on Fake Crisis

Terence Corcoran writes at Financial Post Why all the macroprudes failed on COVID-19. Excerpts in italics with my bolds

Global policy-makers shoved pandemic risk aside and spread climate alarm instead

One of the noble houses of global macroprudentialism, the International Monetary Fund, declared Tuesday that “The Great Lockdown” will plunge the global economy into the “worst recession since the Great Depression, surpassing that seen during the global financial crisis a decade ago.” Along with the rest of the world’s economic overseers and protectors of financial stability, the IMF seems to have been unprepared for — and overwhelmed by — the arrival of COVID-19.

That the IMF was blindsided is clear in the opening words of Tuesday’s World Economic Outlook. “The world has changed dramatically in the three months since our last World Economic Outlook update on the global economy. A pandemic scenario had been raised as a possibility in previous economic policy discussions, but none of us had a meaningful sense of what it would look like on the ground and what it would mean for the economy.”

That’s some statement: “None of us” had a sense of what such a pandemic might impose on the world economy.

It’s not clear who is included in the collective “us,” but it seems fair to assume the IMF is referring to the host of other members of the global fraternity of institutions that have assumed the role of guardians of the stability of the global financial system.

Among the institutions that should have been preparing for and assessing the risks of a global viral pandemic, in addition to the IMF, are the Financial Stability Board, the Bank for International Settlements, the G20 assembly of finance ministers, the World Bank and the European Central Bank.

In the wake of the 2008 financial crisis, which “none of us” had anticipated, these global entities and national authorities adopted “macroprudential policy” to prevent the next global financial meltdown and, if possible, prepare plans to deal with a new blow to global financial stability.

Wikipedia has an excellent and authoritative review of the origins of macroprudentialism, describing it as an “approach to financial regulation that aims to mitigate risk to the financial system as a whole.” In the aftermath of the 2008 financial crisis, policy-makers and economic researchers backed the need to reorient the global regulatory framework “towards a macroprudential perspective.”

As the world sinks into lockdown and decline, one wonders why the whole macroprudential policy preparations, underway since the 2008 financial crisis and formally installed in 2016, so obviously failed to prepare for the financial stability shakeup brought on by the COVID-19 pandemic?

There are two explanations. One is that the whole financial stability-macroprudential effort is an international bureaucratic collection of agencies dedicated to the pursuit of meaningless bureaucratic interventions.

The second explanation is that the macroprudential apparatus, from the IMF through to the FSB and down, was hijacked by activists pushing climate change as the dominant systemic risk of our time.

In 2017, Mark Carney, then Bank of England governor and head of the FSB, reviewed the successes of macroprudential policy and highlighted new risks. The FSB, said Carney, is assessing “emerging vulnerabilities affecting the global financial system … within a macroprudential perspective.” Among the risks identified, he said, were “risks from FinTech, climate‐related financial risks and misconduct in financial institutions.”

Carney has been something of a poster boy for climate change. In a 2015 speech at Lloyd’s of London — titled “Breaking the tragedy of the horizon — climate change and financial stability,” Carney warned the insurance industry to prepare for big climate risks — including defaults, lawsuits, stranded assets and increased liabilities related to a changing climate.

The insurance execs picked up the macroprudential warnings. The replacement of pandemic risks with climate change as a threat to the global financial and economic system was highlighted this week by Roger Pielke Jr. at the University of Colorado. In 2008, the No. 1 risk cited by insurance executives was a pandemic, described as “a new highly infectious and fatal disease spreads through the human population.” In 2019, the top risk was identified as “global temperature change.” Pandemic was not even one of the top-10 insurance risks.

Over the past several years, but especially through 2019, the major efforts of the macroprudes has been to spread alarm about the financial stability risks allegedly building around climate change. Never mind pandemics and other more mundane but genuine financial risks, such a soaring government debt buildup and U.S. political schemes to dismantle Big Tech. Instead, banks and other financial institutions have been pressed to get out of fossil fuels and shift into ethical investing, sustainable financing, green financing, social financing, impact investing, ESG investment, responsible investing.

At the turn of the 2020 New Year, Carney appeared on BBC television calling for “action on financing” from banks against fossil investments. One day later, the Communist government in China informed the World Health Organization of pneumonia cases in Wuhan City, Hubei province, with unknown cause. Carney’s get-out-of oil call caused alarm within Canada’s fossil fuel industry. At the time, oil was trading at US$55 a barrel.

On Tuesday, thanks in part to the pandemic Carney and the macroprudes failed to plan for, West Texas crude continued to languish at just above US$20.

By promoting the risks of far-off climate change and ignoring the real financial and economic risks of a pandemic, the macroprudes got what they wanted by helping to usher in a global economic crisis they claimed to be attempting to prevent.

 

New York Nukes Itself

This post is not about WuHanFlu, but about New York’s insane decision to close nuclear power plants in favor of wind farms.  Robert Bryce writes at Forbes New York Has 1,300 Reasons Not To Close Indian Point. Excerpts in italics with my bolds.

At the end of this month, the Unit 2 reactor at the Indian Point Energy Center in Buchanan, New York will be permanently shut down. Next April, the final reactor at the site, Unit 3, will also be shuttered.

TOMKINS COVE , NY – MAY 11: The Indian Point nuclear power plant is seen from Tomkins Cove, New York … [+] CORBIS VIA GETTY IMAGES

But the premature closure of the 2,069-megawatt nuclear plant is even worse land-use policy. Here’s why: replacing the 16 terawatt-hours of carbon-free electricity that is now being produced by the twin-reactor plant with wind turbines will require 1,300 times as much territory as what is now covered by Indian Point.

Here are the facts: Indian Point covers 239 acres, or about 1 square kilometer. To put Indian Point’s footprint into context, think of it this way: you could fit three Indian Points inside Central Park in Manhattan.

Based on projected output from offshore wind projects (which have higher capacity factors than onshore wind projects), producing that same amount of electricity as is now generated by Indian Point – about 16 terawatt-hours per year – would require installing about 4,000 megawatts of wind turbines. That estimate is based on the proposed South Fork offshore wind project, a 90-megawatt facility that is expected to produce 370 gigawatt-hours per year. (Note that these output figures are substantially higher than what can be expected from onshore wind capacity.) Using the numbers from South Fork, a bit of simple division shows that each megawatt of wind capacity will produce about 4.1 gigawatt-hours per year. Thus, matching the energy output of Indian Point will require about 4,000 megawatts of wind capacity.

That’s a lot of wind turbines. According to the American Wind Energy Association, existing wind-energy capacity in New York state now totals about 1,987 megawatts. That capacity will require enormous amounts of land. Numerous studies, including ones by the Department of Energy have found that the footprint, or capacity density, of wind energy projects is about 3 watts per square meter. Thus, 4,000 megawatts (four billion watts) divided by 3 watts per square meter = 1.33 billion square meters or 1,333 square kilometers. (Or roughly 515 square miles.)

UNITED STATES – AUGUST 20: Aerial view of New York City’s Central Park (Photo by Carol M. … [+] GETTY IMAGES

Those numbers are almost too big to imagine. Therefore, let’s look again at Central Park. Recall that three Indian Points could fit inside the confines of the famed park. Thus, replacing the energy production from Indian Point would require paving a land area equal to 400 Central Parks with forests of wind turbines.

Put another way, the 1,300 square kilometers of wind turbines needed to replace the electricity output of Indian Point is nearly equal to the size of Albany County. Would New York legislators who convene in the capitol in Albany consent to having the entire county covered in wind turbines? I can’t be sure, but I am guessing that they might oppose such plan. (See yellow area in Google Earth image  at top).

These basic calculations prove some undeniable facts. Among them: Indian Point represents the apogee of densification. The massive amount of energy being produced by the two reactors on such a small footprint provides a perfect illustration of what may be nuclear energy’s single greatest virtue: its unsurpassed power density. (Power density is a measure of energy flow from a given area, volume, or mass.) High power density sources, like nuclear, allow us to spare land for nature. Density is green.

Alas, the environmental groups that are influencing policymakers in New York and in other states are strident in their belief that nuclear energy is bad and that renewables are good. But that theology ignores the greenness of density and the essential role that nuclear energy must play if we are to have any hope of making significant reductions in carbon-dioxide emissions.

In short, the premature closure of Indian Point – and the raging land-use battles over renewable energy siting in New York – should lead environmental groups to rethink their definition of what qualifies as “green.” Just because wind and solar are renewable doesn’t mean they are green. In fact, the land-use problems with renewables show the exact opposite.

Why Halting Failed Auto Fuel Standards 2020 Update

Update April 2, 2020: Much in the news today is the EPA relaxing of Obama-era auto fuel standards, along with the usual Trump bashing and complaining while ignoring why the efficiency rules were ill-advised. Text from a previous post is printed below explaining this positive development.

There are deeper reasons why US auto fuel efficiency standards are and should be rolled back.  They were instituted in denial of regulatory experience and science.  First, a parallel from physics.

In the sub-atomic domain of quantum mechanics, Werner Heisenberg, a German physicist, determined that our observations have an effect on the behavior of quanta (quantum particles).

The Heisenberg uncertainty principle states that it is impossible to know simultaneously the exact position and momentum of a particle. That is, the more exactly the position is determined, the less known the momentum, and vice versa. This principle is not a statement about the limits of technology, but a fundamental limit on what can be known about a particle at any given moment. This uncertainty arises because the act of measuring affects the object being measured. The only way to measure the position of something is using light, but, on the sub-atomic scale, the interaction of the light with the object inevitably changes the object’s position and its direction of travel.

Now skip to the world of governance and the effects of regulation. A similar finding shows that the act of regulating produces reactive behavior and unintended consequences contrary to the desired outcomes.

US Fuel Economy (CAFE) Standards Have Backfired

An article at Financial Times explains about Energy Regulations Unintended Consequences  Excerpts below with my bolds.

Goodhart’s Law holds that “any observed statistical regularity will tend to collapse once pressure is placed upon it for control purposes”. Originally coined by the economist Charles Goodhart as a critique of the use of money supply measures to guide monetary policy, it has been adopted as a useful concept in many other fields. The general principle is that when any measure is used as a target for policy, it becomes unreliable. It is an observable phenomenon in healthcare, in financial regulation and, it seems, in energy efficiency standards.

When governments set efficiency regulations such as the US Corporate Average Fuel Economy standards for vehicles, they are often what is called “attribute-based”, meaning that the rules take other characteristics into consideration when determining compliance. The Cafe standards, for example, vary according to the “footprint” of the vehicle: the area enclosed by its wheels. In Japan, fuel economy standards are weight-based. Like all regulations, fuel economy standards create incentives to game the system, and where attributes are important, that can mean finding ways to exploit the variations in requirements. There have long been suspicions that the footprint-based Cafe standards would encourage manufacturers to make larger cars for the US market, but a paper this week from Koichiro Ito of the University of Chicago and James Sallee of the University of California Berkeley provided the strongest evidence yet that those fears are likely to be justified.

Mr Ito and Mr Sallee looked at Japan’s experience with weight-based fuel economy standards, which changed in 2009, and concluded that “the Japanese car market has experienced a notable increase in weight in response to attribute-based regulation”. In the US, the Cafe standards create a similar pressure, but expressed in terms of size rather than weight. Mr Ito suggested that in Ford’s decision to end almost all car production in North America to focus on SUVs and trucks, “policy plays a substantial role”. It is not just that manufacturers are focusing on larger models; specific models are also getting bigger. Ford’s move, Mr Ito wrote, should be seen as an “alarm bell” warning of the flaws in the Cafe system. He suggests an alternative framework with a uniform standard and tradeable credits, as a more effective and lower-cost option. With the Trump administration now reviewing fuel economy and emissions standards, and facing challenges from California and many other states, the vehicle manufacturers appear to be in a state of confusion. An elegant idea for preserving plans for improving fuel economy while reducing the cost of compliance could be very welcome.

The paper is The Economics of Attribute-Based Regulation: Theory and Evidence from Fuel-Economy Standards Koichiro Ito, James M. Sallee NBER Working Paper No. 20500.  The authors explain:

An attribute-based regulation is a regulation that aims to change one characteristic of a product related to the externality (the “targeted characteristic”), but which takes some other characteristic (the “secondary attribute”) into consideration when determining compliance. For example, Corporate Average Fuel Economy (CAFE) standards in the United States recently adopted attribute-basing. Figure 1 shows that the new policy mandates a fuel-economy target that is a downward-sloping function of vehicle “footprint”—the square area trapped by a rectangle drawn to connect the vehicle’s tires.  Under this schedule, firms that make larger vehicles are allowed to have lower fuel economy. This has the potential benefit of harmonizing marginal costs of regulatory compliance across firms, but it also creates a distortionary incentive for automakers to manipulate vehicle footprint.

Attribute-basing is used in a variety of important economic policies. Fuel-economy regulations are attribute-based in China, Europe, Japan and the United States, which are the world’s four largest car markets. Energy efficiency standards for appliances, which allow larger products to consume more energy, are attribute-based all over the world. Regulations such as the Clean Air Act, the Family Medical Leave Act, and the Affordable Care Act are attribute-based because they exempt some firms based on size. In all of these examples, attribute-basing is designed to provide a weaker regulation for products or firms that will find compliance more difficult.

Summary from Heritage Foundation study Fuel Economy Standards Are a Costly Mistake Excerpt with my bolds.

The CAFE standards are not only an extremely inefficient way to reduce carbon dioxide emission but will also have a variety of unintended consequences.

For example, the post-2010 standards apply lower mileage requirements to vehicles with larger footprints. Thus, Whitefoot and Skerlos argued that there is an incentive to increase the size of vehicles.

Data from the first few years under the new standard confirm that the average footprint, weight, and horsepower of cars and trucks have indeed all increased since 2008, even as carbon emissions fell, reflecting the distorted incentives.

Manufacturers have found work-arounds to thwart the intent of the regulations. For example, the standards raised the price of large cars, such as station wagons, relative to light trucks. As a result, automakers created a new type of light truck—the sport utility vehicle (SUV)—which was covered by the lower standard and had low gas mileage but met consumers’ needs. Other automakers have simply chosen to miss the thresholds and pay fines on a sliding scale.

Another well-known flaw in CAFE standards is the “rebound effect.” When consumers are forced to buy more fuel-efficient vehicles, the cost per mile falls (since their cars use less gas) and they drive more. This offsets part of the fuel economy gain and adds congestion and road repair costs. Similarly, the rising price of new vehicles causes consumers to delay upgrades, leaving older vehicles on the road longer.

In addition, the higher purchase price of cars under a stricter CAFE standard is likely to force millions of households out of the new-car market altogether. Many households face credit constraints when borrowing money to purchase a car. David Wagner, Paulina Nusinovich, and Esteban Plaza-Jennings used Bureau of Labor Statistics data and typical finance industry debt-service-to-income ratios and estimated that 3.1 million to 14.9 million households would not have enough credit to purchase a new car under the 2025 CAFE standards.[34] This impact would fall disproportionately on poorer households and force the use of older cars with higher maintenance costs and with fuel economy that is generally lower than that of new cars.

CAFE standards may also have redistributed corporate profits to foreign automakers and away from Ford, General Motors (GM), and Chrysler (the Big Three), because foreign-headquartered firms tend to specialize in vehicles that are favored under the new standards.[35] 

Conclusion

CAFE standards are costly, inefficient, and ineffective regulations. They severely limit consumers’ ability to make their own choices concerning safety, comfort, affordability, and efficiency. Originally based on the belief that consumers undervalued fuel economy, the standards have morphed into climate control mandates. Under any justification, regulation gives the desires of government regulators precedence over those of the Americans who actually pay for the cars. Since the regulators undervalue the well-being of American consumers, the policy outcomes are predictably harmful.

Climatists Fail to Coerce Exxon and Chevron

Another skirmish ends in activist defeat, as reported in Pension and Investments Exxon, Chevron given OK to dismiss shareholder climate proposal. Excerpts in italics with my bolds.

The Securities and Exchange Commission granted requests by Chevron Corp. and Exxon Mobil Corp. to again reject a shareholder proposal calling for reports on how the companies are addressing climate change goals. Similar proposals filed last year were also allowed to be excluded for Exxon after its challenge.

A document on the agency website noted briefly that SEC staff agreed March 20 with requests by company officials to exclude proposals from a group of shareholders, including the Church of England and As You Sow, asking if the companies will join other oil and gas companies in taking steps to align with the Paris Agreement goal of net-zero emissions by 2050, and calling for reduction targets, long-term business plans and other details.

“That suggests to me that the SEC doesn’t fully understand the issues on climate reporting we have requested,” As You Sow President Danielle Fugere said in an interview. The shareholder group called current reporting by Exxon and Chevron “confusing at best,” and Ms. Fugere said that the companies “are misleading investors by suggesting that they align” with the Paris goals.

Sanford Lewis, an attorney for the shareholders’ group, said that SEC staff have made it more difficult for shareholders to file climate change-related proposals at major oil companies by interpreting them as micromanaging, which allows the companies to be less specific in their reporting.

The SEC action letter is Response of the Office of Chief Counsel Division of Corporation Finance Re: Exxon Mobil Corporation Incoming letter dated January 14, 2020. Excerpts with my bolds.

The Proposal requests that the board conduct an evaluation and issue a report describing if, and how, the Company’s lobbying activities align with the goal of limiting average global warming to well below 2 degrees Celsius (the Paris Climate Agreement’s goal). The Proposal also indicated that the report should address the risks presented by any misaligned lobbying, and the Company’s plans, if any, to mitigate these risks.

There appears to be some basis for your view that the Company may exclude the Proposal under rule 14a-8(i)(11). We note that the Proposal is substantially duplicative of a proposal previously submitted by Boston Trust Walden that will be included in the Company’s 2020 proxy materials because the two proposals share a concern for seeking additional transparency from the Company about its lobbying activities and how these activities align with the Company’s expressed policy positions, of which one is the Company’s stated support of the Paris Climate Agreement. Accordingly, we will not recommend enforcement action to the Commission if the Company omits the Proposal from its proxy materials in reliance on rule 14a-8(i)(11).

Anti-fossil fuel activists want to force Exxon and Chevron to accept and conform to IPCC beliefs, as shown below by the text of the draft shareholder proposal. (included in the SEC action letter pdf above)

The Proposal

Climate Lobbying Report Shareholders request that the Board of Directors conduct an evaluation and issue a report within the next year (at reasonable cost, omitting proprietary information) describing if, and how, ExxonMobil’s lobbying activities (direct and through trade associations) align with the goal of limiting average global warming to well below 2 degrees Celsius (the Paris Climate Agreement’s goal). The report should also address the risks presented by any misaligned lobbying and the company1s plans, if any, to mitigate these risks.

Supporting Statement

According to the most recent annual “Emissions Gap Report” issued by the United Nations Environment Programme (November 26, 2019), critical gaps remain between the commitments national governments have made and the actions required to prevent the worst effects of climate change. Companies have an important and constructive role to play in enabling policy-makers to close these gaps.

[Note how many baseless statements are in this paragraph.  UNEP has no legal authority for its claims.  Its carbon budgeting rationale is spurious.  National commitments are voluntary and would not bend the curve in the unlikely event they were achieved.  Companies are not bound by UN bureaucrats.  Even so, energy companies have led to US to outperform other nations in reducing emissions.]

Corporate lobbying activities that are inconsistent with meeting the goals of the Paris Agreement present regulatory, reputational and legal risks to investors. These efforts also present systemic risks to our economies, as delays in implementation of the Paris Agreement increase the physical risks of climate change, pose a systemic risk to economic stability and introduce uncertainty and volatility into our portfolios. We believe that Paris-aligned climate lobbying helps to mitigate these risks, and contributes positively to the long-term value of our investment portfolios.

[Here we have the attack on free speech and the right to voice a different opinion.  Paris Accord documents are sacrosanct, and no dissent is allowed.  Activists object to any effort to ensure the supply of carbon-based energy to consumers who want and are willing to pay for it.]

Of particular concern are the trade associations and other politically active organizations that speak for business but, unfortunately, too often present forceful obstacles to progress in addressing the climate crisis.

[The tactic is guilt by association and social excommunication of contrary viewpoints.  Having failed to convince the public to stop using fossil fuels, they seek to discredit and deny the many social benefits derived from these energy products.]

As investors, we view fulfillment of the Paris Agreement’s agreed goal-to hold the increase in the global average temperature to “well below” 2•c above preindustrial levels, and to pursue efforts to limit the temperature increase to l.S°C- as an imperative. We are convinced that unabated climate change will have a devastating impact on our clients, plan beneficiaries, and the value of their portfolios. We see future “business as usual” scenarios of 3-4°C or greater as both unacceptable and uninvestable.

[Thus they proclaim their virtuous understanding, without themselves withdrawing from travel and other activities and practices dependent on fossil fuel products.]

Two hundred institutional investors managing $6.5 trillion recently wrote to ExxonMobil, seeking information on how the company is managing this critical governance issue. Insufficient information is presently available to help investors understand how ExxonMobil works to ensure that its lobbying activities, directly, in the company’s name, and indirectly, through trade associations, align with the Paris Agreement’s goals, and what ExxonMobil does to address any misalignments it has found. The investors received no response to their letter.

[Now the appeal to “consensus” shared by woke investment managers that they can put their beliefs above the interests of investors needing to raise income for their future needs.]

We commend the company for recent positive steps, such as public support for strong methane regulations and the decision to withdraw from membership in the American Legislative Exchange Council (ALEC) because of ALEC’s positions on climate change. However, information we do have on ExxonMobil’s ongoing lobbying efforts through trade associations still presents serious concerns.

Climate Activists storm the bastion of Exxon Mobil, here seen without their shareholder disguises.

[Someone’s deep pockets are behind all this legal activity and surveillance intending to constrict and financially damage energy companies.]

Thus, we urge the Board and management to assess the company’s climate related lobbying and report to shareholders.

[As members of modern society our health and prosperity depend heavily upon carbon-based energy that has raised so many out of poverty and deprivation.  We urge the company to maintain and extend the supply of reliable and affordable energy, and to engage with private and public partners to that end.]

Pandemic Response Not Model for Climate Action

Some wise reflections from Breakthrough Institute: Why the COVID-19 Response Is No Model for Climate Action by Alex Trembath and Seaver Wang. Excerpts in italics with my bolds and images.

A global emergency. Wartime mobilization. Calls to “listen to the scientists.” Demands for radical shifts in policy and human behavior. Tradeoffs between sacrifices today and larger suffering in the future. Politicization by all sides.The parallels between the ongoing COVID-19 crisis and climate change are obvious.

But contrary to the received wisdom among many climate analysts and advocates, those parallels mostly reveal just how different the two challenges are.

The COVID-19 pandemic is unfolding rapidly, demanding all of our attention. Climate change unfolds slowly, over decades, often so imperceptibly that we term the conditions of a changing climate as the “new normal.” COVID-19 presents as a frightening but conceptually simple problem: a novel virus that can be contained by quarantine, social distancing and, hopefully, immunization. Climate change presents as a “wicked” problem, which means its causes, impacts, key actors, and optimal levers for change are heavily contested. Responding to COVID-19 through behavioral shifts means putting our lives temporarily on hold for months to a year. Responding to climate change through behavioral shifts means a lifelong if not multi-generational commitment to population-wide lifestyle changes.

Nonetheless, the rapid virus–induced decline in economic activity has turned some climate hawks’ heads. “If weeks of suspended high-carbon economic activity can cut China’s emissions by a quarter,” tweeted climate activist Genevieve Guenther, “I don’t want to hear one fucking word about how decarbonizing quickly enough to maintain a livable planet is ‘unrealistic.’”

Others were more cautious in drawing comparisons. Pandemics and recessions are “hardly formulas activists should cheer, much less try to replicate going forward,” writes Kate Aronoff at the New Republic. “Wishing for a disaster to make the large-scale changes that scientists say are necessary to prevent a planetary collapse is counterproductive,” wrote Eric Holthaus.

This pandemic should then make us interrogate what we envision when we talk about a “climate emergency.” Such frames filter up meaningfully, after all: last summer, six then-presidential candidates joined a Democratic proposal to declare a “climate change emergency” to spur “sweeping reforms” in the United States. What those reforms would entail, though, remains unclear. Holthaus, whose practice is to addend many of his tweets with the warning “We are in a climate emergency,” wrote that we should “learn to treat each other better.” Aronoff used the drop in Chinese emissions to advocate a four-day work week. Guenther suggested that enforced suspension of economic activity for the climate’s sake would, obviously, utilize “smart policy” to be more “equitable” than the Chinese government’s forced quarantine policies.

Propaganda from Grist.

Yet one wonders whether people around the world might actually be less, not more, eager to entertain the idea of sweeping and intrusive responses to climate change thanks to ongoing events.

Perhaps that is because we are witnessing what a global emergency actually looks like. School and commerce are shut down. People are confined to their homes. Trade and travel are suspended. Weddings, social gatherings, and perhaps even the Olympics are canceled. Hourly workers are losing work and many others are losing jobs altogether. Fear and isolation are dominant.

And yet despite such costly personal and collective sacrifices, we are learning that there are disappointing limits to the emissions cuts that are possible under even draconian, government-enforced reductions of demand for goods and services. New economic projections are suggesting that China’s economy may shrink by up to 40% this quarter relative to January–March. The rhythm of daily life has literally ground to a halt for many hundreds of millions of Chinese people, and yet three-quarters of emissions stubbornly remain. Extreme conditions of degrowth and reduced consumption that are near-unanimously considered intolerable in the long-term have failed to mitigate anything close to a majority of greenhouse gas impacts.

And while emissions will surely decline this year, they might rebound strongly in future years, as China and other countries relax environmental regulations on fossil fuels to boost economic recovery. In the meantime, investment in clean technologies is likely to take a significant hit. Degrowth, it turns out, impacts the sectors and technologies we like as well as those we don’t.

But perhaps we might voluntarily consider maintaining some of the shifts in our lifestyles forced upon us by the quarantine? Doesn’t this moment teach us that we can take fewer flights, telecommute, eat out less, and otherwise reduce our consumption and environmental impact? We hesitate to draw too strong a conclusion here. People like traveling, for work and for pleasure, even when they know how carbon-intensive it is. People like eating out at restaurants, even if it is more expensive and tends to waste more food than eating at home. This moment might make us realize how precious, not frivolous, those experiences are.

Besides that, the absolute environmental impact of these lifestyle shifts is questionable. Take flying. For those of us privileged to write about climate change for a living, air travel likely accounts for much of our personal carbon footprint. But less than 20% of the planet has ever stepped foot on an airplane. COVID-19 is unlikely to change projections of tens of millions of new fliers in the coming decades, as consumers in China, India, Nigeria, Indonesia, Bangladesh, and elsewhere take to the skies for the first time. And to be crystal clear, these first journeys by air will open up once-unattainable personal, economic, and educational opportunities for countless lives and are milestones to be celebrated, not dreaded. Ultimately, what matters is not how many people are consuming a product or service but how carbon-intensive the underlying technologies are.

Certainly, the COVID-19 crisis does have important overlaps with the climate crisis. If anything, COVID-19 should motivate researchers and policymakers to act faster on decarbonization and adaptation, since the incidence of diseases and pandemics is likely to rise with global temperatures. Likewise, how we respond to COVID-19 could have significant climate implications. As the nations of the world stimulate and bail their way out of the coming recession, policy and infrastructure decisions can accelerate innovation and decarbonization. And, ultimately, the long-term solution to both climate and global health problems will be scientific and technological in nature: a vaccine or battery of medical treatments in the case of the virus, and affordable, scalable low-carbon technologies in the case of climate change.

But, in both psychological and political terms, we would caution against drawing too strong a connection between the two crises. We do not think the global community will look back on this time fondly. If the emergency response to the COVID-19 pandemic is held up as a model for climate action, we should not be surprised if public support is less than enthusiastic.

Further, in light of rising xenophobia, heightened international tensions, and opportunistic, discriminatory restrictions on movement and migration precipitating out of the current health emergency, we must be wary of a more selective application of the climate “lessons” of the COVID-19 response to serve an eco-facist agenda that promotes nativism and opposes immigration.

It is an understandable impulse to draw lessons from this or that crisis for other pressing global challenges, climate change among them. We share that impulse. However, the useful take-aways from comparing crises that are fundamentally different in nature are often few and disappointing. The climate crisis may feel just as immediate and pressing as an ongoing pandemic to those working in the climate space, but that does little to change the fact that governments and communities will not accept the adaptation of measures intended to fight pandemics on time horizons of months to years towards the decades-long challenge of climate change. Advocacy of such measures will not be viewed kindly, whether in the halls of political decision-making or in the court of public opinion.

The solutions for controlling the COVID-19 outbreak are simple. As decades of debate, advocacy, and politics should have abundantly demonstrated by now, the solutions for climate change are anything but.

 

Climate Lawsuit Dominos

Climate Dominos

Posted to Energy March 05, 2020 by Curt Levey writes at InsideSources Climate Change Lawsuits Collapsing Like Dominoes.  Excerpts in italics with my bolds.

Climate change activists went to court in California recently trying to halt a long losing streak in their quest to punish energy companies for aiding and abetting the world’s consumption of fossil fuels.

A handful of California cities — big consumers of fossil fuels themselves — asked the U.S. Court of Appeals for the Ninth Circuit to reverse the predictable dismissal of their public nuisance lawsuit seeking to pin the entire blame for global warming on five energy producers: BP, Chevron, ConocoPhillips, ExxonMobil and Royal Dutch Shell.

The cities hope to soak the companies for billions of dollars of damages, which they claim they’ll use to build sea walls, better sewer systems and the like in anticipation of rising seas and extreme weather that might result from climate change.

But no plaintiff has ever succeeded in bringing a public nuisance lawsuit based on climate change.

To the contrary, these lawsuits are beginning to collapse like dominoes as courts remind the plaintiffs that it is the legislative and executive branches — not the judicial branch — that have the authority and expertise to determine climate policy.

Climate change activists should have gotten the message in 2011 when the Supreme Court ruled against eight states and other plaintiffs who brought nuisance claims for the greenhouse gas emissions produced by electric power plants.

The Court ruled unanimously in American Electric Power v. Connecticut that the federal Clean Air Act, under which such emissions are subject to EPA regulation, preempts such lawsuits.

The Justices emphasized that “Congress designated an expert agency, here, EPA … [that] is surely better equipped to do the job than individual district judges issuing ad hoc, case-by-case injunctions” and better able to weigh “the environmental benefit potentially achievable [against] our Nation’s energy needs and the possibility of economic disruption.”

The Court noted that this was true of “questions of national or international policy” in general, reminding us why the larger trend of misusing public nuisance lawsuits is a problem.

The California cities, led by Oakland and San Francisco, tried to get around this Supreme Court precedent by focusing on the international nature of the emissions at issue.

But that approach backfired in 2018 when federal district judge William Alsup concluded that a worldwide problem “deserves a solution on a more vast scale than can be supplied by a district judge or jury in a public nuisance case.” Alsup, a liberal Clinton appointee, noted that “Without [fossil] fuels, virtually all of our monumental progress would have been impossible.”

In July 2018, a federal judge in Manhattan tossed out a nearly identical lawsuit by New York City on the same grounds. The city is appealing.

Meanwhile, climate lawfare is also being waged against energy companies by Rhode Island and a number of municipal governments, including Baltimore. Like the other failed cases, these governments seek billions of dollars.

Adding to the string of defeats was the Ninth Circuit’s rejection last month of the so-called “children’s” climate suit, which took a somewhat different approach by pitting a bunch of child plaintiffs against the federal government.

The children alleged “psychological harms, others impairment to recreational interests, others exacerbated medical conditions, and others damage to property” and sought an injunction forcing the executive branch to phase out fossil fuel emissions.

Judge Andrew Hurwitz, an Obama appointee, wrote for the majority that “such relief is beyond our constitutional power.” The case for redress, he said, “must be presented to the political branches of government.”

Yet another creative, if disingenuous, litigation strategy was attempted by New York State’s attorney general, who sued ExxonMobil for allegedly deceiving investors about the impact of future climate change regulations on profits by keeping two sets of books.

That lawsuit went down in flames in December when a New York court ruled that the state failed to prove any “material misstatements” to investors.

All these lawsuits fail because they are grounded in politics, virtue signaling and — in most cases — the hope of collecting billions from energy producers, rather than in sound legal theories or a genuine strategy for fighting climate change.

But in the unlikely event these plaintiffs prevail, would they use their billion dollar windfalls to help society cope with global warming?

It’s unlikely if past history is any indication.

State and local governments that have won large damage awards in successful non-climate-related public nuisance lawsuits — tobacco litigation is the most famous example — have notoriously blown most of the money on spending binges unrelated to the original lawsuit or on backfilling irresponsible budget deficits.

The question of what would happen to the award money will likely remain academic. Even sympathetic judges have repeatedly refused to be roped by weak public nuisance or other contorted legal theories into addressing a national or international policy issue — climate change — that is clearly better left to elected officials.

Like anything built on an unsound foundation, these climate lawsuits will continue to collapse.

Curt Levey is a constitutional law attorney and president of the Committee for Justice, a nonprofit organization dedicated to preserving the rule of law.

Update March 10

Honolulu joins the domino lineup with its own MeToo lawsuit: Honolulu Sues Petroleum Companies For Climate Change Damages to City

Honolulu city officials, lashing out at the fossil fuel industry in a climate change lawsuit filed Monday, accused oil producers of concealing the dangers that greenhouse gas emissions from petroleum products would create, while reaping billions in profits.

The lawsuit, against eight oil companies, says climate change already is having damaging effects on the city’s coastline, and lays out a litany of catastrophic public nuisances—including sea level rise, heat waves, flooding and drought caused by the burning of fossil fuels—that are costing the city billions, and putting its residents and property at risk.

“We are seeing in real time coastal erosion and the consequences,” Josh Stanbro, chief resilience officer and executive director for the City and County of Honolulu Office of Climate Change, Sustainability and Resiliency, told InsideClimate News. “It’s an existential threat for what the future looks like for islanders.”  [ I wonder if Stanbro’s salary matches the length of his job title, or if it is contingent on winning the case.]

Climate Beauty Pageants

Exxon CEO Calls Rivals’ Climate Goals a ‘Beauty Competition’ reported in the Houston Chronicle. Excerpts in italics with my bolds.

“Individual companies setting targets and then selling assets to another company so that their portfolio has a different carbon intensity has not solved the problem for the world,” Exxon Mobil CEO Darren Woods says.

Exxon Mobil Corp. dismissed long-term pledges by some of its Big Oil rivals to reduce carbon dioxide emissions as nothing more than a “beauty competition” that would do little to halt climate change.

Energy companies need to focus on global, systemic efforts to reduce greenhouse gases, rather than just replacing their own emissions-heavy assets with cleaner ones to make themselves look good, Chief Executive Officer Darren Woods said in New York on Thursday.

“Individual companies setting targets and then selling assets to another company so that their portfolio has a different carbon intensity has not solved the problem for the world,” Woods said at Exxon’s analyst day. Exxon is focused on “taking steps to solve the problem for society as a whole and not try and get into a beauty competition.”  Woods’ remarks, which echo those made by Chevron Corp. CEO Mike Wirth earlier this week, underscore the divide between U.S. and European oil explorers in their approach to addressing climate change.

Both American companies see oil and gas demand growing for decades and refuse to compete in a crowded market for renewables where they have little expertise.

Much-derided plastic even came in for some praise, with Exxon Senior Vice President Jack Williams arguing that it’s “a net benefit to society and to the environment.”

By contrast Royal Dutch Shell Plc, Repsol SA and Eni SpA have pledged to make large reductions in carbon emissions over the long term, while last month BP Plc went a step further with a target to become carbon neutral by 2050.

Companies changing their production mix “doesn’t change the demand” for oil and gas, Woods said. “If you don’t have a viable alternative set, all you’re doing is moving out from one company or one country to someplace else. It doesn’t solve the problem.”

Exxon sees world demand for oil and gas growing substantially out to 2040, even under the goals of the Paris Agreement, which seeks to limit temperature rise to 2 degrees Celsius above pre-industrial levels. Renewables such as wind and solar won’t be enough to meet demand growth on their own, according to Exxon.

In any case, it remains to be seen whether oil giants can generate big profits by producing carbon-free energy. Solar, wind and battery storage projects haven’t shown they can fund the huge dividends that underpins the industry’s investment case.

To underscore his point, Woods said that global emissions have risen 4% since the Paris Agreement was signed four years ago and energy demand is up 6%.

For the energy industry to truly address climate change, Woods believes major technological breakthroughs are needed in the fields of carbon capture, alternative fuels in transport and re-thinking industrial processes. The company is investing in all of these fields but admits that progress will take time.

Exxon is also taking steps to reduce emissions from its own operations including reducing methane emissions and gas flaring.

Speaking at the company’s annual investor day meeting, CEO Darren Wood stated that Exxon is “mindful of the current market environment.” However, Woods said that Exxon plans to maintain its current strategy of “leaning into this market when others have pulled back.”

Exxon intends to use “the strength of our balance sheet to invest through the cycle,” according to Woods. As such, it will outspend its cash flow when necessary to maintain its investment pace while also continuing to increase its dividend as it has for the last 37 consecutive years. It also aims to sell $15 billion in assets to help finance its investment plan.

While Exxon isn’t making any changes to its planned investment level, it is adjusting its development plan. Most notably, it will operate at a reduced pace in the Permian Basin over the next two years compared to its previous outlook. However, it still expects to produce more than 1 million barrels of oil equivalent per day from the region by 2024.

Exxon fully believes that energy demand will grow in the coming years. That’s why it’s taking advantage of the current environment to invest while costs are lower so that it can cash in on more favorable future market conditions.

Activists attempt to storm the Exxon Mobil bastion, here seen without their shareholder disguises.