“Net zero” isn’t a Megatrend: It’s a Mega-trap

Overview

“Investors can’t ignore a megatrend that’s transforming consumer, corporate and government behaviour worldwide,” Michelle Lopez asserted three years ago (see “The energy revolution is happening whether we want it or not,” 10 May 2021). Arian Neiron, VanEck’s CEO & MD, Asia Pacific, dialed the hyperbole even higher: “almost every country on the planet,” he grossly exaggerated, “has formally recognised the climate change crisis.”

The truth is very much otherwise: according to Wikipedia, just 46 of the world’s 195 countries, of which 26 are members of the EU and none rank among its most populous, have in one form or another declared a climate crisis, emergency, etc. Moreover, most (30) of these nations have done so only “partially;” that is, one or more (but usually a minority) of their sub-national and local governments have declared emergencies.

Only 16 national parliaments – just 8% of the world’s total – have made such declarations. That’s nowhere near “almost every country on the planet”!

“Governments and businesses,” Neiron also alleged without citing a source, “are investing trillions of dollars to reduce and eliminate carbon emissions in order to halt global warming.” “The long-term growth potential for investors,” he concluded, “is as significant as the opportunity to help prevent environmental disaster” (see The Global Megatrend Investors Can’t Ignore, 26 March 2021).

Several years ago, claims like these were highly questionable (see, for example, Decarbonisation: A doubter’s guide for conservative investors, 16 May 2022). They’re even more dubious now. In this article, I demonstrate that

1. Globally, and as the UN defines it, the “transition to net zero” simply isn’t happening. At best, it’s unfolding at a snail’s pace: at its current rate, reaching something close to “net zero” will take 400 years!
2. Charitably, on a worldwide basis the odds of reaching “net zero by 2050” are very long. Realistically, planet Earth won’t come anywhere near it. Indeed, it’s more likely that during the next quarter-century the polar opposite will occur: it will transition away from “net zero.”
3. On current trends, the Albanese government will fail to reach its “renewable energy target” (82% of the country’s electricity generated from intermittent and thus unreliable sources such as wind and solar by 2030).
4. Even if it succeeded, it wouldn’t matter: neither in Australia nor globally can electricity from either intermittent or nuclear sources achieve “net zero by 2050.”
5. Australia‘s energy transition, as opposed to its electricity transition, isn’t occurring. Politicians will therefore abandon it – and their Paris, COP28, etc., commitments – as their miniscule benefits and immense costs become apparent to the general public.
6. The trillions of dollars which governments and businesses have (in Neiron’s words) “invested to reduce and eliminate CO₂ emissions in order to halt global warming” are thus a colossal waste. As such, this so-called mega-trend clearly offers no “long-term growth potential to investors.” Quite the contrary: over more than 15 years “green energy investments” have generated almost continuous – and cumulatively massive – losses.

Empirically, the “global energy transition” isn’t happening. Logically, what isn’t occurring and is highly unlikely to transpire obviously isn’t a megatrend. For investors who continue to ignore and deny these fundamental truths, the “transition” will remain what it’s always been: a “mega-trap.”

Leithner & Co. has already seen this show – not just once but twice. The mania over the past several years about the so-called energy transition and “net zero” has created – as did the tech mania during the Dot Com Bubble and the residential real estate mania which preceded the GFC – grave risks for the credulous crowd including major institutional investors. It’s also creating opportunities for conservative contrarians who, unlike the emotional herd, adhere strictly to logic and evidence.

“It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so” goes an adage commonly attributed to Mark Twain that was cited in the movie The Big Short (2015). In that film, which was based upon Michael Lewis’ book (The Big Short: Inside the Doomsday Machine, W.W Norton, 2010), small, isolated and contrarian groups of “outsiders saw the giant lie at the heart of the economy, and they saw it by doing something (that nobody else ever) thought to do: They looked.”

In this article, I do what these troublemakers (from the point of view of the mainstream’s consensus) did before the GFC: I analyse the most valid, reliable and publically-available data, test these data against the mainstream’s key assertions, think independently and draw justifiable conclusions. On one key point Neiron is correct: “never has it been more important ... to be vigilant, seek out the facts and avoid greenwashing.”

The chasm between these conclusions (based upon evidence) and the mainstream’s convictions (based upon blind faith) is wide and deep. That important, vocal and great numbers of people ignore or reject these conclusions doesn’t matter: adherence to current fashion is no substitute for justifiable principles, reasonable premises, valid reasoning and hard evidence. What does matter – greatly, and as Benjamin Graham wrote in The Intelligent Investor – is that YOU must think rigorously and dispassionately. 

Specifically, you must “have the courage of your knowledge and experience. If you have formed a conclusion from the facts and if you know your judgment is sound, act on it – even though others may hesitate or differ. You are neither right nor wrong because the crowd disagrees with you. You are right because your data and reasoning are right” (see also Why value investors should doubt “climate science,” 5 September 2023).

Today’s Conventional Wisdom ...

“Given the heavy investment in wind, solar and other renewable (which is actually intermittent and thus unreliable) energy by the United States and other countries, as well as the private sector,” reported The New York Times on 6 December 2023, John Kerry, at the time President Biden’s “special envoy for climate change,” “said it was inevitable that the global economy would move away from fossil fuels. ‘We will get to a global low-carbon, no-carbon economy. The only question is: Will we get there in time to avoid the worst consequences of this (climate) crisis?’”

Chris Bowen, Australia’s Minister for Climate Change and Energy – note the order of the words, which reflects their order of importance in Canberra – agrees. “Fossil fuels have no ongoing role to play in our energy systems, and I speak as the Climate and Energy Minister of one of the world’s largest fossil fuel exporters ... We don’t need to end fossil fuel emissions: we need to end the use of fossil fuels in our energy systems ... “ (see “Alarm at Bowen’s ‘End Fossil Fuels’ Call,” The Australian (12 December 2023).

Kerry’s, Bowen’s and many others’ blithe determination to eliminate the production and consumption of oil, natural gas and coal reflects their fanatical devotion to “net zero.” In 2021 the United Nations asked: “what is net zero?” In its words, and “put simply, net zero means cutting greenhouse gas emissions to as close to zero as possible, with any remaining emissions re-absorbed from the atmosphere, by oceans and forests for instance.” Their rallying cry, “net zero by 2050,” thus comprises two key demands:

1. By 2050, the world’s production of fossil fuels, and thus their emissions of CO₂, must collapse “as close to zero as possible;”

2. By 2050, output from “zero-emissions” sources (particularly wind and solar, but potentially also nuclear) won’t merely skyrocket: it’ll replace fossil fuels.

... versus Today’s Reality

The Statistical Review of World Energy compiles a wealth of data regarding the production and consumption of energy, by type and on global, continental, national and regional (e.g., European Union, etc.) bases. According to Nick Wayth, CEO of The Energy Institute, which produces it, the Review “has been providing timely, broad-ranging, and objective data to the energy community since 1952.”

Incongruously, however, the Institute is also part of “the climate consensus” – and what I’ve dubbed the “climate-industrial complex” (see Why value investors should doubt “climate science,” 5 September 2023).

According to its president, Juliet Davenport, “we have seen further and ever more dangerous impacts of climate change across all continents. And despite broad consensus on the need to reach net zero, global energy-related greenhouse gas emissions are still heading in the wrong direction.” Using data from the Statistical Review of World Energy, Figure 1 plots the world’s consumption of electricity, by source as a percentage of the total, from 1985 to 2022. (The 2024 edition of the Statistical Review, which will be published on 20 June, will provide data on global energy production, consumption, trade and emissions for CY2023.)

Figure 1: Global Consumption of Electricity, by Source as a Percentage of Total, 1985-2022

Four crucial facts emerge from Figure 1.

First, an “electricity transition” has occurred over the past 15 or so years. Crucially, however, it bears little resemblance to the one that its advocates insist is occurring and must continue to occur.

The percentage of the world’s power generated from intermittent (solar and wind) sources has risen. It’s increased from effectively 0% in 2009 to ca. 10% today. Clearly, though, intermittent sources of electricity have captured market share not from fossil-fuelled generation, but to a small extent from hydro and to a large extent from nuclear power: the latter’s share of global generation has halved from ca. 20% in the late-1990s to 10% in 2022.

Secondly, on a global basis, the bulk of “renewable” power generation derives not from solar and wind but from water – that is, hydro-electricity. Its current share of total generation (16%) remains well above solar and wind’s combined percentage. Thirdly, fossil fuels’ share of global generation has fallen since 2007 (68% then versus 61% in 2022) but since 1985 (63%) it’s hardly budged. Fossil fuels remain today what they were 40 years ago: by far the world’s most important source of electricity.

Finally and most importantly, it’s obvious that at current rates of change the world’s power sector won’t transition anywhere near net zero – as the UN defines it – by 2050.

It’s not just indisputable; it’s also such simple a fact that the dullest child can readily comprehend it: all electricity is energy, but not all energy is electricity. A closely-related fact is as easy to understand:

Electricity is a minority of energy (in major and developed countries, its consumption ranges from ca. 17.5 to ca. 22.5% of all energy consumed); solar and wind produce no other form of energy than electricity; hence “renewables’” share of energy is always considerably less than their share of electricity.

Again using data from the Statistical Review of World Energy, Figure 2 plots the world’s consumption of energy (as opposed to electricity), by source as a percentage of the total, from 1965 to 2022. It shows clearly that the world remains today what it has long been: overwhelmingly fossil-fuelled. All other sources are merely also-rans.

Figure 2: Global Consumption of Energy, by Source as a Percentage of Total, 1965-2022

“The transition from fossil fuels around the world,” The Australian editorialised on 4 April, “is well under way.” That’s highly doubtful.

The global percentage of energy derived from coal, gas and oil has declined very slowly over time – from 92% in 1965 to 82% in 2022. That’s 0.18% per year. At that rate, approaching “net zero” (say, reducing fossil fuels’ share by 72 basis points to 10%) will take a mere 72 ÷ 0.18 = 400 years! Moreover, the rate of decline has been no more rapid over the past decade than it was in the 1970s. Accordingly, it’s implausible to contend that “green energy” policies – a phenomenon of the past 10-20 years – are causing a glacial phenomenon that’s been evident for more than 50 years.

Whatever the cause of this slow movement of global energy’s tectonic plates, should be obvious to anyone who looks that at current rates of change the world’s consumption of energy won’t transition anywhere near “net zero” by 2050.

A Brief Digression

“In recent years,” The Wall Street Journal recently observed (see “Climate Politics Neuters an Energy Watchdog,” 24 February 2024), the International Energy Agency “has succumbed to politicization. In 2020 the IEA bowed to enormous pressure from climate activists and ceased publication of oil and gas demand forecasts ... Green groups had been angry over IEA baseline forecasts showing what the activists regarded as too much oil and gas demand.”

“This,” WSJ continued, “was because these baseline forecasts assumed only the laws currently on the books and didn’t engage in conjecture about future green policies. As a result, IEA’s influential demand forecasts now reflect wishful thinking about the timing and cost of a peak in oil and gas consumption.”

“The world has enough climate NGOs,” it concluded. “What it needs ... is an impartial and respected energy agency. The U.S. and other (members of the IEA) should urge the Agency to resume producing unbiased forecasts. The IEA ... should follow the example of the U.S. Energy Information Administration and make all taxpayer-financed data, assumptions, and methodologies available to the public.”

The EIA’s Projections to 2050

The Energy Information Administration (EIA) is a principal agency of the U.S. Federal Statistical System and a part of the U.S. Department of Energy. It’s responsible for the collection, analysis and dissemination of information, and the promotion of sound policymaking, efficient markets, and public understanding of energy and its interaction with the economy and the environment. EIA released its most recent data – and their assumptions and methodologies – in February (see its International Energy Outlook 2023).

Most importantly, these data assume that all currently-existing international agreements (such as the Paris Climate Accords of 2016, 2023 United Nations Climate Change Conference, etc.) remain in place. Ditto national legislation such as Joe Biden’s absurdly misnamed Inflation Reduction Act. Equally importantly, EIA’s projections to 2050 don’t assume – as many climate pressure groups demand – that current projections must incorporate the additional and much stricter agreements will allegedly come into force.

Figure 3: Global Consumption of Energy, by Source, Actual and Projected, Quadrillion British Thermal Units

Given this and a great number of other assumptions, which EIA details, Figure 3 plots the world’s actual (2022) and projected (2025, 2030, ..., and 2050) consumption of energy, by source and measured in quadrillion British Thermal Units (BTUs).

Four inferences from Figure 3 are inescapable:

1. The consumption of fossil fuels rises from ca. 510 quadrillion BTUs (QBTUs) in 2022 to 600 QBTUs in 2050. That’s a compound annual growth rate (CAGR) of 0.6%. The consumption of energy from renewable sources including hydro increases from ca. 100 QBTUs in 2022 to ca. 200 in 2050. That’s a CAGR of 2.5%.

2. Accordingly, fossil fuels’ share of total energy consumption falls from 80% (2022) to 70% (2050); renewables’ share including hydro lifts from 16% (2022) to 26% (2050).

3. Clearly, then, if EIA is correct then in 2050 the world will remain what it is today – overwhelmingly fossil-fuelled.

As a result, fourthly and most importantly, by the EIA’s projections and the UN’s definition the world will transition AWAY FROM Net Zero by 2050.

The climate-industrial complex simply ignores these projections. “By early 2025,” The Weekend Australian quoted Chris Bowen, “renewable energy will surpass coal as the planet’s largest source of energy, while coal, gas and nuclear will all shrink their market share” (see “Proponents of Nuclear Power Are Peddling Hot Air,” 24-25 February 2024). Andrew McKellar, CEO of the Australian Chamber of Commerce and Industry, concurs: “we would expect there will be some level of residual fossil fuels use for the foreseeable future, even out to 2050,” he told The Australian (12 December 2023).

In response, the most charitable thing I can say is that either (a) Bowen and McKellar are wrong or (b) the Statistical Review of World Energy and the Energy Information Administration of the U.S. Department of Energy are wrong. I know whom I regard as the more reliable; you can decide for yourself.

What about Australia?

Using data from the Statistical Review of World Energy, Figure 4 plots Australia’s consumption of electricity, by source as a percentage of the total, from 1985 to 2022.

As it is globally, so it is in Australia: an electricity transition has occurred over the past 15 or so years. Here too, however, its energy transition bears little resemblance to the one that its advocates insist is occurring and must continue to occur.

The percentage of Australia’s electricity generated from solar and wind has increased – from essentially 0% in the first decade of the century to almost 30% in 2022. And fossil fuels’ share of generation has ebbed from 90% in the early years of the century to less than 70% in 2022. Equally, however, fossil fuels – particularly coal – remain today what they’ve always been: by far this country’s most important source of power.

Figure 4: Australia’s Consumption of Electricity, by Source as a Percentage of Total, 1985-2022

Finally and crucially, it’s clear that at current rates of change the Albanese government will fail to achieve its “renewable energy target” (82% of the country’s electricity generated from intermittent sources such as wind and solar by 2030).

This inference is no longer controversial. “Few credible experts now expect the Albanese government has any prospect of meeting its legislated target,” concluded the lead editorial in The Australian (6 March 2024). “That (failure) mirrors what is happening in other parts of the world, where the results have often been less than expected despite (sic, I’d say “because of”) the very large investments being made in wind farms and other technologies. Subsidies are bigger and reliability is less than promised ...”

Figure 5: Australia’s Consumption of Energy, by Source as a Percentage of Total, 1965-2022

Even if the government achieved its intermittent-unreliable electricity target, it wouldn’t matter: it’d still miss its “net zero by 2050” target by a country mile. Again using data from the Statistical Review of World Energy, Figure 5 plots the world’s consumption of energy (as opposed to electricity), by source as a percentage of the total, from 1965 to 2022.

It demonstrates that Australia remains today what it’s long been: overwhelmingly fossil-fuelled. As it is globally, so it is in Oz: all other sources of energy are merely also-rans. Australia‘s energy transition, as opposed to its electricity transition, isn’t occurring in any meaningful sense. At current rates of change, this country’s consumption of energy won’t transition anywhere near net zero in 2050.

What says the U.S. Energy Information Administration? Its International Energy Outlook 2023 includes projections for most major and developed countries. It combines Australia and New Zealand; Figure 6 plots the results.

Figure 6: Consumption of Energy, by Source, Actual and Projected, Australasia, Quadrillion British Thermal Units

The situation in Australasia doesn’t differ fundamentally from the global one. In absolute terms, the consumption of fossil fuels in these two countries increases (from ca. 5.9 QBTUs in 2022 to ca. 6.5 in 2050) and the consumption of renewable energy rises more quickly (from ca. 0.8 QBTUs in 2022 to ca. 2.6 in 2050).

Consumption of fossil fuels rises in absolute terms but falls in relative terms; intermittent energy’s share of total energy rises from 19% (2022) to 29% (2050). In 2050, renewables remain what they are today: a growing but nonetheless minority source of energy. Australia and New Zealand won’t merely fail to reach net zero by 2050: they’ll transition away from Net Zero by 2050.

Why Neither Nuclear nor Intermittent Power Provide a “Path to Net Zero”

In some quarters, nuclear power is emerging as a “solution” to the “transition to net zero.” “Studies confirm that the goal of global net zero carbon emissions can only be reached by 2050 with swift, sustained and significant investment in nuclear energy,” the International Atomic Energy Agency stated on 1 December 2023. Peter Dutton, the leader of the Liberal-National coalition, “is right to include a net zero plan that includes nuclear,” The Australian editorialised on 6 March 2024.

I agree that nuclear plants safely generate reliable power – and in principle (and in practice in Canada, France, the U.S. and elsewhere) do so economically. However, I reject the contention that nuclear power can beget “net zero.” That’s because a realistic “net zero plan that includes nuclear” – or solar and wind – doesn’t exist. It’s trivially easy to see why.

Figure 7 plots France’s consumption of electricity, by source as a percentage of the total, from 1985 to 2022. It’s well known that it derives the world’s largest share of its power from nuclear generators; less known is the fact that over the past 20 years this percentage has sagged – from ca. 80% at the turn of the century to little more than 60% in 2022. Combined with hydro and wind, in 2022 “non-CO₂-emitting” sources generated almost 80% of France’s power. Hence France has already reached Australia’s 2030 target.

Figure 7: France’s Consumption of Electricity, by Source as a Percentage of Total, 1985-2022

So what? As Figure 8 demonstrates, fossil fuels remain not just France’s biggest but also its majority (ca. 55%, down from ca. 60% in 1990) source of energy. Moreover, since the 1980s their share of total energy has fallen only marginally.

Figure 8: France’s Consumption of Energy, by Source as a Percentage of Total, 1965-2022

The implications are immense: even if a country’s electricity sector emits relatively little CO₂, its overall consumption of energy nonetheless remains fossil-fuelled. That’s presently the case in France – and would be the case in Australia even if the Albanese government reached its intermittent energy target, or a Dutton government established a nuclear power industry which generated most of this country’s power.

Why Australia Will Eventually Repudiate “Net Zero”

In Investors beware: “Cheap” renewables are very expensive (14 June 2022), I quoted Vaclav Smil, the author of How the World Really Works: a Scientist’s Guide to Our Past, Present, and Future (Viking, 2022):

"Complete decarbonisation of the global economy by 2050 is now conceivable only at the cost of unthinkable global economic retreat or as a result of extraordinarily rapid transformations relying on near-miraculous technical advances."

To comprehend the “unthinkable economic retreat” part of Smil’s thesis, consider Australia’s gross domestic product (GDP). It sums the country’s total economic output – measured by final expenditure – during a given period of time, and its four components are: household consumption, business investment, government spending and net exports. Hence the shorthand formula Y = C + I + G + X, i.e., GDP = Consumption + Investment + Government + Net Exports.

Everybody agrees – I’ve not encountered a serious analysis which disagrees – that the “transition to net zero” will require enormous expenditure. Specifically, it will entail both massive business investment and government purchases. Imports of goods and services will obviously comprise a significant and likely considerable portion of this expenditure; equally clearly, this spending will impact individuals and households.

Consequently, the transition – should it proceed – won’t merely affect Australia’s GDP: it will also impact the contributions to total GDP of its four components.

Figure 9 plots these four components as percentages of Australia’s total GDP from January 1960 (when the Australian Bureau of Statistics began to compile these data) to December 2023. Net exports’ share has averaged -0.6%. In 1972 and 1973, they contributed 1-3%; since 2019, they’ve contributed 3-4%. Governments’ share rose sharply during the Whitlam years, stabilised at ca. 18-20% from the late-1970s until the COVID-10 panic, and since then has increased to ca. 23%.

Figure 9: Australia’s GDP, Components’ Percentages of Total, 1960-2023

Business investment’s share of GDP mostly decreased during the 1970s and 1980s, rose during the 1990s and 2000s, and has slumped again since ca. 2010. As a result, its share of GDP is now lower than at any time since 1960.

The “transition to net zero” will require massive investment – yet investment’s share of GDP has long been declining and is presently plumbing all-time lows. Even more telling: in 1960, business investment’s share of GDP was three times government expenditure’s; today, they’re equal.

Personal and household expenditure presently comprises little more than half of GDP. That’s considerably less than in the U.S. and elsewhere. (In most of these countries, business investment bulks much larger than it does here, which may be one reason why consumption’s share of GDP is so low.) Until ca. 2015, consumption’s share of GDP fluctuated between ca. 55% and 60%; it then lurched sharply lower – to as low as 50% in 2020 – and since then has partly recovered (to 52% in 2023).

The recent sharp decrease of personal and household consumption’s share of Australia’s GDP exemplifies the “cost of living crisis.”

How, then, will the “transition to net zero” affect this crisis – and, more broadly, the components of Australia’s GDP? Launched in 2021, the Net Zero Australia (NZA) “aims to provide rigorous and independent analysis of how Australia can achieve net zero emissions ...” It is “a partnership between the University of Melbourne, the University of Queensland, Princeton University and international management consultancy Nous Group. NZA uses the modelling method developed by Princeton University and Evolved Energy Research for its 2020 Net-Zero America study.”

According to its Mobilisation Report (July 2023), “the net zero transition will be among the largest and fastest economic transformations in history ... Our final modelling results, released in April 2023, highlight the immense scale and speed at which a transformation to net zero by 2050 (domestic) and 2060 (export) occurs ... We are predicted to commit up to $9 trillion of capital on the transition in the next 37 years ...”

That number – $9 trillion – is, to put it mildly, interesting. I don’t doubt that it’s relatively accurate. (Risibly, Greg Combet, formerly the head of the ACTU and a cabinet secretary, and presently the outgoing chief of the Orwellian-sounding Net Zero Economy Authority, told the National Press Club on 2 April 2023: “hundreds of billions of dollars will be needed to achieve net zero in Australia by 2050.” His estimate is a mere one-twentieth of NZA’s!) Yet NZA’s Mobilisation Report is oblivious to the fact that in 2023 Australia’s GDP was ca. $2.5 trillion; at an average of $250 billion per year, the commitment to “net zero” will soon comprise ca. 10% of each year’s GDP for the next 36 years. Is that plausible?

It bears repetition: NZA predicts an outlay of “up to $9 trillion of capital on the transition” to 2060. The word “capital” implies investment, and the national accounts record investment. Figure 10 plots total investment and a component of investment (electricity, water and sewerage infrastructure) on a CPI-adjusted basis since 1975.

Figure 10: Total Investment and Investment in Electricity, Water and Sewerage Infrastructure, CPI-adjusted Billions of $A, 1975-2023

In three respects, I strongly doubt that the Australian economy can sustain a sudden and massive – as NZA’s modeling insists it will be – increase of investment of $250 billion per year, and sustain it for the better part of 40 years:

1. Between 1993 and 2013, total investment rose from ca. $200 billion per year to ca. $550 billion per year. That’s an increase of ca. $250 billion over 20 years of the annualised rate of investment – but it’s nonetheless a far cry from NZA’s expectation of “the immense scale and speed at which a transformation to net zero ... occurs.”

2. Over the past decade in CPI-adjusted terms, total investment has stagnated. On this basis, too, is it plausible to expect a sudden increase of investment at the rate of $250 billion per year, and that it will persist to 2060?

3. Particularly in the next few years, the electricity sector will claim much of this estimated investment of $250 billion per year. Yet actual investment in electricity and water, etc., infrastructure has sagged from a CPI-adjusted $95 billion in 1975 to ca. $35 billion in 2023. Is it plausible to expect this sector to absorb a sudden tsunami of scores of billions of dollars of investment?

How will the transition affect Australia’s GDP? I’ll take NZA – and its estimated “commitment” of $9 trillion to 2060, or $250 billion per year for 36 years – at its word. To this estimate I’ll add some very generous (to advocates of “net zero”) assumptions:

1. The Commonwealth Treasury’s latest Intergenerational Report assumes that during the next several decades “real” (CPI-adjusted) GDP will grow 2.2% per year; I’ll assume 2.5%.

2. Governments’ share of GDP remains unchanged. This, of course, is ludicrous; but I’m bending over backwards to be generous. It’s charitable because if it continues to rise then it’ll crimp other components of GDP – such as business investment.

3. Capital expenditure devoted to “net zero” crowds out other government expenditure, it but doesn’t “crowd out” business investment. If it did, then investment in non-net zero software, machinery, plant and equipment, etc., would fall.

4. No cost blowouts will occur: NZA’s estimate of $250 billion per year for 36 years is firm. Anybody who’s at all familiar with infrastructure – indeed, the most casual observer of the Snowy River II project, etc. – knows that this is absurd: many initial estimates eventually become gross underestimates.

5. Australia will import 20% of its Net Zero capital requirements ($50 billion per year) and raise the remaining 80% ($200 billion per year) from domestic sources.

6. Australia’s exports remain unaffected; in other words, it remains a major exporter of coal, iron ore and LNG – which, to advocates of “net zero,” defeats the whole exercise. Their insuperable problem is that without this assumption Australia’s exports – and standards of living – collapse.

Figure 11 plots these assumptions’ consequences. Two are paramount. First, if NZA has its way, then, even given the very generous assumption #5, Australia’s net exports quickly turn sharply negative. Indeed, imports exceed exports by a bigger margin than at any time since 1960.

Figure 11: Australia’s GDP, Actual (1960-2023) and Projected (2024-2060) Components as Percentages of Total

What are the implications for the exchange rate of the $A vis-à-vis relevant currencies? Will the very strong demand for imports place upward pressure upon their prices denominated in $A. If so, what are the implications for the CPI? How will the RBA react?

Of course, a sharp and sustained movement towards “net zero,” as advocated by NZA, won’t cause a blowout of the current account, or a trashing of the exchange rate and an increase in CPI and rates of interest. That’s because a sharp and sustained movement towards “net zero” isn’t going to occur.

That’s because if it did it then it would quickly and materially lower Australians’ standard of living. If NZA had its way, personal and household consumption’s share of GDP would crash to 45% and take more than 30 years to rebound to a level (50%) that’s among the lowest experienced since 1960.

The “transition to net zero,” in other words, will greatly exacerbate today’s “cost of living crisis” – and cause it to last at least 40 years. And that conclusion, it’s vital to emphasise, rests upon my very generous (to the transition’s advocates) assumptions. 

“Net zero” won’t happen because Australia’s voters, once they appreciate its scant benefits and astronomical costs, simply won’t abide it. If you believe otherwise, I’ve got a bridge in Brooklyn I’d like to sell to you!

Is the “Climate-Industrial Complex” Finally Disintegrating?

My conclusions are hardly conventional; equally, they’re not iconoclastic. Over the past few years, I’ve noticed that fewer people respond to them apoplectically, and more people share them. In “Global Energy Transition” – Fact or Fiction? 6 February 2023), I quoted Adam Creighton (“Net-Zero Target Is Pure Fantasy,” The Australian, 9 June 2022): the effort “put into … (energy transitions and) emissions targets are a waste; they are simply not going to be met.” And in “Mission Impossible” (The Weekend Australian, 4-5 February 2023) Greg Sheridan concluded:

“Net zero hasn’t got a snowflake’s chance in hell. It’s a fraudulent concept. It’s not real. It requires an heroic leap of faith, magical thinking ... The world is not going to decarbonise on anything like the scale Western policy makers now claim ... Yet (the energy transition is) at the centre of Australian national policy.”

In Australia, federal and state governments’ “climate” policies are unattainable – and local councils’ pronouncements of “climate emergencies” are laughable. Even if they were achievable, which they aren’t, their cost will be astronomical. And even if they were attainable and affordable, which they aren’t, they’ll be utterly futile: they won’t affect the world’s climate one iota. The implication is obvious:

Once the public recognises that “climate action” is a bigger threat to their well-being than “climate change,” the intermittent-unreliable energy mania will collapse. 

The “sustainable energy” lobby is a powerful vested interest, but politicians ignore the public – and particularly its hip pocket – at their peril. Accordingly, as the cost of intermittent energy soars and its popularity tanks, politicians will obfuscate, weaken and eventually abandon their pious and pompous promises of “climate action.”

“Now, maybe you’d like to argue a different case,” Warren Buffett famously wrote in “Mr Buffett on the Stock Market,” (Forbes, 22 November 1999). If advocates of the alleged energy transition and of “net zero” want to dispute my results, fine. But, paraphrasing Buffett, “give me your assumptions ... You’ve got to rearrange key variables in some (coherent and justifiable manner). The Tinker Bell approach – clap if you believe – just won’t cut it.”

Implications

It’s not just advocates: investors (many of whom are also advocates; hence “speculators” is likely the more apposite term) have long been grossly overconfident – I’m tempted to say “delusional” – about the existence of the so-called energy transition and the prospects of “net zero.” That’s ultimately why, I suspect, the climate-industrial complex resolutely opposes any dispassionate examination of logic and evidence. Such analysis doesn’t merely sap its precious confidence; it threatens its massive subsidies!

If somebody's utterly convinced that he's right, then the hard slog of collecting, analysing and interpreting valid and reliable data is at best a tiresome waste of time – and at worst a threat to his worldview.

Daniel Kahneman, the winner in 2002 of the Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel (which is almost universally mislabeled “the Nobel Prize in Economics”) who died on 27 March, didn’t think that the various flaws that bedevil decision-making can be corrected. The most damaging, in his estimation, is overconfidence – the belief which convinces politicians that their allegedly good intentions will inevitably produce good results, and which assures investors that they can pick winning stocks and foresee economic and financial trends.

Kahneman identified overconfidence as the bias he’d eliminate if he had a magic wand. But it’s “built so deeply into the structure of the mind that you couldn’t change it without changing many other things.”

“Overconfidence,” says Investopedia (“What Is Overconfidence Bias? Can It Harm Your Investment Returns?” 9 August 2023), “is a cognitive bias that can negatively affect investment returns.” In particular, it “leads people to overestimate their skill and knowledge, underestimate the risks associated with certain actions and beliefs, and ignore relevant information and feedback.”

The overestimation of one’s abilities and knowledge, Investopedia continues, “can cause people to underestimate the risks associated with certain investments, exposing them to potentially avoidable financial losses.” And those who “downplay or dismiss information or evidence that contradicts their original decision ... (acquire and maintain) positions in poorly performing investments ...”

Figure 12 provides a telling example. It plots the course of investments of $100 in the Standard & Poor’s 500 Index and its Global Clean Energy Index (GCEI) at monthly intervals since S&P devised its GCEI in July 2008. The latter index, it says, “is designed to measure the performance of companies in global clean energy-related businesses from both developed and emerging markets ...”

Figure 12: Investments of $100, S&P 500 and S&P Global Clean Energy Indexes, Monthly, July 2008-March 2024

GCEI’s four largest (by market cap) components currently are: First Solar Inc. (an American energy company which has developed, manufactured, financed, engineered, constructed and currently operates many of the world's largest grid-connected PV power plants); Enphase Energy Inc. (an American energy technology company which develops and manufactures solar micro-inverters, battery energy storage and EV charging stations); Vestas Wind Systems A/S (based in Denmark and the world’s largest manufacturer, seller, installer and servicer of wind turbines); and Ørsted A/S (Denmark’s biggest energy company and the world’s largest developer of offshore wind power).

Since 2008 an investment of $100 in the S&P 500 has grown to $401 – that’s a CAGR of 9.4% per year for 16 years. In sharp contrast, over the year to 5 April the GCEI has crashed more than 30%; and since 2008, the investment of $100 has shrunk to just $39 – that’s a total loss of more than 60%, a CAGR of -5.9% per year and total underperformance of 15.3% per year for 16 years.

For consumers, “green energy” generates intermittent and unreliable power; for investors over more than 15 years, it's produced almost continuous red ink. The supporters of solar and wind farms have long maintained that they’re the investment of the future. I heartily agree – and hasten to add that they always will be!

Excessive confidence in one’s own abilities and beliefs, Investopedia concludes, “makes it harder for us to see just how prone we are to errors and biases. It also leads us to discount or ignore our mistakes and instead assign blame to others or to things that are outside of our control ... The invidious effects of overconfidence “can be diminished by ... considering contradictory evidence ...”

Today, who’s most prone to overconfidence? Industry and academic surveys conclude that the youngest (“millennial”) generation provides the most overconfident investors (again, “speculators” is likely the more appropriate term): as many as two-thirds of them show signs of overconfidence, compared with one-third of Gen-Xers and as few as one-fifth of Baby Boomers.

If so, then millennials face a double-threat: they’re today’s most overconfident generation of investors; they’re also most prone to swallow the propaganda regarding the so-called energy transition and the feasibility of “net zero” (in fairness, they’ve been the most intensely indoctrinated by middle-aged “teachers”). The risk is that their general youthful arrogance will beget investment losses and that their specific “green hubris” will compound these losses.

The irony is thus exquisite. “Anyone who stops learning is old, whether at twenty or eighty,” quipped Henry Ford – who, it’s worth noting, helped to create a genuine mega-trend. And “anyone who keeps learning stays young.” In this sense, when it comes to the “net zero” mega-trap today’s youth are “old” and today’s middle-aged and elderly are “young.”

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