Plenty of idealism was on view this week as the Intergovernmental Panel on Climate Change (IPCC), part of the United Nations, published the first part of its Sixth Assessment Report (AR6) on where Earth’s climate is heading. This part is the technical bit of the sixth assessment (all 3,949 pages of it), which aims to explain why Earth’s climate is warming so rapidly. Two more mega parts are due next year. The first will deal with the impact of climate change and adapting to it, the second with ways to mitigate the change.
Yet the climate-change models on which AR6 is based have been available for some time, so the report’s findings contained no surprises to experts. The chief question was the extent to which the headlines – the part beyond which few people read – would lay responsibility for global warming firmly on mankind. As it was, the IPCC gave it him with the ferocity of a force-12 hurricane.
“It is unequivocal that human influence has warmed the atmosphere, ocean and land,” is the summary’s opening sentence. “Human-induced climate change is already affecting many weather and climate extremes in every region across the globe,” followed. Then came enough pestilence brought by anthropogenic climate change fit for the Book of Leviticus. Changes include “the frequency and intensity of hot extremes, marine heatwaves, and heavy precipitation, agricultural and ecological droughts” and so on. Where, one wondered, were the plagues of locusts?
Balanced it was not. Then again, it wasn’t meant to be. Those who want balance can immerse themselves in the full report. There, they will find nuance, even doubt about some anthropogenic factors in global warming. Or, at least, they will if AR6 is similar to AR5, the previous assessment, although I suspect the new report’s tone will be changed. Where once there was doubt, now there will be assertion, some of it, perhaps, regardless of what the observed data or the output of the climate-change models say.
This lack of balance is a problem. Granted, one line of argument says climate change is sufficiently understood that the leading role of man-made factors in global warming – chiefly, releasing excess heat-trapping gases into the atmosphere – is not in doubt. Therefore, the function of the IPCC, and the scientists who write its reports, is no longer to discuss possible causes but to take on an advocacy role; to persuade consumers, almost exclusively those in the developed world, of the dangers brought about by their life style.
In that context, AR6 could not have been released at a better time. Greece and California burn while Germany drowns and – for good measure – the UK’s summer holidays begin with sopping weather. This is the perfect anecdotal evidence for anthropogenic climate change and just the right backdrop for a data-based academic tome. After all, it is axiomatic that the average punter is allergic to data. Throw any amount of numbers at him about, say, forecasts for variation in global temperatures and all you’ll get in response is a glazed expression, especially if the forecasts are accompanied by confidence bands. However, revolve the message around the staples of a human-interest story – lives lost, homes ruined, kiddies wailing – and your punter is convinced. It must be man-made climate change; how else can so many awful things be happening so often and getting worse?
Much human reasoning works on levels as banal as that. Anecdote and mental ready-reckoning are more convincing than any amount of data and maths. As the pictures of burning villages and drowning towns flash on our screens, you can almost hear the thought that this must – it simply must – be a consequence of greedy people waltzing around in gas guzzlers. If global warming isn’t actually a punishment for this wicked behaviour, the thought continues, then we will surely deserve to be punished by the meteorological mayhem to come if we ignore the IPCC’s warnings.
I caricature obviously. But increasingly a narrative like this powers the mass acceptance of the climate-change movement. The danger is this simplistic logic will justify an almost equally simplistic solution – the pursuit of ‘net zero’; slashing emissions of greenhouse gases, especially CO2, whatever their source, with too little regard to the cost of the reductions, the means by which the cuts are made, their perverse consequences, or whether some CO2 reductions are more fiction than fact.
It is not as if cutting – even eliminating – greenhouse-gas emissions is a bad idea. On the contrary, the particular role played by CO2 and methane in trapping the infra-red heat rays that water vapour allows to pass out of Earth’s atmosphere means their importance in global warming is out of proportion to their seemingly innocuous presence in the skies. This is why adding another 100 or so parts per million (ppm) on top of the 410 ppm currently in the atmosphere is such a big deal.
However, the headlong dash for net zero is where greed – or something very like it – enters the mix. Human nature, being what it is, greed arrived early in the process. Take the Kyoto Protocol’s Clean Development Mechanism (CDM) whereby mostly western companies subsidised carbon-reducing projects in the developing world (mostly China) in return for credits against which they could charge carbon emissions from their own operations. At peak CDM around 2010, UK consumers were subsidising the likes of third-world pig farms to the tune of £100s of millions a year via their electricity bills as power generators invested in such schemes to offset their carbon footprint. As an incentive to cheat, the Clean Development Mechanism took some beating.
Closer to home, illusory ways of cutting emissions have become a way of life for the FTSE 250 power generator Drax (DRX). It has become the UK’s biggest source of renewable energy through the expedient of burning wood rather than coal in its boilers. Since the wood comes from properly managed forests, the carbon released from Drax’s chimneys can be offset by that captured from newly-planted trees (well, eventually). Great in theory, quite likely flawed in practice. Still, Drax is addicted to the subsidies today and the emissions reductions may arrive in, say, 50 years’ time.
This may be little compared with the mess that wind farms may bring, in particular, the off-shore variety. Hyper-ventilating as usual, Boris Johnson says the UK will become the Saudi Arabia of wind-generated power and it’s true that its extensive and windy coasts, especially in Scotland, offer lots of scope. Possibly too much. It now seems plausible that wind power will damage the UK’s power distribution network much as it wrecked Germany’s in the 2010s. The core problem is that, if the wind blows too much, especially at the wrong time of day, then too much electricity is generated. Thus its price becomes so low that wind farms cannot cover their fixed costs. In those circumstances – and according to a report commissioned by SSE (SSE), a major investor in wind power – generators may have to be subsidised permanently via so-called ‘constraint payments’.
But this is how it is. Wherever there is a perverse incentive, there is someone making money out of it – and the drive for net zero is stuffed with such perversity. Still, let’s be honest, my complaint is not just that others are extracting big bucks from eliminating CO2, or just giving the appearance of doing so. What equally riles me is that opportunities for private investors to benefit from the net-zero pursuit are distinctly limited. Given that we, as consumers and tax payers, will have to bear so much of the cost of de-carbonising the economy it seems only fair we should be able to recoup some costs via investment gains.
Sure, private investors can salve their conscience by putting capital into any number of savings products that bear an ‘ESG’ sticker. Such labels are already next to worthless. Since every products provider trumpets its virtue, there is no telling which ones do it for real and which are phoney. Nor does it help that ESG can mean pretty well whatever anyone wants it to mean.
True, among the proliferation there are good products tied to de-carbonisation. Take Wisdom Tree Battery Solutions (CHRG), an exchange-traded fund which is also listed in London in US dollar-denominated form (VOLT). It tracks an index that aims to capture those parts of energy storage with the most growth potential in a world of declining greenhouse-gas emissions. As such, the development of lithium batteries has a big influence on the fund and that draws its holdings into murky areas since there is much that is dirty – both politically and environmentally – in the life cycle of lithium-ion batteries. For every box the fund’s holdings may tick under ESG’s ‘environmental’ heading, they may untick others. On ‘social’ and ‘governance’ issues they may be even more compromised. Not that this has hindered the fund’s performance. At £52.39, its shares have more than doubled since its launch in February last year.
Another especially interesting product is HANetf S&P Global Clean Energy (ZERO). This dollar-denominated ETF tracks an S&P index of clean-energy stocks in areas such as biofuel, fuel-cell technology and geothermal energy. It might look like just another fund to assuage the conscience of investors. However, its chief selling point is that it has carbon offsetting built in. This aims to neutralise the residual carbon emitted by its portfolio holdings. It does this by investing in a forest conservation project and a hydro-electric plant both in the Indonesian archipelago, with the cost of offsets charged to expenses. The solution is a generic one that the manager says will be applied to other ETFs.
Meanwhile, I still await the ETF that, simply and straightforwardly, tracks the price of carbon. Happily, one ETF provider tells me such a fund is on the way. Most likely it will be linked to the price of buying the right to emit 1 ton of CO2 under the European Union’s Emissions Trading System, which currently stands at $55, twice the level of a year ago and three times that of three years ago. This is not to imply that prices will continue to surge at anything like that rate. That’s not the point. The aim is that investors should be able to use their capital to hedge against further rises in the cost of energy. That’s neither idealistic nor greedy. Just realistic. Bring it on.