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Delusional Nonsense From Ambrose Evans-Pritchard

May 28, 2015
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By Paul Homewood 

 

h/t Paul2

 

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http://www.telegraph.co.uk/finance/economics/11633745/Fossil-industry-faces-a-perfect-political-and-technological-storm.html

 

Ambrose Evans-Pritchard often writes about the forthcoming demise of fossil fuels, but he has really excelled himself this time, with such delusional reporting that about the only thing he has got right is his name.

 

The political noose is tightening on the global fossil fuel industry. It is a fair bet that world leaders will agree this year to impose a draconian “tax” on carbon emissions that entirely changes the financial calculus for coal, oil, and gas, and may ultimately devalue much of their asset base to zero.

The International Monetary Fund has let off the first thunder-clap. An astonishing report – blandly titled "How Large Are Global Energy Subsidies" – alleges that the fossil nexus enjoys hidden support worth 6.5pc of world GDP.

This will amount to $5.7 trillion in 2015, mostly due to environmental costs and damage to health, and mostly stemming from coal. The World Health Organisation – also on cue – has sharply revised up its estimates of early deaths from fine particulates and sulphur dioxide from coal plants.

The killer point is that this architecture of subsidy is a "drag on economic growth" as well as being a transfer from poor to rich. It pushes up tax rates and crowds out more productive investment. The world would be richer – and more dynamic – if the burning of fossils was priced properly.

This is a deeply-threatening line of attack for those accustomed to arguing that solar or wind are a prohibitive luxury, while coal, oil, and gas remain the only realistic way to power the world economy. The annual subsidy bill for renewables is just $77bn, trivial by comparison.

 

The British electricity group SSE (ex Scottish and Southern Energy) is already adapting to the new mood. It will close its Ferrybridge coal-powered plant next year, citing the emerging political consensus that coal "has a limited role in the future".

The IMF bases its analysis on the work Arthur Pigou, the early 20th Century economist who advocated taxes to stop investors keeping all the profit while dumping the costs on the rest of society.

The Fund has set off a storm of protest. Subsidies are not quite the same as costs. Oil veterans retort that they have been paying ‘social’ taxes for a long time.

But whether or not you agree with the IMF’s forensic accounting the publication of such claims by the world’s premier financial body is itself a striking fact. The IMF is political to its fingertips. It rarely deviates far from the thinking of the US Treasury.

 

It is becoming clearer that last year’s sweeping deal on climate change between the US and China was an historical inflexion point, the beginning of the end for a century of fossil dominance. At a single stroke it defused the ‘North-South’ conflict that has bedevilled climate policy and that caused the collapse of the Copenhagen talks in 2009.

Todd Stern, the chief US climate negotiator, said the chemistry is radically different today as sherpas prepare for the COPS 21 summit in Paris this December. "The two 800-pound gorillas are working together," he said.

Mr Stern claims that a constellation of states responsible for 60pc of global CO2 emissions are "already on board" for a binding deal, aimed at limiting the rise in carbon to 450 particles per million (ppm) and capping the rise in temperature to 2C degrees above pre-industrial levels by the end of the century. Climate scientists warn that we are currently on course for 4C degrees.

Some countries have been startlingly bold. Mexico has vowed to cut gases by 40pc within fifteen years – and Black Carbon by 70pc – if there is a binding accord. Gabon has promised to cut emissions to 62pc below the current trend path within a decade. The hold-outs are a diminishing alliance, struggling to make a moral counter-argument.

China has of course gone green with the zeal of the converted. "We are going to punish any violators who destroy the environment with an iron hand," said president Xi Jinping in March.

Two coal-powered stations were shut down in Beijing that month. The last will be mothballed next year. Deutsche Bank expects China’s coal use to peak as soon as 2016, an unthinkable prospect five years ago.

The Communist Party knows its own survival is at stake. Anti-smog protests are spreading in the big cities, a political mass movement in waiting. "Under the Dome", a documentary on the country’s toxic air and water, racked up over 100 million views on the internet within 24 hours two months ago. Beijing’s censors suppressed it in panic.

 

Mr Xi promises to cap total CO2 emission by 2030, building 1000 gigawatts (GW) of solar, wind, and nuclear power in fifteen years. His country already has more wind power (115 GW) installed than Britain’s entire energy system. It plans to add another 22 GW this year – equal to 15 nuclear reactors – building hundreds of miles of turbines across the North China steppe.

The International Energy Agency says that two-thirds of all fossil fuel reserves booked by global companies can never be burned if the world reaches a 2C accord in Paris. The assets will be worthless.

 

The carbon pricing regime that must ineluctably follow any such accord – even if phased in gradually – would surely call into question a raft of deep-water drilling projects, and as well as the vast Kashagan filed in the Caspian where break-even costs have risen to $100 a barrel. The North Sea industry would go into run-off.

A report by University College London said the Arctic would never be developed under a 2C degree policy. Over 75pc of Canada’s oil would have to stay in the ground, as would 95pc of coal reserves in the US, Russia, and the Middle East, unless there are radical advances in carbon capture and storage.

The Bank of England has launched an enquiry to determine how much of the $5.5 trillion invested in fossil fuel exploration and development over the last six years is really viable, and whether it could become the new ‘subprime’ for the global financial system. This probe has now spread to the whole G20.

 

Carbon Tracker estimates that $1.1 trillion of investment has gone on ventures that will require oil prices above $95 a barrel over the next decade to break even.

The big oil producers deny that they will be sitting on "stranded assets" under a 2C degree policy. Exxon insists that all its reserves will be needed – and much more besides – to meet rising global energy demand. Yet these companies cannot all be right. It is mathematically impossible.

Jeremy Leggett, the chairman of Carbon Tracker, said Exxon is "placing a bet" that there will be no change in CO2 policy. "It asks its investors to be assured that there is zero risk – precisely zero risk," he said.

A far-reaching climate deal would have been impossible a decade ago. There was little on the horizon to replace fossil fuel. This has suddenly changed.

The advances in the cost and efficiency solar power are by now well-known. The US Solar Energy Industries Association (SEIA) says the average prices of photovoltaic modules dropped from $8 a watt in 2007 to $2.70 last year.

 

 

Less known is that the cost of battery storage is also falling fast. We are moving much closer to the day when it will be cheaper for those in low or mid latitudes to store energy when the sun is shining and release it later, than to draw power from the grid.

The IEA estimates that the cost of a lithium-ion battery for grid-scale storage has fallen by more than three-quarters since 2008. The batteries last over three times as long.

Tesla’s Elon Musk is jumping in with his usual bravado, vowing to liberate consumers from the grid and transform the "entire energy infrastructure of the world".

His Powerwall rechargeable battery can clip on a garage wall and will retail for $3,000 to $3,500 (before installation costs), far lower than anything on the market.

This is surely just the beginning. The world’s scientific superpower is now throwing itself into the fight with gusto, conducting over 220 research projects into various forms of battery storage. Harvard University is working on an organic flow-battery – using quinones from rhubarb – that aims to cut costs by two thirds in three years and end reliance on rare earth minerals.

With luck, we will overcome the curse of solar intermittency before the end of the decade. Mass production will follow by the mid-2020s. The switch to solar will by then be unstoppable.

Fossils fuels are caught in a pincer squeeze, threatened with a ‘Pigouvian’ climate tax just at the moment when the upstart technologies are coming of age.

Advocates of green energy must restrain their Schadenfreude. Coal drove the industrial revolution. Cheap energy from oil and gas has lifted billions of people out of poverty.

Shell, BP, Exxon, Chevron, and their earlier incarnations, have done mankind a service, carrying out their work diligently in broad accord with the political consensus of an earlier time.

The industry deserves a ‘prosperity medal’, and an honourable valediction

 

So let’s look at some the points he makes:

 

1) It is a fair bet that world leaders will agree this year to impose a draconian “tax” on carbon emissions that entirely changes the financial calculus for coal, oil, and gas, and may ultimately devalue much of their asset base to zero.

No they won’t. There is simply no way that China, India or a host of other countries will agree to anything which restricts then from burning as much fossil fuels as they want.

And this won’t simply apply to developing countries. Japan has already announced its intention to push on with increasing coal capacity, following Fukushima.

Even if there was such a tax, it would simply be passed onto consumers, just as energy taxes are already.

 

2) The International Monetary Fund has let off the first thunder-clap. An astonishing report – blandly titled "How Large Are Global Energy Subsidies" – alleges that the fossil nexus enjoys hidden support worth 6.5pc of world GDP.

This will amount to $5.7 trillion in 2015, mostly due to environmental costs and damage to health, and mostly stemming from coal. The World Health Organisation – also on cue – has sharply revised up its estimates of early deaths from fine particulates and sulphur dioxide from coal plants.

As he points out (correctly for a change!), these are not subsidies, but supposed environmental costs. Even the report states that these largely apply to only coal, which rather nulifies his argument against oil and gas.

What the IMF analysis does not cover is the costs to health and general standards of living which are incurred when societies DON’T have access to cheap energy.

There is also no mention of the billions in tax revenue which are generated across the world by fossil fuel companies.

 

3) The IMF is political to its fingertips. It rarely deviates far from the thinking of the US Treasury.

AEP actually hits the nail on the head here! The IMF report has little to do with facts, and everything to do with Obama’s political agenda.

 

4) The British electricity group SSE (ex Scottish and Southern Energy) is already adapting to the new mood. It will close its Ferrybridge coal-powered plant next year, citing the emerging political consensus that coal "has a limited role in the future".

Ferrybridge’s closure has nothing to do with “the new mood”. It is closing because it is no longer economical to stay open, faced with carbon taxes and subsidised renewable competition.

 

5) It is becoming clearer that last year’s sweeping deal on climate change between the US and China was an historical inflexion point, the beginning of the end for a century of fossil dominance.

No it wasn’t. China is free to increase CO2 emissions as much as it wants until 2030, by which time its economy will will have matured enough to stabilise emissions.

Furthermore, there is no commitment from China for any reductions thereafter.

 

6) Mexico has vowed to cut gases by 40pc within fifteen years

This will only apply if a global climate agreement is reached, including $100bn a year in aid to developing countries such as Mexico.

Meanwhile, Mexico have made it crystal clear that they intend to fully develop their oil fields, with the objective of becoming the worlds fourth largest producer.

 

7) China has of course gone green with the zeal of the converted. "We are going to punish any violators who destroy the environment with an iron hand," said president Xi Jinping in March.

Two coal-powered stations were shut down in Beijing that month. The last will be mothballed next year.

No it has not. There is genuine concern in Beijing about the very real pollution from coal plants. This is why coal plants in the big cities are gradually being replaced with clean coal and gas.

More relevantly though, there is a massive expansion of coal capacity taking place away from the big urban centres in regions such as Inner Mongolia and Shaanxi.

Latest estimates suggest that coal power will increase by 39% by 2020. Use of coal may peak at some stage after that, but that does not mean it wall fall.

 

8) Mr Xi promises to cap total CO2 emission by 2030, building 1000 gigawatts (GW) of solar, wind, and nuclear power in fifteen years. His country already has more wind power (115 GW) installed than Britain’s entire energy system.

As AEP might have realised, China is slightly bigger than Britain! Latest figures from the EIA for 2012 show wind and solar contributing 0.1% and 2.0% of China’s electricity.

The reality is that China’s demand for electricity is forecast to triple by 2040. They will need to fully exploit every source of energy to get anywhere this.

It should also be China are going flat out to develop all of their oil reserves, and have spent $73bn in the last three years buying up global oil resources, and now control 7% of worldwide crude output.

 

9) The advances in the cost and efficiency solar power are by now well-known.

That’s good. Perhaps we can now expect subsidies for solar farms and domestic installations to cease.

While solar may have a role to play in some countries, they are basically useless in the UK. In the Jan to March quarter last year, they ran at just 3.9% of capacity. Elon Musk’s hugely expensive batteries won’t make the slightest difference to that.

 

 

 

Back in the real world, fossil fuels continue to supply all but a tiny fraction of global energy demand, as the BP Energy Outlook earlier this year showed. In the next couple of decades, demand for energy will increase substantially as populations grow and countries develop economically. The idea that this can be done while fossil fuels are taken out of production is simplistic nonsense.

 

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https://notalotofpeopleknowthat.wordpress.com/2015/03/30/bp-energy-outlook-forecasts-big-increase-in-co2-emissions-by-2035/

11 Comments
  1. Le Gin permalink
    May 28, 2015 1:34 pm

    £74 Million a year in Environmental Taxes. That’s how much SSE were paying annually for Ferrybridge.
    Nothing to do with coal having a limited role in the future. And I’m pretty sure that if they did say that, it will have been taken out of context.

  2. May 28, 2015 1:40 pm

    Reblogged this on JunkScience.com and commented:
    Delusional is correct. The delusion starts with the propagandist’s assumption that fossil fuels have zero economic value, only costs. Health costs are modeled and do not include actual diagnoses. How much of the health costs include more than doubling life expectancy.

    It’s hard to do a search for economic benefits, only the imaginary costs of fossil fuels. Do those who think they are so bad believe that all they have and do can be replaced by something else? Are they willing to eschew the benefits of fossil fuels and take up the lifestyle of 1015? I doubt it. I await their demonstration of a fossil free lifestyle.

    Delusional or idiots. Take your pick.

  3. gjhardy permalink
    May 28, 2015 1:51 pm

    Just had a long TwitBate with AE-P. Although an avid reader of his I am beginning to wonder about some of his “facts”.

    He was not aware of 5x$100bn commitment to developing countries.
    Referred to half a trillion dollars as peanuts to OECD awash with debt. (Now seems to have deleted the bit about peanuts.)
    Said China no longer a developing nation.
    Tried to differentiate between Western China and Eastern China for development purposes (I always thought it was one country)

    and

    Totally ignored coal fired power station development in China, India, Germany and elsewhere.
    Referred to “the shift in future trajectory of China’s coal” – sounded to me to be a bit like AGW models that ignore observed data.

    Coal can quote Mark Twain “reports of my death greatly exaggerated”.

  4. May 28, 2015 2:03 pm

    Reblogged this on Centinel2012 and commented:
    If any of those in the Green Movement could actually use their brains the green movement would never have started. Almost all of what the say or do defies any logic or the ability to reason.

    • Kartoffel permalink
      May 28, 2015 2:49 pm

      most haven’t the faintest idea, even so we must listen to world leaders

  5. May 28, 2015 3:01 pm

    Terrific response to a ridiculous publication.

    Would bet that the publication gets lots of publicity on BBC / Guardian and Independent while the response is not allowed. It is hard to understand I) how anyone can spout such rubbish and ii) how anyone can publish it without comment or criticism.

  6. Tom Collins permalink
    May 28, 2015 3:36 pm

    It’s the same old maxim – Follow The Money! I bet Ed Davey gets a good “fossil-free” job.
    Yet another Ponzi Scheme, doomed to failure, but at such a huge cost to the taxpayer/consumer.

  7. outtheback permalink
    May 28, 2015 3:47 pm

    As always with numbers you can come up with all sorts of things and convince some that you are right.

    Since they are bringing up all sorts of costs, health, enviro etc, lets put a price on say the US’s Bald Eagle. To my knowledge the US, government and NGO’s, spend a fair bit on protecting this magnificent bird. So we can put a cost on each bird. Each bird that is minced up by the swirling mincers is a loss of x$. We can do the same for other species.
    What is the cost per bird? Well that depends on how you look at what each organization puts in. If you want to make it look really bad you would also have to add a portion of president Obama’s cost of running the White House. Every minute he spends on enviro issues, a fair bit these days, is a cost to the taxpayer, the Bald Eagle is part of that environment and the White House is part of the taxpayer’s cost. Pretty much the way the IMF looked at the above issue. So per IMF calculations I would argue that each bird is worth $5 million, someone else might say $5000. A greenie would say there is no cost as it is taxpayer funded.
    China will eventually have to face the huge costs of cleaning the rare earth mining sites, one of the reasons the rest of the world, where there was large scale mining going on, was happy to leave them to it plus it would tarnish the clean/green image of the wind industry.
    Better to be out of sight in Western China. The more rare earth is needed for wind mill magnets the bigger the costs of the eventual clean up. And just wait for China to come to the UN with a case for an international clean up effort, i.e. dollars, as it was done for the “West’s” health.
    Making solar panels is not clean and green either but not many politicians want to mention that.
    And so we can continue.

  8. May 28, 2015 3:50 pm

    And in the real world.
    The US government has now allowed Shell to drill in the Arctic.

  9. May 31, 2015 1:42 am

    The author, Ambrose Evans Pritchard, (AEP) is a clever lad when it comes to economics. The logistics you know. But the temptation to prophesy about energy turns him into an absolute nutter. When you get most of the way through the article you read this:

    This is surely just the beginning. The world’s scientific superpower is now throwing itself into the fight with gusto, conducting over 220 research projects into various forms of battery storage. Harvard University is working on an organic flow-battery – using quinones from rhubarb – that aims to cut costs by two thirds in three years and end reliance on rare earth minerals. With luck, we will overcome the curse of solar intermittency before the end of the decade. Mass production will follow by the mid-2020s. The switch to solar will by then be unstoppable.

    The whole prophetic scheme depends on organic batteries made of rhubarb and luckily and miraculously overcoming the curse of Solar intermittentcy. (which is nighttime)

    Absolutely nutter.

  10. June 1, 2015 9:45 am

    Well done Paul. Very good blog, excellent.

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