Climate Agreement, Hypocrisy and Summits

Trump’s decision to withdraw from the Paris “climate agreement” with the aim of negotiating a better one can be debated, but the whole summit and agreement smell of bureaucracy and hypocrisy. What no one should do is deny reality.

If governments were truly concerned about “climate change”, they would make fewer summits and act more.

These summits are photo opportunities that mask a very different truth. Bureaucrats care about the process, not the results, that’s why they love summits and multilateral vague agreements. Those same bureaucrats justify the atrocious results by organizing another summit.

Keep calm. Do not worry about those who make catastrophic predictions. The history of blunders of the end-of-the-world doomsayers is so vast that only a politician could ignore them. Let us remember that, according to “scientific analysis” of a few decades ago, we would have run out of oil and water already seventeen years ago. Ignoring efficiency, technology and substitution is the favorite hobby of subsidy collectors.

The problem of “combating climate change by a committee decision” is that it neither does so, neither helps consumers.

These summits and agreements perpetuate the perverse incentives of subsidized and crony polluters while penalizing consumers via taxes.

But there is good news. Decarbonization is unstoppable . Not thanks to a summit or due to politicians, quite the opposite. Thanks to competition, technology and research. Thanks to human ingenuity. Coal has been disappearing from the global energy mix for decades, despite – not to thanks to – governments. And the same is happening with oil.

In fact, my reader will not be surprised to know that climate summits always hide agreements to perpetuate the polluting rent-seeking sectors of each member country by setting targets to 2030 that no one will monitor and someone else will come to explain .

The reality is that, summit after summit, with a smile and a handshake, leaders return with their state-owned polluting sectors intact.

– Of the 147 countries that have ratified the agreement, in the overwhelming majority (more than 90%) the most polluting companies and sectors are 100% public (producers in petro-states, coal producers, refineries, steel mills, etc …). Even seeing the Climate Accountability Institute analysis, 63% of emissions come from 90 companies, of which 31 are state-owned, 9 are government-run and 50 develop government-owned resources through royalty-providing concessions.

If these countries were so concerned about climate change, they would not need to meet in exotic places at expensive hotels. Closing down their state-owned polluters would solve “the problem”. In fact, no need to close them.  If those countries that signed the “climate” agreement implemented the measures of efficiency, environmental control and best practices of US companies, there would be no need for a summit.

The reality is that the US and its companies do more in terms of R &D, technology, efficiency and corporate responsibility than the vast majority of countries that signed this agreement.

  • The US energy intensity has plummeted and needs much less energy consumption to grow, even though it has increased its energy independence until it is almost self-sufficient. The energy intensity of the US is 60% lower than that of 1956 and the country grows in a more sustainable way.
  • China is the biggest polluter in the world. It accounts for 15% of the global economy but is almost 30% of total emissions. If China is concerned about climate change, all its government needs to do is to look at the sky in Beijing and see that it is black, not blue, then close its coal companies. They are mostly all state-owned.
  • India is almost 7% of global emissions and the vast majority comes from state-run and subsidized coal and high-energy intensity sectors.
  • China consumes much more coal than their official figures say. Both The Guardian and The New York Times have reported that China emits up to 1 billion tonnes of CO2 more than it officially recognizes each year. But it appears before the world as the leader of the fight against climate change. Well, in 2030 60% of its energy mix will still be coal.
  • To say that China and India emit more CO2 because they produce goods for the West is simply untrue. Governments decide what energy mix they want through central planning in four out of five of the top CO2 emitters in the world.
  • The so-called “green” European Union spends $ 6.9 billion annually on coal subsidies. Since the 2015 “Paris agreement”, these subsidies have actually increased by $875 million per annum. In other words, coal subsidies (as well as refineries and subsidies to the car industry) have increased, while consumer bills have skyrocketed with the excuse of being “green”. In addition, the European super-green Union is about 10% of the world’s CO2 emissions but its citizens bear 100% of the costs in their tariffs.
  • Of the subsidies to fossil fuels, the largest by far is Iran – which has also signed the “Paris agreement” – and spends more than Saudi Arabia, Russia and India together in fossil fuel subsidies.

As I explained before, decarbonisation is unstoppable . But it would be even faster without the pitfalls of those who today present themselves as saviors of the Earth while in reality they just tax citizens to perpetuate their polluting “national champions”.

No Hollywood star in a private jet denounces these hypocrisies. The hundreds of thousands of pages of legislation that this summit will produce are not going to eliminate progress, but delay it, they do .

Trump is not an anti-environment monster, and Macron is no green giant. The US has reduced its CO2 emissions more than the vast majority of countries thanks to competition. The success of the US in its energy policy has been precisely not having one, Dick Cheney told me years ago. If it had been up to the administration in 2007, today the US would not be self-sufficient in natural gas, one of the largest oil producers in the world, and a leader in competitive wind and solar without subsidies.

The gradual decarbonization of the US has not only come from healthy competition, but a cheaper transition helped fthe consumer. The US has cut more emissions in the past ten years thanks to fracking and competition than the European Union’s subsidy -driven interventionist nightmare (read).

The US has achieved this reduction by lowering gas and electricity prices to its citizens, while in the EU they have skyrocketed .

Trump is not going to stop a winning formula. Neither will he join a summit of perverse incentive decisions with little practical use. Obama could not stop the energy revolution that he initially rejected and now considers natural gas and almost energy independence a personal achievement.

Would it have been better for the US to accept the agreement? I’m not sure. It may negotiate something less cosmetic and more realistic. An agreement that does not harm competitiveness and employment.

Therefore, let us be calm.

If you think that Trump’s decision is bad, breathe easy. The Paris agreement is non-binding and completely unenforceable anyway. And the US will take at least three and a half years to fully implement the withdrawal. And if you really think that the climate savers are going to be the Chinese, take a trip to Beijing and Shanghai, look at the sky, and tell me what you see (if you can see anything).

Regardless of what you believe, technology and efficiency will continue to generate more progress, cleaner and more abundant energy. 

The whole Paris climate agreement is non-binding, not enforced and with no guidelines other than “annual contribution reports” -ie, papers. Whether or not the agreement was accepted by Trump, nothing in it is enforceable, so efficiency and technology change will happen whether there was an agreement or not.

Daniel Lacalle has a PhD in Economics and is author of “Escape from the Central Bank Trap”, “Life In The Financial Markets” and “The Energy World Is Flat” (Wiley)


Picture courtesy of Google

About Daniel Lacalle

Daniel Lacalle (Madrid, 1967). PhD Economist and Fund Manager. Author of bestsellers "Life In The Financial Markets" and "The Energy World Is Flat" as well as "Escape From the Central Bank Trap". Daniel Lacalle (Madrid, 1967). PhD Economist and Fund Manager. Frequent collaborator with CNBC, Bloomberg, CNN, Hedgeye, Epoch Times, Mises Institute, BBN Times, Wall Street Journal, El Español, A3 Media and 13TV. Holds the CIIA (Certified International Investment Analyst) and masters in Economic Investigation and IESE.

3 thoughts on “Climate Agreement, Hypocrisy and Summits

  1. That’s the kind of argument that Trump should have used to exit the Paris agreement, rather than denying climate change.
    Just a small note: in Europe the coal is being displaced by gas partly thanks to the CO2 prices. This is eroding their spread (with power) as the coal emissions are x3 to those in CCGT.

    1. I agree with your first comment.

      I, however, disagree on CO2 prices. In Europe, CO2 prices have collapsed and they have become a tax on consumers because it is passed on to bills. The effect you mention is interesting, but Germany is proof of the perverse incentive that CO2 prices mean.

      Thanks for the comment!

  2. As long as the ones taking these type of decisions are politicians with a 4-year due date, nothing really serious is, as you mention, going to come out of these summits except good intentions and nice photographs for the record. Real improvements can only thrive with a program that covers the progress assessed along a longer period of time with the same people or teams being evaluated over that same period. But again you are right when you mention that none of these matters. Once again, free market will take care and the countries should try to, at least, not burden those seeking green energies or prevent them from advancing.

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