In today’s issue:
- What do Weinstein, Biden and the Emperor have in common?
- Serious analysis of net zero plans reach dire conclusions
- Hopefully someone in Germany let our prime minister know
This is going to get immensely awkward for Ed Miliband. We’ve long known the price of net zero is unaffordable. But what happens when everyone else knows it too?
Who would vote for a political party promising the obviously impossible?
Ask the Germans. Their Greens party is facing electoral oblivion. Their share of polls has halved in just two years to 11%. In the midst of a climate crisis, too…
The reason why is obvious. The Germans know better than anyone what the energy transition costs. Heck, they already know what reversing energy transition policies costs. Because they’re already paying the price on both counts. And at the next election, they’ll refuse to pay any more.
Hopefully someone in Germany let our prime minister know while he was there. But I suspect the Labour Party’s delusions are about to get the same sort of awakening as their budget black hole did.
Not because reality eventually bites. Politicians can deny reality indefinitely. They usually don’t bear the consequences of doing so.
What they care about is public perception. And that’s what has changed…
Germany awakens, we’re next
The Germans have been suffering under net zero policies for decades now. The consequences aren’t new.
What has changed is people’s opinions of them.
Ben Hunt of the Epsilon Theory blog wrote an excellent article about this idea. It’s known as the Common Knowledge problem. You and I know it as the Emperor’s New Clothes story. But there’s a better example from Ben’s article…
Pretty much everyone in Hollywood knew that Harvey Weinstein was a rapist and a really bad guy, including his wife and his business partners and all the actors who wanted a role in one of his movies. It was widespread private knowledge, verging on public knowledge. I mean, if you’re making jokes about it on 30 Rock, it’s out there.
But it didn’t matter that everyone in Hollywood knew that Harvey Weinstein was a rapist. No one’s behavior changed. No one shunned the guy. No actor turned down a role. No politician turned down a donation. His wife didn’t leave him, and his business partners just upped the D&O insurance and paid out settlements. They all knew, and I’m sure they cared a little and shook their heads in a tsk-tsk sort of way, but they didn’t care enough to change their transactional relationships with Harvey Weinstein. Because that’s the thing about private information, no matter how widespread. Even if everyone in the world believes a certain piece of private information, no one will alter their behavior. Behavior changes ONLY when we believe that everyone else believes the information. THAT’S what changes behavior.
Ben was writing about Joe Biden’s disastrous debate performance against Donald Trump. We all knew he was too old and senile to be president. We knew it for years. But until we all knew that everyone else knew, his fate wasn’t sealed. We could go on pretending.
The reckoning doesn’t come when the truth is obvious. Nor when the consequences slam into our everyday lives. It only appears when you know that everyone else knows too. Nobody could deny it after Biden’s debate performance.
The link between immigration and crime recently hit the same realisation in Germany. And so they’ve placed border controls inside the Schengen Zone and are considering using our Rwanda plan.
Well, I believe we are hitting the inflection point in the story of net zero. It is no longer just “private knowledge” that net zero is impossible. We now know that everyone else knows it is impossible. It is “common knowledge”. And that makes things very awkward for politicians.
Yet another conspiracy theory comes true?
Serious analysis of net zero plans can come to two possible conclusions. We aren’t going to make it. Or we need to “assume a war footing” to have any chance.
I remember when the economist Steve Keen made the latter point in an interview a year or two ago. He was derided for alarmism. These days, the mainstream financial news site Bloomberg is the one spouting such conspiracy theories. Or are they still conspiracy theories?
People increasingly realise that any serious attempt to save the planet from climate change would mean suspending democracy, crushing living standards, banning all sorts of daily activities and gearing all economic activity to cutting emissions. And they are realising that everyone else has figured it out too.
Bloomberg’s analysis of the cost of net zero includes some real gems:
the needed injection of new money amounts to $3.5 trillion per year on average, roughly equivalent to half of all corporate profits worldwide, say, or a quarter of all tax revenue.
It’s not clear whether this includes the profits and tax revenue generated by fossil fuels…
But, either way, it’s a non-starter.
This is my favourite bit of Bloomberg’s maths:
The IEA gives more weight to behavioral changes such as driving and flying less or turning down the thermostat, noting these “achieve demand reductions rapidly and at no cost.”
Yes, the loss of your living standards come at no cost. Somebody should tell all those pensioners who are losing their heating allowance to stop whining.
I know what they’ll say in response. The sciatica I get in my in-laws’ unheated house comes with immense costs. And I don’t just mean to the local healthcare system.
But I suppose a life lost to a lack of heating is seen as even less carbon emissions to those who prioritise CO2 over the human condition. If they’re buried deep, literally and figuratively.
Your life replaced by a windmill in the North Sea
Don’t worry too much about what your life under net zero might actually look like. You sacrifices will be worth it. All the costs are of course not costs but “an investment.” They will create wonderful jobs and valuable infrastructure… of the sort that won’t heat your home properly either.
Indeed, it’s an investment with a worse payoff than the alternatives currently offer. It’s a transition to a less efficient system. And that means lower living standards.
Every green job celebrated by a politician is a cost added to your power bill and a loss of labour to another industry producing something you want to buy. Politicians should be celebrating how few jobs an energy system requires to keep going, not how many.
I suppose shutting down fossil fuels, airlines and farming will free up plenty of labour though…
But every billion spent on green energy is a billion not spent on something else that would’ve actually improved our quality of life.
And every trillion increases the risk of a debt crisis.
What happens next?
Now that we’ve reached the Common Knowledge phase of net zero’s failure, something has to change. The big question for investors is whether the world sticks to the climate alarmism that justified net zero in the first place.
If we really believe that carbon emissions will wreak disasters, then we may really go onto a “war footing” as Bloomberg has calculated that we must.
In that case, all investment bets are off. Except carbon capture and storage.
Perhaps that’s why the gold price is leaving other asset classes for dead, again.
It’s also possible that people will give up on an unattainable goal. Perhaps the Common Knowledge awakening will extend to climate change science.
My own prediction?
They’ll double down!
Net zero may not be possible by 2050. But what about 2070?
Investors should prepare for more spending, more mandates, more subsidies, more quotas and more moving goal posts on the “settled” science…
The good news is, you can offset the painful misery this’ll impose.
If you can’t stop them, join them.
Why not become a shameless profiteer from the energy transition boondoggle?
You have three days left to position yourself.
Until next time,
Nick Hubble
Editor, Fortune & Freedom
