The annoyance of a rail disruption confronted by the delegates attempting to get to Glasgow, the unpleasant aroma resulting from the current strike of garbage collectors while they were there, complaints from those looking forward to 2015-style Parisian quality food in the home of haggis, and a meeting that over-ran its planned adjournment as common ground proved elusive all were relatively minor unpleasantness. More important was an exhibition of politicians behaving badly.
Credibility In Short Supply
Those who profess the greatest interest in containing global warming have the annoying habit of undermining their credibility by making it clear they have no intention of living by the rules they impose on others. President Biden visited Rome for a conference on climate change and a sit-down with the Pope at the head of an 85-vehicle motorcade of fossil-fuel-burning, CO2-emitting limousines and SUVs flown from America. The President proceeded to Glasgow where he both implored the conferees to reduce the use of fossil fuels and the OPEC oil cartel to step up production of crude oil to bring down the politically damaging increase in gasoline prices.
Hypocrisy is not only a Biden vice. Boris Johnson flew home to London on a private jet to attend a dinner at The Garrick, a men’s-only club rather than board a train, irrelevantly contending the one-hour flight spewed 15 per cent less CO2 than the Royals’ plane would have done. Xie Zhenua, China’s climate-change envoy, professes to believe that “the challenge of climate change is existential”, while his boss, Xi Jinping, stayed home to explain personally to his bureaucrats the effect on their career trajectories if they failed to reopen coal mines and the generating stations in their districts.
America’s greens add inconsistency to the reasons for anti-green skepticism by demanding greater reliance on renewables while opposing the construction of the high voltage transmission lines needed to move power from remote wind and solar installations to consuming centers.
$4 Trillion Is Not A Lot Of Money
Progress in containing warming has also been reduced by politicians’ assumption that capital with which to do the job is scarce, limited by their ability to tax the hissing geese and run deficits. Enter Brian Moynihan, CEO of Bank of America, a member of the Financial Alliance for Net Zero, with Glasgow lesson one. He rejects the idea that limits on governments’ ability to tax and borrow are also limits on the ability to cope with climate change. Moynihan pointed out there is no shortage of capital to cover the estimated $4 trillion required annually from 2026 to 2030 to transition to a carbon-free economy by 2050. It is, he pointed out, “not that much money.”
After deducting for investments no longer to be made in fossil fuels, the required investment comes to about 1-2 percent of global GDP. That’s in line with investment in railroads in the 1850s, in internet technology in the 1980s and housing in the mid-2000s writes The Wall Street Journal’s estimable Greg Ip. “All were enthusiastically financed by Wall Street”.
Revenue Streams Will Flow To The Bold
“If there’s a revenue stream, then the funding is infinite,” argues Moynihan. And the revenue stream from the trillions of dollars of investment will come from wind and solar farms; products that substitute for high-carbon-content steel and cement; technologies such as those being funded by Bill Gates and his partners in Breakthrough Energy Catalyst, and from the small modular nuclear reactors being developed by Rolls-Royce in Britain and NuScale Power in America, to name a few.
It is important to remember that those investments are made attractive by governments’ decisions to destroy or reduce the value of existing investments by regulations or taxation – oil in the ground and coal plants being the most prominent candidates for the designation “stranded assets”. The social costs of the use of these assets might warrant their destruction, but the arithmetic is beset with rather arbitrary decisions.
These new revenue streams are not assured, but neither were those that financed early wildcat wells in Texas (nine out of ten were dry holes), or the horseless carriage, or gas stations. There will be losses. But the massive flow of capital into all sorts of start-ups, opaque SPACs, bankrupt companies, a $100-billion market-cap company that has sold only 156 vehicles, most of them to employees, suggests that at least in America risk-taking is a national pastime.
Fix Flawed Prices
For that game to be played on a level playing field, we have the second lesson taught in Glasgow. If we allow producers of carbon-laden products to peddle their wares at prices that do not include the costs they impose on society, cleaner products are at a disadvantage, just as products meeting labor standards would be if competing with illegal child labor.
The EU took the leadership by announcing plans to impose a carbon border adjustment mechanism or, more candidly, a tax on imported goods with high carbon contents. That would make it easier for carbon-light steel and cement to compete with dirtier stuff from China and Turkey that imposes costs on other nations. In America, which leads the world in the use of clean steel-making technologies, trade negotiators are working to include carbon restrictions in its trade deal, dressing them in protectionist clothing rather than green garb to please the trade unions.
Which means that even in a world in which private-sector capital is relied on to contribute to meeting whatever goals are agreed at COP26, there is a role for government. It must get the incentives confronting investors right by getting the prices facing competitors in line with the true costs of production, otherwise relatively clean American products cannot compete with dirtier, cheaper Chinese exports.
Now it is up to UN special envoy Mike Bloomberg, along with former Bank of England governor Mark Carney, to advise governments and the financial sector how to create revenue streams to tap Moynihan’s infinitely available funding.
We Will Meet Again
In the end the conferees agreed to disagree on major issues, and to reconvene by the end of next year to strengthen their pledges to reduce emissions – China, Russia, Brazil and Australia have yet to improve on existing near-term plans – and work out an agreement for the massive income transfers developing countries, including in that group China, are demanding. They want richer countries to finance their transition from fossil fuels and pay reparations for the damage done them by past emissions created by the already-industrialized nations.
With doing nothing a political impossibility in the face of green momentum and politicians seeking to avoid irrelevance, increased private-sector involvement and the beginning of the repair of a flawed price signal make COP 26 a modest success, or at least not a complete failure. Worth perhaps one cheer.
 Haggis, the national dish of Scotland, is a type of pudding composed of the liver, heart and lungs of a sheep, minced and mixed with onion, oatmeal, and suet, and cooked while encased in the animal’s stomach. It is not likely to have been on the menu at the 2015 Paris meeting.