“U.N. Predicts Disaster if Global Warming Not Checked” reads the headline. It’s from 1989, and warned that within eleven years, “…entire nations could be wiped off the face of the Earth by rising sea levels.”
In October, 18 years after the non-disaster, the UN’s Intergovernmental Panel on Climate Change (IPCC) issued a call for dramatic reductions in Global Greenhouse Gases (GHGs). Its goal is to limit global warming to 1.5 degrees C above pre-industrial times.
Just because past warnings have been wrong doesn’t mean this one is. The science around climate predictions is improving, helped by past inaccurate ones. But it does highlight that climate change is not a new problem. Wildfires and more extreme weather are believed to be a result of a warmer planet. But the world isn’t yet adopting the significant changes in energy use that the IPCC and others demand. That’s because the planetary changes are, so far, manageable.
More intense hurricanes and the freezing Polar vortex are miserable events, but they pass. Meanwhile, the benefits to humankind of cheap energy are most apparent in developing countries, where better hygiene, clean drinking water and reliable power are linked to longer lives. The United Nations Human Development Index (HDI) combines life expectancy, education and income to provide a more complete picture of well-being than simply considering GDP per capita. If one chart can illustrate the global challenge of combatting climate change, it might be the scatterplot below.
HDI is inextricably linked to energy consumption. 100 Gigajoules (GJ) per head is approximately where improvements in HDI begin to flatten out. 80% of the world’s population lives below this level, and presumably aspires to it. Much of the developing world is in this category. The UN recently recommended the adoption of policies to limit global warming. The Green New Deal (GND) went further, with highly impractical solutions (see The Green Bovine Dream).
The world wants more energy and reduced emissions.
The world relies on fossil fuels for 80% of its energy. Although BP is firmly in that business, in their recently published long term outlook they expect renewables to be the biggest source of electricity generation within two decades.
Much of the growth in renewables will occur in developing countries. This is because energy use is capital-intensive.
Today’s gasoline-burning automobiles last ten years; power plants can run for 30 or more, and energy inefficient buildings can have many decades of useful life. It’s hard for a new solar farm to compete on economics with an existing natural gas burning power plant.
Fossil fuels will continue to meet most of the world’s energy needs for decades to come. Like other long term forecasts, BP expects natural gas demand to grow at 1.7% annually.
The U.S. is supremely well positioned for these long term trends. Production costs are falling, and the short-cycle nature of shale continues to attract capital at a time when 20 year investments in oil and gas projects are exceptionally hard to assess.
Environmental activists who are against all fossil fuels often accuse their opponents of being “climate deniers”. They claim a scientific basis for their often extreme views, asserting that rejecting their solutions for climate change is to reject science.
The GND uses science selectively to support its objectives. It has been widely criticized for its extreme and implausible call for the elimination of fossil fuels (the House resolution calls for, “eliminating pollution and greenhouse gas emissions as much as technologically feasible” (italics added). Note there’s no mention of economic feasibility or any consideration of cost/benefit tradeoffs. It seeks, within a decade, “meeting 100 percent of the power demand in the United States through clean, renewable, and zero-emission energy sources” which isn’t technologically feasible today, and certainly is economically implausible.
Any serious effort to limit GHGs must incorporate nuclear energy. The GND House resolution is silent on the topic. The infamous FAQ document that was released and then disowned by Bronx Congresswoman Alexandra Ocasio Cortez (AOC) called for decommissioning nuclear power.
Those who claim to care about climate change but reject increased use of nuclear power are rejecting science. Mike Shellenberger, who writes thoughtfully about such issues, has said, “The problem with nuclear is that it doesn’t demand the radical re-making of society, like renewables do, and it doesn’t require grand fantasies of humankind harmonizing with nature.”
Environmental activists such as GND supporters and the Sierra Club are creating opposition to serious efforts to address climate change. Their opposition to natural gas pipelines slows the replacement of coal-burning power plants. Their rejection of nuclear betrays an emotional, unscientific approach. Their wild extremism shows supporters to be more interested in demagoguery than solutions.
Radioactivity occurs naturally all over the world. Embracing sunlight and wind as more natural than uranium is a belief system but isn’t a scientific solution to meeting the world’s need for power.
Over the last decade, the U.S. has achieved a greater reduction in CO2 emissions than any other country (see Guess Who’s Most Effective at Combating Global Warming) because of power plants switching from coal to natural gas.
U.S. midstream energy infrastructure will remain vital to meeting the world’s growing demand for oil, gas and natural gas liquids, even while the multi-decade transition to non-fossil fuels is underway. The sector remains attractively valued after a strong couple of months, with distributable cash flow yields above 10%, substantially higher than REITs’ equivalent funds from operations yields of around 6%. From our vantage point, rising dividends are drawing in new investors.
At SL Advisors, we are helping finance America’s use of cleaner fossil fuels like natural gas in favor of coal, which we avoid. We are doing our bit to lower GHGs and make a better planet. We’re doing more than the Sierra Club, AOC or the GND supporters, because we’re focused on solutions that are effective today. The debate about climate change would benefit from a bit more scientific rigor.