The underlying foundation is being laid with the push to rid the world of fossil fuels by promoting sustainable investment and green renewables

New plans to overthrow market-driven investment systems are a constant feature of today’s global financial scene. The recent appointment of Bank of England Governor Mark Carney as the UN’s special envoy for climate action and finance signals a renewed international effort to turn the world’s energy investors into pawns of state climate activists and agitators for market-distorting policies.
The movement to subvert markets, however, is much bigger than Carney. It is now accepted dogma globally that the financial markets are unreliable, twisted by greed and even corrupt. In Carney’s words, markets are based on “selective information, spin, misdirection.” That’s a mild criticism compared with the views of others. “Capitalism as we know it is dead,” said Salesforce chief Marc Benioff, one of many business leaders who have joined the anti-corporate left in claiming the financial and capital markets are destroying the planet.
We need a new model, they say, one that is “sustainable” and “green” and “social” and “environmental” and “equitable.” To create that new model will require a major economic overhaul, with new policies, incentives, structures and strategies, laws and regulations. At the same time, new social and environmental engagement will be needed to shape business investment decisions to achieve objectives that are beyond the reach of markets alone. In the words of Ottawa’s Expert Panel on Sustainable Finance, today’s markets do not accurately reflect economic and environmental reality. “Markets work best when assets are properly valued; however, in today’s market economy, climate factors are often mispriced and climate risks are generally underappreciated.”
Apparently, financial market players are incapable of making rational market assessments. According to Carney, investors in fossil fuel companies are taking on massive amounts of uncalculated risk. “If we were to burn all those oil and gas (reserves), there’s no way we would meet carbon budget,” he told the BBC. “Up to 80 per cent of coal assets will be stranded, (and) up to half of developed oil reserves. A question for every company, every financial institution, every asset manager, pension fund or insurer: what’s your plan?”
British energy commentator John Constable suggests it is Carney and other green energy advocates who lack a realistic plan. Global energy use over the past 30 years suggests fossil fuels have been expanding as stable and risk-free investments while renewables have failed to gain ground. “Fossil fuels are known quantities; their physical and thermodynamic properties are manifestly favourable.” (See Constable comment elsewhere on this page).
When investors assess risk in energy markets, the likelihood of stranded coal and oil reserves looks small. The real risks, in fact, are in renewables which have failed to make advances despite three decades of incentives, mandates, subsidies and other unsustainable policies.
A powerful indication of renewable energy policy risk lies in Germany’s experience. In a November report on that country’s energy transition to a greener and more sustainable regime, McKinsey & Company essentially concluded that Germany’s two-decade orchestrated green energy revolution has been a disastrous failure.
Germany followed all the sustainable rules now advocated for Canada. There were subsidies and incentives to build renewables, support for “green” transitions and the creation of innovative national champions. German companies became global leaders in the production of solar cells and wind turbines. They developed “cutting-edge technologies” and created jobs for several-hundred-thousand employees.
The results have been dismal. Germany will fail to meet its greenhouse targets by a wide margin, the country’s power grid is in trouble, electricity may have to be imported, and electricity prices are 45 per cent higher than in other European countries.
McKinsey’s conclusion should be a warning to Canadian politicians and business leaders. “These recent struggles in Germany,” said the report, “illustrate the potential pitfalls of a fast energy transition, but they can provide important lessons for other countries endeavouring on their energy transition.”
The lesson for all the woke bankers, economists and corporate vice-presidents of sustainable stakeholderism and shared values is that the risks of major attempts to manipulate and overthrow the markets are all theirs.
We are now 12 years past the 2008 beginning of the Great Recession. The conventional wisdom now is that the crash was brought on by financial market and investor greed and incompetence. Whatever market failure occurred, it happened in the context of a major government-created fiasco known as the sub-prime mortgage crisis.
The role of financial market players in the sub-prime mortgage crisis cannot be denied. But the underlying element, the primal cause, was deliberate government policy to stimulate home ownership through the federal Community Re-Investment Act. Over the years leading up to the crisis, the U.S. government lowered standards and promoted massive home ownership at cheap interest rates for people who could not afford them. The plan was to force the market and financial institutions to jack up lending.
It worked. In 2006 alone, more than 40 per cent of $3-trillion in U.S. mortgage lending was in the sub-prime category as U.S. financial markets jumped on the government-led housing boom that led to the crisis.
U.S. housing policies of the time were based on the same kind of thinking that drives current plans to stimulate renewable energy. We want more of something, so let’s rig the rules to get what we want.
The national and international push to rid the world of fossil fuels by promoting sustainable investment and green renewables is still in its infancy. No sub-prime energy crisis is imminent, but the underlying foundation is being laid.
Financial Post
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