By Paul Homewood
Cop26 has been a gift to our geostrategic rivals — and to hedge funds
The gap between rhetoric and fact is a perennial feature of politics. But seldom can the chasm between claim and reality have been as wide as that displayed by Alok Sharma at the Cop26 conference in Glasgow. The British president of the latest intergovernmental climate change gathering told the delegates (and the world’s media) that “the end of coal is in sight”, as a result of the agreement he had negotiated.
That was the rhetoric. Now the fact. Not only was the declaration to phase out coal by the 2040s not signed by the world’s top three consumers (China, India and America, which account for more than 70 per cent of the global CO2 emissions from burning the stuff); the pledge itself was neutered by the addition of the get-out “or as soon as possible thereafter”.
The head of the International Energy Agency, Fatih Birol, observed that the absence of the biggest coal producers as well as consumers (Australia also refused to sign) meant the chances of meeting the proclaimed and mysteriously precise target of keeping global temperatures at no more than 1.5C above pre-industrial levels were “close to zero”. By then, however, all the heads of government who actually bothered to show up in Glasgow had already left in their private jets.
The fact that the leaders of Russia and China did not attend gave President Biden (who did, and was awake for much of the time) the opportunity to castigate them for their lack of involvement.
But Presidents Xi and Putin can at least be absolved of the charge of hypocrisy. Offstage in Glasgow the US secretary of state, Antony Blinken, held talks with the foreign minister of the United Arab Emirates, in which he urged Sheikh Abdullah bin Zayed Al Nahyan to “further increase production” of oil — this from the official state department account of the meeting. Before flying in to Glasgow, Biden himself had even mooted the idea of punishing Russia and Saudi Arabia if they didn’t increase oil output soon (“What we’re considering doing on that, I’m reluctant to say before I have to do it”).
In its inarticulate way, this captures the confusion of the West’s official policy (of which the British government claims to be an exemplar). On the one hand our leaders want to make oil and gas production a thing of the past. On the other hand they know that their own voters can’t get enough of the stuff (not least for heating their homes) and in particular hugely resent any steep increase in its price. As BP’s chief executive, Bernard Looney, explained last week: “If you take away supply, but demand does not change, the only thing that happens is that prices go up.”
That has been happening in recent months — and it has been a boon for oil exploration and production companies. Their asset values have rocketed up in line with the price of crude. So you might think, if you have a mind for the value of your pension fund: I may be paying more at the pump, but at least my share portfolio will benefit.
Think again, perhaps. The big institutional investors, at the urging of their ESG (environmental, social and governance) committees, have been divesting from industries defined as polluting. And who have been the buyers? Hedge funds, mostly, such as that managed by Crispin Odey, whose European fund has risen in value by more than 100 per cent so far this year. Last month Odey told the Financial Times: “They [the big institutional investors] are all so keen to get rid of oil assets, they’re leaving fantastic returns on the table.” Another hedge fund manager, Josh Young of Bison Interests, observed: “People don’t understand how much money you can make in things that people hate.”
A friend of mine who is a fund manager said it reminded him of the situation some years ago with the tobacco companies: “A number of pension funds felt squeamish about holding their shares, but their clients, whose interests they were meant to serve above all, lost out, because the flow of dividends from the likes of British American Tobacco has continued to be stupendous.”
At least BAT is still a FTSE-listed company, so pension funds can invest in it if they wish. But Thérèse Coffey, the secretary of state for work and pensions, has announced plans to “name and shame” pension funds that prove unwilling to divest from polluting industries.
Two consequences flow from this. The first is that unquoted companies — which the “hedgies” can invest in without the restrictions that apply to big pension funds — will acquire “polluting businesses” at knockdown prices, making potentially vast returns for the people who already have the considerable sums required by such firms of their clients.
The head of the world’s biggest fund manager, BlackRock, made this clear at a panel discussion in Glasgow last week. Larry Fink observed that the disparity of obligation between public and private companies was creating the opportunity for “the biggest capital market arbitrage in my lifetime. We are seeing more hydrocarbons moving away from public entities to private entities.”
And the second consequence of Coffey’s proposals? If BP, Shell and the like are discouraged from investing in more oil and gas developments, then there will be even more dependence (as Biden has already unhappily noted) on countries such as Russia and Saudi Arabia. Leave aside the economics; this is a form of geostrategic self-harm by the West. Or, at least, it will be unless the transition to a post-oil and gas era is far smoother than seems feasible.
It’s true that renewable energy sources such as wind and solar have become more competitive with fossil fuels. But not only is their intermittency a feature rather than a bug; the bizarre paradox is that the world’s biggest supplier of solar panels and wind turbines is China, whose cost advantage in producing them is achieved partly by its continued mass usage of coal energy — which it has no intention of checking in the foreseeable future, as Sharma has discovered, though not admitted.
Instead the Cop26 president chose to praise the corporation bosses who showed up in Glasgow by saying that, when he started his career in finance, “there was a guy called Swampy. He spent his time occupying trees and tunnels and he was the main face of climate action in the United Kingdom. But today the Swampys of the world are all around us, in boardrooms, in government departments and trading floors all around the world. You, my friends, are the new Swampys, so be proud.”
Perhaps they are proud. But I think of the laughter in the dark, from President Xi in Beijing and President Putin in Moscow. And I am worried.
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November 8, 2021 at 12:24PM