Before I offer the responses from Frank and Frank, let me offer a personal note. It pains me to write this, but I must. In the investment advisory business, one must separate the personal policy view from the actual investment decision. It is great when they are aligned. It is difficult when they are not aligned. For example, most of us agree that a peaceful world is desirable, but we are overweight the defense sector in the US Equity ETF portfolio because we do not live in a peaceful world.
For today, I admit that I also believe the war against global warming is being lost. The antagonists who oppose a climate change mitigation policy that they disparage as “woke” are winning. Those that call for ignoring or repudiating ESG standards are winning — if you can call it winning, given the damage and immense costs that will follow.
They are aided by Mr. Putin’s regional shooting war, coincident with his disdain for its climate impact on the entire world. In my opinion, Putin has set back climate change mitigation by an entire generation — not that we had the time to spare. Evidence is everywhere for anyone to see: fires, melting ice, warming seas, rising sea levels, record heat in regions and cities of the world, a destabilized jet stream, insect patterns changed due to warming, etc. We now have cases of malaria confirmed in Sarasota, Florida. Imagine that! The evidence is there, but climate change mitigation has been politicized, and we seem to have reached a national impasse. Personally, I expect the climate situation to worsen by a lot more than expected and at a much faster rate of change.
From an investment view, at Cumberland we have altered our positions in fossil fuel exposure, and we worry about alternatives. Look around and tell me how much solar you see in sunny places like Florida. Look at the reversal of the policy in Texas. Look at the higher inflationary impact on the capital cost of new wind farms. The evidence is in front of us.
Okay, the rant is over, now let’s get to some reader’s responses and other items related to climate change.
In response to our Sunday, June 11, commentary, “Oil, Gasoline, Markets, Debt Ceiling” (https://www.cumber.com/market-commentary/oil-gasoline-markets-debt-ceiling), Frank F. sent this note on Texas and its turnabout regarding renewable energy. (Frank asked that his last name not be used.)
Here’s a great read about the history of Texas’ move towards renewable energy back in the 90’s and their success in become the nation’s leader. It also highlights the benefits that rural (poorer) counties received from both lower energy costs as well as tax revenues for hospitals, etc.
“Texas power struggle: How the nation’s top wind power state turned against renewable energy,” https://www.texastribune.org/2023/05/25/texas-energy-renewables-natural-gas-grid-politics/
The article also highlights the problem that Texas faced the last two winters with demand exceeding production.
I didn’t know that Texas isn’t able to connect easily to the major electric grid in the region to offset acute needs.
Whether ESG issues are primary motivators or, more likely, a Motte and Bailey approach fueled by lobbyists from oil/natural gas company donations … the devil is in the details:
• Texas has done an amazing job leading the nation in renewable energy capacity over 20 yrs.
• That has helped rural communities and customers lower their energy bills and support municipal projects.
• Despite this progress, Texans have suffered from the inability to generate “on demand” electricity when cold winter weather did not allow solar or wind capacity to contribute.
• The solution should include improvements in the regional / national grid system, capabilities to store energy, and options to optimize baseline production. (Most states use natural gas, as nuclear has become underutilized, while continuing to support renewables.)
By the way….US oil production [is] expected to make a new record later this year or next.
When Frank responded to my request for permission to publish his response, he offered another historical note, this one relevant to the national debt and the debt ceiling issue.
Thanks, as always. I’ve utilized your discussions as a starting point for researching topics. One that fascinated me was your post on the history of the National Debt. Eric Reed’s “What is the National Debt from 1790 to 2019?”
It demonstrated a sea change around the time of war … especially the Civil War…. One of [Civil War expert Professor John McCardell’s] positions is that the USA, as a true NATION, was not shaped until the Civil War forced the North into a unified and coordinated effort to modernize industrial capacity, connect transportation lines (rail), centralize monetary policy (currency), raise taxes and create the IRS, issue war bonds to enhance funding, etc.
The South failed in their efforts, and inflation was rampant compared to the North and contributed to their defeat.
I was curious whether the numbers posted in Eric Reed’s piece (during the Civil War years) were cumulative (North plus South) or only represented the North.
I reached out to Eric, and he was kind enough to respond and educate me.
After the Civil War, the United States repudiated all debt issued and held by the Confederacy. This was established in Section 4 of the 14th Amendment, which states in relevant part that “neither the United States nor any State shall assume or pay any debt or obligation incurred in aid of insurrection or rebellion against the United States... but all such debts, obligations and claims shall be held illegal and void.”
Therefore, the numbers he quoted for the Civil War years [were] purely the North’s debt incurred.
It’s interesting historically, and by my read representative of how the nation’s debt, when directed towards important issues, is a necessary driver of change.
It doesn’t solve our entitlement problems nor justify every dollar spent. Nor does it ensure outcome or accountability.
Still, it’s important to understand the past and how it shaped our future … and fun to learn about the devil in the details.
We’d like to thank Frank F. for sharing his historical explorations, sparked by the two commentaries.
Another Frank, Frank M., sent us a note from Paris in response to “Oil, Gasoline, Markets, Debt Ceiling.” Here it is:
"Les consommateurs ne sont pas les seuls à être dopés aux énergies fossiles. L’Etat en est lui aussi devenu de plus en plus dépendant au fil des années. Les différentes taxes assises sur ces ressources rapportent en effet une quarantaine de milliards d’euros par an, dont les trois quarts sont fléchés vers le budget de l’Etat. Un rendement proche de celui des grands impôts que sont l’impôt sur le revenu (89 milliards d’euros de rendement en 2022), celui sur les sociétés (62 milliards d’euros), ou même la TVA (100 milliards), qui fait de ces « recettes brunes » une véritable manne budgétaire dont les pouvoirs publics peuvent aujourd’hui difficilement se passer, particulièrement dans un contexte de finances publiques dégradées."
This is from today, Le Monde, their Matinale, a morning supplement helping me practice my French. Apparently, the French government gets about 40 billion euros per year from taxing refineries and both diesel fuel and gasoline at the pump. Instead of Green taxes, these seem to be called Brown taxes, and 75% of the tax money goes to support the national government, so Le Monde questions where the money will come from when the cars, etc., are all electric. Kind of another side of the coin to what you wrote this morning. I can't send you the whole article, because it's only for subscribers, but it's an interesting question the US will have to answer. Is there a tax on wind farms and solar farms now, here in the US?”
We close with three climate-related links that we think are worth our readers’ consideration. First, here’s the link to Eric Topol’s recent interview with Al Gore: “Al Gore: The Intersection of A.I. and Climate Change,”https://erictopol.substack.com/p/al-gore-the-intersection-of-ai-and.
Next, let’s look at Europe as the situation becomes more dire: “State of the Climate in Europe 2022,” https://public.wmo.int/en/our-mandate/climate/wmo-statement-state-of-global-climate/Europe-2022. Hat tip, for the link, to S&P Global’s “ESG Insider” email for June 21, 2023, titled, “Europe warmed 2.3 degrees C above preindustrial levels in 2022 – report.”
Last, for solutions-oriented readers, here’s a link to ClimateTech 2023, MIT’s October 4–5 conference focused on “innovations for a sustainable future”: https://event.technologyreview.com/climatetech-2023/home.
Summer has arrived. Heat, smoke, hurricanes, mosquitos and more. Please be safe and cautious as you travel.
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