Will energy truths set us free – Watt?

Author: Terrence Keeley

Climate science has become too political. Climate policy is not scientific enough. Financial products ostensibly designed to reverse climate change are now generally exacerbating it.

It was against the backdrop of this failure that a new initiative – the National Energy Analysis Center – was launched. NCEA scholars work to conduct data-driven analysis of policies, programs, and technologies that impact the supply and use of energy necessary for human flourishing. I recently attended the first Energy Future Forum in Washington, D.C., during which I tried to make four key points (check out the video above to see my segment).

First, the greatest threat to human progress does not come from climate deniers; it comes from weighing in on deniers. The idea that public policy, business and individuals should unite around an austerity agenda that deprives markets of the energy they need to function could bring about a human catastrophe that would be dwarfed by rising temperatures alone. That’s why Pope Francis writes in his climate encyclical Laudato Si’: “We are not facing separate crises – one environmental, the other economic – but a complex crisis with A complex crisis with multiple challenges. Solutions require an integrated approach. We must simultaneously eradicate poverty, restore the dignity of the excluded and protect nature.

Therefore, every nation-state should choose an energy-rich future—one that is as clean, affordable, reliable, and consistent with national security needs as possible. The energy austerity plan provides none of this. To properly care for the planet and its 10 billion upcoming inhabitants, we must choose abundant energy sources.

Second, there are too many uncertainties about our climate future that are mistaken for certainties for political purposes. It is undeniable that human activity – including the consumption of fossil fuels – is affecting our air, land and water in ways that deserve our attention. But it is also clear that non-human influences are even more important determinants of global temperatures. That’s why the Intergovernmental Panel on Climate Change (IPCC)—the world’s most authoritative body for commenting on climate science and trends—expresses all of its climate findings in probabilistic terms. So we know from the IPCC that global temperatures have probably risen by +1.1°C since the 19th century, and are likely to rise by another +1.3°C over the next 80 years. While this continued warming trend will have many important economic, social and environmental impacts, mass human extinction is not among them.

Changing global weather patterns create both winners and losers. Today, only potential losers dominate global headlines and policy debates. As a result, the punitive provisions of the Paris Agreement – which pledged to limit global temperature rise to well below 1.5°C by 2050, regardless of the cost to human well-being – have outlived their usefulness. Policymakers should abandon the precepts of Paris, which are both unreasonable and fundamentally ill-conceived.

Third, so-called climate-related financial products are exactly the opposite of the wishes and needs of conscious asset owners and climate activists. Climate-related funds limit their investments to companies that have committed to becoming carbon neutral by 2050. The inevitable consequence of this filtering is that investors will end up with extremely inefficient portfolios and no voting power in those companies that most need to change to achieve global net zero emissions.

Here's another energy conundrum: We may be able to put ourselves into a green portfolio, but we can never put ourselves into a green world. Decarbonizing and reconfiguring energy grids requires significant investment, not disinvestment. No doubt this is why Bill Gates once said that trillions of dollars in ESG investments have failed to remove a ton of carbon from the air.

Finally, fiduciary rules will almost certainly require asset managers to now close all ESG funds and redirect these client assets to broader market alternatives and proven impact investment strategies. It has been proven that it is possible to achieve market-related returns while driving a range of important social and environmental objectives; this is simply not possible through divestment from public equities, as ESG strategies claim. Direct investments in certain classes of green bonds, low-income housing funds and sustainable private credit strategies can generate verifiable social and environmental benefits while generating returns consistent with the underlying risks of their asset classes, something few ESG funds can now claim at this point.

NCEA will help scientists address uncertainties and exaggerations in predictions of global warming and its consequences. We also commit to holding politicians to account and ensuring they accurately calculate the real costs and benefits of their proposed policies. Finally, we will help ensure that finance plays its rightful role in society, as stewards of asset owners' single and dual bottom-line objectives, and in compliance with fiduciary rules. ESG products have long promised their loyal followers that they will do well and do good, but in reality, they do very little of either. Now, after years of false promises and obfuscation, the truth will set us free.

Terrence Keeley, CEO of Impact Assessment Labs and author of Sustainable and Ending ESG.

This article was originally published by RealClearEnergy and provided via RealClearWire.

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