As a result, attempts to achieve net zero carbon emissions (NZE) by 2050 became central to the “E” in ESG and the IEA’s net zero roadmap has come to define the NZE baseline for energy companies.
In reality, the IEA’s net zero roadmap is a green mirage that will dramatically increase energy costs, devastate Western economies, and increase human suffering. As such, investment managers and banks that use other people’s money to advance this anti-investment agenda are violating their fiduciary obligation to maximize returns for retirees, investors, and shareholders.
Similarly, As You Sow, a not-for-profit climate activist investor, described the IEA NZE report as groundbreaking.
The IEA itself highlights the dire consequences of unilateral action designed to suppress supply.
“If supply were to transition faster than demand, with a drop in fossil fuel investment preceding a surge in clean technologies, this would lead to much higher prices—possibly for a prolonged period”—an accurate description of the world we’re now living in.
Failure to invest in increased supply is far more likely to result in upwardly spiraling prices as demand increasingly exceeds supply, as the Biden administration understood when it used the Strategic Petroleum Reserve for the nonstrategic purpose of tamping down gasoline prices. EPRINC compares the net zero supply deficit with the IEA’s Stated Policies Scenario. Based on historical price elasticities of demand, the 35 percent supply differential for both oil and gas could see prices more than tripling on the net zero pathway. Whether price increases of this magnitude cause a recession or a depression, they will have a significant negative effect on global growth.
The other side of this coin is the relative cost of wind and solar energy. “Ever-cheaper renewable energy technologies,” the IEA claims, “give electricity the edge in the race to zero.” Yet the IEA’s own numbers demonstrate the inferiority of its post–fossil fuel energy future as it will require enormous increases in capital, labor, and land to produce less energy.
By 2030, the IEA’s net zero pathway uses an additional $16.5 trillion of capital. More investment should make labor more efficient. Not with clean energy. Renewables require nearly 38.5 percent more labor, which would mean global energy employment rises by nearly 25 million. Yet this new energy system produces 7 percent less energy, implying a calamitous 33.0 percent fall in energy output per employee.
There is no theory in growth economics that says that more inputs of land, labor, and capital for less output is a formula for sustained economic growth. Quite the opposite. The IEA’s net zero pathway reverses a process that has been underway since the dawn of the Industrial Revolution of society obtaining more outputs for fewer inputs, which would make the world unambiguously poorer and have the worst effect on billions of people in the world’s poorest nations.
And this is before considering renewable energy’s own negative environmental effects. This leaves decarbonization as the sole potential benefit from deploying wind and solar. If there is an economic case for net zero, neither the Intergovernmental Panel on Climate Change nor the governments that adopted net zero targets have yet to conduct a proper cost-benefit analysis to prove it.
This leaves ESG-focused investment managers in a tight spot. In its World Energy Outlook 2022, the IEA implicitly conceded that ESG investment managers exerting pressure on oil and gas companies to align their investment programs with net zero are contributing to the current macroeconomic malaise of high inflation and weak growth. These investment managers have fiduciary obligations to current and future retirees, savers, and shareholders to maximize their returns. They do not have a mandate to use other people’s money in an effort to avert what they believe might be a planetary catastrophe by destroying corporate value and throwing the free-market growth machine into reverse.
There is a geopolitical dimension to NZE. The IEA’s net zero roadmap sees OPEC’s share of the global oil market rise from 37 percent to 52 percent in 2050—“a level,” the IEA stated, “higher than at any point in the history of oil markets.” Where non-OPEC producers—pressured by ESG investors—follow the net zero profile of steeply declining oil production while OPEC producers maintain investment, OPEC’s share would rise to an astounding 82 percent by 2050.
Wittingly or otherwise, ESG investors are undermining the security interests of the West during a period of rising geopolitical tensions when the West is having to relearn a painful lesson on the strategic importance of energy security.
