We thought we would devote today’s Pundit to publishing some of the mail we have received in recent days. Whether they agree or disagree with positions we’ve taken here on the Pundit, commendations are due to all those who have weighed in, as these contributions help the industry advance by thinking through the issues at hand.
If you would like to weigh in on an issue of concern, please send your thoughts here.
We ran a piece titled, Will Climate-Change Fanaticism Bankrupt The West? Though responses mainly have been in agreement, the article received this passionate objection:
Please do a bit of research into why British energy prices are increasing before publishing an opinion piece not based in fact. Market deregulation and structure, a lack of natural gas storage (the vast majority of UK households use natural gas for their heating, which is their biggest energy use), and the Russian invasion of Ukraine have all had precipitous impacts on energy prices.
And why, in continental Europe, which is farther along the path to net zero, are prices not rising as fast? Maybe it’s because they’re producing a greater share of their energy with domestic, renewable sources?
Lastly, I’m a farmer in the San Joaquin Valley. Climate change is impacting my business today. Right now. And it’s current impacts are a lot worse than a long term push towards net zero will be.
Jeff Steen
Partner
Kachina LLC
Treasurer
Mittman – Denni Farm Management
General Partner, Ecosa Properties
We appreciate Jeff writing to us, and we encourage anyone with dissenting opinions to express themselves.
Jeff is well known for his engagement with the investing community and has contributed much to the debate on climate change and the ag community. He recently co-authored this piece:
Acres of risk: The most viable option for investors might be to reduce their California ag exposure
The piece includes content such as this:
REAL ASSETS ADVISER – SEPTEMBER 1, 2022: VOL. 9, NUMBER 8
Acres of risk: The most viable option for investors might be to reduce their California ag exposure.
BY PAUL FRANKEL AND JEFF STEEN
California agriculture — a reliable and star performer for institutional capital over the past 20 years — is facing a number of significant, acute and persistent challenges due to climate change.
Investors are at risk of more than just lower returns on those assets; there is even potential for capital impairment of their ample and growing farmland portfolios thanks to its impacts. Investors must look with a new lens at the geographies to which they allocate capital and should be actively pursuing more secure acquisitions in places other than the San Joaquin Valley.
There is a growing realization among investors that climate change is not some nebulous looming threat on the horizon but rather a dark cloud directly overhead — a daunting set of unpredictable elemental evolutions, any one of which alone could in the near term devastate portfolios, farms, livelihoods and communities.
For instance, in California, warmer winters and springs have reduced cold accumulation for crops that require high numbers of cold hours, such as pistachios; this has led to early blooms. Variable weather has caused frost damage in almond and citrus trees. And epic fires and persistent drought have famously been some of the most noticeable climatic changes.
In 2015, the last time California was nearly as parched as it is today, 540,000 farmland acres were fallowed, land that could have grown 54 million tons of grapes or 27 million tons of tomatoes. According to the organization, California Farm Water Coalition, as of May 2022, 594,000 to 691,000 productive acres are estimated to now sit idle. This year, because of prolonged drought, agencies and districts downstream of the State Water Project, which supplies surface water to 750,000 acres of farmland, received just 5 percent of their requested allocation, while those served by the Central Valley project, which supplies surface water to 3 million acres of farmland, received effectively a 0 percent allocation.
So Jeff is well worth listening to. At the same time, we have a different take on the issues he raises with the piece we ran. We certainly appreciate the input, but don’t think it is helpful to say that the opinions of others are “not based on fact” even if one happens to disagree with them.
In reviewing his letter, Jeff mentions market deregulation as an impact on British energy prices. Of course, had there been price controls, which is generally the opposite of deregulation, then prices would not rise! What is missed, however, is that someone would still have to buy the gas at global market prices and lose money reselling it to keep it at the price-controlled rate. Equally, had there been much greater storage capacity, then gas could have been bought at a cheaper rate and stored – but again, who would have thought to do this when gas was cheap? Who would have actually done this and how it would have been paid for is unclear.
Of course, the Russian invasion of Ukraine and the political reaction to the war, both on the buy- and sell-side, plays an important role in energy prices, but that was not preordained.
In a 2018 speech to the General Assembly of the United Nations, President Trump gave a speech in which he warned Germany:
“Germany will become totally dependent on Russian energy if it does not immediately change course,” Trump said about a pipeline being built. “Here in the Western Hemisphere, we are committed to maintaining our independence from the encroachment of expansionist foreign powers.”
The German delegation to the UN reacted by laughing in his face.
But aren’t we talking about UK, not Germany? Of course, but markets don’t work that way. Had the UK and Germany built modern nuclear power plants, allowed for fracking, built pipelines to get natural gas from North Africa and facilities to receive liquefied natural gas — in general, diversified its energy sources — Russia would not have been in a position to hold western Europe in a compromising position.
Contrasts between the UK and the continent are difficult because Brexit happened during this time period:
In March [2021], the House of Lords EU Environment Sub-Committee published a new report, warning that energy prices would rise due to the inefficiency of current cross-border electricity trading arrangements between the UK and Europe.
It states: “As an EU member state, the UK played a leading role in developing EU energy policies. These in turn shaped how the UK could pursue secure, affordable, and clean energy supplies. The UK was part of the [Internal Energy Market’s] price-coupling arrangements for cross-border electricity trading as an EU member state, but left the arrangements at the end of the transition period. Great Britain is currently trading electricity with continental Europe and with the [single market] through less efficient arrangements.”
For example, the history of the planet is filled with five ice ages. We can, though, just look at the Little Ice Age:
Little Ice Age (LIA), climate interval that occurred from the early 14th century through the mid-19th century, when mountain glaciers expanded at several locations, including the European Alps, New Zealand, Alaska, and the southern Andes, and mean annual temperatures across the Northern Hemisphere declined by 0.6 °C (1.1 °F) relative to the average temperature between 1000 and 2000 CE.
The point of course is that it got cold, and then warmed up again. And these are dynamics that occurred over periods far longer than any human life span.
Not everyone agrees that “Net Zero” actually makes sense.
We’ve written about Bjorn Lomborg with pieces such as:
Pundit’s Mailbag – Thoughts On Global Warming and Wealth
Reducing Carbon Vs. Increasing Wealth
Tesco, Polar Bears And Social Irresponsibility
Now he points us to an important chart:
One of the things that the COVID situation should teach us is that many things which seem good carry high costs — such as stopping school for young children because of COVID and, perhaps, pursuing a net-zero approach on climate change.
This should make us reconsider.
