The burden of proof rests on Mark Carney, and he hasn’t made his case against fossil fuels
By John Constable
Mark Carney is using his final days as governor of the Bank of England to intimidate institutional financial managers by suggesting that investments in conventional energy are high-risk adventures requiring special justification.
However, consideration of the state of the global energy supply over the past 30 years suggests that if anyone has some explaining to do it is Carney himself. Climate policy failure followed by distressed correction seems more probable than other outcomes, and if any investments are likely to be stranded, it is those such as wind and solar that are in effect wagers on the success of current carbon-reduction strategies.
Carney, who becomes the UN’s special envoy on climate action and finance later this year, seems intent on causing an investment market panic and a consequent stampede out of conventional energy and into renewables. Asked point-blank in a recent interview whether he supported “divestment” from fossil fuels he tactfully evaded the question but nevertheless asserted that coal, oil and gas were insecure assets. He said any institutional decision-maker preferring to bet on oil, for example, is engaged in a high-risk adventure and must therefore offer special justification for their position.
This pre-emptive strike means that Carney’s own wager on certain low-carbon technologies escapes examination. That is the wrong way around. Fossil fuels are known quantities; their physical and thermodynamic properties are manifestly favourable. They also as a matter of historical record delivered human wishes for centuries, and still continue to do so at low cost in the present.
What we know about modern renewables, on the other hand, is, to say the least, much less certain. The burden of proof, then, must be on those who believe, as Carney apparently does, not only that low-carbon policies will persist for decades to come but also that modern renewables are now competitive and pose a real threat to conventional sources of energy.
According to the International Energy Agency, nearly all the growth in global energy consumption over the period is accounted for by growth in fossil fuels. Renewable energy in total, including traditional biomass in the developing world, made up 13 per cent of total primary energy in 1990 and 14 per cent in 2017. Renewables have grown by 72 per cent over that period, from a low base, but fossil fuels have grown by 59 per cent from a substantial base, and consequently they continue to dominate world energy.
Perhaps most striking of all, the proportion of low-carbon energy, that is nuclear and renewables together, stands today at 19 per cent of global TPE just as it did in 1990, before intense coercive policies supporting renewables were introduced.
Given the policy pressures applied to the world’s economies since the year 2000 that is an extraordinary failure.
On what grounds, therefore, does Carney believe that institutional investors in fossil fuels “have to explain the judgment, justify that to the people whose money it ultimately is?” The IEA data clearly suggests that fossil fuel investments require no justification as investments.
On the contrary, the questions should be directed at Carney. On what grounds does a person of his prominence take to the headlines to prophesy that fossil investments are at risk?
The answer appears to be that Carney is less concerned with empirical data than with the virtual reality of Policy World, a group hallucination in which a “fact” can be conjured out of the air, first by nominating a target and then by reinforcing that target with legislation, or to use the term widely employed by journalists, by “enshrining” it in law.
Thus, the ambitions of policy become pseudo-concrete legal realities that can be used to intimidate the public. What we want to happen becomes what is going to happen.