Perishable Pundit Mailbag: Why UK energy prices are rising faster than Europe
We thought we’d dedicate today’s Pundit to posting some of the mail we’ve received over the past few days. Whether or not they agree with the positions we have taken here on the Pundit, praise is due to all who have weighed in, as these contributions help the industry move forward in thinking through the issues at hand.
If you would like to weigh in on an area of concern, please submit your thoughts here.
We published a piece called, Will climate fanaticism bankrupt the West? Although the responses were mostly in agreement, the article received this impassioned objection:
Please do a bit of research on why UK energy prices are rising before posting an opinion piece not based on fact. Deregulation and market structure, the 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 effects on energy prices.
And why in continental Europe, which is further down the road to net zero, aren’t prices rising so fast? Maybe it’s because they produce more of their energy from domestic renewable sources?
Finally, I’m a farmer in the San Joaquin Valley. Climate change is impacting my business today. At present. And its current impacts are much worse than a long-term push to net zero would be.
Mittman – Denni Farm Management
General partner, Ecosa properties
We appreciate Jeff writing to us and encourage anyone with dissenting opinions to speak up.
Jeff is well known for his engagement with the investment community and has contributed extensively to the climate change debate and the farming community. He recently co-authored this article:
The piece includes content such as this:
REAL ASSETS ADVISOR – SEPTEMBER 1, 2022: VOL. 9, NUMBER 8
Acres of risk: The most viable option for investors may be to reduce their exposure to California agriculture.
BY PAUL FRANKEL AND JEFF STEEN
California agriculture – a reliable and star player for institutional capital over the past 20 years – faces a number of significant, acute and persistent challenges due to climate change.
Investors risk more than lower returns on these assets; there is even the potential for capital depreciation of their large and growing farmland portfolios through its impacts. Investors need to take a fresh look at the geographies to which they allocate capital and should actively seek safer acquisitions in locations other than the San Joaquin Valley.
Investors are increasingly realizing that climate change is not some nebulous threat looming on the horizon, but rather a dark cloud directly above our heads – a daunting set of unpredictable elemental developments, each of which alone could in the short term devastate wallets, farms, livelihoods and communities.
For example, in California, warmer winters and springs have reduced cold accumulation for crops that require a high number of cold hours, such as pistachios; this led to early blooms. Variable weather conditions caused frost damage in almond and citrus trees. And the epic fires and persistent drought were among the most notable weather changes.
In 2015, the last time California was nearly as arid as it is today, 540,000 acres of farmland lay fallow, land that could have produced 54 million tons of grapes or 27 million tons of tomatoes. According to the organization, California Farm Water Coalition, as of May 2022, an estimated 594,000 to 691,000 productive acres are now unused. This year, due to a prolonged drought, agencies and districts downstream of the state water project, which supplies surface water to 750,000 acres of farmland, received only 5% of their requested allocation, while those served by the Central Valley project, which supplies surface water to 3 million acres of farmland, actually received a 0% allocation.
So Jeff is worth listening to. At the same time, we have a different view of the issues he raises with the piece we aired. We certainly appreciate feedback, but don’t think it’s helpful to say that others’ opinions are “not based on fact,” even if you don’t agree with them.
Reviewing his letter, Jeff mentions market deregulation as an impact on UK energy prices. Of course, if there had been price controls, which is generally the opposite of deregulation, then prices would not have gone up! What is missing, however, is that someone would still have to buy the gas at world market prices and lose money selling it back to keep it at the controlled price. Likewise, if there had been much more storage capacity, the gas could have been bought at a cheaper price and stored – but then again, who would have thought to do this when the 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, play a significant role in energy prices, but this was not predicted in advance.
In a 2018 speech to the United Nations General Assembly, President Trump delivered a speech in which he warned Germany:
“Germany will become totally dependent on Russian energy if it doesn’t immediately change course,” Trump said of 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 the UK, not Germany? Sure, but markets don’t work that way. If the UK and Germany had built modern nuclear power plants, allowed fracking, built pipelines to bring natural gas from North Africa and facilities to receive liquefied natural gas – in general, diversified its sources energy – Russia would not have been able to hold Western Europe in a compromising position.
In March the EU Environment Sub-Committee of the House of Lords has published a new reportwarning that energy prices would rise due to the inefficiency of current cross-border electricity exchange agreements between the UK and Europe.
He says: “As an EU Member State, the UK has played a leading role in shaping 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 agreements for cross-border exchanges of electricity as an EU member state, but abandoned the agreements at the end of the transition period. Britain currently trades electricity with mainland Europe and with [single market] by less efficient arrangements.
Little Ice Age (LIA), climate interval that occurred from the beginning of the 14th century to the middle of the 19th century, when mountain glaciers extended to several locations, including the European Alps, New Zealand, Alaskaand the southern Andes, and mean annual temperatures in the northern hemisphere decreased by 0.6 °C (1.1 °F) compared to the mean temperature between 1000 and 2000 CE.
The fact is, of course, that it cooled, then warmed up. And these are dynamics that have occurred over periods far longer than any human lifetime.
Not everyone agrees that “Net Zero” makes sense.
We have written about Bjorn Lomborg with articles such as:
Now he shows us a important painting:
One of the things the COVID situation should teach us is that a lot of things that look good come with high costs – like stopping school for young children because of COVID and, perhaps, continuing of a net zero approach to climate change.
This should make us think.