Investors more obsessed with climate than investor returns, who bully corporations into adopting net-zero business strategies, are doing more than destroying shareholder value. They are destroying the capitalist growth machine.
Pledging “net zero” by 2050 to achieve compliance with the Paris Agreement on climate change is all the rage in the corporate world. BP has announced that it will be a net-zero company – that is, maintaining a balance between emissions produced and emissions taken out of the atmosphere – by the designated date. During its “Beyond Petroleum” days in the 2000s, BP made massive bets on renewable energy, ending in large write-downs in 2011. The lesson: An oil company doesn’t become a renewable-energy company.
BP apparently hasn’t learned. In effect, its new CEO, Brian Looney, is sun-setting the world’s sixth-largest quoted oil company and Britain’s fifth-largest company by market capitalization. Nonetheless, BP’s move was welcomed by some of its most militant shareholders, led by the Church of England’s head investor, Edward Mason, who promptly urged investors to up the pressure on Exxon Mobil to disclose its emissions.
In fact, the Paris Agreement speaks only of “pursuing efforts” to limit the rise in average global temperature to 1.5°C above pre-industrial levels and achieving net-zero emissions sometime “in the second half of this century.” The more aggressive timetable came three years later, when the Intergovernmental Panel on Climate Change (IPCC) produced its 1.5°C special report. In that document, the IPCC asserted that emissions must reach net zero by around 2050 and, by 2030, cut emissions by about 45 percent from 2010 levels.ADVERTISEMENT
The 2030 timeline unleashed the current wave of heightened climate alarmism. It provoked Rep. Alexandria Ocasio-Cortez (D-N.Y.) to talk of the world ending in 12 years. At the Democratic presidential debate in Las Vegas, Sen. Bernie Sanders (I-Vt.) spoke of scientists warning that “incredibly bold action” must be taken in the next six or seven years. Irrespective of any action by the European Union and the U.S., there is not the slightest chance that the draconian emissions cuts will meet the target of the now-totemic 1.5°C above pre-industrial levels. The math is simple: It took less than a decade-and-a-half for the growth in carbon-dioxide emissions from non-Organization for Economic Cooperation and Development (OECD) countries to outstrip the combined total of U.S. and EU emissions.
Before businesses embark on costly emissions cuts, they should read the fine print of the IPCC’s 1.5°C report. There, they will find a blueprint for the extinction of capitalism as we know it. Indeed, the 1.5°C report is the most ideological of any IPCC report so far. The 1.5°C target, the report says, creates the opportunity for “intentional societal transformation.” In language closer to Sanders’s than any believer in capitalism, the IPCC says hitting 1.5°C implies “very ambitious, internationally cooperative policy environments that transform both supply and demand.”
Under this vision, the energy, industrial, construction, transportation and agricultural sectors are all slated for policy-induced restructuring. A dietary shift from meat and dairy is envisaged to reduce pastureland by up to 11 million square kilometers, or 4.2 million square miles, an area greater than the U.S. (which is roughly 3.8 million square miles). The industrial sector is to cut its emissions by between 67 percent and 91 percent.
How can this happen, without inducing a contraction that makes the Great Depression of the 1930s look like a mild recession? There is no point in cutting greenhouse-gas emissions unless the whole world does so. There was more rationality to Soviet-style central planning, which at least had the aim of producing something of value rather than producing nothing.
Free-market capitalism is not the IPCC’s only victim. Higher food prices are on the 1.5°C menu, too. Higher energy prices will delay the transition to “clean cooking” and away from burning wood or animal dung and the indoor pollution they cause, one of the biggest killers in poorer countries. Yet the IPCC avoids weighing the costs of the 1.5°C pathway against its putative benefits, arguing that it’s a matter of value judgments.ADVERTISEMENT
The few cost numbers that the IPCC discloses throw grim light on its own values. The shadow cost per ton of carbon dioxide of the 1.5°C pathway is up to 59 times higher than the Obama administration’s central value for the social cost of carbon, which estimated the net climate damage of a marginal ton of carbon dioxide and therefore the net benefit from cutting that ton of carbon dioxide. This shows that the 1.5°C pathway represents climate policy overkill and puts little or no value on the interests of humanity. If the costs of decarbonization exceed the possible benefits by multiples, humanity loses.
Global warming is global, not local; the U.S. and the EU do not exist under their own climate bubble. Businesses have no ethical, legal or fiduciary duty to do what the governments of the world are not collectively doing themselves. They should continue to act in their owners’ best long-term interests. Over the last century and a half, businesses have transformed mankind’s material existence vastly for the better. According to the growth economist William Baumol, per-capita incomes have grown by several hundred to several thousand percent in a typical free-market economy.
If democratically accountable governments legislate net-zero targets, businesses should obey the law as it applies to them. What is happening to BP and other companies is quite different. Climate activists who lose at the ballot box seek to politicize private companies and turn them into tools to achieve public-policy ends — ends that rightfully belong in the domain of government.