by Rupert Darwall via RealClearEnergy,
The IEA has allowed itself to be used as a tool for climate policy extremism…
Two years ago, efforts by climate activists and Environmental, Social, and Governance (ESG) investors to block investment in oil and gas production by Western companies appeared to have received a seal of approval from no less an authority than the International Energy Agency (IEA), when it published Net Zero by 2050: A Roadmap for the Global Energy Sector. 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.
For this reason, the RealClear Foundation asked the Energy Policy Research Foundation, Inc. (EPRINC) to conduct a forensic analysis of the IEA’s major reports on net zero and assess the likely economic impact of a cessation of investment in new oil and gas fields. EPRINC’s analysis conclusively demonstrates that the IEA’s assumptions are unrealistic, internally inconsistent, and often support the case for increased hydrocarbon fuel production. 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.
The fundamental assumption underlying the IEA’s net zero roadmap is that the superiority of alternatives to hydrocarbons—principally wind and solar (nuclear barely gets a look in)—will cause demand for coal, oil, and natural gas to wither away. Nonetheless, progressive groups seized the IEA’s report to justify—indeed, to require—a ban on investment in new oil and gas projects. Climate Action 100+, a group of 700 investors with over $68 trillion in assets under management, hailed the report as a “watershed moment” and highlighted the call from the “relatively conservative IEA” for an immediate end to new investment in fossil fuel extraction. Similarly, As You Sow, a not-for-profit climate activist investor, described the IEA NZE report as groundbreaking. For the 2023 proxy season, As You Sow filed shareholder resolutions at five of the largest U.S. banks, pressing them to align their financing activities with achieving net zero by 2050. Those resolutions all failed, but last year, a resolution filed at the ExxonMobil annual meeting by Ceres, another activist investor and a founding partner of Climate Action 100+, cited the IEA net zero report and requested the company’s board to produce an audited report on the impact of applying the IEA’s net zero assumptions on the company’s financial statements. The resolution received the support of 51.0 percent of voting shareholders.
The IEA itself highlights the dire consequences of unilateral action designed to suppress supply.
“Reducing fossil fuel investment in advance of, or instead of, policy action and clean energy demand would not lead to the same outcomes as in the NZE Scenario,” the IEA warned in its World Energy Outlook 2022.
“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.
Instead, the IEA subscribes to the Friedrich Engels theory of renewable energy: like the state under communism, demand for oil and gas will wither away. Based on its presumption of demand obsolescence, the IEA foresees low and falling hydrocarbon prices: $35 a barrel for oil in 2030 (around half its current level); and, for natural gas, $2.1 per million Btu (MMBtu) in the United States and $2.0 in the EU in 2030. History tells us that these forecasts are fanciful.