Streetwise Professor

November 30, 2019

The Invasion of the Control Freaks

Filed under: China,Climate Change,Economics,Politics,Regulation — cpirrong @ 11:47 am

It’s impossible to turn around these days without being beset by control freaks.

Exhibit 1. Michael Bloomberg, who is running for president. Bloomberg is infamous for his desire to control everything, from what you eat to what you drive to how you defend yourself. Bloomberg thinks taxing “sugary drinks” (among other things) is a great thing, despite the regressivity of this tax, because it’s good for the poor:

And if you buy a gun do defend yourself, you’re pretty stupid–so he will take them away:

Pretty sure his security detail is heavily armed. But that’s the credo of his ilk: for me, but not for thee.

Bloomberg also sucks up to the world’s leading control freaks, the Chinese Communist Party. When (amazingly) confronted about this by (amazingly) a PBS interviewer, Mikey totally flacked for them:

And behold the stunning dishonesty here–the lengths to which he goes to avoid criticizing the CCP. Bloomberg wants to control the entire energy system in order to reduce the emissions of global greenhouse gases (GHG). The Chinese are building coal plants at a frenzied pace, yet when confronted on this, Bloomberg treats the Chinese coal plants as merely an issue of local particulate pollution in places like Beijing.

As an aside on this issue: the silence of the Davos Douches (control freaks all) who sucked up to Xi on this issue, and so many others involving China, is deafening.

Exhibit 2. Elizabeth Warren, reprising her “you didn’t earn that” bullshit:

What pretzel logic. Because you might have benefited from some public goods, you are obligated to let Lizzie decide what she will take from you in order to pay for all the non-public goods that she wants.

I have a better idea: I’ll gladly pay taxes for public goods that earn a return in excess of the cost of capital, and Lizzie can STFU.

Exhibit 3. Angela Merkel. Zere vill be NO free speech for you!:

https://twitter.com/marceldirsus/status/1199666529413062656

Nice hand gestures there. Wonder where she picked those up?

Such a good little Ostie, ain’t she?

Exhibit 4: “Scientists”:

The irony of this is that those so wise in the ways of science

are obviously lecturing the developed world, which in their wisdom they apparently haven’t recognized is depopulating. Population growth is overwhelmingly concentrated in very low income Africa, the Middle East, Asia, and the Subcontinent, whose peoples (a) will never hear what these scientists are demanding, and (b) would ignore it in any event.

So what are these scientists proposing? What coercive powers will they deploy against brown people in order to achieve their vision?

No doubt Bloomberg has the answer: if they don’t submit voluntarily, kill them. You know, for their own good.

November 29, 2019

More Flagrant Chinese IP Theft

Filed under: China,History,Politics — cpirrong @ 6:43 pm

Communist China is notorious for IP theft. It’s gotten so bad, that maybe even the KGB should sue them.

Back in the day, the standard Soviet response to American criticism of the USSR’s human rights record was to say something along the lines of “well in the US you lynch negroes.” Supposedly this originated with Russian Minister of the Interior Vyacheslav von Plehve who “The Russian peasants were driven to frenzy. Excited by race and religious hatred, and under the influence of alcohol, they were worse than the people of the Southern States of America when they lynch negroes.” Variants on this were standard fare over the years up to 1991.

Today the CCP is freaking out over Western, and particularly American, criticism of treatment of Uighurs and its handling of Hong Kong. So, how to respond? By stealing a page from gospodin Pelhve’s playbook (or maybe from Matthew 7:5).

Lijian Zhao, “Deputy Director General, Information Department, Ministry of Foreign Affairs, China. Try my best to tell the story of China & spread the voice of China” (according to his Twitter bio) replied thus to Trump’s signing of the (entirely symbolic) act criticizing the CCP’s handling of Hong Kong

It goes on. Check out his T/L, which provides numerous variations on the theme. All totally unoriginal, and a rather lame imitation of the Soviet original.

But maybe Mr. Zhao has a future. I hear there are openings on the Democratic Party platform drafting committee. He’d fit right in.

Escaping the Thrall of a Barbarous Relic in LNG Contracting

Filed under: Commodities,Economics,Energy,LNG — cpirrong @ 4:56 pm

For 5+ years I have been calling oil-linked LNG contracts a “barbarous relic” (echoing Keynes and the gold standard). This opinion was widely castigated when I first voiced it, but I had a strong basis for it: oil and LNG prices are driven by totally different fundamentals, and as a result oil prices are almost always disconnected with gas market fundamentals.

My presentations include a graphic and some statistics to make the point: correlations between oil and gas prices (measured by the Japan-Korea Marker, or JKM) are about zero, and so are the correlations between gold and gas prices. So it makes about as much sense to index LNG contracts to gold as it does to index them to oil.

Platts has released a report making the same point:

Asian utilities buying liquefied natural gas under rigid long-term contracts linked to oil prices risk paying an average of $20bn more each year up to 2022 than if they bought the superchilled fuel directly in the market.

S&P Global Platts, which sets the benchmark LNG price for the region, said there was a “huge disconnect” between the of cost oil-linked contracts and prices in the so-called “spot market” for LNG.

Nice of you to catch up, Platts. This “huge disconnect”–the exact phrase I’ve used in public presentations for years–has been evident in the data . . . for years. Indeed, since the beginning of the JKM index.

Platts spins this as utilities paying too much. It wouldn’t be any better if they paid too little. The point is that divergences between contract prices and product values cause misallocations of resources, including transactions costs associated with trying to circumvent contracts with prices that are misaligned with fundamentals.

There are still some who are in the thrall to the barbarous relic:

Jera, the world’s biggest buyer of LNG, said that oil-linked contracts still often made sense. The spot market was still small and vulnerable to volatile spikes as seen in early 2014, it said, while long-term contracts offered “stable procurement for buyers”, as well as providing a guarantee of demand needed by developers to launch new LNG projects.

This is a jumble of sloppy thinking.

Volatile spikes? If the spikes are driven by gas market supply and demand conditions, tying contract prices to gas prices rather than oil is a feature not a bug. You want prices that reflect fundamentals, and if fundamentals are jiggy, so be it. And, er, last time I checked, the oil market was subject to “volatile spikes” despite its greater size. And this is a bug, not a feature, when it comes to LNG because these oil price spikes are almost always unrelated to gas supply and demand conditions.

That is, it is better to tie LNG contract prices to markets with jumps that reflect gas fundamentals, than it is to tie prices to markets with jumps that don’t.

There can be a role for long term contracts, though the transactions cost (“opportunism”) related reasons for such contracts become less important as the short-term market becomes more liquid. Furthermore, even to the extent that long term contracts facilitate investment, it is a non sequitur to conclude that these long term contracts should be indexed to oil, rather than a gas price (be it JKM, or Henry Hub, or TTF, or whatever). The contracts will perform better–transactions costs will be lower–the lower the likelihood that pricing terms become misaligned with fundamentals. Gas indexing results in lower probability of misalignment than oil indexing.

For years, the mantras in the LNG market have been “security of supply” and “security of demand”, and that long term contracts are the only way to secure it:

David Thomas, an independent adviser with experience at Vitol and BP, said that Japanese utilities “value security of supply and there’s a strong relationship between buyers and sellers” but that was changing as the LNG market became more liquid and Japan’s gas and power markets liberalize.

The oil and refined product markets rely on markets for security of supply and demand. A big refinery or a major oil development are as, or more, capital intensive than an LNG product. But these things get created without long term contracts because liquid markets allow transactions at prices that reflect supply-demand fundamentals.

Long term contracts play a role when spot markets aren’t “thick” enough: under these conditions, opportunism (“holdup”) is a problem, and long term contracts can mitigate that problem. The evolution of spot markets in LNG will progressively mitigate the potential for holdup problems. And as I’ve noted, this is a virtuous cycle: as spot markets become more liquid, the need for long term contracts will decline, which will contribute to greater spot market liquidity, which will vitiate further the need for long term contracts.

As the producer of the JKM index, Platts is obviously talking its book here. But that’s not to say that it’s wrong. It isn’t. And economic reality will inevitably push contracting practices in the LNG market away from the barbarous past. Or perhaps I have the tense wrong there: is pushing would be a better way of putting it.

November 28, 2019

America is Exceptional, and Its Foreign Policy Failures Stem From Americans’ Failure to Acknowledge That Fact

Filed under: Civil War,History,Military,Politics — cpirrong @ 1:47 pm

When reading Allen Guelzo’s review of Elizabeth Varon’s narrative history of the Civil War, Armies of Deliverance, this jumped out at me:

What will redeem even this quibbling is the significance of the basic trope around which Varon builds her narrative. It is Varon’s fundamental belief that Northerners entered into—and stayed in—the Civil War out of the conviction that they were rescuing the deluded Southern white masses from the tyranny of Southern slaveholders. Northerners saw the Confederacy as a vast kidnapping by these elites, who had turned the slaveholding states into a closed economic system approximating what Karl Marx called “feudal socialism.”
By overthrowing this slaveholder coup d’etat, and by destroying the yoke of slavery for both white and black, the way would be opened to redeem the South, through opening its doors to “free labor”—to open markets, competitive wage contracts and, in a word, capitalism. “What a commercial world this State of Virginia should be,” marveled a Union army surgeon in 1862. With the overthrow of the slave oligarchs, insisted Henry Ward Beecher, “Schools will multiply. Books and papers will spread. Churches will bless every hamlet.”
Confidence that Northern victory would bring this deliverance in its train motivated the constant refrain in Northern writing that the war was aimed only at the oligarchs, and that poor whites and freed slaves would flock eagerly to the banner of Unionism. Hence the joyful predictions that, sooner or later, a latent Southern Unionism would rise from its repressed well; hence, also, Lincoln’s attempt to negotiate a generous amnesty and Reconstruction policy. Varon acknowledges that other historians have recognized the attraction of “the deluded-masses theory,” but virtually all of them limit its influence to the early months of the war, before the stiffening of Southern resistance led Northerners to embrace instead a “hard war” of conquest and subjugation. Varon sees no such evaporation. To the contrary, she demonstrates the “deliverance” idea’s persistence, marshalling evidence from Edward Everett’s 1863 Gettysburg oration (the “other” Gettysburg address) to soldier diaries to newspaper pronouncements—all the way to Lincoln’s last cabinet meeting on April 14, 1865.
The painful irony of this conviction was that Southerners—and not just the oligarchs—simply did not share it. They repudiated the accusation of oligarchy and instead stressed Southern white solidarity, a solidarity fired by the sufferings they endured during the war. The end of the conflict left Southern whites militarily defeated, but even more defiant in their loss—and more contemptuous of Yankee missionary efforts to convert them to free labor—than they had been in 1861. And from this refusal springs the bitter fruit of Reconstruction.

During the nadir of the American experience in Iraq, I often drew parallels with Reconstruction. One major parallel was that utter military defeat was a necessary, but by no means sufficient, condition to bring a vanquished region to heel. Conquering a populace is much harder than defeating armies.

The other major parallel is related to Varon’s interpretation of Northern thinking about the implications of victory. Per Varon, Northerners believed they were liberating oppressed masses from a small ruling class, and that the subjugation of that class would make the oppressed Southerners, black and white alike, into stereotypical Yankees who would adopt Yankee institutions and ways. In 2003, Americans (especially the neoconservatives) believed that the US was liberating oppressed Iraqis from a small (Sunni) ruling class, and that once liberated, (mainly Shia) Iraqis would adopt American (Western) values and institutions, and we could ride off into the sunset, like the Lone Ranger.

The happy visions of 1865 Northerners and 2003 Americans soon crashed into the reality that white Southerners and Iraqis didn’t want to become Yankees. The underlying reality here is that culture goes deep, culture is extremely particularist, and most of the world doesn’t share universalist American (Yankee) pretensions. Indeed, Civil War and Reconstruction demonstrate that at one time many Americans didn’t share such universalist pretensions.

If you look at many of the myriad debacles of what passes for American statecraft (e.g., the Wilsonian failure post-1918, Vietnam), they can be traced to a similar source: the American failure to understand the immense power of civilizational and cultural identity, and the concomitant belief that if given the chance–if “liberated”–everyone everywhere would become Americans.

Ironically, these beliefs have proved utterly resistant to repeated and decisive empirical refutation. Indeed, the near hysterical (well, maybe not so near) reaction to Trump in particular, and various strains of “nationalism” generally, among the establishment/government class demonstrates that they are still in thrall to such beliefs.

The ongoing impeachment farce is the most pathetic manifestation of this. Trump’s instinctual distrust of a corrupt and dysfunctional Ukraine clashes with the most deeply held convictions of The Interagency, AKA, the establishment Blob, which still pursues the chimeras that enticed Civil War-era Yankees and Iraq War-era policy elites. This time it will work! Trust us on this! Pay no attention to the sad litany of failures! We can make Sovoks into Yankees!

In a weird way, this is why I am an American exceptionalist, in the literal meaning of that term. I believe that the United States is largely an exception that proves the rule. America’s repeated attempts to make its very historically contingent institutions, culture, and development the universal rule are doomed to failure because they founder on the very historically contingent institutions, cultures, and developments of those it presumes to change.

November 27, 2019

Back to the Future: Exchanges That Price Other Things Don’t Price Their Own Things Right

Filed under: Derivatives,Economics,Exchanges — cpirrong @ 7:54 pm

The first post I wrote almost 14 years ago was about an electronic trading system (in Japan) being overwhelmed by a avalanche of orders. The main conclusions I drew were: (a) since communications capacity is costly, it is uneconomic to build so much capacity as to make such outages impossible, and (b) pricing of capacity is the best way to ensure that it is utilized efficiently.

What is old is new again. A few weeks ago the CME was strained by a deluge of message traffic in the Eurodollar futures market. The surge was in part the result of something only dimly–if that–grasped 14 years ago: algorithmic trading. More specifically, algorithmic trading combined with the order matching and confirmation protocols of the CME and Eurodollar markets. Eurodollar futures utilize a pro rata secondary priority rule in the absence of a “TOP” order, i.e., an order that improves the best bid or offer. Moreover, the biggest order at the inside market gets informed of executions slightly before smaller orders. This advantage (on the order of 10-20 millionths of a second) provides a valuable edge.

This institutional setup provided incentives for two algorithmic traders to attempt to get a slight edge in quote size. Thus, each would send a message to increase its size when the other had the edge, which induced the prior leader to send a message to increase its size to regain the lead, which induced the other to send a message to send a message to regain the lead . . . which continued until the maximum quote size was reached. This race for priority in the book led to a surge in message traffic which put stress on the CME system.

Matt Levine wondered why the two algos didn’t just keep their orders at the maximum size. My surmise is risk: the larger size you show, the greater the risk. Furthermore, if someone else improved the price and became the TOP order, size didn’t confer an edge, so it makes sense to cut size.

The CME has responded by announcing fines of $10,000, with the threat of cutting off a violator’s trading connection altogether, for violations of a message traffic threshold. This is a rough form of pricing, so why call it a fine? Why not just call it a non-linear message pricing schedule?

I guarantee that a variant on this story will recur. Because capacity is costly, exchanges don’t price it, and rules adopted for other reasons (e.g., priority rules intended to promote quoting in size) provide an incentive to use this unpriced resource.

As I argued years ago, it’s odd that institutions–exchanges–that specialize in providing the platform to allow the pricing of scarce resources don’t find a better way to price their own scarce platform resources.

November 23, 2019

The Judo Discount?

Filed under: Economics,Energy,Politics,Russia — cpirrong @ 7:06 pm

Gazprom has recently sold two blocks of treasury shares, amounting to 6.5 percent of its equity, at substantial discounts. The most recent sale, of a 3.6 percent stake, was at a whopping 11 percent discount.

The sale was to a single buyer. Had to be a pretty well-heeled dude to come up with the mere $3 billion purchase price. (Was it all cash? Or did some accommodating state bank fund a big chunk of the deal?)

The lucky single buyer’s name has not been disclosed, but rumor has it that it is Putin’s longtime friend and judo buddy, Arkady Rotenberg. He would definitely count as well-heeled.

As I’ve said for years, folks: judo is the path to riches. At least in Russia.

The behavior of Gazprom’s stock price has been rather strange. Yes, it dropped about 2.5 percent on the news of the discounted sale, but this drop mirrors almost exactly the rise in price on the day prior to the announcement.

While looking at the stock price, I noted that Gazprom’s market cap is now . . . . drum roll, please . . . . $85 billion. LOL. I remember they halcyon days of 2007 and 2008 when Gazprom management bragged it would be the first trillion dollar company.

Only off by two orders of magnitude. Could happen to anyone.

But it’s not surprising it happened in Russia, where the to-my-friends-everything-and-to-my-enemies-the-law essence of the Putinism has succeeded only in consigning the country to becoming an increasingly irrelevant blip on the world economy.

Putin’s Anti-Fracking Jeremiad: Using a Green Aura to Blind the Gullible to Russia’s Technological Limitations and the Consequences of His Adventurism

Filed under: Commodities,Economics,Energy,Politics,Russia — cpirrong @ 6:38 pm

Vladimir Putin is deeply concerned about the environment, especially about the environmental ravages of evil American technology, notably fracking:

Speaking of the United States, Putin had plenty of words for them as well, accusing the U.S. of ignoring the negative environmental externalities of the nation’s mass-scale shale oil and gas production (fair enough) calling the process “barbaric” and proclaiming that Russia will never use fracking as a means of oil and gas extraction. “We will never frack,” Putin told a representative from Total SA during Moscow’s Russia Calling! conference on Wednesday. “We don’t need to develop shale oil at all. First, we don’t need to increase the supply of oil to world markets, and we have enough oil we can get from the Arctic shelf.” He added, “In spite of all of the economic benefits, we do not need it and we will never do this.”

Well, Putin does have a (rather mysterious) candidate degree in “economic science” from the St. Petersburg Mining Institute, so perhaps he is qualified to give disquisitions on externalities (never mind the plagiarized thesis!). But the externalities lingo was no doubt put into Putin’s mouth by Charles Kennedy (whoever the-F he is). If Putin’s reference to barbarism had anything to do with the environmental impacts of fracking, he was merely blowing smoke up the you-know-what of the environmental movement in the West.

No, if Putin thinks that anything about shale and fracking are barbaric, it is the fact that they have raped and pillaged the oil price on which he and Russia are so dependent, and have created the US LNG industry which constrains Russian market power in European gas markets.

In other words, if there is anything green behind what Putin said, it’s greenbacks, not nature.

As for environmental impact, drilling and producing in the Arctic Shelf is far more environmentally problematic than shale production via fracking.

Putin’s anti-fracking jeremiad is also undermined by Gazprom Neft’s endeavors in this area. It’s also worth nothing that Russia’s Bazhenov layer (which Gazprom Neft is focused on) is arguably the largest shale resource in the world. The impediment has been technology, a problem exacerbated by sanctions, now going on their 6th year.

You can bet that Putin would not be lamenting the barbarities of fracking if Russia had the capability to do it. He is merely trying to rationalize Russia’s technological inability to exploit its shale resources, an inability exacerbated by the consequences of his foreign policy adventurism.

If At First You Don’t Succeed, Try, Try Again, Right Vova?

Filed under: Military,Politics,Russia — cpirrong @ 6:15 pm

At a ceremony where he gave awards to scientists fried by the explosion of a Skyfall missile to the wives of the deceased, Russian President Vladimir Putin said: “We will certainly be perfecting this weapon regardless of anything.”

If at first you don’t succeed, try, try again!

“Regardless of anything.” Rather scary thought, considering what has already happened.

What is particularly scary is not the fact that so far, the weapon has been far from perfect–apparently failing every test. No, what is scary is the fact that if the weapon is perfected, it is certifiably insane.

But Vova evidently puts great stock in it. It will ensure Russian “sovereignty and security for decades ahead,” he says.

And oh yeah: “Simply possessing these unique technologies is the most important, solid guarantee of peace on the planet.”

World peace. Sounds like Vladimir is practicing for the Miss Universe contest. Can’t wait for the swimsuit competition.

November 20, 2019

Proponents of a Fracking Ban Are Seriously Fracked Up

Filed under: Climate Change,Commodities,Economics,Energy,Politics,Regulation — cpirrong @ 6:31 pm

Elizabeth Warren, among other Democratic candidates, have promised to eliminate fracking in the US. The WSJ has a dialog between pro-ban and anti-ban advocates. It demonstrates just how unmoored from reality the fracking ban side is.

The anti-ban participant, Sam Ori, executive director of the Energy Policy Institute at the University of Chicago, points out that as a result of the fracking revolution, US production accounts for 8 percent of the world total, and eliminating this would dramatically increase prices:

One year after the implementation of a ban, shale-oil production would be down by more than a third. After two years, production would be down 55%. You’re talking about triple-digit oil prices and a possible global economic shock

To which the ban supporter, Kassie Siegel, director of the Climate Law Institute at the nonprofit Center for Biological Diversity, replied: What? Me worry? My magical thinking will save the day!

I think an oil-price prediction is largely a red herring, because I am not talking about banning fracking in a vacuum. My organization and others propose a fracking ban along with other smartly designed programs to speed the development and deployment of clean technologies, support local communities, and offset oil and gas price increases. Government policies that drive a rapid just transition to clean-energy technology can create the largest economic stimulus since World War II.


I’m talking about policies like accelerated clean car and truck standards that rapidly decrease oil consumption in the transport sector and moving the power sector to 100% renewable energy. Other policies like reinstating the crude-oil export ban would also counteract price increases from banning fracking and restricting the supply of oil and gas.

Well-designed government policy in other areas, like tobacco and asbestos, addresses both supply and demand. Climate policy must do the same. The barrier to this is opposition from the fossil-fuel industry, not any insurmountable economic or policy problem.


And don’t you think we need to be a little bit skeptical of anyone’s ability to accurately predict oil prices?

Unpacking this idiocy in its entirety would exhaust my time and my patience. So just a few comments.

“Well-designed government policy” and “smartly designed programs.” Such a comedian! Because we know government programs are always well-designed and smartly designed. Did I say “always”? Sorry. I meant “never.”

Case in point. The brilliant European strategy to reduce CO2 by forcing the replacement of gasoline engines with diesel. Whoops! Not only was it colossally expensive, it was a major mistake because (a) it barely affected emissions of CO2, and (b) greatly increased auto emissions of harmful particulates.

Further, since China is the largest emitter, and the largest growing emitter, of CO2, Ms. Siegel is relying upon the wise beneficence of the CCP to achieve her goals.

Need I say more?

“Accelerated clean car and truck standards that rapidly decrease oil consumption in the transport sector.” First, this is costly, not just directly in terms of replacing a huge stock of existing capital, but indirectly by forcing people to drive lower-quality automobiles. How do we know they are lower quality? Because people don’t buy them voluntarily: they have to be compelled.

Second, auto emissions are a drop in the CO2 bucket.

“Moving the power sector to 100% renewable energy.”

Excuse me a minute. I have to walk my unicorn.

OK. I’m back. One-hundred percent renewables is utterly unrealistic and enormously costly, including in terms of reliability and transmission–and fires started (in places by California) by transmission needed to support renewables generation. Fires which, by the way, emit massive amounts of CO2.

Look at Germany, which I wrote about a few days ago. They are running into a renewables wall well short of 100 percent, and have incurred massive costs (imposed on energy consumers) to get this far.

I note that Ms. Siegel doesn’t mention cement, or steel, or other industrial emitters (which put autos in the shade, btw).

Not to mention that fracking oil has f-all to do with power generation, and fracking gas that supplants coal reduces CO2 emissions.

“Other policies like reinstating the crude-oil export ban would also counteract price increases from banning fracking and restricting the supply of oil and gas.”

Yo. Einstein. We have oil and gas to export because of fracking. If we ban fracking, we’ll have no exports, and the export ban will have zero, zip, nada impact on prices.

Further, export bans reduce the price in the exporting country, but raise prices in the importing country. So I guess Ms. Siegel is an economic nationalist. I bet she looks stunning in her MAGA hat.

“And don’t you think we need to be a little bit skeptical of anyone’s ability to accurately predict oil prices?”

Yo. Von Neuman. This has nothing to do with predicting the level of oil prices. Demand curves slope down. You reduce production, prices go up. In fact, oil demand curves slope very steeply, so if you reduce production a little prices go up a lot.

Not rocket science. Just the law of demand.

And these are the brainiacs who are going to make sure that we have “well-designed” and “smartly designed” government policies.

God save us.

November 17, 2019

Died of a Theory, Energiewende Edition

Filed under: China,Climate Change,Economics,Energy,Politics — cpirrong @ 8:49 pm

Germany, under Angela Merkel, has pursued with monomaniacal fervor an agenda of “decarbonizing” the German economy. This has been driven by a monocausal view of what constitutes “green” policies, one that begins and ends with greenhouse gasses.

In pursuit of this objective, Germany has embarked on a hugely expensive endeavor–“Energiewende“–that looks to replace virtually all fossil-fuel generation with renewables, notably wind and solar. The foolishness of this campaign was evident from the onset (as I wrote about some years ago), but Merkel and the German ruling class ignored it: but now reality is rearing its ugly head.

Where to begin?

For one thing, for those who do not have a view of environmentalism that begins and ends with carbon, many in Germany are finding wind power in particular to be visual pollution, sonic pollution, a major threat to bird and insect life, and a threat to some of the few remaining forested parts of the country. As a result, expansion of windpower is facing increased opposition on environmental grounds.

Expansion of offshore wind is sharply limited by the need for vastly expanded transmission capacity (to bring power from the windy northern coast to the central and southern regions of the country that consume the power). This is expensive, and also faces substantial local opposition on environmental grounds.

In a truly amazing fit of stupidity, Germany decided to terminate a large and reliable–and carbon free–source of electricity when Merkel ordered the shutdown of the country’s nuclear plants post-Fukushima. Let’s see: a coastal nuclear plant is hit by a tsunami, so let’s close down all nuclear plants in a seismically stable country with no zero risk of a tsunami. Yeah, that makes sense.

Now Germany is planning to decommission all its coal plants, because global warming. It is not intending to replace them with gas-fueled ones, despite their lower carbon emissions. Because global warming.

So . . . no nukes, no coal, no gas to replace them, severe constraints on increased renewables output. Which leads to . . . looming shortages of power. Which means that Germany’s already incredibly expensive power will become even more expensive. Hardly great for German consumers, or German industry.

But no worries, Germany will just export less!

Germany is counting on its status as a net exporter of power to help it brace it for potential shortfalls as nuclear and coal power wind down in stages. It transmitted about 53 terawatt-hours of power to its European partners in the nine months through September, compared with 31 terrawatt-hours of imports, monitoring group AG Energiebilanzen reported Monday.

Screw the neighbors! How German of them! La plus ça change, plus c’est la même chose.

Er, that’s not very “European” of them, is it? “European partners.” Ha!

How any European can listen to Merkel’s lectures about “more Europe” without vomiting is beyond my comprehension.

It also demonstrates the failure to think through the effects of their actions. If the Germans export less, will those who currently import from them say: “Well OK then! We’ll just sit in the dark and freeze!”? As if. They will build generating capacity. And it won’t be largely renewable. Meaning that Germany closing coal plants will not lead to an equivalent reduction in the number of coal plants, but a displacement of those plants to other countries, or the building of gas plants outside Germany. So the amount of global emissions reduction will be a fraction of the amount of German emissions reduction.

The virtue signaling aspect of this is also absurd. For all of the contortions and coercion that Merkel will employ to reach her decarbonization goal, the reduction in CO2 emissions will be a drop in the bucket, given that China is opening a coal plant per week, and Chinese and Indian emissions already dwarf those of the US, let alone Germany. So the impact of this on CO2 emissions, and on temperature, will be de minimis.

Germany is a great example of the fallacy of composition. It has an incredibly intelligent and well-educated population. Arguably the most intelligent and well-educated population in the world. Yet, Germans collectively have a history of making the worst decisions of any nation on earth.

Perhaps this reflects their obsession with grand theories (as opposed to say, the more practically minded British and Americans). As a result, they tend to embark on grandiose missions that end in disaster. (Adam Smith’s remark about “the man of system” comes to mind. So does Adenauer’s remark about Prussians being Belgians with megalomania.)

In the past, tens of millions have died of German theories–most of them non-Germans. Not many will likely die of Energiewende, so in that way it is not comparable to the great debacles of German history. But it is a debacle nonetheless, and one with its roots in a grand theory, and which will produce virtually no environmental gain despite imposing a massive cost on Germans (and other Europeans who consume German electricity).

How very German.

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