Weekly clippings #28 - Failed models, ESG environmentally worse, debunking LCOE

 

Can we trust projections of AMOC weakening based on climate models that cannot reproduce the past? Last July, both the Guardian and the BBC reported that the Gulf Stream could collapse by 2025, bringing catastrophic climate impacts. All of this fearmongering relies on models, and these have also led the UN’s Intergovernmental Panel on Climate Change (IPCC) to forecast it is “very likely” that the entire system of North Atlantic currents will weaken in the near future. Needless to say, these models have an impressively poor track record, and this has been revealed in a recent paper published by the Royal Society. "We finish with a pessimistic statement: if it is not possible to reconcile climate models and observations of the AMOC in the historical period, then we believe the statements about future confidence about AMOC evolution should be revised. Low confidence in the past should mean lower confidence for the future! The IPCC AR6 report ranks it as very likely that the AMOC will decline in a changing climate. But, if these models cannot reproduce past variations, why should we be so confident about their ability to predict the future?"

Debunking Levelized Cost of Energy (LCOE)  

1. LCOE Ignores Intermittency. The LCOE calculation averages production over the lifetime of wind and solar installations and thus suffers from an immediate and fatal flaw: it assigns no time value to electricity. In fact, LCOE turns the law of supply and demand on its head, essentially assuming that electricity is needed only when available.
2. LCOE Ignores Value Deflation. A related issue overlooked by LCOE analyses is the concept of value deflation, a term used to describe the drop in marginal value from additional renewables as their penetration rises. 
3. LCOE Ignores Incremental System Costs. By necessity, wind turbines and large-scale commercial solar installations are typically sited far from major population centers, and expansive new transmission lines and other incremental system additions are required to integrate these facilities into the grid. 
4. LCOE is Limited to New Builds. Lazard’s approach is limited to comparing new power plant construction costs across the various technologies and does not consider the favorable economics of keeping existing traditional plants up and running. “This means that building new wind and solar adds to the cost of providing electricity to the grid. If wind and solar were truly lower cost than other forms of energy, we would expect states like California and Minnesota, which have high penetrations of wind and solar, to see falling electricity costs. Instead, electricity prices in these states have increased much faster than the national average."
5. LCOE is Susceptible to Manipulation of Assumptions. Finally, like all complex calculations, LCOE analyses are only as good as the assumptions that feed them. Even Lazard’s presentation of its results includes a block of fine print so substantial it crowds out the chart, and the error bars within the chart itself are so wide as to make drawing reasonable conclusions impossible. 

We studied 235 stocks–and found that ESG metrics don’t just make a portfolio less profitable, but also less likely to achieve its stated ESG aims  based on the academic paper Balancing Returns and Responsibility: Evidence from Shrinkage-based Portfolios  Our results may come as a surprise: Because of the noise inherent in ESG metrics, including them creates estimation risk and worsens the portfolio allocation. In fact, we find that the explicit targeting of ESG metrics leads to a portfolio allocation that is economically and environmentally worse than the market allocation. That is consistent with prior research that finds substantial disagreement among ESG ratings agencies due to their chosen ESG metrics, how they measure the metrics, and how they weight across the metrics in forming overall scores. Our results are also consistent with recent research that has shown how the inclusion of uncertainty associated with an ESG metric lowers financial returns.

PRovokeGlobal: "ESG As A Term Needs To Go Away" The moral framing of ESG language highlights the divisive nature of debates in today’s environment. The central point of contention was the framing of ESG. Maslansky challenged that the term itself is an “empty term” that lacks “embedded meaning.” Based on extensive studies with over 7,000 interviews and nine focus groups, He revealed that only 10% of Americans are familiar with the term. 

Green Investors Were Crushed. Now It’s Time to Make Money. It turns out that the real world is tougher than advocates of ESG—environmental, social and governance—investing claimed. The lessons have been hard, but should remind investors in the sector of some of the basic facts of investing. 

The rise and fall of ESG investing Ideologically aligned investments are risky. Fink and others now seem to understand that. There’s a role for ESG investing if people want it, with the risks and realities clearly explained up front.

The Dangerous Futility of the Energy Transition in a Single Graphic  "We are not achieving any real reduction in carbon and other emissions from burning coal. We are simply changing the location from which the emissions are blown into the atmosphere. If you were asked to create a plan to render the U.S. and Europe subservient to China for their future energy security, the Biden energy agenda is the plan you would devise."

As The Transition To Green Energy Crumbles, Funding For The Climate Scare Soars “Environmental Groups Cut Programs as Funding Shifts to Climate Change.”  Even as everyone can see that this whole green energy thing is just not going to work, the Times reports that the entire environmental movement is doubling down, cutting other programs and focusing their funding on climate change to the exclusion of everything else.

You Just Won't Believe the Electric Bus Story Out of Edmonton  the Edmonton Journal, reports about the broken-down bus fleet in a story headlined, “More than half of Edmonton's $60-million electric bus fleet not roadworthy.” “Proterra, the American company the city purchased the electric buses from between 2019-2022, is in Chapter 11 filing for bankruptcy protection." Edmonton forked over the incredible price tag of a cool $1 million for each and every one of those 60 electric buses. That is double the cost of the average diesel transit bus. It takes a diesel-powered on-board heater to keep the body of the bus warm. And despite $200,000 in special blankets to keep all those batteries toasty, the Proterra buses are still feeling that northern Alberta chill in their skimpy range.