Efforts to reverse the effects of anthropogenic climate change are undoubtedly a good thing, but developments in Europe and China have made it clear the speed of progress will be determined by who pays.
In what is shaping as a showdown between environmental campaigners and supportive governments, there are signs that realpolitik – the art of focusing on practical factors rather than ethical considerations – is starting to influence the climate debate.
Sharply higher prices for energy have led to rumblings that too much is being attempted too quickly, with damaging economic effects, including job losses as factories close or are relocated to regions with cheaper power.
Thanks to its varied and extensive energy portfolio, especially of battery metals such as lithium but also natural gas and uranium, Western Australia is one of the few places on the planet poised to win from the latest attempt to fight climate change and save jobs at the same time, twin targets that will not be easy to hit.
Until a few weeks ago, gas and uranium were lumped into a basket of politically incorrect commodities (along with coal and oil), but that’s changing, with both being added by at least one high-powered government agency to a list of climate friendly energy sources, at least in the short-term.
The shift from a full-scale attack on fossil fuels, seen as the primary cause of man-made climate change, started to break down last year in China, which has a severe pollution problem caused by burning coal but is also encountering power shortages and rising electricity prices.
Europe is following China as gas shortages force prices higher, including a 30 per cent rise on a single day earlier this month when gas that normally flows in from Russia went into reverse, flowing out to Russia, perhaps as a tactic by Russia in its argument over control of Ukraine.
For China, the energy crisis is compelling its government to eat a small serving of humble pie. It has been forced to start accepting Australian coal, which had been marooned on ships outside several ports thanks to a trade spat.
The situation in China worsened earlier this month when Indonesia, the world’s biggest coal exporter, said it would ban exports due to concerns it couldn’t meet its own energy demands.
China’s appetite for coal is the key factor in the price for thermal quality material used to generate electricity rising by 30 per cent since Christmas to move back above $US200 a tonne, four times higher than 18 months ago when it was languishing at $50/t.
Europe, however, is where the climate agenda has been pursued with the most vigour, though that’s changing as the European Commission, the executive branch of the European Union, reacts to concerns the region is heading for a fresh financial crisis because it is struggling to pay its power bill (like many households) and might be facing extensive blackouts and factory closures.
The solution, taken straight from the handbook of how to fudge an exam, has been to make what the EC calls a ‘taxonomy’ change, a reclassification of gas and uranium as ‘green’ sources of energy.
The theory this time is to encourage the greater use of gas and nuclear as intermediate steps on the road to a renewables future, which is the equivalent of kicking a can down the road because there is no other option.
While neither China nor the EC will admit that they have botched their climate change policies, that is exactly what they have done, as demonstrated by the taxonomy game and the French government’s plan to burn more coal because its heavily publicised nuclear power industry can’t meet local demand while also selling energy to other countries, especially Germany.
Like Indonesia, France is making power supply decisions based on self-interest and in recognition that it’s awfully hard to kick the coal habit.
The serious side of the European power crisis can also be measured by one of Germany’s biggest electricity companies, Uniper, being forced to borrow an emergency $US11 billion to patch a hole in its finances caused by erratic energy markets.
What happens next in the energy crises confronting China and Europe could be significant in the overall fight against climate change, with WA’s gas export industry certain to be a big winner either because China and other Asian countries want more, or because of market openings as Europe soaks up gas from WA’s rivals such as Qatar and the US.
The redirection late last year of at least 10 shipments of LNG bound for Asia to energy-desperate Europe was a sign of how the energy market is being reshaped by the premature closure of coal-burning power stations and nuclear reactors.
With the price of gas up 16 per cent since the start of the year and uranium up 9 per cent, thanks in part to their reclassification by the EC, the profitability of WA gas export projects is assured, while the development of a local uranium mining industry has become more appealing.
Realism outbreak
What might also happen in the climate debate is a more carefully considered approach to minimising the effects of change, with New York-based commodities research company CPM Group forecasting a possible outbreak of “climate realism” this year.
Singled out for criticism, in what CPM described as “not meaningful” government gestures to combat climate change, were electric vehicles because they do not significantly reduce carbon dioxide output, but “only shift its location”.
Those comments, while certain to annoy hard-core climate change campaigners, sit comfortably alongside the EC’s reclassification of gas and uranium as green energy.
Rates reality
A lot was written last year about the inevitable rise in interest rates with little evidence to support the claims that the era of ultra-low (and even negative) rates is coming to an end.
Since Christmas, proof of a sea-change has been piling up, with official US government bonds edging higher and mortgage rates rising to their highest in two years.
Even in Germany, where benchmark interest rates have been below zero for three years, the shift into positive territory is not far away with the 10-year government bond rising to minus 0.036 per cent, up from minus 0.38 per cent since mid-December.
The flipside of rising rates is pressure on non-interest-bearing investments such as gold and cryptocurrencies, which seem likely to be under increased selling pressure as investors rotate their portfolios towards normal settings.
