Welcome to the Capital Note, a newsletter about business, finance, and economics. On the menu today: climate follies, minimum-wage follies, “robber baron” myths, Crocs’ pandemic surge, and COVID-19’s long-term economic scarring. To sign up for the Capital Note, follow this link.
Reining in the Economy, Not the Climate
British Prime Minister Boris Johnson, a politician not famous for his fondness for detail, accuracy, or practicality has been promising economic recovery, deregulation, and one of the most aggressive greenhouse-gas-reduction programs in the world. That the third objective will be difficult to reconcile with the first two is ignored, denied or, indeed, brushed aside amid claims of a green-jobs bonanza:
The UK’s path to meeting this target is backed by the Prime Minister’s Ten Point Plan for a green industrial revolution, which will create and support up to 250,000 British jobs by 2030. The plan sets out ambitious policies and investment, with the potential to deliver over £40 billion of private investment by 2030 . . .
I suppose Brits should be grateful that Johnson has a “ten point” rather than a “five year” plan. Progress!
As is so often the case, greenery goes hand in hand with corporatism with Johnson talking about “uniting businesses, academics, NGOs and local communities in a common goal to go further and faster to tackle climate change.”
The individual, meanwhile, is just expected to follow instructions. In November, it was announced that the U.K. “plans to ban sales of diesel and petrol [gasoline] cars from 2030”, ten years earlier than was initially envisaged (the target date had already been brought forward to 2035). The original scheme — none too rational in the first place — was crowned with a fool’s cap, in that the ban was also to include hybrids. That cap is still there but has been allowed to slip a little.
While the ban has been brought forward again, hybrid cars that can operate for “substantial” distances on pure electric power will get a stay of execution until 2035. What constitutes substantial has yet to be defined.
But now reality bites.
The future of Vauxhall’s UK car production will depend on government support after the “brutal” decision to ban the sale of new petrol and diesel cars from 2030, according to the boss of Stellantis, the newly formed carmaker.
Stellantis was officially created on Saturday after the completion of the merger between Fiat Chrysler Automobiles and Peugeot, the owner of the Vauxhall brand. The merger, first announced in October 2019, has created a global automotive giant with 400,000 employees and 14 brands, but its completion has also refocused the spotlight on its plant in Ellesmere Port, one of Vauxhall’s two remaining British factories.
Carlos Tavares, installed as Stellantis chief executive after leading Peugeot into the merger, said a final decision on whether to invest in production of a new car at Ellesmere Port will be made “within a few weeks”. He added a clear warning that the future of UK production “depends on the UK government’s willingness to protect some kind of an automotive industry in its own country.”
However, Tavares suggested the UK ban on petrol and diesel cars had made it more difficult to invest in the Ellesmere Port plant in the Wirral, even though the Brexit deal reached on Christmas Eve removed the threat of tariffs or quotas on most car exports from the UK. There are about 1,100 workers at Ellesmere Port manufacturing the Astra car.
The UK announced in November that it will ban the sale of pure internal combustion engine cars by 2030 to try to cut carbon dioxide emissions that cause global heating. The ban was brought forward from 2040, to the delight of environmental campaigners, but the change infuriated the car companies who still make big profits from selling petrol and diesel cars.
“If you change, brutally, the rules and if you restrict the rules for business then there is at one point in time a problem,” Tavares said. “The more that we put stringent objectives on the automotive industry the more you get close to that limit.”
It should be stressed that the U.K. is not the only country going down this route. France will be banning all but electric cars by 2040, and Germany, Ireland and the Netherlands will (like the U.K.) be doing so by 2030.
However, the U.K. has an additional self-imposed problem, which Tavares did not hesitate to point out:
Tavares added that the UK faced stiff competition from factories in the EU for electric vehicle investment. It would make sense to locate an electric vehicle factory closer to the larger EU market, he said.
Rather than choose something akin to the Norway option, retaining participation in the European Economic Area, the Single Market encompassing the EU, and three non-EU states (including Norway), the Conservatives opted for a very hard Brexit, a curious decision that makes the coming of a supposed green boom even less credible than it already is. Tariffs may not, in this case, be a problem, but a rather more treacherous obstacle, non-tariff barriers, will be.
At this point, American readers may be asking themselves why they should care about the contradictions inherent in what passes for a British prime minister’s economic policy. Well, to start with, our new president has made it clear that climate change will be an element that is central to his policies — and, unlike Johnson, he is not pretending that deregulation is any part of his agenda. In fact, he is promising the opposite.
And so far as “climate” is concerned, rejoining the Paris Agreement is only the beginning. Even that (mistaken) act did not stand alone.
President Joseph R. Biden Jr. on Wednesday recommitted the United States to the Paris climate agreement, the international accord designed to avert catastrophic global warming, and ordered federal agencies to start reviewing and reinstating more than 100 environmental regulations that were weakened or rolled back by former President Donald J. Trump . . .
“We’re going to combat climate change in a way we have not before,” Mr. Biden said in the Oval Office on Wednesday evening, just before signing the executive orders. Even so, he cautioned: “They are just executive actions. They are important but we’re going to need legislation for a lot of the things we’re going to do.”
But in the meantime, take a look at this, via TechCrunch:
While the Biden Administration is being celebrated for its decision to rejoin the Paris Agreement in one of its first executive orders after President Joe Biden was sworn in, it wasn’t the biggest step the administration took to advance its climate agenda.
Instead it was a move to get to the basics of monitoring and accounting, of metrics and dashboards. While companies track their revenues and expenses and monitor for all sorts of risks, impacts from climate change and emissions aren’t tracked in the same way. Now, in the same way there are general principles for accounting for finance, there will be principals for accounting for the impact of climate through what’s called the social cost of carbon.
Among the flurry of paperwork coming from Biden’s desk were Executive Orders calling for a review of Trump era rule-making around the environment and the reinstitution of strict standards for fuel economy, methane emissions, appliance and building efficiency, and overall emissions. But even these steps are likely to pale in significance to the fifth section of the ninth executive order to be announced by the new White House . . .
The specific section of the order addressing accounting and accountability calls for a working group to come up with three metrics: the social cost of carbon (SCC), the social cost of nitrous oxide (SCN) and the social cost of methane (SCM) that will be used to estimate the monetized damages associated with increases in greenhouse gas emissions.
As the executive order notes, “[an] accurate social cost is essential for agencies to accurately determine the social benefits of reducing greenhouse gas emissions when conducting cost-benefit analyses of regulatory and other actions.” What the Administration is doing is attempting to provide a financial figure for the damages wrought by greenhouse gas emissions in terms of rising interest rates, and the destroyed farmland and infrastructure caused by natural disasters linked to global climate change.
These kinds of benchmarks aren’t flashy, but they are concrete ways to determine accountability. That accountability will become critical as the country takes steps to meet the targets set in the Paris Agreement. It also gives companies looking to address their emissions footprints an economic framework to point to as they talk to their investors and the public . . .
The calculations that go into producing these metrics will, in their own way, almost certainly be a marvel (read that word in any way you choose), but they will also be manna for lawyers, other regulators, and, of course, the rent-seekers (who include lawyers and those staffing regulatory agencies) who are already doing so well out of the interlinked ideologies of “socially responsible” investing and stakeholder capitalism.
Whether this will do anything to rein in the climate is doubtful (and, no, I am a lukewarmer, not a “denier”), but it will rein in the economy.
The jobs that are going to be lost as a result of Biden’s decision to rescind the necessary consents for the construction of the Keystone XL pipeline will only be…