Naive net zero groupthink misses the point of rising geopolitical dangers
This is Iain Martin’s weekly newsletter, exclusively for Reaction subscribers.
On Tuesday last week, China’s department of commerce introduced some ominous export restrictions on gallium and germanium products, two metals used to make the products of the future, some of them integral in the dash to net zero we keep being told so much about.
Chinese exporters who want to sell gallium and germanium to western companies now have to apply for an export license if they are selling to manufacturers using it to make anything that is dual use, meaning it could have a military application as well as be for civilian use. If it is needed for fast chargers for electric vehicles, but can also be used in electronic warfare systems or next generation radar, then the Chinese Communist Party now insists on a license.
The message is pretty clear. The West has made itself reliant on China for so many resources, rare earths, minerals and green products. They are not banning exports of what we need, but making it clear they can. What the Chinese regime can give – a license for export of a vital product – it can also take away if its leaders are annoyed or feel provoked.
Gallium goes into the most advanced computer chips, LEDs and solar panels. Germanium is also used in microprocessors and solar cells.
A report published last month by CSIS, the Center for Strategic and International Studies, the long-established national security think tank based in Washington, explained how China got a grip on gallium.
“Decades of sweeping industrial policies have afforded China a near-total monopoly over gallium… Failing to address glaring vulnerabilities in the gallium supply chain could pose serious national security and economic challenges for the United States and its allies.”
Indeed.
Gallium comes mainly from smelting bauxite into aluminium, from which small traces of gallium are harvested. This is shipped and further refined. The CSIS report states: “While bauxite is abundant, its mining is heavily concentrated in a handful of countries, and Chinese companies are responsible for nearly all gallium extracted from bauxite.”
China acquired this dominant position by – surprise, surprise – using subsidies, scale and raw power over decades to disrupt the global aluminium market.
Gallium is a by-product of the aluminium industry, remember. China’s aluminium production output increased ten times in the first two decades of the century, according to CSIS. Now China is responsible for 59% of the production of aluminium globally, with the Chinese government having insisted producers install capacity to extract gallium.
As the CSIS reports: “China’s rapid rise in the industry created oversupply in the global market, triggering severe fluctuations in gallium prices throughout much of the 2010s. Leading suppliers in the United Kingdom, Germany, Hungary, and Kazakhstan suffered as a result and were forced to shutter their production, leaving China as virtually the only supplier in the world.”
Funny that.
What this case study illustrates once again is the implausibility and unreality of much of the debate in the West, and in the UK in particular, about net zero and the fight for critical resources.
The most aggressive advocates of a madcap dash to net zero claim that shifting from oil and gas immediately is the sophisticated manoeuvre because it will make us less reliant on potentates for supplies of oil and gas.
Superficially, only superficially, this makes a kind of sense. Yet to believe it you have to not know, or overlook, how reliant the new technologies are on China and vulnerable global supply chains that could be upended by trade wars, military conflict or all out war.
Listening to much of the prevailing discourse about this, you might think green technology – the stuff that goes into chips, the rare earths and minerals, the components in electric cars and chargers, the stuff in the wiring of wind turbines, solar panels – comes to us magically, from the sun and the air, powered by the inherent niceness of David Attenborough videos.
In contrast, Ed Conway’s new book Material World explains how complicated and interesting the processes are in reality. China plays a leading role.
A few weeks ago, a subscriber to Reaction recommended I also read Vaclav Smil’s How the World Really Works. What a reality check. Smil is clearly bemused that we now know so little about how the world really works when it comes to energy, food production, construction and, well, everything. Fifty years ago this was the stuff of mainstream documentaries and news reporting. Now, it is as though the improved picture quality and audio has had a hypnotic effect. As we marvel at the colours and the 4K detail in documentaries about nature we fail to notice that the narration has become simplified to the extent that it often sounds like a fairy tale.
Anyone challenging the dominant narrative in print or online, anyone who calls for some balance and realism about how long the transition to cleaner energy will take, is used to the vehemence of the response by now.
Last week, when I observed on Twitter that we’ll need a lot of oil and gas for a long while yet if we want any growth, and noted that British industry is already paying double for electricity what US industry pays, an articulate environmentalist proudly sent me a link to an academic report purporting to prove that a “fast transition” to renewables would produce an enormous cost saving by 2050. Critique this, he said.
Okay, I thought. I’ll read the paper carefully. The three Oxford academics are all affiliated with the Institute for New Economic Thinking at the Oxford Martin School, University of Oxford. Their models and graphs show that while there are large upfront costs, green energy is the cost-effective solution. Going green fast will save a fortune, as well as saving the planet, apparently.
The longer the academic report went on, with confident claim after claim about models and the future, the more I thought, “hold on, there must be a chapter coming about geopolitical risks in the decades ahead”, or how events have a habit of making fools of those trying to model the future. There must be something substantial in there about the fight for resources between major powers and their allies that could at the least make for unpredictability, or disrupt supply chains, or cause wars. But no, there was not.
The authors say: “Although our Fast Transition scenario is subjective, we believe it is plausible. The deployment trajectories are in line with past trends. There appear to be no major obstacles to bringing the necessary technologies to scale in terms of land use, sea, climate, raw materials, manufacturing capacity, energy return on energy invested, or system integration.”
On this confident basis they propose the redesign of our entire energy system, and economy, and map the world out until 2050. That is 27 years away.
Think how often in the last 27 years novel events, or developments that were unexpected, caused major changes in the global economy and our assumptions.
There was 9/11 and all that flowed from it. Epic US spending since then has rocketed the country’s debt to $32.6 trillion. The Iraq War went wrong yet in the aftermath the US prioritised energy security and unleashed the shale gas revolution that gave it greater self-reliance, and less need of the Gulf and the Middle East. Germany got hooked on Russian gas.
Meanwhile, a rising China and the West forged a great commercial partnership and what seemed for a while to be a friendship. Much of this has been revealed in the last decade to have been an illusion, in which a complacent West, convinced mistakenly that its ideas on free markets had won, placed its head in a vice controlled by the Chinese Communist Party.
The next three decades are likely to be just as eventful as the last. That being the case, energy and economic policy surely must be made in a spirit of realism.
Towards cleaner energy? Great, yes, but let’s be aware of the vulnerabilities on resources and products, and make more of what we can ourselves. And get nuclear right.
Just stop oil? Don’t be daft. Oil and gas will be needed for many decades to come if we want the lights to stay on. They both involve their own vulnerabilities, of course, as the Saudis are showing right now. They have restricted supply and petrol and diesel prices are climbing again. That means when we have potential resources available – as the UK and Norway do with more gas in the North Sea – we must tap it.
Who will be the first mainstream party leader to stop telling us fairytales and test whether the electorate can handle the truth of our situation?
What’s the point of models?
Speaking of models that don’t work, the great David Smith in the Times last week took apart the Bank of England’s modelling on inflation. Central banks always show inflation returning to 2%, the target, a couple of years down the line. That is suspiciously convenient.
When you think about it, as David showed, the modellers have to do this, show a return to 2%, otherwise those in markets and policymakers today would say the policy must be wrong if it fails to get us back to the 2% target in a couple of years. So it’s always put down as 2% in a couple of years, not because it will be 2% but because anything else would prompt too many questions about what’s wrong with current policy and the model.
This simple conceptual flaw renders the entire model pretty much useless beyond the next few months. Beyond that anything can happen.
It is only relatively recently that modelling – on inflation or growth – became fashionable. I wonder if we should return to the approach used for centuries by our ancestors, who when it came to the economy didn’t bother trying to model the future.
Keep on moving
This edition of the newsletter is going out on a Monday morning, an unusual time, I know. Not on a Saturday morning, the time I prefer and I think readers prefer, but who knows. The reason it is delayed this week is we’re moving house again and packing and ferrying is ongoing.
We had our summer sojourn by the seaside in Hove. The sea air is a blast, the bars are relaxed. We walked to the end of the pier last week, and then the next evening watched Quadrophenia. In the film based on the Who’s 1973 classic album, Jimmy the “mod” dresses sharp, leaves London, goes to Brighton, takes drugs, thinks he finds love, engages in fighting on the beach, and discovers disillusionment and the disappointment that comes from being in a gang.
The mods wore sharp suits, embodied the spirit of mid-1960s high modernism, looked forward and pottered about on scooters. The greasy rockers wore leather, looked back to the 1950s, and rode motorbikes.
The film (released in 1979) captures the brief period in 1963-1965 before the “mod” era descended into self-parody, although ironically Quadrophenia helped instigate the bizarre, inauthentic mod revival in British youth culture at the end of the 1970s.
The main problem with the 1960s mod movement, and the rockers they fought, was the pointless dogma and futile sectarianism when it came to music. The mods liked American soul music, bits of the blues, perfect pop and The Who. The rockers liked greasy rock’n’ roll.
Mod tastemakers decreed a mod could like blues artist John Lee Hooker, but not rockers such as Chuck Berry or Little Richard. Why? What was the point? All three were great.
Note that both the Beatles and the Rolling Stones, stylish and completely self-confident in what they liked, had nothing to do with the pointless fight in 1963-1965 and liked both the music the mods liked and the music the rockers liked, and more besides.
The Stones in their earliest incarnation were described by the press as scruffy, though they dressed sharp in a mod-like manner. They were not mods, though. It would not have occurred to Jagger and Richards to draw a line in the sand excluding artists they liked for the sake of fashion and a fight on the beach in Brighton.
Anyway, despite our nice afternoon walks in recent weeks on the Brighton seafront and my “interesting” digressions on the way about the Who and Quadrophenia, a family consensus has emerged. We need to be back in London. Earlier than planned, off we go.
Prescient Charles Moore
Speaking of late deliveries, the post has been so bad recently that this week the last five editions of the Spectator arrived all in one go. They must have got lost in a postal sorting office somewhere between Old Queen Street and Brighton. One advantage of this late delivery was being able to read Charles Moore writing, with what turns out to have been great foresight, about what was going to happen to Coutts, the upmarket bank that cancelled the account of former UKIP leader Nigel Farage.
Charles was writing just a few days after the initial story broke. On places such as the BBC there was a lot of sniffiness about Farage’s claims. It looked as though the story was going nowhere.
Writing long before the denouement, and the resignation of the bank executives involved, in the 12 July issue Charles reported on Coutts sanctimoniously emblazoning its offices in the Strand with giant marketing materials in rainbow colours. The bank was extolling the Pride celebrations of LGBTQIA+ and signalling virtue. “Pride,” he wrote, “comes before a fall.”
What I’m reading
Vaclav Smil’s How the World Really Works, I mentioned earlier. And I’ve ordered Peter Brown’s memoir – Journeys of the Mind: A Life in History – after reading Peter Sarris’s terrific review on Engelsberg Ideas.
Have a good week.
Iain Martin,
Publisher and CEO,
Reaction