Neil Collins’ Notebook: An Engine to make us poorer
If you have not heard of Engine No1, you soon will. It’s not Thomas the Tank Engine, but a somewhat opaque group which has inflicted structural damage on ExxonMobil, once the world’s most valuable company. Engine’s proposals at the annual meeting this week may have looked like tilting at windmills, with its $50m stake in a $500bn company, but it spent over $30m soliciting support, and despite Exxon matching that, the company lost.
The dissidents have won dramatic board changes to bounce an oil company into ceasing to look for oil. Exxon’s board might have thought it could stall the Engine, but it has been blind-sided by an unintended consequence of the rise of tracker funds. Three of them hold a fifth of Exxon shares between them, while other big pension funds and the UK’s Legal & General, running before the wind, are sympathetic to greenery.
There is an interesting twist here. The managers of trackers couldn’t care less about the performance of individual shares, but actual shareholders care greatly, and oil shares have been lousy investments for a decade. As a disappointing part of your active portfolio, you might think some of the blame should fall on the extremely well-paid directors, and that a good kick up the greenery is just what’s needed.
Trackers are the extreme example of the rotten core of fund management – managers are rewarded by the quantity of money in the pot, not how well they do with it. These (also well-paid) executives have no incentive to fight the green tide. Rather, they hope to pick up a few billions more to manage from starry-eyed investors by displaying their commitment to “fighting the climate emergency”.
The pension funds may have a longer horizon, but by the time the shortfall from lousy investment decisions impact their funds’ solvency, today’s managers will be long gone. If they can be tracked down in their comfortable retirement, they can always point to this week’s most bizarre document, the Damascene conversion of the International Energy Agency. From having been a cheerleader for hydrocarbons, it has suddenly decided that the game is up. Apparently, oil is yesterday’s fuel, the price will collapse as we embrace the brave new green world, and energy companies must adapt or die.
The IEA has given itself a cop-out by predicting one last hurrah for the oil price, as short-term demand exceeds falling supply. Predicting the oil price has made every expert look foolish over the years, and for all its many sums and handsome charts, it’s unlikely that the IEA is immune. In the Daily Telegraph Ambrose Evans-Pritchard has written a splendidly satirical piece, maintaining that “slashing CO2 emissions and switching to renewable energy is not a ‘cost’ or a constraint on rising affluence: it lifts global GDP growth by 0.4pc a year over the course of this decade. World output is 4pc bigger in real terms by 2030.”
This modern variant on Keynes’ suggestion for creating employment by having one gang dig holes and another fill them in shows how far from reality the green hysteria has taken us. As no politician dare admit, trying to get the UK to net zero will involve a serious cut in living standards, particularly for the poorest in society, and make no measurable difference to the level of CO2 in the atmosphere. Perhaps before then we will have worked out how to live on a warmer planet.
A really bad idea from the OECD
In the Château de Muette in Paris, the well-paid employees of the Organisation for Economic Co-operation and Development had a brilliant idea. Why don’t the advanced nations of the world agree a minimum rate of corporation tax? At a stroke, the scope for companies to play off one country against another would be dramatically cut, allowing the charms of each to be properly considered. As a “first step” towards a uniform tax regime across the G7 countries, we would be on the road to raising an extra $100bn for states to spend. Joe Biden thinks it’s a great idea. What’s not to like?
Well, just about everything. Setting the minimum would be relatively easy at present, with most rates clustered around 25 per cent (the UK is on the way there), but $100bn is quickly spent by governments, who would then be casting about for more; an international proposal to raise it would be hard to resist. Besides, the OECD’s suggestion, despite being a decade in the making, fails to address the real problem.
The tech giants, which currently pay very little tax, would continue to book profits in places like Puerto Rico that would either laugh at the idea of an imposed tax rate, or demand permanent subsidies from elsewhere to replace their lost revenue. Caribbean countries have little to offer businesses but sun, sea and low tax rates. Switzerland and Singapore would apply their own rules, as usual. Ireland and Luxembourg might be bullied into charging more, if the European unioncrats could ever agree for long enough to force them.
The UK Treasury has resisted joining in the tax’em fun. Amounts paid by the likes of Google or Amazon in the UK are derisory, and a uniform G7 rate would not necessarily raise any more. Holding out against any Biden proposals until that changes looks like a sensible strategy. No other country has the power to take the techies on, and it is highly doubtful whether the US President can get anything controversial through Congress.
Of course, as the OECD boffins do not say, they are unfamiliar with the idea of taxation themselves. A hangover from the age of the post-war Marshall Plan, the idea of an institute to study economics was a novelty. They are now ten a penny, and the OECD has long outlived its usefulness, except to the employees. As the site points out: “Salaries are exempt from income tax in most member countries.”
Rail news
A sense of proportion has never been the Department for Transport’s strong suit. This week DaFT proudly announced a suspiciously-precise £317m upgrade for railway lines in the north of England. The spending is long overdue to ease the misery imposed on travellers struggling across the Pennines, if it ever happens. While we wait, here is a pub quiz question: How many miles of HS2 does £317m buy? The answer is ONE.