Thursday, 14 September 2023 — South Melbourne

By Greg Canavan Editor, The Daily Reckoning Australia

[10 min read]

Dear Reader,

‘Climate science should be less political, while climate policies should be more scientific. Scientists should openly address uncertainties and exaggerations in their predictions of global warming, while politicians should dispassionately count the real costs as well as the imagined benefits of their policy measures.’

This is the introductory statement to the ‘World Climate Declaration’, a short document signed by 1,609 scientists and professionals around the world.

The gist of the document is that there are many shortcomings to the climate models that tell us we are in a climate emergency and must spend trillions in mitigating it. It’s more about emotions and agendas than actual science.

It states:

‘To believe the outcome of a climate model is to believe what the model makers have put in. This is precisely the problem of today’s climate discussion to which climate models are central. Climate science has degenerated into a discussion based on beliefs, not on sound self-critical science. Should not we free ourselves from the I belief in immature climate models?’

I use a valuation model to estimate a company’s intrinsic value. The model can give me whatever answer I want. I just need to change the inputs to arrive at that answer. When your career and funding depends on you ‘getting the right answer’, can we really trust these models?

Many people think the climate discussion is a political or ideological debate. For some, it is. But for me — and this is why I’ve been writing to you about it and conducting interviews on the subject — it’s an economic and investment debate.

Transitioning from a dense and efficient energy source to a less dense and efficient energy source has never before been attempted in economic history. This is an energy transition built on government mandate, which is in turn built on fear from inaccurate climate modelling.

If we invest more of our capital stock and human resources in delivering our basic energy needs, it will raise prices and lower our standard of living. It’s as simple as that.

Energy is the most essential input into any economy, whether basic or advanced. High energy costs act as a restraint on economic growth and living standards.

The explosion of growth that occurred in the Industrial Revolution was due to technological advancements that came from harnessing energy. Steam from burning coal transformed the world and brought millions out of poverty.

It wasn’t all rainbows and lollipops. You can read Dickens’s Hard Times to get an idea of that. But it was immeasurably better for most than the serfdom and subsistence living that came before it.

But here we are, nearly 250 years later, trying to go in reverse.

Mark my words, if we let this continue, watch costs rise and your standard of living fall.

Let me give you some examples of the absurdity that is Australia’s energy policy.

The first is our refining capacity. Energy writer Doomberg raised this in a recent essay:

‘Although its [Australia’s] oil consumption has remained relatively flat at approximately 1 million barrels per day since the end of the global financial crisis, its refining capacity has been cut by two-thirds to just under 25% of its total needs, forcing the country to become increasingly reliant on imports.

‘In recent years, the closure of the Clyde Refinery in 2012, the Kurnell Refinery in 2014, the Bulwer Island Refinery in 2015, the Kwinana Refinery in 2021, and the Altona Refinery in 2022, have chipped away at the nation’s industrial resiliency. The sole remaining crude oil facilities in Australia are the Lytton Refinery in Brisbane, operated by Ampol, and the Geelong Refinery, operated by Viva Energy.’

As a result, we ship in the majority of our refined petroleum from South Korea and Singapore…not exactly next-door neighbours.

Australia’s mining industry runs on diesel, and we have just a month of inventories. That means we are especially exposed to supply chain issues. As Doomberg’s article pointed out (quoting from Bloomberg):

‘An increasingly stretched global refining system means fuel-price volatility is set to become more common, according to top oil executives. A lack of spare crude-processing capacity due to under-investment, and shutdowns happening more frequently with refiners ramping up on better margins and deferring planned work were common themes at the APPEC by S&P Global Insights conference in Singapore this week. That’s left fuels like diesel and gasoline vulnerable to sudden swings when there are unplanned outages…

‘The market is overly sensitive to any unexpected supply disruption anywhere,’ [Frederic] Lasserre said. “Everyone knows there’s no plan B. We have no stocks, and we have no excess capacity anywhere.”’

But hey, who cares, we’re going electric!

And it’s all going to be powered by intermittent wind farms and rooftop solar. Now there’s rainbows and lollipops for you.

In the western world at least, and certainly in Australia, why would any company risk a multi-billion dollar investment in new refining capacity when the politically mandated path is to ‘go electric’?

They wouldn’t. Which is why you shouldn’t expect any new refining capacity to come on line and increase supply. But the ageing global fleet of refiners will experience more outages and supply shocks in the years to come.

In the same way our ageing coal fired generators are experiencing more outages and putting pressure on the grid (increasing prices) the same will happen with global refiners. And that means, over time, higher prices at the petrol pump.

And it’s all thanks to an inept political class leading us down the path to energy poverty. Because fear is such a strong emotion, most of the electorate has swallowed this climate catastrophe line and believe that this transition must take place, no matter what the cost.

That’s what fear does. It engages the emotional part of the brain and switches off the rational part. That’s why the political class engage in fear-based methods of coercion so often (and so successfully).

A few years down the track, when energy prices keep rising and our standard of living keeps going backward, people may awake from their fear-induced slumber. But by then it may be too late.

In the meantime, go long on traditional energy. It may be your only hedge and protection to what’s coming.

In short, buy energy stocks on any dips the market gives you. That’s the obvious play. For some less obvious options, keep your eye out for a special presentation coming from me LATER TODAY.

And finally, I’ve had a lot of positive feedback from the recent interviews I have done discussing the issues around the energy transition. Some have asked how they can share them beyond the Fat Tail community.

If you go here on our YouTube channel we’ve made a playlist for all of the Net Zero interviews. Please share as much as you can!

Cheers,

Greg Canavan,
Editorial Director, for The Daily Reckoning Australia

PS: Speaking of these interviews, there’s another one I want to share with you today…

‘Minister for Climate Change’, Chris Bowen constantly tells us that wind and solar are the cheapest forms of energy, while nuclear (the most efficient form of energy known to humanity) is too expensive.

But such claims — as you’ve likely heard from my other interviews with Rob Parker of Nuclear for Climate Australia, former Liberal Senator and founder of the Australian Conservative party, Cory Bernardi, and Professor Ian Plimer, a geologist and climate alarmism critic — don’t pass the smell test. Or the pub test.

Is it an honest mistake? Or are you being lied to?

If you’re sceptical of claims like this but don’t exactly know how to articulate why — make sure you watch my interview below with data scientist Aiden Morrison.

Aiden’s data-sleuthing has revealed some serious flaws in both the CSIRO’s Gencost report (the basis for Bowen’s claims) and AEMO’s ‘Integrated System Plan’. If he’s right, then what is happening with Australia’s energy transition is truly shocking.

Check it out...

By Bill Bonner Editor, The Daily Reckoning Australia

Dear Reader,

People wonder what life in France is really like. We’ve been here so long, it all seems very normal to us. We no longer notice things that, to a visitor, might seem strange or fascinating.

But we went to the local hospital last week. How does a public medical system work, you might wonder? Our experience is probably not very indicative, but we’ll give it to you anyway.

First, a perspective. In France, medical spending per person is about $6,500. In the US, it’s nearly twice as much…$12,200. Is the US system twice as good? The life expectancy in France is 82 years. In America, it is only 80. Go figure.

We had already seen our local GP. He advised us to see a specialist. So, we drove the 15 minutes to Montmorillon. We got to the reception area and found that a line had already formed.  

‘Oh no…a government-run health system…it’s going to be a disaster,’ we muttered.

We took a number. We waited. The numbers appeared on an electronic screen as they were called. But the wait was short.

Bedside Manners

A polite woman at the front desk then asked why we had come. Realising that we weren’t French she asked: ‘are you enrolled in the public health system?’

‘Uh oh…this could be a problem,’ we thought.

But no…

‘No problem, you can pay in cash for the visit.’

Meanwhile, our regular doctor showed up.  

We first met Jean-Paul a quarter of a century ago. He rode up to the house on a BMW motorcycle after we had called his office. Back then, it was an aged aunt, with dementia, who needed attention. And since then, over the years, he has come often — for Elizabeth when she was thrown from her horse, for a son after he was hit by a flying tennis racket, for all of us when we had COVID. He is no ‘Dr House,’ astonishing his colleagues by diagnosing weird ailments. He is a practical, sensible, country doctor with many years of experience treating ordinary people for ordinary medical problems.

Jean-Paul was wearing a white clinical coat. We said ‘bonjour.’ We shook hands. He led us to a room and made an introduction to a younger man in lime-green pants, who looked like he was on his way to the golf course.

In America, a new doctor — whatever his specialty — will generally want you to fill out a long questionnaire with your medical history going back to the crib. His assistant will verify that your insurance is up to date. Then, when you finally get an appointment, the doctor will ask questions about how well you sleep and whether you’re allergic to peanut butter.

Instead, after exchanging only a few words with Jean-Paul, relating to golf, the specialist examined our scalp. Seeing no reason for alarm, 10 minutes later, we had said goodbye to them both and were ready to leave.  

‘How much was the consultation,’ we asked at the front desk, getting out our wallet.

‘Twenty-five euros,’ came the answer.

We were just getting up to leave, when Jean-Paul appeared again.  

‘There’s another specialist here today….I asked her if she could look at you too.’

He directed us down the hall to a dermatologist. About 50, with close cropped gray hair, she looked friendly, but had a no-nonsense air about her.

Disappearing Experts

Patients who were hoping for a long chat with a sympathetic professional would doubtless have been disappointed. Did we ever smoke? Did either parent die of cancer? Have we had sexual relations in the last 6 months? With a man? With a woman? She had no more interest than the other specialist.

‘Were you out in the sun a lot when you were growing up,’ was all she wanted to know.

‘Well…I lived in California for a while…and went to the beach.’

‘Oh…bon…take off your clothes,’ she directed.  

Slightly embarrassed, we did as bade. She inspected with a magnifying glass. And then, seeing nothing of interest, she got out her tools and proceeded to ‘burn’ off a few spots on our scalp.    

‘There…that ought to do it. Wear a hat.’

‘Oui, bien sur.’

We dressed and were out of her office within 15 minutes.

Back at the front desk, our GP appeared again. 

‘How did it go?’

‘Fine…nothing unusual.’

‘Great…see you soon.’

The whole experience had taken about 45 minutes — with our own doctor leading the program…and two specialists on the case. And the total bill, which we paid with a credit card, set us back a total of 80 euros.

But like so many things in France, it depended on local connections and local expertise (otherwise, we wouldn’t have known whom to talk to; we would have been at the mercy of the administrators). And the local experts are disappearing.

Jean-Paul has been a good local doctor. But he is retiring. He’s leaving his practice to a younger man in December.

You may recall when we reported on our visit to Sicily, two months ago. We visited a town — Troina — that was giving away houses to try to attract new people.  

The town was nearly deserted.  But the problem wasn’t only that it had few residents.  It also had few bakers, or chefs, or plumbers, or local doctors. That is, it lacked the small business people and professionals that make small towns function.  

Cause and Effect

The same thing is happening in France’s burgs and villages. The people who make the bread and plaster the walls are leaving, retiring or dying. Our local cabinet maker, Jean-Pierre, died a few years ago. His replacement, Rene, just retired. The plasterer, Guy, retired a decade ago; no one took his place. The gas station closed after it was unable to meet EU environmental regulations. The electrician left his business with his son, who turned out to be shiftless. And the last café in town closed after the owner — an Englishwoman — went back to the UK.   

Whether it is cause or effect, is not clear, but the lack of competent local professionals corresponds to an increase in large-scale, ready-made suppliers farther away. It is hard to find a plasterer, for example. But hardly anyone uses them anymore; pre-cast plaster board — imported from Eastern Europe — is cheaper. And windows are no longer made of local, aged oak, by the skilled village carpenter; they’re made in the Czech Republic of exotic, imported woods and vinyl. 

‘France is a mess,’ a friend volunteered at dinner. ‘The system is rotten.

‘You can’t find anyone to fix your plaster…or your dishwasher…and yet, millions of young people are unemployed, living on welfare…or they’re at the university wasting their time studying biodiversity or sex roles.  

‘And that’s not the only problem. The retirement system keeps people from working. Either you retire or you lose your benefits. And if you retire, you are prohibited from working.

‘So we have all these people in their ‘60s who know how to do things, but they can’t do them. And they all expect to be supported by people in their 20s and 30s…who don’t know how to do anything and don’t want to learn.

‘The schools teach people to be administrators, bureaucrats, functionaries. And, of course, more recently, they think students should go into finance, because that’s where the money is.

‘But I don’t need any more suits, paperwork or blah-blah. I want someone who can fix my roof…or make a good croissant…or even a good cup of coffee.’

More on the ‘salt of the earth,’ tomorrow…

Regards,

Bill Bonner,
For The Daily Reckoning Australia