Whether you believe there is a “climate crisis” or not, climate change and what to do about it is emerging as the pivotal issue of the UK general election – not Brexit. This issue is likely to dominate the US presidential election next year too, writes Victor Hill.
Eco-anxiety equals eco-elections
Last week I explained how this is the second British general election in 30 months to be precipitated by the UK’s collective nervous breakdown over Brexit. But in the ten days since the election was called – albeit in a kind of Phoney War before real hostilities begin – the airwaves have been dominated not by discussion of the boring old single market and customs union but by issues around the environment and climate change. An environmental youth cult is now entrenched and cannot be ignored.
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I suspect that this election could be won or lost on voters’ perceptions of who is on top of the climate crisis. In this respect, wind-powered Labour – and to a lesser extent the bicycling Lib Dems – have the edge over the smoke-belching Tories (in the public mind that is). This hugely impacts investors, especially institutional ones, who will have to re-green their portfolios sooner than we thought one year ago.
Fracking is off
Boris Johnson, once an unapologetic fracker, has undergone a Damascene conversion on that issue. (Or has he? Labour is asking.) Hydraulic fracturing or fracking has been controversial since vanguard operator Cuadrilla Resources caused 2.9 Richter scale earth tremors in Lancashire back in 2011. But despite the risks, the case for fracking was a strong one.
A decade of fracking in the USA has made the country entirely self-sufficient in oil and gas and has created hundreds of thousands of jobs. Shale gas is a “clean” energy source: of course burning it creates CO2 but, unlike coal or oil, minimal harmful particulates arise. The UK now imports around half of all natural gas consumed – mostly in the form of LNG from Qatar. At one point fracking looked like a great opportunity to reduce reliance on distant suppliers whose output might easily be interrupted by the forces of geopolitics.
But last Friday the government announced a temporary ban on fracking, bringing England into line with the other nations of the UK. The government said that it is not currently possible “accurately to predict the probability of earthquakes”.
The opposition to fracking arises because it causes tiny, localised earthquakes when water and sand are pumped under unimaginably high pressure into gas-bearing rocks miles underground. In fact, nearly all of these so-called earthquakes, while detectable using specialist instruments, are equivalent in intensity to a bus or truck being driven past your home. There is also the fear that fracking can pollute underlying aquifers (the water table) – but such contamination has never been demonstrated. Moreover, fracking sites are so minimalist that most local residents will not even be aware that they are there.
The reason why Mr Johnson’s government has banned fracking is that fracking is unpopular. It has little to do with the underlying science. To that extent, at least Mr Johnson’s advisors have their ear to the ground, so to speak (unlike Mrs May’s); but it betokens the lack of a comprehensive energy strategy.
Sir Jim Ratcliffe, CEO of the chemicals conglomerate Ineos, ranks doubly, nay triply, in Mr Corbyn’s demonic pantheon. He is a billionaire; he is the owner of a flamboyant super-yacht; and he is a polluter. Sir Jim is also gung-ho on fracking and could have hugely reduced the UK’s dependence on LNG imports while opening up the industry to public scrutiny. Now that is not to be.
In a similar vein, on Wednesday (06 November), Labour’s shadow transport secretary indicated that Labour would ban private jets by 2025, claiming that “billionaires should not be permitted to trash the climate”. More bad news for the Sussexes, then.
Home insulation – the only colour is red
Labour wants fully to insulate and double-glaze every one of Britain’s 27 million homes. A Labour government will install heat exchangers up and down the land. This programme apparently has a price tag of £250 billion. £60 billion of that, according to Ms Long-Bailey, Labour’s shadow business secretary, would have to be financed by new borrowing. The other £190 billion, she claimed, would come from energy savings which could be recouped through the tax revenues generated by 400,000 new jobs. (There is so much that is questionable about that claim that it could make a separate article in itself. For now, I shall restrain myself.)
Like many readers I have invested extensively in new double glazed windows and doors this year – in my case, further to buying an old house in Norfolk. Naturally, I checked out local providers, went through the spec and design with them, negotiated a price and then presided over the installation. But imagine that First Citizen Jeremy sends you a message to the effect that Comrade Bodger is coming next week (though he/she won’t turn up at the appointed hour) to defenestrate (in the original meaning of that word) your property…And that you will be sent an indeterminate bill thereafter…
In the words of the contemporary woke elite: How does that make you feel?
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This £250 billion, as far as I can work out, comes on top of the £150 billion Social Transformation Fund which Mr McDonnell announced yesterday – not to mention the nearly £200 billion required for Labour’s renationalisation programme. I’ll explore the economic consequences of the proposed tsunami of new spending shortly. I would just point out here that government investment on housing “improvements” is usually spent badly. The flammable thermoplastic cladding that caused so many deaths in the Grenfell Tower tragedy (June 2017) had been installed by a Labour Council at a cost equivalent to £70,000 per flat of public money. (So “austerity” was not the cause of the fatalities.) [i]One factor in the choice of cladding was its merit as an insulation material, thus reducing carbon emissions…
However, much as I question the practicalities, I admit that Labour is onto something. British homes are notoriously poorly insulated thanks to decades of shoddy building practices (partially because successive governments of all colours have felt the need to encourage “affordable” (i.e. cheap) housing.) The upshot is that a huge amount of CO2 is emitted to generate heat that is quickly lost. Labour is pushing on an open door here.
Mrs May’s government, as we know, not only committed the UK to going net carbon neutral by 2050, but also outlawed the fitting of gas boilers in new-build homes from 2025. So most new homes are going to have either solar heating or heat exchangers (or both) very soon. The problem arises in retro-fitting the existing housing stock – much of which is in the social housing sector (homes rented out by town councils or by housing associations).
Green heating systems are already much in vogue at the upper end of the housing spectrum. The Earl of Leicester heats his splendid family seat, Holkham Hall in Norfolk, using entirely green energy. The estate uses a combination of solar panels, biomass (wood pellets sourced locally), ground-source heat pumps and a large anaerobic digester (powered, of course, with dung from the estate). Lord Leicester is also planting trees like crazy on his 25,000 acre estate – an issue close to my heart, as regular readers will know. (It transpired this week that Mr Farage is a tree-planter. He really ought to make more of that.)
Figures from the Country Landowners’ Association (CLA) suggest that 46 percent of members (representing privately owned farms) have invested in renewable energy. But there is little point in investing in a biomass boiler or photovoltaic (PV) panels without installing modern glazing and insulation – even though in a listed building this can be challenging.
In fact, the top rung of the social ladder in the UK now purr up their gravel drives in gleaming electric machines such as the new Jaguar I-Pace; whereas the Tim Nice-but-Dims are still using their City bonuses to buy chugging diesel-powered Porsche Cayennes. Going green now has social cachet: the challenge is to give the masses a leg-up. Labour has got that.
My pro-market inclination prompts me to believe that people can be nudged towards finding green solutions through the price mechanism. At the margin, that might mean a subsidy regime. While the Coalition Government’s Feed-in Tariff Scheme closed to new applicants last March, under the Domestic Renewable Heat Incentive (RHI), those who switch to renewable heating can still receive quarterly payments for seven years. From next January, the Smart Export Guarantee will pay anyone for electricity supplied to the grid. The Tories should talk more about this.
Green with envy
Then on Wednesday the Green Party of England and Wales (who have already decided in their wisdom that Scotland is another country) came up for air. They called for a mere £100 billion a year (small change for Mr McDonnell) to be spent on tackling the climate emergency. Co-leader Sian Berry said: “Some things are even bigger than Brexit. This must be the climate election. The future won’t get another chance.”
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The party says it would fund the pledge by borrowing £91.2 billion a year, with an extra £9 billion from “tax changes” (which presumably means tax rises for the middle classes plus an increase in corporation tax to 24 percent). The party also set a target to make Britain carbon neutral by 2030. (I think they meant netcarbon neutral – but you never know.) As far as I could understand much of this new money is to be spent on building new wind turbine and solar arrays – even though there is currently no shortage of finance for new renewable energy plants from the private sector.
Indeed, many power utilities are ahead of the curve. Scottish & Southern Energy (LON:SSE) has launched its Zero Carbon Communities Campaign which provides a detailed road map of how local communities can get to net zero carbon emissions. It envisages that 25 million electric vehicle charging points will be required and 23 million heat pumps will need to be installed. (I talked at about heat pumps and who leads in their manufacture in this month’s issue of the MI magazine.)
On Thursday (07 November) the Greens, the Lib Dems and Plaid Cymru announced a non-aggression pact whereby they would promise not to dance on one another’s toes across a slew of 60 constituencies on 12 December. This cooperation amongst the forces of Remain stands in stark contrast to the prospective split in the Leave vote as between the Tories and the Brexit Party. It also underlines the subliminal message that Remain is green while Leave doesn’t care.
Heathrow: the runway that never happened
Labour would cancel the second runway at Heathrow if it came to power. Or so Mr McDonnell told us last weekend. Presumably, a Labour government would also block airport expansion plans at Manchester, Leeds-Bradford and East Midlands airports.
Heathrow is a case in point, being the only major global airline hub with just two runways. Heathrow is operating at very near 100 percent capacity 24/7/365. An early flurry of winter snow, or a rogue drone, is enough to throw the airport into convulsions with unpleasant consequences for literally hundreds of thousands of people. In any other domain it would be thought prudent and judicious to expand capacity. But not when “the survival of our planet” is at stake.
In this respect the Labour leadership is at variance with many of its trade union supporters. Last year Len McCluskey, leader of the UNITE union, warned that blocking the third runway would cost “hundreds of thousands of new jobs”.
Mr Johnson himself, when Mayor of London, was passionately against the expansion of Heathrow but, in office, his stance has been more flexible.
America 2020
Support for Mr Trump across the USA is falling as suburban Republican voters abandon him. In Kentucky, a state which Mr Trump won with a 30 point lead in 2016, last Tuesday a Democrat narrowly won the gubernatorial election. Mr Trump had appeared at a rally in Lexington just 12 hours before polls opened. And in Virginia the Democrats overturned a Republican majority and now control the state legislature and the governorship for the first time in 26 years.
There are many things going on here but one factor is the rise of environmental consciousness. For the last six weeks or so Americans have been turning on their TVs to watch the impact of the spate of catastrophic out-of-season wildfires in California where, whatever your views on global warming, the climate seems to have become much drier in recent years. In that environment it is becoming more difficult for a politician to dismiss climate change as some kind of conspiracy.
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I now think that if the Democrats nominate Senator Elizabeth Warren as their candidate next year, Mr Trump will have less than a 50 percent chance of winning against her – and one reason will be the climate issue. I’ll flesh that out in more detail soon.
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On the electoral road (1): South West Norfolk
I started my electoral journey this week in my home seat of South West Norfolk, which is currently held by Liz Truss. She is Boris Johnson’s Trade Secretary and as such a cabinet member. She is also Minister for Women and Equalities [sic] and in that capacity made an interesting speech this week about the dangers posed by Corbynism to women in the workplace[ii]. Ms Truss has been the MP here since 2010 – SW Norfolk having been solidly Tory since 1964. She won in 2017 with a majority of 18,312 over Labour taking 62.8 percent of the vote (well up on 2015).
For years before 1964 the seat had been ultra-marginal. Labour first held it from 1929 to 1931 and then won it back in the landslide of 1945, holding it with diminishing majorities thereafter. In years gone by, farm hands accounted for a large proportion of the local workforce and were highly unionised and inclined towards Labour. These days, farming here is almost entirely mechanised, albeit with the influx of seasonal workers from Eastern Europe.
Unemployment is well below average, at about 3 percent against 3.8 percent for the country as a whole. The main industries are agriculture and building materials. Tourism is bigger further north in the North West Norfolk constituency with its spectacular coastline; though the country pubs here, which almost always offer accommodation, are one of England’s best-kept secrets.
The constituency covers a huge area, nearly from Diss on the Suffolk county-border to the gates of Wisbech (in Cambridgeshire). It takes in significant market towns like Thetford and Downham Market, which have crept into the surrounding countryside in the last 30 years, as well as more genteel historic coaching towns like Swaffham. The biggest sugar factory in Europe lies way out on the Methwold Fens.
The local news this week was that, one day after selecting its prospective parliamentary candidate, Matthew Collings, who is the art critic for the Evening Standard, the Labour Party suspended its candidate from the party pending an investigation into his social media accounts. Mr Collings, who reportedly called the former Chief Rabbi, Lord Sacks, a “hate-filled racist”, described claims that he was anti-Semitic as “nonsense”.
There has been no canvassing here and there are no posters apparent of any political affiliation. Right now South Western Norfolkers are much more exercised by Remembrance Sunday and the impending Christmas season than by the election. There seems to be tacit agreement that no one speaks the B-word in polite company. Ms Truss’s electoral leaflets have not even been printed yet – so the Constituency Office in Swaffham informs me. And Ms Truss, it seems, is still busy in London.
This week, as I drove through the big landscapes and glowering skies of my new county, listening to Shostakovich, I imagined I was back in South Russia. (I was sent years ago to Bashkortostan and Krasnodar by the World Bank.) Though here, unlike in Russia, the far horizon is always punctuated with gothic spires or towers. It’s strange to reflect that many of the people picking in these fields are the grandchildren of those who lived in Stalin’s shadow… I wonder what they make of Mr Johnson likening Mr Corbyn to Stalin.
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Master Investor’s Investing in the Age of Longevity event will take place next Wednesday. Some of the leading experts in this field will be gathered in one space for a day. If you can’t make it to this sensational event then look out for my piece next week when I’ll try to give you a flavour of the extraordinary advances that are underway.
Victor.Hill@masterinvestor.co.uk
[i] Another factor was the practice, going back to the 1970s, of building tower blocks with a single staircase which are unequal to the challenge of a mass evacuation.