Weaponising APRA for Climate Crusade

Geoff Summerhayes is an Executive Board Member of APRA. Over the weekend he gave a speech in Singapore to an international conference of financial regulators outlining a case for an increase in APRA scope and powers to regulate the Australian financial sector in relation to climate change. Some notable comments were as follows:

“Liability risk refers to the potential for companies, boards and individual directors to be held legally accountable for their actions – or lack of them – with regards to addressing climate risk.” 

“APRA is embedding the assessment of climate risk into our ongoing supervisory activities. We intend to probe the entities we regulate on their risk identification, measurement and mitigation strategies. We expect to see continuous improvement in how entities are preparing for the transition to the low-carbon economy.” 

“This is not something we are mandating, and nor do we intend to introduce a specific climate-related prudential standard at this time [my emphasis]. However, I have previously noted that the global regulatory community is steadily moving in this direction, which is yet another reason why prescient business leaders should be taking steps now to get ahead of the curve.”

That the stability of our financial system is in hands of Geoff Sumerhayes, who despite having zero expertise whatsoever in climate science is nonetheless convinced that climate catastrophe is a certainty, and hence we need to regulate our companies to “transition to a low carbon economy” is truly frightening.

To flag that company directors should be liable for future weather is as absurd as it is impractical. Australia as a nation cannot influence climate action or change the weather. What can individual companies hope to achieve? 

More to the point, it is completely disingenuous. It is a draconian measure to enforce political ideology that has nothing to do with prudential standards designed to foster “a stable, efficient and competitive financial system as per APRAs mandate.

You kind of have to hope it is disingenuous because the alternative is to accept that the regulator entrusted with ensuring financial system stability is so bad that it deliberately disregards from its elevated thinking any notion of rational, objective and empirical considerations of risk, reward, cost and benefit, which of necessity would include assessments about the levels of scientific, technological, economic and political uncertainties that are endemic in climate change.

This is the inescapable conclusion reading Summerhayes speech, who despite being expert in insurance matters, ironically doesn’t believe in weighing up the probability that his inexpert view of climate alarmism might be wrong and the rest of the world might not be moving in quite the same direction or speed that he assumes they are.

For a regulator that preaches prudence for a living, Sumerhayes unquestioning acceptance of climate hyperbole, activist falsehoods, regurgitation of unsubstantiated platitudes, and resort to false equivalence, to advance a straw man argument demanding climate regulation of the finance sector is concerning to say the least.

Summerhayes accepts without question the science is settled, the need to limit warming to less than 2 degrees Celsius, the potential it could go as high as 4 degrees Celsius, more extreme weather events are happening now and will get worse in future, the global transition to the low-carbon economy is underway and accelerating, the technology to transition to a low carbon future exists, and the future cost of climate catastrophe is greater than the current cost of mitigation. 

Yet every one of these claims is highly contested, uncertain or arguably false. The science is not settled but the subject of on-going research and debate. The best evidence shows that the climate is not particularly sensitive to CO2 and that a doubling of CO2 will hence most likely lead to a 1 degree Celsius rise in the global temperature anomaly, not the 2-4 degree rise predicted off climate models that Summerhayes claims. These models have failed the test of prediction, a necessary pre-condition of science. They are too sensitive to CO2 and run too hot.

Extreme weather events are neither more extreme nor more frequent despite CO2 in the atmosphere increasing by roughly 30% and temperatures being almost 1 degree Celcius warmer than pre-industrial levels. This is a well established fact shown in the instrumental record and it is precisely because there is nothing to see in the instrumental record (i.e. nothing distinguishable from natural variability) not even the IPCC attribute a climate signal to present day weather events as Summerhayes does. He is plain wrong.

The transition to a low carbon global economy is stalling not accelerating contrary to Summerhayes claims. Developing countries have steadfastly refused international calls to cut emissions for over 20 years and the Paris Agreement enables developing countries to continue increasing their emissions over the life of the Agreement.

The larger developing countries (e.g. China, India, Brazil, Indonesia, Mexico, Vietnam) being exempt from cutting emissions account for almost 40% of total emissions and represent the bulk of the projected rise in emissions. The developing world as a whole constitutes almost two thirds of global emissions and is similarly exempt.

Contrary to Summerhayes assertion that we are seeing an acceleration to a low carbon global economy, emissions rose by 2% in 2018 which according to the BP Statistical Review of World Energy report was the fastest growth in 7 years, in spite of the Paris “commitments”.

This was mostly related to growth in energy consumption that was met by natural gas and coal. Coal production and consumption increased by their fastest rates in five years mostly off the back of high demand in China and India.

The Paris Agreement which Summerhayes believes constitutes “aggressive mitigation action” has been widely condemned by climate scientists and activists for failing to result in targets consistent with the stated goal of limiting global warming to 2 degrees Celsius (much less the more ambitious 1.5 degree subsequent target) that he believes is necessary to stave off catastrophe.

The Copenhagen Consensus Centre estimates the Paris commitments will reduce global temperature by less than 0.2 degrees Celsius which is the equivalent of doing nothing. Even that assumes that all countries will honour their commitments which is wishful thinking at best.

Renewable energy, which is implied by Summerhayes as being the “low carbon economy” future, remains plagued by problems of intermittency and correspondingly low capacity factors, and hence cannot guarantee supply on demand, much less at peak periods nor at an affordable price.

The issue of backup remains costly, complicated and vexed. However, like the economist that assumes a can opener, Summerhayes simply assumes these limitations don’t exist as he calls for mitigation as the more cost effective solution.

Consequently, Summerhayes sets up a straw man argument in much the same manner as Bill Shorten did during the election, reducing the climate change issue to a false choice of:

controlled but aggressive change with a major short-term impact but lower long-term economic cost? Or uncontrolled change, limited short-term impact and much greater long-term economic damage?”

Which is to say he conveniently sidesteps the cost issue by deliberately avoiding any analysis, be it scientific, technological, economic or political, that might cast doubt on his underlying assumptions and disprove his conclusion that the cost of action is lower than the cost of inaction.

The dichotomy he sets up is patently false. Any prudent analysis (and I use this word deliberately as we are talking about a regulator) of the climate change issue results in fundamentally different scenarios leading to totally different rational choices that we as a nation and companies in particular should be aware of.

The first scenario, based on the weight of actual climate evidence to date, is that the climate system is not highly sensitive to CO2 and there is no pending climate catastrophe. Hence, anything we do to mitigate CO2 today constitutes a deadweight loss on the economy that will be adversely felt by Australians for generations to come.

This scenario assumes a rise of just 1 degree Celsius consistent with a doubling of CO2 with low sensitivity which nobody believes will be harmful to the planet. Given the fact that we are already about 80% there, without any signs of catastrophe, and over this period we have witnessed the greatest advancement in human welfare in history, the most logical conclusion is that a slightly warmer, CO2 enriched planet will be overall a net benefit. Summerhayes does not even entertain this possibility.

The second scenario, is that the climate system might be sensitive to CO2 in the manner the IPCC and hence Summerhayes suggest (albeit with a high degree of scientific uncertainty) but the fact remains that international agreement to meaningfully and transparently cut CO2 emissions has remained elusive for well over 20 years and there is no evidence that this is about to change.

The developing world – constituting roughly 60% of global emissions and responsible for most of the growth in global emissions, and comprising as it does, some of the most powerful nations in the international system – simply refuses to acquiesce to Western pressure to reduce their emissions and there is nothing the developed world can do about it. If Summerhayes’ view of climate science proves correct then climate catastrophe is inevitable.

The real choice is therefore not about the cost of mitigation versus the cost of climate catastrophe, it is about the futility and waste of mitigation versus the potentially necessary cost of future adaptation, against the backdrop that climate change predictions have thus far largely failed and may not be as damaging as APRA make out, and international agreement does not exist. Under either scenario the prudent course of action is a wait and see approach.

Summerhayes speech is accordingly an indictment of APRA that is willing to abandon financial prudence at the altar of climate change ideology. He jumps to solution mode without any serious analysis or understanding of the problem he is seeking to solve. He pushes a business case for climate regulation without having done any of the due diligence one would expect of a prudent and compliant regulated company.

He bemoans a lack of data and information that he claims would underpin more informed discussion and analysis of the cost of climate change, which in turn would better inform shareholders and customers of investment risks, but his entire starting point is that he already knows which way the science and cost arguments will play out and hence any information contrary to mitigation would presumably be APRA non-compliant.

He jumps between mitigation action taken by government and action taken by companies as though the two are interchangeable. They are not. In fact, a single company can be exposed to multiple climate policies depending on its areas of operations and the location of its customers, including the non-climate policies of the developing world.

His warning of a Kodak moment is a false equivalence. Kodak failed to keep up with pace of technological change and was replaced by a superior and lower cost product. Whereas the major problem in transitioning to a low carbon economy is that we do not have the technology to be able to do it and the renewable energy approach represents an inferior product at higher cost.

That is why international action on climate change has gone nowhere for over 20 years and why developing countries balk at the idea of constraining their economic development through the use of inferior renewable energy.

China and India are not stupid nations. They are not investing massive sums in energy infrastructure and deliberately choosing the most uneconomic and risky form of supply. They are investing heavily in fossil fuels to meet their growing energy needs because they know it represents the better investment. It is scalable, cheaper, reliable and can be dispatched 24/7 on demand. Japan has said the same thing in relation to its recently built 4,000 MW plant in Kobe.

If renewable energy was the better technology and better investment China and India would not be building coal-fired plants in the hundreds. But they are. Unconstrained by Western climate propaganda China and India are just getting on with the job of building the energy infrastructure they need. Do we really believe that China and India are so stupid that they are deliberately forgoing the cheapest form of energy (i.e. wind and solar) and are ignoring the climate investment risks (i.e. stranded assets) that APRA says we should prioritise? A good way to think about this is to consider whether Australia is prepared to deny the supply of coal in future because of climate concerns and potential liability.

The fact is renewable energy cannot compete against coal and gas and that is what developing world investment patterns prove. Without subsidies and government intervention most renewable energy companies in the developed world would be non-viable enterprises. Yet this is the sort of highly speculative (i.e. government policy-rent seeking dependent) uneconomic investment APRA presumably believes we should prioritise .

This goes to the argument that Bjorn Lomborg has made and why in his view the economic case is opposite to that of Summerhayes. The Copenhagen Consensus Center, using the IPCC’s own data and assumptions (being generous) has stated that a back-ended technology solution wins on cost-benefit terms by a wide margin because the current technology has no hope of replacing fossil fuels.

The Copenhagen Consensus Center dismisses Summerhayes’ commitment to the Paris Agreement as a waste of money, highlighting a global annual cost of $1 trillion USD to achieve abatement of just 1% of what is required to meet the IPCC’s stated goal of limiting global warming to 2 degree Celsius. In other words, nothing.

Summerhayes speech draws heavily (i.e. substantially lifted) from the Taskforce on Climate-Related Financial Disclosure. This somewhat obscure taskforce is seemingly dedicated to market manipulation dressed up as risk mitigation and investor transparency. It has little to do with genuine policy debate and a genuine assessment about climate related risks, including technology and political risks.

If it did it would have sections in its final report dedicated to the biggest climate investment risks: that alarmist climate predictions will amount to nought; that the developing world will not decarbonise but continue to increase its carbon footprint; and hence ad hoc, unilateral government policy oblivious to these risks will impose futile deadweight costs on its companies and its economy. It doesn’t.

Instead it starts with a Green-Left definition of climate risk and proposes through regulation to manipulate company decision-making and market value through a combination of peer pressure, Green shareholder activism, adverse public relations and ultimately climate legal action (hence Summerhayes comment at the top of this post).

This is a prescription to turbo-boost the type of Green law-fare that has bogged the Adani project down for 8 plus years and invites activist judges to rule against new coal mines citing our international commitments to reduce emissions. It also encourages our banks to turn their backs on resource projects that generate jobs, exports, and royalties that fund our schools, hospitals, roads, the mendicant states of South Australia and Tasmania, and sadly our government debt.

Worse still, this stupidity will only further encourage China to step in and fill the investment void, funding coal plant projects throughout the developing world (as it does now) as part of its Belt and Road initiative designed to expand its geo-political and geo-economic power, as we commit to economic self-harm.

Summerhayes call for greater information and transparency by regulation is dangerous. On the surface it seemingly has nothing to do with providing greater information leading to a more balanced assessment of climate change risk to investment, but is instead a call for greater APRA powers that will effectively weaponise the regulator to aggressively pursue Green-Left climate ideology.

In doing so it is just one more step in the long march through the institutions that seeks to by-pass democracy, getting around the inconvenience of voters and government by exploiting its statutory independence with calls to globalist moral authority.

Far from saving us from a Kodak moment Summerhayes recipe for more Green-Left climate regulation will expose shareholders and taxpayers to Solyndra bankruptcies on an unprecedented scale, undermining the integrity and stability of the finance sector, and by extension the economy APRA is mandated to protect.

 

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29 Responses to Weaponising APRA for Climate Crusade

  1. Rafe Champion

    Lunacy on stilts, I have got some Lomborg papers on the desk in front of me, notably his submission to
    the US Senate Budget Committee in July 2014. “The Costs of Inaction: The Economic and Budgetary Consequences of Climate Change”.

    The analysis draws from a large body of work by economists including Richard Tol and Nordhaus and the bottom line is that the climate policies in place in the US would cost much more than taking no action at all. There are benefits of warming that the prophets of doom never acknowledge and these have been calculated to exceed the costs of warming up to another two degrees C. So on that basis Lomborg, following Tol sees warming is a net benefit up to some time towards the end of the century.

    On my view the prospect of a two degree rise on the back of CO2 alone is much further away even allowing for 2 degrees C from doubling CO2 in the air. Long before that nuclear and modern coal-fired power stations will halt the increase of CO2 ( in case you think it matters) and the wind and solar factories will be stranded assets.

    Lomborg calculated that the cost/benefit case against carbon mitigation at this time is overwhelming even with the worst case assumptions (that can be taken seriously) for future warming. The extreme assumptions of runaway warming up to five or six degrees cannot be taken seriously.

  2. Rafe Champion

    I have mixed views on Bjorn Lomborg, his analysis refutes the argument for carbon mitigation but he still sees a problem than has to be solved by new technology. We have all the technology we need to slow the increase in emissions long enough to spend a hundred years or so developing the science to prove that the whole thing is a scam.

  3. Spall

    If directors are to be held liable for decisions which, however minutely, support or increase consumption of fossil fuels, where does that lead? Perhaps the regulator’s spokesperson had divestment in oil companies in mind, but what about a bank setting up a managed investment scheme that holds a portfolio in BRIC (Brazil Russia India China) equities? Or a regulated lender that joins a syndicate that lends to an aluminium smelter in a third world country? Or basically financing anyone or anything that might draw electricity in a country that relies on fossil fuels? Should the financial sector be cajoled into imposing Trump-like sanctions on these countries in order to avoid their directors falling foul of a prudential standard (whatever that is) or facing liability? I guess not, because we’d have to sanction ourselves. Sounds like a variation on John O’Sullivan’s law – any regulator that is not prudently and ploddingly analytical and conservative becomes …

  4. Pete of Perth

    If companies are to be liable for CAGW. Researchers should be liable if their projections a climaggedon do not happen

  5. JC

    Just, great, great piece.

  6. J.H.

    Great article. Yes indeed the science is far from settled and from what we do know, is that CO2 is not a significant driver of anything other than plant life.

    Indeed, the benefits of more CO2 in the Atmosphere are never discussed….. The greening of the Earth, higher crop yields, more robust and drought tolerant vegetation…. etc

    Never the benefits, it’s always catastrophe with these people….. their gravy train depends on it.

  7. Whalehunt fun

    abandon financial prudence at the alter of climate change ideology.

    Should be ‘altar’not “alter”.

    And this buffoon should not be in charge of APRA, he should be sedated and confined to an institution to prevent self-harm and more importantly harm to the economy.

  8. Tezza

    Essentially every policy and regulatory agency in the Treasurer’s portfolio has drunk the dangerous anthropogenic global warming kool aid and is working against sensible economic responses to inevitable climate changes, in whichever direction they eventuate. All we are getting from the regulatory agencies is the worst sort of red tape.
    Accepting that the RBA is essentially beyond the Treasurer’s influence, he must surely initiate some push back against this nonsense in all the other elements of his portfolio.

  9. DaveR

    Marxist redistribution theorists and their useful idiots. Summerhayes in the latter category.

  10. RobK

    Excellent post. Unfortunately much damage is already done, along with opportunities lost. The sooner politics can digest the thrust of this post and back away from the alarmism, the sooner the path to prosperity can resume. The present trajectory is madness.

  11. Tom

    What you get when make-work bureaucrats start wondering why they have a job: let’s say something about something we haven’t a clue about. The word that comes to mind is stupefaction.

  12. Mark M

    “Yet every one of these claims is highly contested, uncertain or arguably false.”

    Here is the most important: the 2° reached-panic.

    “Summerhayes accepts without question the science is settled, the need to limit warming to less than 2 degrees Celsius …”

    2010: “Two degrees is not a magical limit — it’s clearly a political goal,” says Hans Joachim Schellnhuber, director of the Potsdam Institute for Climate Impact Research (PIK).

    “The world will not come to an end right away in the event of stronger warming, nor are we definitely saved if warming is not as significant.

    The reality, of course, is much more complicated.”

    Schellnhuber ought to know.

    He is the father of the two-degree target.

    “Yes, I plead guilty,” he says, smiling.

    The idea didn’t hurt his career. In fact, it made him Germany’s most influential climatologist.

    Schellnhuber, a theoretical physicist, became Chancellor Angela Merkel’s chief scientific adviser — a position any researcher would envy.”

    https://www.spiegel.de/international/world/climate-catastrophe-a-superstorm-for-global-warming-research-a-686697-8.html

  13. Mark M

    Oops.
    Missed this: “For this reason a group of German scientists, yielding to political pressure, invented an easily digestible message in the mid-1990s: the two-degree target.”

    2°. It’s made up.

  14. MACK

    Bottom line: managers being harassed by APRA and any other bureaucrats just need to quote the IPPC that there is no sign of change in droughts, cyclones or anything else important, and then tell them to bugger off.

  15. thefrollickingmole

    And amazingly enough the insurers will charge extra, why its almost like an excuse to gouge more money…

  16. Behind Enemy Lines

    Weaponising APRA for Climate Crusade
    Posted on 8:40 pm, June 25, 2019 by Justinian the Great
    Geoff Summerhayes is an Executive Board Member of APRA. Over the weekend he gave a speech in Singapore to an international conference of financial regulators outlining a case for an increase in APRA scope and powers to regulate the Australian financial sector in relation to climate change.

    This fellow’s boss ought to give him a giant kick up the **** for getting out of his lane, meddling in things he doesn’t understand, and neglecting the organisation’s mission.

    By the way, who is his boss?

    Oh, right. I remember now.

    And THAT is why we’re in this mess.

  17. Elizabeth (Lizzie) Beare

    A sensible government would send out to all major company CEO’s a summary of the relevant uncertainties that exist in climate science at both the empirical and modelling level and summarise world trends in the promotion and utility of renewables. They would of course also alert their own members in government and Party to this situation as well. Let the debate then take place within an informed context not in one of manifest hysteria.

    Pity we do not have a sensible government.

  18. 1% atmospheric CO2.
    When do we want it?
    Now!

  19. Karabar

    Why is it that people continually conflate “climate” and “temperature”?
    Climate is a REGIONAL parameter which is the composite or generally prevailing weather conditions of a region, as temperature, air pressure, humidity, precipitation, sunshine, cloudiness, and winds, throughout the year, averaged over a series of years.
    It consists of many inputs besides temperature. It is used to compare the weather in one region with that in another. The entire planet does not have a single “climate” any more than it has a unique currency or a single language. It is impossible to determine change without a metric, and “climate” is quantified by a classification system (generally Koppen-Geiger) and an observation of such classified areas does not reveal any significant and permanent change over the past century; but only a response to the 11 year and 22 year solar cycles.
    As for temperature, the notion of some “annual global average temperature” is simply nonsense, since such a parameter is both mathematically and thermodynamically impossible to compute.
    Obviously the man in black from APRA has no understanding of this.

  20. This is the inescapable conclusion reading Summerhayes speech, who despite being expert in insurance matters,

    There you have it. This bloke is as corrupt as it gets. Either he or his family/friends/collegues are making a motza out of the climate scam.

    When the IPCC alarmism first took off, reinsurance companies like Munich RE jumped on board for the obvious reason that they could charge much higher premiums if a future hefty pay-out could be factored in due to climate catastrophe.

    It’s the money. It’s always the money. Follow the money.

  21. mem

    The risk of taking action on climate change, given the cost to our economy and the destabilization of the electricity grid is far more real and provable than a conjecture that the temperature will rise catastrophically based on nothing more than an unproven hypothesis, that is failing to produce any of its predicted outcomes. If APRA were to weigh up the risks it would, if professional, side with doing nothing. As it stands APRA has now put itself in jeopardy because if the AGW climate change hypothesis is proven to be incorrect or a scam then one would be within one’s rights surely to sue them for unprofessional advice and?putting your company at risk.

  22. hzhousewife

    Why is it that people continually conflate “climate” and “temperature”?

    Why do people call carbon dioxide, carbon?

    Ignorance.

  23. Win

    Is it a co incidence that Greg Summerhayes seems to be a cross between a tribal Sharman ,witch doctors and voodoo specialists.Stick a gas mask on him and drape him in green weeds and he can hold court sitting in the dirt of his carbon free economy.

  24. Percy Popinjay

    outlining a case for an increase in APRA scope and powers to regulate the Australian financial sector in relation to climate change

    There isn’t one.

  25. duncanm

    Ah yes, wonderful renewballs

    The Oceanlinx wave energy convertor device was originally moored in its current location in 2009 under a licence agreement between Roads and Maritime Services and Oceanlinx Limited. Moored off the northern breakwater at Port Kembla, the device has not been operational for over seven years, now rusting and impacted by ocean waves. Following Oceanlinx Ltd being placed into administration in March 2014, Roads and Maritime has developed a plan to remove the structure.

  26. I am currently finishing reading these two books available through the public library: Mirrors and Mazes: a guide through the climate change debate by Howard Thomas Brady; and Taxing air : facts & fallacies about climate change by Bob Carter & John Spooner, et al.

  27. Rayvic

    “His warning of a Kodak moment is a false equivalence. Kodak failed to keep up with pace of technological change and was replaced by a superior and lower cost product. Whereas the major problem in transitioning to a low carbon economy is that we do not have the technology to be able to do it and the renewable energy approach represents an inferior product at higher cost.”

    Summerhayes fails to address the most likely scenario whereby renewables are unable to provide supply reliability once present coal-fired plant capacity is not renewed on retirement, and output of entities is adversely impacted by power blackouts that will become the norm.

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