We are now recording an audio version of written posts that we will upload to Apple, Spotify, and YouTube, which you can listen to by clicking the play button above. We conclude our month long series on Strait of Hormuz (SoH) Crisis takeaways with a look at what this conflict means for the related topics of sustainability, climate, and the environment. Three key messages this week: * Many proponents and opponents of “Net Zero” are drawing the wrong conclusions about what this war means for different energy sources and technologies. Energy’s natural hierarchy of needs applied at the country level mean the optimal mix of various energy sources and technologies will vary for any given country—a reality the crisis reinforces. * The topic of Sustainability needs to be right-sized and recognized for where it fits into corporate level strategies. Companies exist to generate growth and profitability for investors. Certain sustainability objectives are core to being successful over the long run. Sustainability is not a strategy in and of itself. * We shall offer free advice on what hyperscalers can learn from the oil & gas industry. We are going to do our best to not rehash our now well-known pushbacks on the excesses of the 2020-23 “Net Zero” era. The madness of that period we don’t think ever returns, no matter who wins the US presidency in 2028. But we do get the question—and we are appreciative of those of you that ask—how does sustainability, climate, and the environment factor into our outlook for the energy sector, public policy, and corporate strategy and how does the SoH Crisis change or impact the views we have been articulating? We will start with a grounding on how we think about environmental and climate considerations. Our title gives it away: increasing global prosperity is our centering point, both for countries and companies. In terms of our concern level around the need to address climate change, we would characterize our specific climate opinions as broadly consistent with US Energy Secretary Chris Wright and former University of Colorado professor and Substack author (here) Roger Pielke Jr. At the country level, energy’s natural hierarchy of needs that we frequently discuss is observably all any country cares about at all times (Exhibit 1). Abundant and reliable energy is a 24/7/365 pre-requisite. It needs to be affordable the vast bulk of the time. Country leaders care about geopolitical security in order to protect reliability and affordability. Clean air and clean water are 100% correlated with societal wealth. Addressing carbon emissions goes hand-in-hand with a maximum prosperity scenario where billion person-scale economies like China and India are highly motivated to crack the code on new energy technologies that are de facto lower in carbon intensity. Pretending that society and companies can be forced onto prescriptive “Paris-aligned Net Zero by 2050 pathways” was the fatal flaw of the 2020-2023 era. For companies, the only goal is to generate competitive returns and growth for shareholders. Sustainability exists at the level of community engagement, license to operate, and as a possible alternative to government regulation. It is a component of running a company similar to many other functions; it is not a strategy in its own right (e.g., pressuring oil & gas companies to transition business models in the name of addressing climate change never made sense). With that grounding, we are going to use a Q&A styled format to address how we think the related topics of sustainability, climate, and the environment will be impacted by the Strait of Hormuz Crisis. Exhibit 1: Energy’s natural hierarch of needs Source: Veriten. Subscribe to Super-Spiked to receive all content via email. Also available on https://veriten.com. Q1: Does the SoH Crisis mean that the core tenet of Net Zero by 2050—which was to switch out of crude oil, natural gas, and coal into renewables, EVs, and other new tech—was correct after all? No. It does not. Our issue with Net Zero by 2050, or any other year for that matter, is that it incorrectly treats carbon emissions as the organizing principle for economic activity. It is not nor will it ever be, irrespective of how much (or little) concern any specific leader or group of citizens has about climate. There is nothing about the Strait of Hormuz Crisis that suddenly makes Net Zero pathways more relevant. Q2: So the opponents to Net Zero are correct that renewables and other new technologies are a boondoggle that plays on climate alarmism? No. It does not mean that either. The focus on non-oil, natural gas, and coal technologies will be driven by the massive unmet energy needs of the other 7 billion people on Earth that seek their own version of the prosperous lifestyles The Lucky 1 Billion of us take for granted. A specific view on climate is largely irrelevant to technology development. Reliability, affordability, and geopolitical security are the motivations to figure out new technologies. We are seeing this in real time in places like China and other Asian countries. Q3: Are there examples of countries that are adjusting away from a prior emphasis on Net Zero pathways as a result of geopolitical turmoil? We are optimistic about Norway and Canada, as two countries that are showing signs of appropriate course corrections. In the case of Norway, as a small, wealthy country, de facto mandating 100% EVs in order to not burn gasoline for consumer transportation is a choice they are free to make. More importantly, Norway is remembering that increasing oil and natural gas supply from the Norwegian North Sea is critically important to the geopolitical security and economic health of Norway, Europe, and its allies. Norway is also the home to a vibrant community of new technology companies. More oil, more natural gas, and investing in new technologies—yes! Canada’s post Trudeau pivot away from Net Zero zealotry seems as much of a reaction to unfavorable rhetoric toward the country from President Trump than necessarily a recognition of how little sense it made for Canada to pursue energy policies that sought to limit the development of its massive oil sands and natural gas resources. Still, we will accept the directional improvement under PM Carney, irrespective of the apparent motivations. Long-time Super-Spiked subscribers know how critically important we believe energy and power integration between the United States and Canada is, making the recent political schism deeply unfortunate, even as it has seemingly improved energy policy decision making in Canada. The United States is economically and geopolitically stronger thanks to our close energy integration with Canada. The same is true for Canada. We credit our friend, former colleague, and current Deputy Secretary of Commerce Paul Dabbar for the idea that US + Canada + Norway would make for an outstanding trans-Atlantic alliance of energy and technology super powers (here). Q4: What else does geopolitical turmoil reveal about where the Net Zero mindset went wrong? The practical application of Net Zero by 2050 policies in many rich-world countries, states, and provinces has been to restrict domestic oil, natural gas, and coal production, mandate the use of new technologies, all while losing competitiveness in manufacturing and business more broadly. Restricting domestic energy supply, making energy prices uncompetitive, and offshoring industrial manufacturing should not be the objective of any country, state, or province. It is without question bad for geopolitical security, bad for domestic economic growth, and bad for the environment. Rather, we recommend a play on the George Castanza (Seinfeld) line (here): Show me an energy policy strategy that does the opposite. The litmus test is which country’s energy and environmental policies come with competitive energy prices and business and manufacturing growth? The United Kingdom versus China is case in point. U.K. leaders have spoken glowingly about eliminating coal from their power sector and all but ending viability of the U.K. North Sea for oil and gas exploration. Yet, the country also faces the outsourcing and offshoring of its refining, petrochemical, and broader industrial base. To be clear, the U.K.’s policy challenges are not limited solely to its energy and climate policies, but those are foundational and almost certainly a meaningful contributing factor. We contrast the U.K. with China which has dramatically increased coal-fired power generation, renewables, nuclear, natural gas, and grown its domestic oil supply while building a massive strategic petroleum reserve. China is now manufacturer to the world with improving living standards for its citizens. The U.K. being on-track, or not, for domestic Net Zero is completely irrelevant to global emissions and, if anything, has been net negative for the climate given China’s higher emissions profile. It has certainly been a negative for the economic competitiveness of the U.K. Q5: What are the takeaways from the Strait of Hormuz Crisis for corporate sustainability objectives? Our biggest takeaway is that sustainability is a component of running a successful company, but not a defining objective. It has generally been overstated in importance, especially by a segment of the finance world in Europe and the United States that has pushed for these objectives to gain in prominence. Companies don’t exist for “sustainability.” It never made any sense to pressure oil & gas companies, as an example, to aggressively transition to low-carbon technologies in the name of Net Zero and sustainability. Companies exist to generate competitive profitability and growth for investors. Full stop. In order to generate long-term profitability and growth, various sustainability objectives (industry and company specific) for sure need to be met. Employee health and safety is at the top of the list alo
