“E” vs “SG” in ethical investing: how sustainable is mollification-by-cherrypicking

In the great game of whack-a-mole that is capital raising in Canada’s oil patch, it must be frustrating, for those whose full-time job when there isn’t a global pandemic is whacking the moles of ESG criteria on which they feel their companies may be vulnerable to criticism and hence subject to divestment, that some moles require harder and more whacks than others. It’s bad enough that they have to play the game in the first place.

As a pro-nuke, I sympathize. I play whack-a-mole too, also in response to a litany of similarly ever-shuffling and cherry-picked criteria trotted out by pretty much the same exact crowd. Do I sometimes suspect that the trotters-out are not themselves all that personally worked up about whichever criterion they happen to find opportune to wave in my face? I don’t just suspect it, I know it.

One such criterion is CO₂. I know for a fact that anti-nukes who claim they care about global warming actually don’t care about it. Evidence of their unconcern is easily found in Ontario, where the renuclearization of electricity in the period 2003–2012¹ cut annual generation-related CO₂ by 35 million tons—the biggest such sub-jurisdictional reduction in North America. Not a single mainstream environmental group ever mentions this.

Nor do environmentalists who celebrate Germany’s highly touted “energy transition,” a.k.a., the energiewende. That massive decades-running conglomeration of government-mandated financial supports for wind and solar has led to Europe’s biggest economy dumping CO₂ into the global atmosphere at the annual rate of more than 300 million tonnes—i.e. pretty much the same rate as before the German government realized the political mileage it could get by branding itself the leader of the international fight against climate change. Three hundred million tons per year. That’s enough to fill Toronto’s Rogers Centre, home of the once- and hopefully future-mighty Blue Jays, 100,000 times—more than eleven times per hour.

Here’s me, ranting about how Alberta electric power generators dump enough CO₂ to fill Rogers Centre twice per hour:

The irony is that the same “environmentalists” who when pushed will admit they don’t care that their favourite power generation technologies wind and solar cannot power a grid on their own and thus require so much fossil backup that even before sundown it is obvious the game isn’t worth the candle… the same environmentalists scream blue murder when the Alberta oil patch enters the discussion. Suddenly CO₂ does matter.

For the oil patch, this is a tough one. For the oil patch, CO₂ is… well, “it’s the Supreme Court, sir,” to borrow Powers Boothe’s Al Haig’s reply to the question from Anthony Hopkins’s Nixon “Can we get around this, Al?” in the Oliver Stone epic Nixon. “It’s the Supreme Court, sir. You don’t get around it.” Alberta oilsands oil is CO₂-heavy, period. If you get rid of oilsands CO₂, it’s because you’ve gotten rid of the oilsands.

But all oil is CO₂-heavy. Most of the CO₂ attributable to the use of gasoline—the most important cracked product of crude oil—enters the atmosphere when it is burned, which overwhelmingly occurs in cars. The oil sands are vilified because of the significant upstream CO₂ involved in separating viscous oil from sand and then making it more liquid. This “extra” CO₂ is unacceptable, according to not just anti-oilsands activists but also to pension funds that buy, or used to buy, oilsands corporate debt and stock.

And how much extra is it? Burn a litre of gasoline in your car and it turns into 2.3 kilograms of CO₂. The most CO₂-intensive oilsands processing adds roughly 380 grams to those 2,300 grams—this is what they call the “well to wheel” CO₂ of a litre of gasoline. The least intensive processing adds about 117 grams.

On a kilowatt hour basis, a litre of gasoline contains 9.4 kWh of energy, each of which, “tank to wheel” therefore turns into 245 grams of CO₂. So the most intensive processing adds 40 grams to each kWh of gasoline’s 245 grams, and the least adds 13 grams.

As you can see, yes there is some extra well-to-tank CO₂ that comes with oilsands-derived gasoline. But the vast bulk of gasoline CO₂ is made by the car. And the additional CO₂ from oilsands processing pales in comparison with the CIPK of German grid electricity:

Somehow, the CO₂ from the Alberta oilsands-derived gasoline kWh is more egregious than what comes with the German grid kWh. In spite of the fact that it is less.

Now, of course the German grid kWh, no matter how dirty it is—and as you can see it is disgustringly, inexcusably dirty—is far more useful than the oilsands-derived-gasoline one. The latter moves a car, mows the lawn, or runs a chainsaw. That’s pretty much it. The former can do all that but it also runs elevators, refrigerators, municipal water systems, the internet, all computers, and much more.

Is that why pension funds have divested from the oilsands, without uttering a peep about the German electrical system that pollutes our air three times as fast as the oilsands? I looked at the “Global Fossil Fuel Divestment and Clean Energy Investment Movement” 2018 report published by Arabella Advisors, which on p. 7 says

This year, Sweden’s largest pension fund, AP7, which provides pensions to 3.5 million Swedes, divested from ExxonMobil, Gazprom, TransCanada, Westar Energy, Entergy, and Southern Company, citing the need to insulate its assets from growing financial stress in the oil and gas industry and to align with the UN Paris Agreement.

I get the “growing financial stress” part. In the case of the four (mainly²) oil companies on the list, concern in 2018 over the prospects of them resolving their financial challenges does seem prescient today, early April 2020 in the midst of not just the Russo-Saudi oil price war but the global pandemic that has ravaged gasoline demand.

But Southern and Entergy? Those are big American electricity generating utilities. Yes, both run coal-fired generating plants. But they are also major users of nuclear energy. Southern is right now building the only new nuclear plant in North America, the Vogtle plant expansion in Georgia. Isn’t this where AP7 thinks electricity generation investment should go?

And speaking of nuclear energy, let’s add TransCanada to this list. Today calling itself TC Energy, this is an example of what I would argue is a transitional company—a “traditional” fossil company that has put serious money into serious zero-emitting energy. And in that vein, so are Southern and Entergy.

This appears to have not been noticed at AP7.

Not noticed, or pooh poohed?

If the latter, I wonder how AP7 would view this snapshot of two electricity markets in which TC Energy and another oilsands operator, Suncor, operate. TC Energy has in its portfolio, along with a sizeable number of sizeable fossil generators in both markets, a financial position in Bruce Power, one of the biggest nuclear plants in the world:

Suncor also is invested in fossil-fired electricity generation, but its “emissions-free” generation is right smack dab in the centre of what I suspect is AP7’s preferential wheelhouse: three wind farms, two in Alberta (Magrath and Chin Chute) and one in Ontario (Adelaide).

You can see those three wind farms are in the chart, but at the moment I took the snapshot they were producing… just about nothing.

(By the way, take this snapshot any time of the day, any day of the week. Chances are very good—about seventy to thirty, in fact—the Suncor assets will be avoiding negligible amounts, and the TC energy-affiliated ones will be avoiding hundreds of tons of CO₂.)

TC Energy’s zero-emitting assets, all in Ontario, were obviously not producing nothing—they were doing what they usually do, producing bulk power and thereby avoiding hundreds of tons of CO₂.

Now, you’re AP7, and in your righteousness you have divested from TC Energy. Should you have? If there were a financial value to avoided CO₂, who’s earning more by avoiding it? It’s not even close.

And what about Entergy and Southern? I know AP7 and the environmentalists it’s trying to mollify don’t like Southern’s and Entergy’s coal assets. Is it possible that it’s the nuclear side of those companies’ generation fleets that’s the real target?

But their nuclear assets are doing pretty much exactly the same as TC Energy’s—producing huge amounts of power, and avoiding similarly huge amounts of CO₂.

If AP7 and other institutional investors want cleaner energy, they should be encouraging utilities like Entergy and Southern to use more of the clean energy that works, that actually avoids CO₂. The TC Energy example above proves what kind of generation that is. It proves, at a glance, what kind of clean energy deserves the money, and what doesn’t.

I mentioned back in October 2019 that the “green bond” investment space is an ill-formed god-awful mess of non-specificity and greenwash. The AP7 divestment decision fits that description. It appears calculated to simply mollify a bunch of screaming self-styled environmentalists who understand neither the implications of their call for 100 percent renewable energy nor the impact their favourite technologies are having right this minute on real-world electricity grids.

Here’s that impact right now:

The great game of whack-a-mole I mentioned at the top applies only to the fairly marginal light-red slivers tacked onto gasoline’s CIPK, and only when gasoline is derived from Alberta oilsands. The fact that Alberta grid electricity and Germany grid electricity CIPK dwarf Alberta oilsands-derived gasoline is of no consequence to the crowd that AP7 is trying to mollify.

The fact that Alberta is a province of Canada, where the rule of law applies about as equitably as it ever has in the history of humankind—this is the “S” and the “G” in ESG—is of no consequence.

ESG is a game that environmentalists play, and that pension funds like AP7 play along with. By the time firms targeted for divestment arrive at the action, the game has morphed into whack-a-mole.

From the point of view of Mother Nature, that game has nothing to do with anything.

1. Yes, renuclearization. No sooner had the Darlington generating station come fully online in 1994 than the nuclear workforce reductions, forced by the NDP provincial government in the early 1990s, had their desired effect—which was to make it impossible for Ontario Hydro to perform mid-life refurbishments on the older nuclear units at the Pickering and Bruce stations. So the reactors at the latter stations were laid up, Ontario went onto coal to pick up the massive slack, GHGs skyrocketed, and the “greens” came out of the woodwork feigning concern over clean air and climate change. This gave a political impetus for parties that promised to “clean up” electricity by getting rid of coal. Unfortunately for the greens, some of whom were paid lobbyists for the gas industry, the party that won power on the shut-down-coal promise realized the best way to shut down coal was to simply bring back the laid up nuclear generators.
2. The main business of TransCanada, since 2018 renamed TC Energy, is oil and gas transportation but it has a majority partner position in an extremely lucrative nuclear plant in Ontario, Bruce Power; more on this later.