The Munk Debates Podcast - Munk Members-Only Pod: Episode 40

Episode Date: October 8, 2021

This is a sample of the Munk Members-Only Podcast. The program provides listeners with a focused, half-hour masterclass on the big issues, events and trends driving news and current events. The show features Janice Gross Stein, the founding director of the Munk School of Global Affairs and bestselling author, in conversation with Rudyard Griffiths, Chair and moderator of the Munk Debates. This week's Munk Members Podcast explores two events in the news. First up, what is driving surging energy prices around the world? With some governments now subsidizing consumer and business use of hydrocarbons what is the fate and future of the climate change agenda? The show's second half looks the implications of China's increasingly aggressive air incursions in and around Taiwan. Is America willing and prepared to militarily defend the Taiwanese? What risks are the Chinese running – economically and geopolitically – in continuing to assert their interest through demonstrations of military force and so called “wolf pack” diplomacy. Rudyard and Janice discuss it all. To access the full length episode consider becoming a Munk Member. Membership is free. Simply log on to www.munkdebates.com/membership to register. Under your membership profile page you will find a link to listen to the full length editions of Munk Members Podcast. If you like what the Munk Debates is all about consider becoming a Supporting Member. For as little as $9.99 monthly you receive unlimited access to our 10+ year library of great debates in HD video, a free Munk Debates book, monthly newsletter, ticketing privileges at our live and online events and a charitable tax receipt (for Canadian residents). To explore you Munk Membership options visit www.munkdebates.com/membership. This podcast is a project of the Munk Debates, a Canadian charitable organization dedicated to fostering civil and substantive public dialogue. More information at www.munkdebates.com.Become a Munk Donor ($50 annually) to get 72-hour advanced access to the full length editions of Friday Focus and Munk Dialogues. Go to www.munkdebates.com to sign up. Hosted on Acast. See acast.com/privacy for more information.

Hi, Monk podcast listeners. The following is a sample of the Monk members-only podcast. To access the full-length edition of this episode and all of our regular Monk members-only podcasts, go to our website, www.com, and register for membership. Membership is free, and it's available for you right now at www. Monk Debates.com. Hope you enjoy the program. Hello, Monk members. Rudyard Griffiths here, host and moderator of the Monk Debates. Welcome to this, our regular Friday, Monk members-only podcast. This is the program where we dig into the big issues and ideas, making news, hopefully leaving you with some new analysis and insights.

As our guest, every week, we are so fortunate to have Janice Gross Stein. She's the founding director of the Monk School of Global Affairs and internationally renowned scholar and author, and she's all ours for the next 30 minutes. Janice, great to be in dialogue with you. Great to see you, Richard. Another busy week, and I want to kick off on our first topic on the growing, what can only be described as energy crisis, that seems to be gripping advanced economies around the world. We talked about this last week, really in the context of the UK and China. We're now seeing, Janice, some increasingly aggressive actions on the part of European governments, Italy, announcing a $3.5 billion program.

to subsidize hydrocarbon consumption on the part of its citizens to lower business and home heating and electricity costs. We can get into just how perversely weird that is in green Europe, supposedly trying to shed themselves of dependency on hydrocarbons. So let's talk about that. But also the United States saying this past week, a former governor Granholm, who incidentally was a monk debater at our Trump debate a couple of years ago. she's now the energy secretary. She's saying we may have to release some of the U.S. strategic oil reserve. We might want to consider banning U.S. oil exports. What's going on here, Janice? And what do you think of these political reactions to try to, I think, kind of do the impossible, which is control this big global commodity that is kind of outside of, I think,

the reach or the grasp of government to manipulate in the same way. way that they've manipulated so much else about our economy? Well, you know, I'm not sure that it's beyond the grasp of governments because, Roger, just to put a little historical perspective on this, going back to 1973 in the first oil embargo that the Arab League launched, there was a capacity to drive the price of oil up or down. and even today, although Saudi Arabia is nothing like today, the Saudi Arabia it was then, what it produces can have an impact on oil prices. So I don't want to underestimate the role the governments play in the pricing of energy.

I think we get that. I would agree. OPEC can affect the pricing. I'm not so sure that, you know, the United Kingdom, the United States, Italy, these countries that are struck now with these surging, hydrocarbon costs pushing inflation up across their economies can really do much. This is Saudi Arabia. This is the Gulf states. And OPEC doesn't seem to be willing here to play ball with the Biden administration,

despite his repeated calls as a very supposedly green president for OPEC to pump more. Well, we have at least two levels of contradiction here. Let's talk about those one after the other one. The first big one, the one that you put your finger on is we now have surging prices of energy all over the world, frankly, and you see it as having a terrible impact in some of the poor economies, at the same time as governments are driving hard toward a green economy in the face of really strong evidence of climate change. So everybody is between a rock and a hard place here. and these are contradictory. So you see the Bush administration, the Biden administration.

Obviously the biggest player here in terms of its market signaling doing two things. One we saw last week. They're pushing this out east to increase oil production. That's not what you would think President Biden would be doing in his spare time, right? Then he sent another signal yesterday, which I think is really directed, again, Saudi Arabia, okay, you're not stepping up, we will potentially release some of our reserves, from our strategic reserve. Because should the United States go ahead and do that, that will depress the price of oil just a little bit. And for the Saudis, always better to

control it than to have somebody else do it to you. But the bigger picture here, there's a terrible contradiction here. I just think about this, Richard, there is a a big climate change summit coming next month in Glasgow. There were 30,000 people, by the way, who are going to attend that climate change summit in person. Just think about the costs of flying 30,000 people into Scotland for this climate change summit. I'm going to stop there and not say another word about that one.

But from a health perspective and a climate perspective, just seems mad to me. But Janice, isn't this. whole thing and just an interesting insight that when push comes to shove, politicians in democracies who are so sensitive to public opinion, Biden's opinion poll numbers falling precipitously since the botched Afghanistan withdrawal, they don't have the guts for it. They don't have the guts to make the transition from hydrocarbons to renewables because what you actually want are expensive hydrocarbons. You want the market to send the signal that, hey, guess what? Renewables are.

are on parity or they're cheaper. No, instead, I mean, the utterly bizarre stuff in Italy, where you have Mario Draghi, the ultimate technocrat, the former head of the ECB, now Prime Minister of Italy, spending $3.5 billion to subsidize home heating and business electricity costs because these are generated by natural gas, using money through Italian debt issuances that are purchased by the ECB and therefore the boring costs are completely artificially suppressed and lowered.

So I really think Mario Draghi, after 3,000 years, has created the philosopher's stone. We have transmutation here, Janice. We have something out of nothing. We have oil, energy, gigajoules, terrajoules created out of financial engineering and debt borrowing and the suppression of interest rates. So why do I mention this? Because it seems to me we're at a moment where, There is a buildup of risk across the globe.

Geopolitical risk, energy risk, health risk, pandemic risk. And governments seem to be unable to step back and let the market, let, frankly, these situations play themselves out. Instead, there is always this impulse to control and intervene. And as we're seeing, the second and third order effects often of that control and intervention are actually worse than doing nothing. Yeah, I think you put your finger on exactly the right issue here, right?

Governments who are committed to climate change, and that is one of Biden's two signature pieces, right? He is defined himself as a serious climate change president should want oil prices to go up and allow then the market to drive people, to reduce consumption of very expensive energy. And we've seen that happen in the past. When the price of oil has gone up, people change their habits.

They change their driving habits. Changing your heating habits is slower. But they actually change their habits. So in a curious way, this rise in energy price is his best friend. If he is really, if he has, as you says, the courage to go ahead and say, this is not sustainable. It's not sustainable folk. But not one of them.

But not one of them. Boris Johnson doesn't. They talk the talk, but they don't walk the walk. The cure for high prices is high prices. If you want to bring down energy prices, you let energy prices go up. You have demand, what's called demand destruction. Instead, we're now borrowing money, at least in the case of Italy, and I expect other governments will follow suit. We're borrowing money in already heavily indebted economies to subsidize people's consumption.

consumption of climate change inducing hydrocarbons. I mean, this is like this is insanity on multiple levels. And I think what we're seeing right now has exposed, frankly, the bankruptcy of those who are pushing at the political level, those who are pushing really hard for net zero and for renewable energy, because how do you know whether people are. serious is when the going gets a little tough, do they stay the course or do they do when, in fact, in Mario Draghi is probably the worst. But let's look at one other piece of this, because these are interconnected crises. You're very worried about inflation. You're worried

about stagnation. Well, part of what we're seeing is, in fact, much higher inflation as a result, not only of energy prices, which itself can drive prices up, but there's a, and there's a an indirect chain here too. It's deepening the supply chain problems, right? And this is so there's both direct and indirect effects where we're seeing a consistent impact of higher energy prices that's actually multiplying and deepening the supply chain problems. I think that's part of what has spooked leaders in China. It has spooked President Biden, and that's why we're getting this utterly incoherent behavior. And I feel as strongly as you do about it, Roger,

because when presidents do this, when political leaders do this, they actually confuse the people who have to change their habits. Signals matter. And if the first sign of trouble, you're going to open up the strategic reserves and let the oil flow,

you're done when you then go ahead and ask people. Well, it's also, Janice, the hypocrisy of, all this divesting from energy investment. You know, oh, well, we're going to shift, you know, the capital structures of our endowments, of our government programs, all over to renewables, because, hey, renewables are the future. Well, guess what, folks, you don't invest in hydrocarbon extraction. Prices go up. It's hard to find oil. It's hard to bring it to market, unless you're Saudi Arabia and it's, you know, two feet under the ground. But for the, rest of the world, it's challenging. It is, it requires large-scale capital investment. It requires

government policies that facilitate it. And what we've done is we've stripped those policies out. We've denuded that capital in a not unmeaningful way over the last five plus years. And guess what? High prices are the result. So, Janice, let's bring this back to Canada. I mean, where do we go from here? We're blessed by having a lot of hydrocarbons out there in Western Canada. They're not. politically very popular with this liberal government at this moment. We're seeing some issues around getting those hydrocarbons to tide water. Embridge is tied up in this big dispute with Michigan over its line five. You know, isn't this a moment for Canada to go to the United States and say, look, let's make a deal. We can provide you with a safe, secure supply of hydrocarbons.

You don't want to be relying on Saudi Arabia and OPEC Plus. Because remember, it's not just Saudi Arabia. Saudi Arabia plus Russia that is setting the global price. So arch enemy number one, Vladimir Putin, with his hands on the button here in terms of higher or lower energy prices, come to Canada, Mr. Biden, we can give you all the energy you need, and here's what we need in turn. We need a line five. We need keystone. We need to get our oil to you. To me, Janice, this is the clearest, most effective bilateral opportunity that we've had in a generation with the Americans, yet our government isn't taking it. Well, we're, you know, the line five discussion, we could spend a whole half hour talking

about what that tells us about the Canada, U.S. relationship, that the Canadian government has had to invoke a treaty, had to invoke a 1977 treaty in order to avoid the shutdown of line five by the governor of Michigan, which actually crosses five kilometers or five miles probably in order to send energy from Alberta and Saskatchewan to Ontario and Quebec. And so for us to find ourselves there and not to have been able to solve this at the political level is really astonishing. But there's a bigger picture here, Roger. Some of our smartest investors, and Canadians probably don't pay enough attention to this, some of our smartest investors are actually in Alberta and are investing in alternative and renewable energy.

and in clean tech and in green tech. The reason they're doing it, they have gone through a terrible five years. They recognize that, yes, there's an energy shortage and prices may spike now for a year. But they, you know, I think about people, for instance, like Ronna Ambrose, who is leading a conversation about in Alberta, and she lives in Alberta, about how we plan. Sure.

How we plan. You've got to diversify the Alberta economy. I get that. But I'm saying right now there is a golden opportunity for Canada is to get the Keystone Pipeline built, to get Line 5 fixed, to bring our hydrocarbons to the Gulf of Mexico, the Gulf of Texas to be refined by American companies so that America has a safer and more secure energy supply in an energy-constrained world. Because I don't think this is going away in a matter of months or a few quarters.

the level of underinvestment in energy oil and expiration is going to take many years to recover, even if it's allowed to recover on the basis of the large-skilled divestment. Harvard just took all hydrocarbons out of its $60 billion portfolio. Others are following suit. We are entering Janice into kind of peak globalization here, and I think that foretells an extended period of higher energy costs, why the Biden administration is picking up the phone to that murderer, MBS, Mohammed bin Salman in Saudi Arabia to solve its energy problems,

as opposed to Justin Trudeau picking up the phone to talk with Jennifer Granholm, the energy secretary, and say, look, Mrs. Secretary, we have a solution for you. We have great, responsibly created carbon, you know, attentive industry here in Canada that's trying its best to lower the carbon input costs of manufacturing of the oil sands. And we can bring this energy to us. Give us the pipelines to do it. Yeah.

You know, that's not going to happen. You know it's not going to happen. It's short-sighted if it doesn't happen. It's not going to happen. And you know, there's zero chance that Biden would agree to that. It would probably be the finish of his presidency. His party would split wide open. And you're as much of a realist as I am on this one.

But I think there is a larger issue here. Well, talk to the Republicans then because they're going to be kicking Mr. Biden out of the White House in three years. And they're going to take the midterm elections in a year from now. If his opinion poll ratings are any future, you know, say to the Republicans, we have a secure, safe, responsible energy supply for you. Give us the pipelines. We will give you the product. I think the conversation with the United States has to be part of the demand for non-renewables is a 50-year problem.

It's not a two-year problem. It's not a five-year problem. This has to be part of a larger transition point. You can't just get off oil, right? It doesn't. It's not like you wake up one morning you decide you're going to stop smoking or whatever else. Yeah, whatever addiction you have, right? It's not like that.

We need a transition plan. That's the point. But you can't sell the transition plan, Redyard, unless it's part of a much larger package. And you look at your investment portfolio, and you have to invest in a diversified way because I think you would acknowledge we're running out of time as far as climate change is concerned.

No, no, look, I agree with it. I just think we can walk and choose. gum at the same time. That's right. We can have a responsible attitude towards cleaning up our hydrocarbons out of the oil sands as best we can. Support that part of the country. Support those technologies and industries.

And understand that this is a multi-decade initiative. We've gone along in this section because you can tell I'm fired up about it. You are. And rightly so. And stay tuned, well, stay tuned folks for a cold long winter. And for a global climate change. summit in November, which frankly is unlikely to achieve its goals. With all the leaders lecturing us about, you know, our responsibility to, you know,

cut our emissions while they're calling on Saudi Arabia and Vladimir Putin to pump or pump more oil and ship more gas. You know, that's not what is irritating me about it. Frankly, what's irritating me about it is if you have, if you're serious, you walk the You do not bring 30,000 people. The conferences are fun. People like the dinners, the sidechance. Well, sorry.

It's not, as the French say, it's not, in this world, we're not finished with the pandemic. Just the carbon footprint of that conference alone by people whose most important commitment is this, it's just astonishing. With planes filled with theocratic, Saudi, uh,

Saudi oil and gas burning them up through the atmosphere. Oh, wow. We will get to that conference when it happens and have some fun with it. It is a serious issue, though, too. Let's Janice take a break and we'll come back with issue number two for our audience to digest with us. You've been listening to a sample of the Monk members-only podcast. To access the rest of the episode, consider becoming a member. membership is free and available at www monk debates.com.

Once you've joined as a member, go to your membership profile to access the rest of this episode and all of our monk members podcast. Thanks for listening.