Defund the IEA
Considered too friendly to oil interests only a decade ago, under the directorship of Fatih Birol (since 2015) it has jumped the other way. It now provides largely uncritical commentary of renewable energy interests and evangelises their role on the path to Net Zero, treating international agreements on the issue as inviolable instructions. At COP26 the IEA was tasked with providing the thinking behind the “Breakthrough Agenda”, a programme to accelerate international cooperation in “high-emitting sectors”, for example power generation, steel production, and agriculture. It has duly delivered the latest 180 page update (unironically situated on a server labelled iea.blob.core), achieving limited commentary including a piece on banning cars globally by 2035 in the Telegraph.
At first glance this is all rather mundane. The IEA has one important job and does it well, collecting, collating, and comparing global statistics on energy use. These are widely used and quoted by other bodies, ensuring energy policy can be rooted in good data. It’s been criticised for the quality of its forecasting, for example regularly guessing wrong on the pace of growth of the wind industry, but that’s a different job. Statistics are the past, forecasts are the future, and there’s a competitive market for forecast models, to which the IEA provides a useful baseline for many of us.
Like the UK’s Committee on Climate Change however, the IEA also acts as a policy think tank. In this area, it conflates the role of auditing with analysis to imply objectivity, when it is clearly political. Under Birol for example the IEA has adopted a stance of advancing solutions to Net Zero consistently rooted in a belief that Government-industry collaboration is superior to markets and trade. In this case, rather than trust that the electric vehicle industry will advance through competition and innovation to displace the internal combustion engine (ICE), perhaps nudged by carbon taxes, it instead issues entreaties for all Governments to copy Britain and ban new sales by 2035.
To be clear, from a free-market or environmental perspective this policy is mad, and ‘one to ditch’ for the incoming British Government. If you ‘pick losers’ or ban disfavoured products, you need to be very sure the alternatives are ready. If not ready, you retard human progress by making something that was cheap expensive, in this case travelling from A to B. You particularly harm those on low incomes who can no longer afford to get to work or the shops in the same way, and must now substitute time-consuming alternatives. This is the definition of regression. If, conversely, the alternatives are ready, and superior, you didn’t need the ban: competition and markets do the job. (When car use became the most common form of transportation, this was not achieved by a ban on horse-drawn carriages.) The policy is either pointless or harmful. And either way no business of a multi-country agency.
The IEA conversely believes that picking losers encourages investment in the favoured alternatives and in turn then accelerates economies of scale – that things get cheaper per unit produced as markets grow. But the first thing that happens is disinvestment in the soon-to-be banned product. This in turn means less effort on improving the efficiency and environmental performance of internal combustion engines, ensuring more environmental harm from a lack of upgrades until 2035. Better to let this process happen organically, leaving the best of the older industry to fade to niche and bespoke purposes, much like book binding or horse riding. Or remain and thrive until the change is driven by consumer choice.
The next thing it does is increase pressure on the favoured industry’s supply chains. These will certainly not be ready, putting up prices which limits gains from economies of scale. We saw a version of this recently with second-hand car prices soaring due to the unavailability of parts for new models.
There are also unintended consequences for environmental outcomes and security of supply. Electrical vehicles rely more heavily on minerals and mining for their battery technology than ICEs. Many of these are sourced from China or parts of Africa with very low environmental standards. Most power grids are not ready for Net Zero on current consumption, let alone one involving the mass-electrification of transport and heat. As demand for EVs increases, supply will adapt, but not to a fixed or predictable path. Neither the IEA nor anyone else can second guess their evolution. Whereas the price mechanism, left alone, in dozens of related markets, can ensure the most efficient path.
The final problem is what next. The case against central planning is that Governments cannot predict the unknown and may do harm by trying. A global effort to collaborate to achieve a fixed outcome favouring one technology creates a very large interest group and incentive for malinvestment. We still carry today for example the £3bn a year cost of the UK’s failed punt on 20th century British nuclear power. With added international collaboration, we will be carrying the cost of already failed 21st French nuclear technology on our bills until the 2060s. Better to create a market and see what turns up than pick winners. EVs may not be the future of transport.
Clearly not all entreaties to improve international co-operation are harmful. Some of the IEA’s suggestions on interconnectors for example require government-to-government agreements regardless of market arrangements. Political leadership can encourage investment in research partnerships across borders. But across the rest of the report the IEA’s instincts point towards collusion between Governments and major industry, not mere co-operation. Collusion to the exclusion of the public and indifference to the impact it may have on them. Advocating corporate socialism and crony capitalism, to hit an arbitrary political target, regardless of the consequences.
To call the IEA under Birol a stereotype of global elitists understates the problem. While we wouldn’t expect people working for an international agency outside any national tax system to have their finger on the pulse of the cost-of-living crisis, we would expect them to understand it matters and limits the window for political choices through the ballot box. We would further expect them to be more circumspect of Government agency and the danger of state failure in energy, given over 100 years of evidence of both.
But they’re not, they’re a classic sock puppet being paid by Governments to lobby governments. They’re an echo of the warnings from public choice economics, in that nearly all their solutions to climate change revolve around elevating powers from accountable national parliaments to unaccountable international agreements serviced by bodies like the IEA. It should then be a mission of democratic governments to reduce their support to the point of limiting their activities to that of measurement. Or better yet invite others to do that job through competitive tender, while leaving the policy advocacy to the marketplace for ideas. Defund the IEA.