BlackRock CEO: Shades of Brown to Shades of Green

March 24, 2022

Larry Fink, CEO of the world’s largest investment fund, BlackRock, in a letter to shareholders discussing impact of the Russian/Ukraine war.

In response to the energy shock caused by the war in Ukraine, many countries are looking for new sources of energy.  In the US much of the focus is on increasing oil and gas supply, and in Europe and Asia, coal consumption may increase over the next year.  This will inevitably slow the world’s progress toward net zero in the near term.

Longer-term, I believe that recent events will actually accelerate the shift toward greener sources of energy in many parts of the world. During the pandemic, we saw how a crisis can act as a catalyst for innovation. Businesses, governments, and scientists came together to develop and deploy vaccines at scale in record time.

We’ve already seen European policy makers promoting investment in renewables as an important component of energy security. Germany, for example, plans to accelerate its use of renewable energy and reach 100% clean power by 2035, 15 years ahead of its previous pre-war target. More than ever, countries that don’t have their own energy sources will need to fund and develop them – which for many will mean investing in wind and solar power.

Higher energy prices will also meaningfully reduce the green premium for clean technologies and enable renewables, EVs and other clean technologies to be much more competitive economically.  However, energy prices at this level are also imposing a terrible burden on those people who can least afford it.  We will not have a fair and just energy transition if they remain at these levels.

To date, government planning has only focused on supply without addressing demand. We need public policy to take a more holistic and long-term approach to the world’s energy needs. Among other challenges, as demand for renewable sources of energy and use of clean technology increases, we must consider what this means for the underlying commodities on which these green sources of energy and technology depend. We will also need to accelerate infrastructure investments to support greater use of clean energy and technology. For example, as consumer demand for electric vehicles accelerates, the public and private sector will need to work together to build more charging stations to meet demand.

BlackRock remains committed to helping clients navigate the energy transition. This includes continuing to work with hydrocarbon companies who play an essential role in the economy today and will in any successful transition. To ensure the continuity of affordable energy prices during the transition, fossil fuels like natural gas will be important as a transition fuel. BlackRock’s investments – including one late last year – on behalf of our clients in natural gas pipelines in the Middle East are a great example of helping countries go from dark brown to lighter brown as these Gulf nations use less oil for power production and substitute it with a cleaner base fuel like natural gas.

In the transition to net zero we will need to pass through many shades of brown to shades of green. I remain optimistic for the future and continue to believe that our collective actions today can make a meaningful difference in the years to come.


3 Responses to “BlackRock CEO: Shades of Brown to Shades of Green”

  1. Mr. Fink should carry his economic argument to the next logical step: tax the carbon content of fossil fuels, and rebate 100% of the revenue to individuals in equal shares. The carbon tax should be increased in scheduled increments every year; the rebate to individuals will increase accordingly.

    As he notes, higher energy prices will meaningfully reduce the green premium for clean technologies and enable clean technologies to be much more competitive. If higher FF prices are not driven exclusively by volatility but have a predictable, structural component, then FF companies can rationally plan their transition to non-fossil businesses and, importantly, stop putting new investment in FF assets–investments they will then want to recover, which would create pressure to keep fossil fuels flowing.

    The annually-escalating carbon tax will motivate manufacturers and other businesses to squeeze fossil fuels out of their processes and supply chains, so they remain cost-competitive with competitors who rely on cleaner upstream inputs.

    Fink also notes that high energy prices impose a burden on those people who can least afford it. Those higher prices are overwhelmingly caused by volatility, as is happening now. Too much demand chasing too little supply, in very particular parts of the world. To mitigate this consumer-damaging dynamic, demand has to fall relative to supply. This is Econ 101. A carbon tax will make that happen. Meanwhile the rebate will protect consumers from any tax-driven price increases the FF companies pass on.

    This is the essential idea of HR 2307, the Energy Innovation and Carbon Dividend Act, and S.2085, the Save Our Future Act. This concept should be part of the reconciliation bill that (hopefully) Congress will return to soon.

    • rhymeswithgoalie Says:

      A carbon tax would have to include a carbon tarriff, lest higher prices for clean domestic goods drive people to coal-fueled imports. (While we’re at it, can we stop the anachronistic subsidy of mail from China, please.)

      There are still a lot of poor neighborhoods that are plumbed for and rely on gas for cooking and heating. “Haves” like me could swap out for all-electric appliances, but it’s essentially a non-starter for poor owners and renters.

  2. rhymeswithgoalie Says:

    In the added video Cramer calls for “not investing in countries that murder people” is a form of wild humanitarianism that’s historically been pooh-poohed by the Big Investor. Yes, they’d avoid investing in places where the companies might be nationalized, but a stable company or industry in a brutal dictatorship can provide those sexy, sexy high returns and we’re helping those countries’ workers and we can donate our earnings directly to effective charities and blah blah blah.

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