Talking Energy, Region, and Careers at the Rock: Another Best Day Ever

The summary below follows Nick Deiuliis’ March 2, 2023, presentation to Slippery Rock University students and faculty.

Life in the digital age leaves much to be desired, but occasionally offers serendipitous moments. An unexpected opportunity pops up and turns out to be engaging.

I received a message on LinkedIn from an undergraduate student in petroleum engineering at Slippery Rock University who recently took on the role of chapter president for the Society of Petroleum Engineers (SPE).

He introduced himself and asked if I would be willing to come speak to the SPE chapter.

That’s impressive initiative that deserved an affirmative answer.

Shared Appalachian Connections

And with so much shared history, how could I resist such a request?

Slippery Rock University traces its western Pennsylvania roots back to 1889, which is a few decades after the founding of the company I work for, CNX Resources, in Appalachia. Both share a history and are long time regional leaders of western Pennsylvania and Appalachia.

The request was a chance to spend time with engineering, physics, chemistry, and safety management students. Disciplines I’ve had the pleasure of toiling in, working with, and proudly associating with for decades. My kind of crowd.

There are zero degrees of separation between company and university. The employee ranks of CNX are filled with Slippery Rock alums. From a vice president (who pressed me to remind the audience of his gridiron glory) to an intern who recently became a full-time engineer (who clearly had a more popular following by students and faculty than our vice president).

I never want to turn down a chance to hear from and fire up the next generation of Appalachia, the domestic energy sector, and the manufacturing industry. Making sure every student knew the massive career opportunity set waiting for them. Letting them know they indeed have what it takes to succeed in their craft. And listening to gage where their heads are in an increasingly chaotic world.

I always welcome opportunities to unabashedly promote Appalachia, western Pennsylvania, domestic energy, CNX Resources, and Slippery Rock University. An economic and social ecosystem where it’s all for one and one for all.

The visit also served an opportunity to recruit. Not just for CNX Resources, but on behalf of all the fabulous partners we work with in the energy industry and within Appalachia. I hoped to return from Slippery Rock with a roster of connections and a stack of resumes. Mission accomplished.

CNX embraces its Appalachia First vision for the region, and it doesn’t get more Appalachia First than this.

Let’s Talk…

Slippery Rock offers a strong array of STEM-centric majors: physical sciences, engineering, and safety management to name a few. Students and faculty convened in the Vincent Science Center auditorium and we got right into it.

The Vincent Science Center is home to the Physics and Engineering Department at Slippery Rock University.

We covered the potential of the Appalachian basin, recognizing it is the second-largest natural gas field on the planet when you combine the Marcellus and Utica shale horizons. Natural gas is not a bridge fuel, but instead a catalyst fuel for the future.

We discussed the need for resilient businesses to secure competitive moats within their industry and market.

To illustrate, I explained how CNX Resources enjoys three moats of resilient, competitive advantage: stacked pay acreage of Marcellus and Utica shales, vertically integrated assets of upstream production wells and midstream pipelines, and an avenue of new growth offered by the development and commercialization of new technologies to provide future energy solutions.

We dove deep into culture and values of organizations.

By example, CNX embodies the three core values of responsibility, ownership, and excellence. We might invest time defining them with words for a website or brochure, but in the end the values will be understood and evident by seeing them come alive in the decision making throughout the organization. From the newest employee to the CEO; from the smallest to the largest decisions.

Values and culture are crucial filters when making decisions in the real world. If you see the culture/value ‘talk’ not aligning with the ‘walk,’ there is a problem. When encountering such a conflict, always look to the ‘walk’ for the true culture/values.

We also addressed timely topics one hears about everywhere these days, but topics that are typically not subjected to sufficiently rigorous thought. I referenced such topics as a select grouping of popular ‘urban legends’ in energy and business.

At the front of the group was ESG investing; how it is labeled as a cure-all remedy and the inevitable future of investing. But reality has exposed a stratified layer of good, bad, and ugly applications of ESG.

Of course, climate change was included in the agenda. The certainty of rising atmospheric CO2 levels from human activity. But the far from certain and hopelessly inaccurate climate models when it comes to predicting the impact of CO2 on past, present, and future climate.

Is there a bigger urban legend these days than the myth of zero carbon/emission-free wind and solar?

We walked through the complex, murky, and often ugly supply chain of producing an intermittent kWh of electricity in Pennsylvania from wind or solar. And what happens to stakeholders along that supply chain: from child workers in Africa, to slave laborers in Xinjiang, to ruined ecosystems in the developing world, to stressed and unreliable grids in America and Europe, to the regressively taxed middle-class ratepayers.

Climate policies that protect, subsidize, and mandate wind and solar are stacking up a resume of failure across global grids. Power grids in the EU, UK, California, Texas, and here in Pennsylvania (PJM nearly broke during this past Christmas Eve cold snap) have all stressed or broke at the worst possible times due to the consequences of a mandated energy transition that was not well thought out.

Wind and solar, along with EVs, comprise quite the sustainability horror story. Worse yet, their life cycle carbon footprints are far from zero, and likely grossly exceed the life cycle carbon footprints of domestic energy sources such as power generation fueled by regional natural gas. It’s simply a matter of performing a basic carbon mass balance across supply chains.

The geopolitical implications of energy policy were not left out of the conversation.

Climate policies that mandate wind and solar are de facto projections of geopolitical power for China, the primary American adversary today, who enjoys dominant control of the supply chains for wind, solar, and EVs. Conversely, allowing domestic energy to ‘do its thing’ in the competitive free market serves as a projection of American power as effective as military might.

The expert class shouts endlessly about a Code Red for humanity as it relates to climate change. But the real Code Red for humanity pertains not to climate change, but instead to climate change policies.

Wanting to believe wind, solar, and EVs are zero carbon and sustainable is blind ideology bordering on religion. Daring to know the harsh reality is true to the scientific method and is faithful to rational thought.

Thymos: Propellant of Futures and Careers

Toward the end, things turned a bit philosophical. The Greeks introduced the concept of thymos, an individual’s drive to be recognized and to achieve.

Different people exude different levels of thymos. Same with teams, companies, and groups. Students need to assess where they sit on the thymos meter, and then seek out a culture and team that matches their personal level.

There is no right or wrong level of thymos. But a mismatch between the individual’s and organization’s thymos level will result in a bad fit. Recognize the importance of inner thymos, assess how it lines up with that of the team, and career choices become clearer.

A great proxy for high levels of thymos is a preference for in-person work over remote work. That’s true for individuals as well as companies. With the availability of remote work in a post-pandemic world, young professionals have a useful gage for matching thymos levels. If one is high-thymos, they may struggle on a team that embraces a remote work environment.

The conversation wrapped on the topics of advocacy and duty. It used to be that a professional could keep one’s head down and ignore the discourse of debate. Not so today. STEM professionals share a duty, morally and ethically, to advocate with fact and science. And to do so civilly.

That’s why I answered the call for Slippery Rock. And why I plan on coming back.

Crunching the Numbers: Energy Source Externality Accounting

Nick’s discussion and commentary below follows an inquiry from an academic team conducting research on externality costs. The inquiry asked to identify peer companies that either externalize the smallest or largest proportion of their costs. Externalities were defined as, “costs incurred by third parties, such as local communities, due to a company’s business operations that are not borne by the company itself.”

In his response to the inquiry, Nick suggests externality accounting is first performed across different sources of energy and power generation prior to assessing peers or competitors within a specific type of energy. Nick subsequently compares the externality costs between the natural gas industry versus the wind and solar industries.

Properly Sequencing Externality Accounting

Externality accounting is a useful tool when applied objectively, but one that is often misapplied and mishandled by those looking to dial in desired outcomes. Many fail to appreciate the sequencing of externality screening is crucially important when assessing entities across the energy industry.

Before assessing peers or competitors within a specific type of energy (such as natural gas), one should first apply externality accounting across the different sources of energy and power generation.

Thus, I propose a context of peer/competitor that is a level higher than, and a precursor to, what you proposed in your request.

The first cut of externalities should be done on an energy source-versus-energy source basis. In other words, domestic natural gas compared to wind or solar energy sources.

Society must screen options of energy sources within the wider portfolio first, and then set policy and investments to reflect the math of the externality accounting. First figure out the best energy source, as dictated by externality accounting.

After the first cut, or filtering, by energy source, one can then turn attention to different players within individual energy sources.

Getting the externality accounting/ranking for discrete energy sources (natural gas versus wind or solar) right is much more important than, and is a prerequisite to, screening or ranking individual players within an energy source (CNX Resources versus our natural gas competitors).

Many, including those in academia and government, have failed miserably to perform the rudimentary externality accounting and ranking of different energy sources. That leads to wrong-headed energy and climate policies resulting in dire consequences seen everywhere these days. Conditions will only worsen until this failure is corrected.

So, for the purpose of your inquiry and the discussion that follows, I am the natural gas industry, not just a player within it. And my peers/competition are the wind and solar industries, not another peer in the natural gas industry.

CNX Resources

CNX Resources is not a typical public energy company. We occupy a unique space in both the industry and region we call home.

We are nearly 160 years old – Abe Lincoln was president when we were incorporated. We manufacture natural gas in the northern Appalachian basin (PA/OH/WV/VA). The Appalachian basin “accounts for nearly one-third of all U.S. dry natural gas production,” and looks to be the second largest natural gas field on the planet. We operate in the Marcellus and Utica shales, we collect coal mine methane, and we operate midstream pipeline and processing infrastructure.

At CNX, our sustainable business model is simple: Tangible, Impactful, and Local. We’ve embraced the role as a regional innovator driving Appalachia’s socio-economic revitalization through local talent, homegrown energy, and breakthrough technologies.

We don’t apologize for what we do for society, we proudly celebrate it.

If our industry were to disappear tomorrow, society would come to a complete halt and humans across the planet would suffer greatly. That might not be what the experts or the environmental movement warrant, but that is certainly the engineering reality.

CNX recently unveiled its Appalachia First vision, which lays out many of the key themes I discuss below. Please learn more about our vision at www.positiveenergyhub.com. The site includes an approximately 45-minute presentation where I further discuss Appalachia First, which can be best summed up as “produce it here, use it here, first.” I think you will appreciate some of the policy positions.

Natural Gas

There are a few, crucial scientific and engineering realities that are often ignored when assessing the externalities of domestic natural gas.

Natural gas is the most cost-effective form of energy in the United States, providing consumers, businesses, and homeowners savings in energy costs that total in the hundreds of billions of dollars annually. Rampant inflation has caught everyone’s attention these days; the most effective means to curtail general inflation is to simply allow natural gas to provide cheap energy so that energy inflation, and by extension general inflation, is mitigated.

Natural gas is the superior solution to immediate and material greenhouse gas emission reductions. Domestic natural gas has and can continue delivering these benefits while maintaining power grid reliability during the dark days of winter and dog days of summer.

Power grid reliability cannot be underscored enough. From college campuses to homes, from hospitals to emergency responders, and from government buildings to other businesses and facilities, America needs power all day and night, 24/7, 365 days/year.

Environmental Benefits of Natural Gas

Today, much attention is focused on methane emissions. Natural gas produced in Appalachia has the lowest methane intensity (0.09%) of all major U.S. oil and natural gas-producing basins, according to Clean Air Task Force data. Additionally, Rystad Energy analysis of CO2 intensity performance “brings Appalachia to the top quartile among all oil and gas fields globally” with the firm expecting the basin to “improve further in its CO2 intensity dimension in the next three to four years.”

When natural gas competes with alternative energy sources in a free market, emissions drop, and environmental quality improves. As natural gas-fired electric generation topped 40% of the total grid, power sector emissions dropped by nearly the same, per the U.S. EPA. “The decrease in coal-powered electricity generation and increase in natural gas and renewable energy electricity generation contributed to a decoupling of emissions trends from electric power generation trends over the recent time series,” the agency wrote in its April 2022 inventory.

Consider the specific example of the PJM power grid. Power sector emissions declined 11% year-over-year as natural gas grew to 44% of PJM’s total capacity. And, Pennsylvania had the highest absolute decline of energy-related CO2 emissions of any state between 1990 and 2018, with emissions falling as natural gas became the state’s largest electricity source. The data and facts are unequivocal, yet rarely heard.

Economic Benefits of Natural Gas

The environmental gains tied to natural gas come with additional economic and job creation benefits.

Natural gas development across Appalachia has breathed new life into forgotten Rust Belt communities and brought the building trades and apprentice programs to full employment.

Careers paying family-sustaining wages offer on-ramps to the middle class for young adults in urban and rural communities who are not able or wanting to attend college. Manufacturing, which relies on reliable and cheap energy inputs, is experiencing a resurgence across Appalachia and the Midwest, creating a downstream benefit to the natural gas industry. These create huge, positive externalities.

Investment and growth in the natural gas industry grows tax base for governments and communities. Today governments are desperate for sustainable endeavors and economic sectors that pay their fair share of tax. You won’t find another industry in Appalachia that pays more of a fair share of tax than the natural gas industry.

And natural gas is the catalyst that accelerates and de-risks the integration of next-generation technologies, such as hydrogen, into our economy. That creates optionality for innovation, a serious and positive contributor to the externality math.

Bottom line: there’s never been a better climate jobs program than the shale gas revolution. Performing an objective and clinical externality accounting would prove it.

Intermittent Wind and Solar Energy Sources

Now, let’s discuss the externalities of wind and solar.

The most fundamental misunderstanding about wind and solar is the myth that they present a zero carbon footprint. That is simply not true, not by a long shot.

Carbon footprint must be assessed on a life cycle, scopes 1-3, basis. It doesn’t matter to the atmosphere where the CO2 is emitted in the life cycle of making and running a wind turbine or solar panel; just because there is not a significant emission once in place does not mean there is a zero carbon footprint.

To accurately account for the carbon footprints of wind and solar, the supply chain of how wind and solar power ‘happen’ must be traced:

First, massive environmentally destructive mining must occur in Russia, China, and Africa for the metals and materials comprising wind turbines and solar panels. That presents a huge carbon footprint and large CO2 emissions.
The raw mining products must be processed to purify them, which also requires huge inputs of carbon power and the associated CO2 emissions.
Then components need manufactured in factories, often in China, that are carbon-powered.
Manufactured components are then shipped thousands of miles on carbon-fueled planes, trains, ships, and trucks to arrive in places like America.
Trees and land must be cleared to site pads and concrete will be used to build the pads for the turbines and panels, emitting more carbon dioxide.
New transmission lines must be run to every wind turbine and solar panel block/array, requiring the felling of more trees to create the rights-of-way and the manufacturing of the new power lines, adding to the CO2 emission tally.
Backup and reliable sources of generation will be required for when the sun isn’t shining or the wind isn’t blowing, which will typically be carbon-based power generation (often coal) creating more carbon dioxide emissions.
- There is no such thing as a wind- and solar-only grid, because both sources of electricity are intermittent (battery storage cannot be scaled to serve as backup and it has a carbon footprint worse than wind and solar).
- It’s also worth noting the double-building and maintenance of power generation units increases costs to consumers.
In seven to 10 years, you need to perform this process all over again, because the turbines become obsolete and must be scrapped (there is no way to recycle wind turbine blades) and solar panel efficiency declines year after year. The repeat of the cycle doubles the carbon footprint.

There is also the impact on surface land that wind and solar have to add to the externality analysis. For a 100% wind- and solar-powered U.S. grid, wind and solar farms would have to occupy 300 million additional acres of land beyond what’s used to power our economy today. That’s building solar and wind farms across land areas equivalent to Arkansas, Iowa, Kansas, Missouri, Nebraska, and Oklahoma, according to Bloomberg analysis of Princeton data. A ridiculous non-starter of course, yet no one seems to acknowledge it as such.

Negative externalities exist with the aforementioned disposal of turbines and panels beyond their useful lives. Wind turbines can’t be recycled and are “piling up” in landfills, according to Bloomberg. Solar panels contain hazardous materials which must be disposed of properly or risk environmental damage; most environmentalists would consider it hazardous waste (until you told them it was from solar).

Today, consumers want their eggs to come from cage free chickens, their tuna to be caught with dolphin friendly nets, their straws to be biodegradable, their detergents to not use chemicals harmful to water ecosystems, and their jewelry to have gems that are conflict-free.

Yet there is not a home in America today with rooftop solar that can say with certainty those panels were not partially manufactured by either child- or slave-labor. The human rights abuses tied to the murky global supply chains of wind and solar are egregious. Yesterday we were concerned about blood diamonds; today the concern should be about blood solar. The externality cost of human rights abuses in the manufacturing of wind and solar is sobering.

And there is no wind turbine in America today that can warrant it does not kill scores of birds and bats, many of them endangered. Offshore wind farms near New York and New Jersey are being constructed in the middle of endangered whale habitat, and, wouldn’t you know it, but dead whales are now washing up on beaches in New Jersey and New York. Yesterday we were worried about saving the whales and the bald eagle; today the worry should be how wind turbines lay waste to whales and eagles. Energy production that proves deadly to sensitive species and habitats should be reflected in an externality analysis.

Wind and solar require tax subsidy that exceeds total subsidy of natural gas, coal, or oil by orders of magnitude. When you add up the various programs and subsidies to favor wind and solar, the tally will register in the hundreds of billions of dollars (or perhaps even in the trillions of dollars), depending on what time frame you choose. Those valuable dollars could be invested elsewhere and should be added as an externality cost.

There are serious geopolitical externality costs tied to wind and solar. China’s control of the solar panel supply chain has ballooned to 84% over the past decade, with the country also controlling the bulk of critical minerals production and processing necessary for battery storage. This is a critical risk that presents energy security, supply chain, and national security concerns that manifest as negative externalities.

Wind and solar aren’t keeping pace with global energy demand, falling 165 exajoules short of needed capacity, according to the 2022 BP Statistical Review of World Energy. Growing global energy demand requires massive scale that cannot be met with wind and solar under the laws of physics.

When wind and solar inevitably fail to deliver at scale due to their engineering realities, energy security in places like Europe necessarily falls back to carbon-based fuels from places like Russia. That emboldens despots to use the gifted energy leverage to warmonger, as in the case of Ukraine. Climate policies and the resulting flawed reliance on wind and solar are the root causes of the war in Ukraine. The policies created a de facto EU reliance on Russian energy. What’s the externality cost of Russia in the Ukraine? Whatever it is, add it to the negative externality tally for wind and solar.

Add it Up

Tabulating the externality impacts of energy provided through natural gas and comparing it to those for wind and solar will present a trio of decisive and obvious conclusions:

All economic activity and forms of energy have carbon footprints; there is no such thing as truly zero carbon power or a zero carbon economy.
Natural gas offers the best net externality balance within an energy portfolio. Its externality benefits are substantial and diverse while its externality costs are modest.
Wind and solar present a massively negative net externality cost to society, particularly when the attempt is to deploy them at scale.

These three conclusions are opposite of what is warranted by the environmental movement, and many in government and academia. Climate and energy policies are set that ignore the math. We share a duty to correct that.

U.S. natural gas production set a new record in 2021
https://www.eia.gov/todayinenergy/detail.php?id=54200

Benchmarking Methane and Other GHG Emissions of Oil & Natural Gas Production in the United States https://www.catf.us/resource/benchmarking-methane-emissions/

“International analysis finds Marcellus best in carbon dioxide intensity”
https://www.bizjournals.com/pittsburgh/news/2021/04/23/rystad-energy-international-analysis.html

Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990-2020
https://www.epa.gov/system/files/documents/2022-04/us-ghg-inventory-1990-2020-data-highlights.pdf

China’s Greenhouse Gas Emissions Exceed Those of All Other Developed Countries Combined
https://www.scientificamerican.com/article/chinas-greenhouse-gas-emissions-exceed-those-of-all-other-developed-countries-combined/

Net-Zero America: Potential Pathways, Infrastructure, and Impacts
https://netzeroamerica.princeton.edu/the-report

Wind Turbine Blades Can’t Be Recycled, So They’re Piling Up in Landfills
https://www.bloomberg.com/news/features/2020-02-05/wind-turbine-blades-can-t-be-recycled-so-they-re-piling-up-in-landfills#xj4y7vzkg

Statistical Review of World Energy
https://www.bp.com/en/global/corporate/energy-economics/statistical-review-of-world-energy.html

The West and China: A Rabbit That Has Been Hypnotized by a Snake

Twain famously observed how history doesn’t repeat, but that it tends to rhyme. America and the West learned a hard lesson during the Cold War when the preeminent communist power of the day attempted to sedate the free world into a geopolitical slumber using an ingenious approach.

Today, we are making an uncannily similar mistake, this time with the modern-day communist power of China. If we don’t heed the historical rhyming and lessons that come with it, troubled times are certain.

The 1950s and the Geopolitical Sedative of ‘Peaceful Coexistence’

In early 1956 Soviet ruler Nikita Khrushchev delivered a secret speech to the Twentieth Party Congress. In it he unveiled the new official state policy of ‘peaceful coexistence,’ which the Soviet Union would apply when dealing with its rival, the West.

Peaceful coexistence was packaged to be appealing to western Europe and the United States. The concept advertised a future where communist nations in the Soviet sphere could live alongside western democracies, without fear of constant strife and with an eye toward reducing tensions.

Of course, the Soviet Union’s and Khrushchev’s true intentions with the application of peaceful coexistence were quite different than what was promoted to the West. Behind the rhetoric of détente sat the long-term twin objectives of lulling the West into a false sense of security and of laying the groundwork to decisively vanquish democracy. Peaceful coexistence was in many ways a marketing campaign to produce the opposite result of its name.

The Soviet propaganda machine got fully behind the promotion of peaceful coexistence.

Countless influential individuals in the West, including the powerful in European and American governments, took the bait hook, line, and sinker. Peaceful coexistence was quickly embraced by the elite and expert classes.

The few who early on saw peaceful coexistence as a sham were initially labeled as narrow-minded and backward thinking. Until the Soviets brutally invaded Hungary later in 1956. Russian tanks in the streets of Budapest immediately clarified that peaceful coexistence was nothing but a ruse to buy time, gain advantage, and outmaneuver the West.

Peaceful Coexistence Redux: Modern China and the West

China has been promoting its own brand of peaceful coexistence for decades. It is masterfully good at it; China today is much more persuasive, effective, and patient than the Soviets ever were in the 1950s.

China’s version of peaceful coexistence has successfully permeated just about every institutional pillar of modern western society.

Academia, having a seemingly incurable ideological soft spot for communism and its cousin socialism, needed little coaxing to jump on the peaceful coexistence bandwagon. Colleges have been eagerly pocketing Chinese money to fund a broad spectrum of research and programs. Universities compete to take on as many full-tuition-paying Chinese nationals as possible in undergraduate, graduate, and postdoctoral slots. Individual professors, departments, and universities across higher education are hopelessly conflicted and financially indentured to China.

The capital markets have behaved badly under the influence of peaceful coexistence. The largest investment houses, banks, and private equity firms assessed the growth prospects of China, and happily poured trillions of dollars into the communist economy. Much of that economy is designed to pilfer technology from the West, further militarize the communist nation to better prepare for conflict with the West, and to build strategic industries that aim to destroy competition in the West. Ironically, the biggest capitalists in the free world have willingly funded a regime that exists to destroy capitalism.

Big business, specifically global corporations, saw over a billion potential new Chinese customers for products. They quickly became transfixed with peaceful coexistence, to where companies began acting illogically.

Major US airlines refuse to acknowledge the nation of Taiwan on their global maps resting in the seat pockets of their planes, for fear of upsetting China.

Tech firms grant Chinese state security access to user personal data that they would never dream of providing to US authorities.

Peaceful coexistence coupled with over a billion potential viewers have hypnotized western media and entertainment. The Chinese Communist Party acts as director, editor, and producer of most major Hollywood films these days. And marquee athletes and professional sports franchises are much more comfortable deriding their home nations and ticket-buying customers than they are speaking truth to the power that is China.

The western environmental movement fully embraced peaceful coexistence and commits the most egregious acts of aiding and abetting China. Much of this knowing collusion falls under the flaw and folly of ‘tackling climate change.’

Environmentalism used anti-science ideology and nonsensical concepts of zero-carbon and renewable energy to drive policy mandates, subsidies, and protections for products with supply chains controlled by China.

Environmentalism is proving to be a geopolitical trump card for China: eradicating American energy independence brought on by the shale revolution and replacing it with a certain energy dependence on China.

Politicians, not always the sturdiest of moral fortitude and discipline, were often easy marks for China’s brand of peaceful coexistence. Outwitted and outmaneuvered presidents, popes, and climate czars engage China with visions of world peace/détente, new members of the religious flock, and climate accords. These western leaders bring back nothing of substantive value from the negotiating table, yet they readily cede value on the most vital of issues.

The biggest error politicians and state bureaucrats make when dealing with China is assuming discrete issues can be segregated from China’s grand strategy residing under its umbrella of peaceful coexistence. Our self-anointed climate czar pretends we can put fundamental differences aside in a winner-take-all competition, so that we can agree on setting targets for future atmospheric concentrations of carbon dioxide. China sees that miscalculation and happily utilizes it to secure more advantage and advance its strategic objectives. That gives Code Red a new meaning.

A Wake Up Call from Sun Tzu

Communism remains the gravest threat to individual rights and human quality of life. It desires to destroy the free world, bring what is left into its orbit, and grow its power. The approach attempting to achieve these aims is insidious and steadfast. It follows the ancient strategic teachings of Sun Tzu and the principles of Choho No Jutsu.

There is no art higher than that of destroying the enemy’s resistance without a fight on the battlefield.

Subvert anything of value in the enemy’s country. Implicate the emissaries of the major powers in criminal undertakings; undermine their position and destroy their reputation in other ways as well, and expose them to the public ridicule of their fellow citizens.

Do not shun the aid of even the lowest and most despicable people. Disrupt the work of their government with every means you can.

Spread disunity and dispute among the citizens of the enemy’s country. Turn the young against the old. Use every means to destroy their arms, their supplies, and the discipline of the enemy’s forces.

Debase the old traditions and accepted gods. Be generous with promises and rewards to purchase intelligence and accomplices. Send out your secret agents in all directions. Do not skimp with money or with promises, for they yield a high return.

Act with Moral Superiority to draw the trust of the enemy’s people, in this way you gain the enemy’s own people as an ally against him.

Does reading that send a chill down your spine?

Global leaders of the communist ideology do not intend compromise, reform, or peaceful coexistence. That was the reality during the Cold War with the Soviets, and it remains the reality today with China.

China understands that the elite in the free world desperately want to believe communism desires compromise and reform. That desperate want is our biggest weakness.

The phrase ‘a rabbit that has been hypnotized by a snake’ is taken from the memoirs of German World War II and Cold War legendary spy chief Reinhard Gehlen, The Service.

Mis“LEED”ing: Fact Versus Fiction for Green Buildings

How many times have we heard those worn-out taglines of ‘sustainability,’ ‘green is good,’ ‘triple bottom line,’ and ‘doing well by doing good?’ Study after study, report after report, and headline after headline. All used to help justify products like electric vehicles and solar panels, as well as to defend related policy mandates, market protection, and subsidies.

Many of today’s largest markets and industries rely entirely on the ability of the expert class to continue to hoodwink consumers, taxpayers, and investors on the false need and an altered reality of certain products and standards.

Consider the case of green building design, specifically LEED-certified buildings.

For those unfamiliar with LEED, it stands for ‘leadership in energy and environmental design.’ It’s become all the rage in real estate these days, particularly for commercial and office space. LEED-certified buildings enjoy an unchallenged reputation for better performance, accretive economics, and societal benefit.

That’s due in large part to an ocean of studies that posit LEED-certified buildings as superior to non-LEED-certified buildings in every imaginable way.

Creating the Need for LEED

A recent example is the October 2022 research report from real estate firm CBRE titled Green Is Good: The Enduring Rent Premium of LEED-Certified U.S. Office Buildings.

The title is an eco-marketing thing of beauty; a rich, concentrated trove of all the gimmicky tricks. Employ an obligatory worn-out tagline (‘green is good’)? Check. Inject an aura of economic legitimacy (‘rent premium’)? Check. Infer a longevity that exceeds the half-life of CO2 in the atmosphere (‘enduring’)? Check.

The executive summary doesn’t disappoint. It begins by boldly stating that an analysis of 20,000 office buildings in America found that the average rent of those with LEED certification was 31% higher than those of non-LEED-certified buildings.

The impressive finding indicates that renovating existing or building new spaces that have high energy efficiencies and meet LEED certification standards are well worth the effort and investment.

Except, when digging a little deeper into the study’s details and data, that’s not exactly the case. In fact, that’s not at all the case.

The Devil in the Data

As with many studies, reports, and news articles surrounding the vaunted energy transition, reading beyond the title and executive summary is vital. Doing so for this study of the economics of LEED-certified buildings betrays a very different set of conclusions than the popular consensus and the report’s title.

The golden rules of real estate, including the ultimate of location-location-location being the three most important factors determining value, apparently still matter today, even with Code Red for humanity and approaching climate doom.

When the study’s data are adjusted under regression analysis for building location, building age, and renovation history, the premium that LEED-certified buildings enjoy shrinks from the advertised 31% down to just under 4% before COVID and only 3% after COVID.

That’s a massive drop to a paltry, low single-digit premium that may be within the statistical noise and uncertainty of the study. Meaning when an apples-to-apples comparison is performed, LEED certification doesn’t amount to much of any appreciable rent premium.

Building age is far more impactful than LEED certification. The regression analysis found that office assets built after 2012 commanded a 14% rent premium over those that were built between 2002 and 2011. Each additional decade in age decreased rent by approximately 5%.

Data prove age affects rent much more than LEED certification.

What’s intriguing is that the complete report disclosed these findings and how they evaporated the trumpeted rent premium for LEED certification. It’s all in the body of the report, which very few people take the time to read.

By the way, LEED-certified office buildings tend to be larger and higher quality assets concentrated in downtowns of expensive cities, compared to non-LEED-certified buildings. Which means LEED-certified spaces should enjoy higher rent premiums than buildings that are smaller, lower quality, and not located in the most exclusive of zip codes.

The report cites that a third of Manhattan’s office inventory is LEED-certified while only a tenth of Louisville’s office inventory is LEED-certified. And Manhattan office space is pricier than Louisville’s. Yet rent premiums of Manhattan offices versus Louisville offices have very little to do with whether the buildings are LEED-certified. It’s because it’s Manhattan and Louisville!

Voodoo Economics

What you don’t find discussed in the study, which harms its credibility, is recognition that constructing a LEED-certified building is a more expensive proposition in up-front capital investment than constructing or renovating a non-LEED certified building. If there is only a miniscule, or nonexistent, rent premium for the LEED-certified office, the rate of return will indicate a losing investment proposition, not a winning one. That is the opposite conclusion that the study’s title warrants.

The study also argues green buildings offer lower mortgage default risk for investors. That may not be the case looking forward into the coming years, when considering LEED-certified buildings are disproportionately concentrated in at-risk real estate bubble markets of Manhattan, San Francisco, and so on.

Further, LEED certified buildings are a favorite of the tech industry. And the tech industry right now is on the verge of a major correction, with job losses piling up and with office buildings, many LEED-certified, being vacant and leases being abandoned. LEED-certified buildings may post higher default rates than traditional offices as we experience the grips of a recession or slowdown, or certainly if another tech bubble bursts.

Unaddressed in the study and regression analysis is what impact government leasing of LEED-certified buildings has on rent spreads. One of the largest tenants of metropolitan office space is often government. If bureaucrats favor LEED-certified space and aren’t afraid to pay up with taxpayer dollars to rent it, rent spreads for LEED-certified buildings are likely to skew. Without government subsidy, there may be no rent premium for LEED certification. Perhaps, there might even be a ‘green discount’.

Communal Paradise Lost?

There are other flaws in the study.

It wrongly assumes de facto ‘increased productivity’ associated with LEED-certified buildings. That’s not obvious or necessarily true for the workers who inhabit them. Ledger entries of debits and credits by accountants working in a LEED-certified building don’t magically happen quicker or more accurately than they would when the accountant is working in a non-LEED-certified building.

There’s another false premise about LEED-certified buildings, particularly in the era of pandemic: the health and wellness benefits associated with LEED-certified buildings. Today, there are health risks found in LEED design features.

For example, are low-flow water faucets in restrooms of LEED-certified buildings a health risk when it comes to hygiene and germ spread? A similar question pertains to HVAC systems in LEED-certified buildings that try to balance energy efficiency targets with fresh air-to-recirculation air ratios.

These days, most office occupants do not relish the thought of breathing air all day that has longer average indoor residence time. Or using faucets that trickle to wash hands. The safer office building environment would employ higher water flows in restroom faucets to minimize germ transfer and HVAC systems using as much fresh air feed as practical.

And those celebrated common areas for collaboration, meeting, and eating utilized in LEED-certified buildings? Just another venue for potential disease transmission.

Pandemic necessitated a re-think of all facets of life and business. Yet LEED-certified design has largely escaped such a re-think. Why? Aspects common in, or mandated by, LEED certification need an objective reassessment as to whether they are beneficial in the era of Covid.

Too Much of a Green Thing

A key conclusion buried in the study escaped mention in the executive summary and title. The regression analysis found no statistically significant rent premium associated with higher levels of LEED certification.

Attaining a higher level of LEED certification requires more investment to achieve the target level of points. If there is not a statistically significant rent premium associated with higher LEED certification, then being greener is not better. Being greener is a poor investment decision; investors lose money when spending to attain a higher level of LEED certification.

The Echo Chamber at Work

How one stumbles upon this report is emblematic of how the echo chamber works in media, the expert class, and environmentalism today.

A headline on a major business website mentioned the study title, specifically the ‘green is good’ hook. The website article exclusively highlighted the report’s title and the opening statement of the executive summary that advertised the massive 31% rent premium for LEED-certified buildings. Only until tracking down the study and reading the body of the report will the regression analysis come to light.

That’s how the environmental racket operates these days. The green formula:

Perform a study to skew in the desired direction by applying favorable assumptions.
Push the desired findings in the executive summary.
Come up with a creative and eye-catching title (use those eco-taglines we called out in the beginning), then post or publish the report.
Collaborate with major media to rebroadcast and further amplify the desired sound bite or headline.

It’s not greenwashing. It’s worse. Most would consider it misleading and unethical.

Nick Discusses Global and U.S. Energy Demand with CNBC

Nick joined CNBC on Friday, Oct. 29, to discuss global energy demand and resulting price increases. “It’s supply and demand with a new twist,” says Nick. He points to deferred and deterred investment in pipeline infrastructure as a major factor in gas supply not being able to meet demand.