When a Blinded 1930s Writer Saw the 2022 Future

Aldous Huxley, the English author, was blinded for nearly two years by infection when he was a teenager. Despite his ailment and lingering poor eyesight, Huxley managed to produce a dystopian classic with a precise vision that gazed ninety years into the future. His masterpiece, Brave New World, predicted with frightening accuracy modern society in the 21st century.

Huxley penned Brave New World in 1931 and published it in 1932, years before Orwell’s 1984. The dystopian worlds offered by each classic share similarities but also present sharp contrasts. Despite 1984’s rightful acclaim, one might argue Brave New World scores more direct hits when it comes to comparing its society to that of modern-day America.

Brave New World envisions a society run by a global bureaucracy that practices a kinder, gentler totalitarianism. There is a strict caste system of elite alphas at the top down through lowly epsilons at the bottom.  Humans are no longer born, but instead are manufactured, in labs with predetermined outcomes and castes.  Complex yet aimless entertainment and the drug soma are applied as tools to numb and train those in society to be passive and submissive.  God no longer exists, and everyone worships Henry Ford and makes the sign of the T.  Monogamy has been replaced with promiscuity.

A World of Parallels to Today

Seven eerily prescient parallels exist between Huxley’s Brave New World and today.

First, Huxley brilliantly illustrated how constant but hollow leisure in society does not lead to increased culture.  A popular saying in Brave New World is “never put off till tomorrow the fun you can have today.”  Games like obstacle golf are encouraged to the point of participation being a civic duty, and the games are designed to be complicated and constantly updated.   The complexity helps promote continuous and hollow consumption, so that people are kept busy by both playing the games and making the equipment to play the games with.  Self-cheating is encouraged.

The connections to today are striking.  Instant gratification prevails over long-term achievement.  Americans now have an obsession on consumerism with the constant acquiring of more stuff.  Consider the exponential growth in mindless entertainment such as VR and gaming.   And our everybody-gets-a-trophy/don’t-keep-score/cheat-until-caught culture.

Second, Brave New World informs us as to how science is the enemy of the totalitarian state when left unhindered and must be tightly controlled and distorted by the state so that it can become a useful instrument.

Science is a crucial piece of the strategy in keeping society in line, but scientific progress was purposely frozen with the advent of the world state.  Science and the muzzling control of it are the prices of stability.  Science propaganda is practiced at colleges, and one believes things because they were conditioned to believe them.  The culmination is science becomes a cook-book orthodoxy that is never challenged. The effort is managed by the state in a 60-story building that houses the Bureau of Propaganda and the College of Emotional Engineering.

The mirroring to today’s world is obvious.

Science has morphed into political science.  The scientific method has been replaced by scientific consensus.  We are told when the science is settled and are instructed to obey.  Questioners and dissenters of popular views or of accepted science in the university culture get labeled as heretics and deniers.  Although most literary critics interpret Brave New World to warn of the danger of science, I interpret something subtly but crucially different:  the danger of the state suppressing and commandeering science.

Third, Brave New World exposes the dangers of how the system can institutionalize class and solidify socio-economic barriers.   Mothers no longer give birth.  Instead, embryos are constructed in the lab and customized through chemistry to manufacture people at the desired caste level.  Effectively, children are decanted, from the privileged alphas down to the low-ranking epsilons.  Each person is molded by the hereditary and by the environment of the state-chosen caste.  Babies are not raised by parents but by State Conditioning Centers and are trained by crude Pavlovian methods to hate flowers and books.  The ideal society is described as having the proportion of an iceberg, where 1/9th sits at the top as elite alphas and the remaining 8/9ths are toiling below the water line.

Think about how much of this is present today.

Our public education system in major cities virtually guarantees students never realize their full potential.  Self-determination as to what one does in life is becoming an increasing rarity because of socio-economic obstacles. Science, math, and reading competency are not the focus of education these days. Instead, the exclusive focus is to deaden the minds of students and create a subservient collective that thinks what it is told to think and believes what it is told to believe.  The 1/9th of elites are the alphas above the water line, while the rest of society is kept struggling below the water line.

Fourth, Brave New World reminds us of the perils of loveless sex and promiscuity.  In Huxley’s society, “everyone belongs to everyone else.”  Sex is pursued exclusively for physical pleasure and the idea of a dedicated and committed relationship is viewed as savage.  The character Lenina (Huxley assigned character names in Brave New World to be plays on despots, scientists, politicians, and business leaders) gets lectured by her friend for not being promiscuous enough.  Children are taught “erotic play.”  Family, love, and monogamy are pornographic.  The word “mother” has become a crude obscenity, so profane that to speak it sparks revulsion.

The similarities to today are obvious.  Marriage and the family structure have never been under more duress.  Internet porn and lust have replaced personal intimacy and love.  Topics that not long ago were discussed in high school sex ed class are now covered in explicit detail in elementary schools.  We are learning that free love often ends up in less love.

Fifth, in Brave New World we see what awaits society in a drug culture. The miracle opiate is soma, and it is administered from cradle to grave, with euthanized death set by the state promptly at age 60.  Workers are paid in soma to feed their addiction.  Soma giveth by arresting the aging process, providing an emotional high, and softening depression during tough times or from harsh realities. But soma also taketh by acting as a poison that kills the person over years of use and eradicating individual thought and free will.

Huxley would be shocked at how the various modern versions of soma afflict Europe and America today.  Social media brings mass emotional addiction to children and adults.  Fentanyl, heroin, crack, alcohol, and marijuana are consumed legally and illegally to create physical additions that cross all socio-economic levels, as people seek escape from whatever haunts them.  Imagery of the physical ideal sets expectations at a young age, leading to more and more medical procedures and treatments to halt the natural aging process.

Sixth, Brave New World paints a society where the individual is erased into the collective and where free will and independent thought are vanquished by totalitarian domination.  Imagination and sense of self are dangers. Individual free thinkers who read the banned great works, from the Bible to Shakespeare, are savages of old civilization and are exiled to the wilds.  A popular slogan is “when the individual feels, the community reels.” Another one is “everyone works for everyone else.”  War is waged against the past, when individual rights were supreme.  To be happy, you don’t pick your path; instead you learn to enjoy the path that has been selected for you.

What an accurate portrayal Huxley foresaw of today’s political correctness.

Views of the state are constantly streamed to kids from all directions and across all mediums so that it conforms their minds.  There are parallels to today’s cancel culture, where you must tear down anything traditional that would make one think and challenge.  College syllabuses delete classic works and public square statutes of prominent leaders are removed.  Dissenters are not simply ostracized but attacked by the Twitter mob.  And meritocracy, attacked as unfair, is replaced with the unethical injustice of equal outcomes.

Seventh and last, Brave New World demonstrates how such a dystopian society is a result of omnipotent and global totalitarian government.  The World State motto is “Community, Identity, Stability.”  A World Controller determines what information is allowed for public access and consumption, what science is acceptable, and what works are to be locked up and forbidden.  The state figured out that social conditioning was much more effective and lasting than brute force when looking to control a population.

These days, global organizations and accords make one wonder if we still live in a republican democracy.   The United Nations, World Health Organization, World Bank, and G-20 hold more sway over Americans’ pocketbooks, quality of life, freedoms, and decision-making than the U.S. Congress.  The faceless unelected bureaucrat buried within the administrative state holds more power than our elected president.  Domestic regulations and international accords take away more of our liberty in 2022 than any legislation or statute.

The Brave New World Outside Our Doors

In conclusion, Huxley provided a valuable service to the human condition.  He presented in stark contrast two very different views for the individual and society.  Consider two passages from Brave New World as illustrative of the contrast.

First, from the Director, who as representative of the state betrays a hatred for the individual: “The greater a man’s talents, the greater his power to lead astray.  Better for one to suffer than many be corrupted. Murder kills only the individual and what is the individual?  We can make more of them.  Unorthodoxy threatens more than the life of the individual, it strikes at society itself.”

Second, from John the outcast, who didn’t want comfort if it prohibited truth: “I don’t want comfort.  I want God, I want poetry, I want real danger, I want freedom, I want goodness. I want sin.”

Huxley, who passed away on the same day JFK was assassinated, warned us that before we start pining for such a brave new world, we should wait till we see it first.  My fear is the wait is over and it now sits outside our doors.

Heed the Historical Rhyming of Ludwig von Mises’ Omnipotent Government

Ludwig von Mises was a shining light in the Austrian school of economics and for libertarianism. Despite the obsession Keynesians and socialists have with tarnishing his legacy, Mises sounded the alarm about statism louder and clearer than anyone.

One of his great works was Omnipotent Government, which Mises published toward the end of World War II. Although much of the book focuses on analyzing fascism and socialism, many of the book’s insights from the mid-1940s are quite pertinent today.

Capitalism versus Totalitarianism

There are two big, opposite ideological trends for mankind to choose from.

The first is capitalism, which embraces freedom, rights of man, self-determination, and technology. Under capitalism the arts and science thrive. Excellence and meritocracy are celebrated.

The second is totalitarianism, where the state is omnipotent. Power is vested in government because government promises to make paradise.  Individual happiness becomes the duty of government, creating a nanny-state. The final goal is not a national government but a universal government.

Mises understood human nature comes with a certain level of intolerance of criticism of an individual’s social and economic beliefs. Often the intolerance is accompanied with labeling the critics as enemies of the nation, race, or group.

Capitalism has a clearly superior record compared to socialism and communism.  Thus, the supporters of the latter take pains to slander the former. Mises set the facts straight when it comes to capitalism’s superiority over socialism and communism.

Yes, capitalists and inventors get rich, but they do so while everyone else becomes better off with their inventions and products.  Capitalism is far from perfect, but in the long run raises quality of life for all, including the poor. Despite government continually attempting to stifle it. True liberals oppose state impediments to a free economy and freedom of economic activity.

Such benefits are not found with the bureaucrat or state control of the economy. Communism did not bring technological innovation to society and only copied the innovations of the capitalists. Only a bureaucrat can think that adding more bureaucrats, regulations, or impediments can be positive and beneficial. And the justifications will be in the name of progress and freedom, with both being the first casualties.

The concept of pervasive, omnipotent government did not start with the commoners and bubble up to the elite. Quite the contrary. Statism was conceptualized by the elite. All socialist thought was hatched by the 1%.

Totalitarians, whether socialist, religious, fascist, or communist, believe they are smarter than the citizens. Extreme right meets extreme left, with no tolerance of dissent. Hitler got his orders from above; the religious leader is infallible; President Xi enjoys demi-god status; and Putin is now leader for life instead of elected president for term. The German socialist Ferdinand Lassalle claimed, “the state is God,” which was eventually adopted as a slogan by the Nazis.

The Big Middle

But between capitalism and totalitarianism sits a wide spectrum of free market and government intervention mix. Etatism¹ is an economic system where the state owns and runs many things although some limited capitalism still exists.  Economic interventionism is the hallmark of etatism.

There is interference by restriction, where the state diverts production from channels demanded by the market, consumers, and technology into what the state desires.  Doing so makes people poorer, prevents individuals from achieving, erodes wealth, and wastefully expends funds.  Government ends up taxing losers and subsidizing winners, with inefficient bureaucracy in the middle of it all.

Interference by price controls is the second method of government interventionism, which sets values and prices differently than what the market sets them at.  Where market pricing sets equilibrium of supply and demand, government price controls create scarcity and rationing.

Mises found it ironic that the free market nations fighting Germany in World War II, the UK and US, were adopting a more etatist approach with a command economy.  In these once capitalistic economies, taxation was transformed into confiscation, free thinkers were taught to be thought followers, and individual freedom to act was supplanted with government now having the initiative.

In many ways, the creeping etatism of the Allied nations set the stage for World War II by creating international economic strains.  The UK wanted to protect its industry from France.  Belgians fought Dutch imports.  Subsidies for exports grew everywhere.  Protectionist tariffs spread virally.  Each nation was waging an economic war against other nations.  Everyone wanted free trade for everyone else and protectionist policies for their own nation.  Pain and tensions ratcheted up to the breaking point—and it feels like the same is happening today.

Mises knew that to address economic woes or preserve world peace, you don’t need another government office, bureaucrat, or global organization like the UN.

What is needed is stopping and rescinding domestic economic policies that substitute government for the private actor.

Unfortunately, we continue to drift to more etatism, with the growth of the administrative state to address inequality and the adoption of international accords like Paris to ‘combat’ climate change.

The evil genius of the transformation of western nations from free market to etatist is that when troubling symptoms of state control hit, such as inflation, unemployment, and economic inequality, people become convinced it is the fault of capitalism and not the fault of illiberal policies of government intervention. Academia and the bureaucratic state ridicule economic liberalism, the social sciences vilify the free market, university students are taught to admire socialists, and the entertainment industry has been promoting etatism in plays, writings, songs, and movies since the days of George Bernard Shaw.

The closer a nation orbits toward etatism and away from capitalism, the graver the danger. Mises said it best: “A state whose chiefs recognize but one rule, to do whatever at the moment seems expedient in their eyes, is a state without law. It does not make any difference whether or not these tyrants are benevolent.”

Although the state may end up doing and running lots of things, the essence of state action is always coercion and compulsion.  When done surgically and tactically, it works for the individual. But it should never be the ultimate. It is simply an instrument for the true ultimate: the individual.

The Weimer Republic and Today

Unfortunately, state economic intervention is popular as ever, including in the US.  FDR would be shocked to see how since the Great Depression, America blew past his New Deal incremental interventionist shifts and now sits closer than ever to socialism.  How did we get here?  Consider parallels to Germany just after World War I.

During the failed German Weimer Republic, businesses were accused of profiteering, inflation ruined the middle class, incompetent government looked to price controls, and a socialist approach was taken to monetary policy.  The media, economists, and politicians of the time ignored the danger of excessive monetary policy leading to commodity inflation. Capitalism was vilified as exploitive, unfair, warmongering, and benefitting only the 1%.

The answer was to increasingly manage business by government and the bureaucrat.  Easy money, price controls, wage floors, export subsidy, and import tariffs blossomed. All for the public good and to help the little guy.

Sound familiar?

Rise of the Nazis and Today

American popular support for socialism, communism, and state intervention have never been higher. We did not arrive at this point by accident, but under a methodical campaign waged by the elite over decades.

Much of the campaign’s playbook copied that of the Nazis in their rise to power before World War II. Nazism and German nationalism were first resisted by big business and the middle class. But these groups had no consistent ideology and were overcome by the academic focus of Nazism and nationalism. Youth came out of university indoctrinated to the cause.

The nationalists assumed key government posts. The economy became more etatist, which made businesses subserviate to the government and the bureaucrat’s nationalist ideology. The government ended up forcing business to bow to its views and fund those views.  Business had no way to influence public opinion once the tipping point was reached. The intellectuals beat the businessmen.

Substitute leftist/socialist for Nazi/nationalist, 2010-2020s for 1920-1930s, and America for Germany. Concerned?

Conclusion

The state has been an endless source of mischief and disaster through history.

Mises observed that “there is no more dangerous menace to civilization than a government of incompetent, corrupt, or vile men.” The minority in a society stands to lose and suffer the most as a state moves from capitalist end toward the etatist/totalitarian side of the spectrum.

That’s why I’ve always found libertarianism attractive.

Classic liberals and libertarians are not anarchists and do not desire to abolish the state. We want government to recognize the supremacy of the individual and to protect private property. If you have private property, then you have individual rights, and vice versa.

To avoid war, eliminate its causes, which are all too often nationalism and lack of free markets.  Make government small and focused on preserving life, health, and property. And safeguarding the free market.

Yet Mises’ writings convinced me that etatism is the natural tendency of bureaucrats and governments.  Only liberalism and capitalism prevail when pressed and forced by citizens. Market interventionism is a slippery slope that can quickly slide us toward totalitarianism.

Mark Twain noted that history does not repeat itself, but it often rhymes. Let’s hope the American experience in the coming years does not rhyme with Germany’s in the first half of the 20th century.

[1] Alberto Mingardi explains, “Mises uses ‘etatism’ instead of statism because that word, ‘derived from the French état… clearly expresses the fact that etatism did not originate in the Anglo Saxon countries, and has only lately got hold of the Anglo-Saxon mind.’”

Nick Deiuliis’ CNX Q2 2022 Earnings Call Remarks

The following is a summary of Nick Deiuliis’ introductory comments from CNX Resources’ Second Quarter 2022 Earnings Conference Call, held Thursday, July 28, 2022. Click here for more information.

Allow me to highlight three themes that are core to the CNX investment thesis:

  • First, we built and now manage a low-risk, $700 million per year free cash flow annuity that works year after year. This helps to largely insulate us from macro events out of our control, it creates confidence and conviction in our business, and it is sustainable and works in any environment.
  • Second, we then apply clinical math and, when the math dictates it, we allocate a significant portion of the free cash flow to reduce our share count at highly accretive rates of return, which will continue to deliver unprecedented free cash flow per share growth. That’s a tremendous opportunity for any value investor.
  • Third, and lastly, in addition to our organic free cash flow annuity and our growing free cash flow per share, we are creating, demonstrating, and deploying new technologies which will create incremental free cash flow and free cash flow per share beyond our base business and plan. The new technologies opportunities are here and now and offer a meaningful avenue for incremental per share value for our shareholders and for the next chapter of Appalachia’s energy legacy.

We are excited by the opportunities in front of us – they are impressive, outside-the-box, and unique to CNX.

So with that bigger picture in mind, let’s talk specifics.

During our first quarter call, we covered the destructive, yet predictable consequences of current national and global energy policies. These policies have, unfortunately, been extremely effective in manufacturing energy scarcity and stoking inflation by preventing the most sensible supplies of natural gas and oil from reaching demand centers and by relying too quickly on renewable energy not yet at scale. The consequences are higher energy prices, energy scarcity and inflation, economic turmoil, and geo-political instability, and they are becoming painfully clear to all.

This morning, I would like to build on this discussion and talk about what CNX is doing to improve the current situation.

Perhaps it goes without saying, but I will say it anyway:  CNX will continue to advocate for natural gas and the Appalachian region.  The standard of living we all enjoy is owed in large part to the great men and women doing the hard work to provide our energy, and we are proud to be a part of that.

Tangible Actions, Leading the Charge

At CNX we focus on near term, tangible actions rather than hypothesizing as to what may or may not occur decades into the future. Opportunities exist here and now to advance environmental and socio-economic goals, and we are proud to be leading that charge with recent announcements like our work with Pittsburgh International Airport and with Newlight Technologies.

We have been hard at work driving these and other key initiatives forward to advance our view of a legitimate and actionable sustainable energy revolution.  Improper planning and an inconsistent push toward the so-called energy transition, which is pinned to an irrational ideology that demands an immediate transition away from natural gas to renewable energy that will struggle to deliver at scale, is creating turmoil.  A realistic and achievable sustainable energy revolution demands a more thoughtful, common sense, practical approach.

That means creating fact-based solutions grounded in math and science today, not hypothesizing about potential solutions 20 or 30 years from now.  And by taking tangible steps to meaningfully reduce global carbon footprints in the most efficient manner.  Natural gas, Appalachia, and CNX must play a pivotal role in accelerating and enabling this progress.

Natural gas is not a bridge fuel.  I want to repeat that. Natural gas is not a bridge fuel. Instead, it is a catalyst fuel, which is the basis of the sustainable energy revolution by helping industries across sectors lower costs and emissions immediately.  It will also fast-track the implementation of new technologies. This will allow companies and industries to focus on driving efficiencies to eliminate waste, stop egregious labor and human rights practices, grow the value proposition for their ownership, and provide a viable path to achieve carbon reduction targets.

Look, the concept of solar and wind powering the quality of life to which we have become accustomed sounds fantastic in theory and is romantic as advertised.  But the ability of these technologies to satisfy the world’s energy needs is, to be kind, a highly questionable proposition.  One that is only practically achievable decades into the future and that is highly dependent on major advancements in technology and a massive increase in rare earth element and battery production capacity, an order of magnitude more than currently exists today.

For perspective, the world currently produces roughly 600 exajoules of energy annually, which includes approximately 39 exajoules from renewable energies related to wind, solar, and geothermal.  Said differently, only 6% of current energy production is derived from renewable energy despite decades of policy incentives and subsidies that cost nations, economies, and societies trillions of dollars. Twenty twenty-one was a record year for renewable energy installation, yet resulted in only 5 exajoules of renewable energy added to overall global energy production.

Now, on the consumption side, forecasts indicate that world energy demand will grow on average around 2% per year, which is approximately 10 to 12 exajoules per year.  Renewable energy is unable to keep pace with that type of global energy demand growth, let alone have the ability to displace fossil fuels any time soon.

During the last 20 years, world energy demand has grown by roughly 200 exajoules, and over the same time approximately 35 exajoules of renewable energy capacity has been added.  Renewables have a long way to go to simply meet new demand before they have any hope of displacing oil and coal in a meaningful way.  More low-cost and environmentally-friendly Appalachian natural gas can help meet this growing demand and make progress now on environmental goals.

Also, of the 600 exajoules of world energy production, fossil fuels account for over 490 exajoules of that total, with hydro accounting for 40, nuclear adding 25 more, and then the 39 EJ of wind/solar renewables to get to approximately 600.  A majority of fossil fuel production is oil and coal. Appalachian natural gas only accounts for approximately 12 exajoules, or roughly 2% of total global energy production, and represents the cleanest, lowest greenhouse gas intensive fossil fuel. Within Appalachia, CNX accounts for 0.5 exajoules and has the lowest GHG intensity and cost structure in the basin.

We Are the Solution

We, the Appalachian basin and CNX, are not the problem. Math and science show that we are the solution. CNX serves as a needed ally as the world seeks to reduce the other 490 exajoules of much higher GHG intensive fossil fuels and help keep pace with new energy demand.

There is also the issue of supply chain realities to consider.

CNX and Appalachia are closest to the major U.S. demand centers for energy, goods, and services, allowing our local energy to be even more greenhouse gas-efficient from an all-in, scopes 1-3, life cycle perspective.  Reducing unnecessary shipping logistics is the elephant in the room when it comes to emissions.

Investment in, and utilization of, our low-greenhouse-gas-intensive natural gas and its derivative products will rely on infrastructure that works with new green technologies when and if they are ready and able to be deployed to meet future demand.  This means that engines and factories can run off 100% compressed natural gas (CNG), 100% hydrogen, or related blends. The same logic applies to additional electric vehicle (EV) deployment, as natural gas turbines on the grid allow electrification to play a more meaningful role sooner.

CNX has been quite active making moves and investments with these broader policy realities in mind.

Our New Technologies team has numerous projects in various phases of development which will help the world move to a lower GHG emitting future, while also maintaining reliable energy resources for a properly functioning society.

The New Technologies team is commercializing technology that will produce low-carbon-footprint natural gas, derivative products, and associated environmental attributes.  These technologies are a game changer for the natural gas extraction and transportation industries.  Technology and assets from CNX can help displace higher carbon intensive fuels in the US energy mix, both on the power grid and in the transportation sector.

These displacement opportunities are over 100 billion cubic feet per day of natural gas opportunities in the U.S. alone.  More products and services could be produced within the Appalachian region.

Think of these emerging technologies to be commercialized falling into one of three major buckets.

The first bucket consists of what we designate as having valuable and monetizable environmental attributes.  We are capturing methane, through incremental capital investment and deployment of technology, which would have otherwise been vented into the atmosphere.   This ultra-low carbon gas is  increasingly valuable in a carbon constrained world.  Our Virginia assets are the foundational piece of that effort for CNX. Coalbed methane (CBM) is back in a big way, but in a much different world.  CBM today has a natural gas pricing base level of value, but also now enjoys an increasing portion of value tied to its ultra-low carbon characteristics.  Recognition of this value is growing across numerous economies.

The second bucket is proprietary technology we developed that will fundamentally change the manufacturing process for the extraction and delivery of natural gas.  The technology will transform drilling, completions, flow back, compression, processing, and so on.  It will make these processes more efficient, reduce risk, lower emissions, and increase margins.

The third bucket is using in-house proprietary technology to disrupt various industries currently relying on other less-efficient and higher-emitting forms of energy.  This technology efficiently transforms the state of natural gas from gaseous phase into CNG and LNG.  That CNG and liquefied natural gas (LNG) on pad can transform the aviation and ground transportation industries. Instead of off-shore, high carbon footprint, high-cost gasoline for ground transportation, the ability exists to use local, low carbon footprint, low-cost CNG.  It’s a similar story for aviation, with LNG replacing jet fuel.

The business case for this third bucket comes down to common sense.  If we want to lower global GHG emissions, you deploy new renewable energy in the sunniest and windiest places that still rely on coal and oil, to displace them.  You don’t place renewables at scale in places like Pennsylvania where the efficiencies are low, the costs at scale are high, the supply chains are thousands of miles in length, and the life cycle carbon footprints are going in the wrong direction.

What is better for the planet, for greenhouse gas emissions, for the regional economy, and for business models?  Making products overseas using coal fired power and inefficient power plants and factories, that utilize poor labor practices, and having all that wasted cost and energy transporting these products all the way to America? To sometimes work, depending on weather?  Or, simply manufacturing these products here with low carbon-footprint natural gas, more efficient power plants and factories, using local well-paid workers and shipping it within a one-day drive?  Pretty simple.

Focused on Innovation, Positioned for Success

Now let’s talk about tangible, impactful, and local recent results of the New Technologies team across these three buckets.  Our year so far has been full of accomplishment spanning all three.

A pathway for implementing our propriety technology to disrupt the old economy fuel supply mix is the announced partnership between CNX and the Pittsburgh International Airport. This is an exciting partnership for both parties.  CNX will help PIT lower their costs, reduce emissions, and create jobs by using low carbon intensity natural gas to displace traditional aviation and transportation fuels. This fits squarely in our Tangible, Impactful, Local mantra.

This partnership centers on how CNX has developed proprietary technology to cost-effectively convert on-site dry natural gas into LNG, CNG, and electricity for various uses including as a hydrogen feedstock.

These technologies reduce emissions and operating costs at the airport. This partnership opens a new frontier for using lower-cost, lower-carbon-intensity LNG and CNG fueling depots for higher energy intensive businesses such as airlines, transit, cargo, fleet, and related businesses. These natural gas derivative products will leverage our local community’s workforce and create more family-sustaining jobs.

We also recently announced another exciting partnership, between CNX and Newlight Technologies, to convert air and greenhouse gas into a biomaterial called Aircarbon.

Aircarbon is a carbon negative PHB biomaterial produced by naturally occurring microorganisms that replaces plastic in industrial segments ranging from food to fashion. Under the agreement, CNX and Newlight will work together to capture waste methane from third party industrial activity that would typically be vented to the atmosphere. CNX will capture, gather, and process captured methane to remove impurities, compress, and deliver the methane through new and existing natural gas pipeline infrastructure for conversion into Aircarbon by Newlight.

This strategic partnership, with CNX capturing methane gas to support Newlight’s manufacturing needs, is expected to result in several manufacturing facilities in the Appalachian region and advance critical decarbonization goals while boosting our region’s economic activity, capital investment, and job growth.

Beyond our New Technologies team, we believe the Appalachian region has the resources, know-how, and work ethic to be the epicenter of providing solutions to the challenges brought by poor energy policy and weakened geopolitical standing.

We can be a center for skilled labor job creation to help pave a path to middle class access for the region’s underserved rural and urban communities, and we put into effect a program to do just that.

This quarter, we graduated our inaugural class from the CNX Mentorship Academy, which consisted of 28 young men and women from this great region’s urban and rural communities. Six of these talented individuals recently joined our team at CNX; this is something our entire team and I are very proud of. We expect the second-year class to be even larger.  These young men and women will help us build our local energy ecosystem to cultivate and sustain the middle class for the next generation.

We also recently submitted comments to the U.S. Securities and Exchange Commission (SEC) regarding their proposed rules for climate disclosure. We are supportive of the SEC’s efforts but believe their proposed rules as drafted will create inconsistent and highly subjective standards for reporting Scopes 1, 2, and 3 carbon dioxide emissions across different industries and companies.

We believe in transparency and accuracy.

Our position is that the SEC should amend the rules to create greater standardization and clarity.  Fully transparent and honest accounting of carbon emissions will underscore the importance of natural gas as the pathway to a promising future.  We encourage you to read our letter to the SEC, which is posted to our website.

Conclusion

We believe that products and goods that we all use daily should be manufactured in Appalachia and first utilized in the U.S. to help our local citizens and economies. Similarly, let’s first focus on creating new and growing existing markets for our products regionally in Appalachia and nearby markets like the Northeast U.S. via short pipelines.  A local first mentality will go a long way to solving myriad problems across the socio-economic and environmental spectrum.  It’s not protectionism or anti-free trade.  Instead, it’s common sense, rational, and free market-based.

Commentary on the Domestic Appalachian Energy Industry

Nick Deiuliis Excerpt from First Quarter 2022 CNX Resources Earnings Call

The following is an abridged excerpt of CNX Resources’ First Quarter 2022 Earnings Conference Call, held Thursday, April 28, 2022. This excerpt followed Nick’s initial review of CNX first quarter results and the company’s Sustainable Business Model (SBM). The comments address how the Appalachian energy industry can resolve a host of current economic, social, and geopolitical problems. And how current energy policies, as root causes of many of these problems, need to evolve to allow the Appalachian energy industry to realize its potential. Click here for a full call transcript.

…Let me offer up a few observations about our great industry, nation, and the state of the world. These observations go to the heart of that ‘why?’ that I spoke about, and they impact not just CNX and Appalachia in profound ways, but they also deserve far more discussion than the limited time we have today. But let’s hit on a couple of these observations.

2022 is turning out to be quite the proving ground, verifying certain realities and exposing certain flawed beliefs. First, let’s talk about natural gas supply and how that might be able to grow to respond to an increase in energy demand needs both domestically, as well as in places like Europe.

There’s been a lot of talk about liquified natural gas (LNG) and how US natural gas can save the EU by replacing Russian natural gas and providing much needed energy security during a time of crisis. At the same time, we cannot lose sight of the energy supply challenges that we still have to overcome domestically. And certainly, the industry is doing what it can to increase supply.

CNX is a great example where we expect production and capital expenditures for the year to be toward the higher end of our guidance range. Every little bit of this is going to help, but there are also some harsh realities that are quite ironic, unfortunately.

CNX is a great example where we expect production and capital expenditures for the year to be toward the higher end of our guidance range.

The nation’s natural gas, oil, and pipeline industries cannot ramp up production anything close to the levels that the US and EU is clamoring for anytime soon, and that’s not because of industry unwillingness. We are industries of doers after all. And it’s not because of corporate greed or profiteering as some might allege. No, instead, it’s simply and starkly because policy is consciously and methodically looking to strangle infrastructure investments in the pipes, processing, power generation, and yes, in the LNG infrastructure, all of which are needed to meet the world’s energy demand. These policies are everywhere one looks today.

Global policies, like Paris Accord and the UN IPCC climate roadmap. You see them in national policies via the weaponized regulatory regime and the administrative state. You see it in regional policies like RGGI, and some of these dysfunctional regional transmission organizations that are manipulating energy and electricity markets that are leading to bad outcomes and consequences, like those that we’ve seen in Texas and California. You also see them in state and local policies, such as de facto natural gas development, transmission, or end use bans in places like New York and Boston.

Unfortunately, these policies have been extremely effective in achieving exactly what they were designed to do: create energy scarcity, run up prices, and not allow the most sensible supplies of natural gas and oil to reach the obvious demand centers. That’s why Boston has to import LNG from thousands of miles afar, including Russia at times, instead of taking molecules from Pennsylvania 400 miles away via a pipeline. That’s why US politicians end up pleading with dictators in Venezuela and OPEC to increase output. And most tragically, that’s why the EU is energy dependent on Russia.

For our industry to solve problems and provide solutions, it unfortunately is going to take years. The domestic energy industry has been under attack and penned in for over a decade by these policies, and now it will take nearly as long to correct that. And that’s assuming policymakers wake up to the reality, which is a big assumption as crazy as it sounds considering times like these where common sense tells us domestic energy has never been more vital, and the policies that are designed to stymie it, they’ve never been more harmful.

These policy concerns lead to my second observation. Despite the clear validation of domestic energy as an attractive and a deserving investment option, we believe access to the capital markets for our industry is going to continue to be more restricted.

It could be something like ESG investing gone awry, or it could be the Federal Reserve climate stress test on banks, or it could be SEC climate disclosures. To manage this risk, the prudent course under our Sustainable Business Model is to maintain a debt level, maturity schedule, and a liquidity level whereby we never need access to debt markets. Fortunately, we reached that point. Our guidance and future free cash flow generation, when you couple them with our balance sheet metrics, means CNX has the optionality to organically de-lever and be independent of the debt capital markets. For our industries, the CNX way needs to become the norm until policymakers and capital markets allow themselves to be mugged by the facts.

I’ll wrap with my third and final observation. The topic is one of sadness.

I’ve been around this industry and company for 32 years now. I’ve seen a free market driven, innovative, and entrepreneurial movement that disrupted the world with the shale revolution. I’ve witnessed the establishment of an energy powerhouse with the United States and energy independence if we want it. I’ve experienced vastly improved quality of life and revival of the middle class in an improved environment, including lower carbon intensity for my lifelong home of Appalachia as it retooled itself to take advantage of the shale revolution. And I’ve worked for a company that completely transformed from exclusively coal to now best-in-breed natural gas and midstream. And I’ve worked with people, of course, who care and who excel and who achieve, and who are compensated at the very best levels to be found in any industry.

So, CNX today is strong, vibrant, and secure. When you look at its future path, the opportunities are mind-boggling, from our developing exciting emerging technologies to what we should deliver on shareholder per share value.

Yet my emotion in 2022, as I said, is that of sadness, because much of what ails this nation and world did not have to be. Putin did not have to be enabled. Ukraine did not need to be destroyed. Americans didn’t need their households to be robbed by the thief known as inflation. And our energy security and our grid reliability, whether it’s Texas, California or Europe, none of them needed to be compromised. Yet, all of this happened, and it continues to run rampant, and it’s going to get worse, potentially much worse.

Putin did not have to be enabled. Ukraine did not need to be destroyed. Americans didn’t need their households to be robbed by the thief known as inflation. And our energy security and our grid reliability, whether it’s Texas, California or Europe, none of them needed to be compromised.

Why? Because the full potential of the American energy industry to unleash prosperity domestically and abroad, it’s been deliberately handcuffed. Energy scarcity has been manufactured by policy design. These industries were not allowed to become victims of their own success by providing more supply of our widgets, so that not only infrastructure and demand grew, but so that supply and demand would balance, so the prices can moderate, so the dictators don’t hold the free world hostage.

The current state of our energy industry, economy, and geopolitical standing are not healthy. Until the health of those improve, we’re all going to pay the price. It’s just a question as to what extent. This didn’t have to be. How long shall we continue to tolerate it?

The good news is the Appalachian region has the resources, know-how, and work ethic to be the fountainhead, or the catalyst, of the modern energy and manufacturing industries. We can be a center for skilled labor job creation to help pave a path to middle class access to the region’s underserved rural and urban communities. The only thing preventing this from happening is a collective willingness to embrace data and facts over politics and ideology.

We should embrace the assets, and the workforce, and the energy in the Appalachian region to be utilized first in this region and then far beyond. It can make western Pennsylvania, Ohio, western Virginia, or West Virginia the true energy capital of the world by developing and utilizing homegrown resources to build a local energy ecosystem that will cultivate and sustain the middle class for the next generation.

These natural gas-based products, they’re more environmentally friendly, lower cost and will be sourced locally in the Appalachian region instead of faraway lands with extensive supply chains of carbon footprints.

This is a realistic, actionable solution for the Appalachian region that runs counter to other efforts championed by establishment organizations, or by those with ideological goals.

The final thought ties back to where we started. Despite the challenges noted in my observations, we’re going to continue to embrace our tangible, impactful and local approach to ESG, which is going to help us execute our Sustainable Business Model and deliver long-term per share value, while advocating for our industry and region. The opportunity is now to reframe and redefine the region’s energy utilization and economic strategy, and it will directly and tangibly benefit local citizens, the local environment, and the entire region. When the ‘why?’ of what we do is so compelling, our path forward is always clear.

Unsustainable: American K-12 Public Education

The quality of an American public education has been steadily eroding for years. Today, many school districts are graduating children without basic proficiency in reading, writing, math, and science. These kids enter the job market and real world unprepared and unarmed. Meanwhile, spending on K-12 public education has skyrocketed.

Taxpayers pour money into an education system that produces increasingly disappointing results. Amazingly, the embarrassing failures in public education are used as justification to throw more taxpayer dollars at special interests creating the problems.

In a world where everyone marches to the drumbeat of sustainability, our public education system has sunk into a quagmire of unsustainability.

What are this crisis’ problems, root causes, and solutions? Although the situation is complex, the major drivers are quite simple. Covid and the self-induced shutdown of our schools exacerbated and exposed these drivers for all to see, making them more obvious. Ignoring them surrenders our kids’ futures.

Stakeholders and Their Interests

To properly understand the problems and root causes, and to identify solutions, understanding the stakeholders is key. They are:

  • Students, parents, and taxpayers. These are, in theory, the public education system’s customers. Kids need to be taught basic skills, parents desire good outcomes for their children’s education, and taxpayers pay for all of it. If our public education system fails, all three lose.
  • Good educators. Motivated teachers are one of the most powerful assets in a free market economy, providing a multiplier effect on value creation as they develop productive doers. Great instructors deserve and want recognized through merit pay and professional advancement.
  • Bad educators. Like any professional occupation, there are both good- and poor-performing teachers. A poor performer not interested in improving seeks to continue collecting a paycheck and wants to avoid accountability.
  • Teachers’ unions. Public unions, unlike private sector unions, should be viewed with skepticism since collective bargaining and strikes harm the citizenry that the government worker pledged to protect. The public union is most interested in preserving and growing its power, in the form of increasing dues and membership. Rewarding great educators, classroom meritocracy, and academic proficiency are secondary considerations. That’s why studies struggle to find a correlation between teacher unionization and improved student outcomes.
  • School administrators. Administrators, conceptually, sit in between the teachers’ union, teachers, and customers (students, parents, and taxpayers) to create balance and a quality education. Instead, administrators often focus on using bureaucracy to justify more influence, grow staffing, and increase budgets.
  • Politicians. Public officials are elected by the customers of the public education system: parents and taxpayers. But politicians often fail to serve those who they supposedly answer to. Instead, politicians are increasingly influenced by what their true bosses, public unions, demand from them: a system that shrouds transparency, shirks accountability, is fed more money, and limits customer choice.

The Problems

You can’t identify root causes until you recognize the problems. Unfortunately, the problems are obvious and serious.

  • Increasing and alarming numbers of kids are matriculating through public schools despite lack of basic proficiency in reading, writing, math, and science. Schools are failing in their most fundamental duty: to teach students.
  • Urban and rural school districts are especially susceptible to not fulfilling their duty to students. That means the poorest and most economically disadvantaged communities suffer the most severe consequences.
  • Teachers’ unions secure work rules where teachers are all treated the same, as if they were a commodity instead of a profession.
  • The best educators are not recognized nor compensated fairly.
  • It is far too easy for poor performing teachers to skirt accountability, with the system allowing them to remain entrenched for decades.
  • School choice options for parents and students are too limited, particularly in poor performing school districts.
  • Teachers’ unions willingly use threat of strike to disrupt learning and students’ educational paths, if it helps secure more money for pensions, adding of non-teaching staff, and more favorable work rules.
  • Too small of a fraction of each dollar poured into public school districts ends up in the pockets of active teachers or to hire more teachers.

The Root Causes

What are the root causes of these major problems?

  • Community-wide problems, such as lack of economic inclusion, often adversely influence public education outcomes and student proficiency. Solving such problems is beyond the scope of this discussion, and we touched upon some of them in a prior commentary [Teens and Avoiding Poverty: Three Simple Yet Challenging Rules]. Yet addressing the other root causes below will place families and school districts in our more challenged urban and rural communities in better position to succeed.
  • Public unions, including teachers’ unions, pose a massive, cyclical conflict of interest. Teachers’ unions collect dues from member teachers, the unions use dues to fund the political campaigns of politicians (legislators and elected judges) in their districts, the elected politicians then appoint administrators to manage school districts, and collective bargaining agreements are negotiated by the trio of teachers’ union-administrators-politicians that favor the teachers’ union priorities over those of students, parents, and taxpayers. Repeat for the next contract and election cycles.
  • Teachers’ unions exist without any current teacher ever having voted to form the union in the first place. Only one percent of teachers in Florida’s ten largest school districts were on the job when those districts voted to unionize. The New York City public school system teachers’ union, the United Federation of Teachers, was created in 1960, meaning no one out of the over 100,000 current teachers in the union ever voted to create it. Most public school teachers had a union forced on them from day one of their careers. This is institutionalized conscription of public schoolteachers, districts, and the students they serve in the form of a perpetual public union.
  • Most collective bargaining agreements impose a system whereby marginal teachers can continue teaching without improvement for decades and excellent teachers enjoy little upside in the form of professional advancement and pay. Frustrated parents and exceptional teachers may feel as if the system was designed to protect the poor teacher.
  • The teachers’ union top priority is securing more dues and higher membership. Student proficiency, school choice, and teacher accountability are distant, secondary concerns. When there is conflict between the top priority and lesser priorities, the teachers’ union will choose the former at the expense of the latter. That’s a big reason why students who matriculate the full twelve years through a school district with mandatory collective bargaining end up on average earning less, having jobs requiring lower skills, and being more likely to be unemployed than fellow students in school districts who did not have statutorily mandated collective bargaining.
  • A growing share of “investment” in education is allocated under collective bargaining agreements to fund underwater and out-of-market pensions for retirees and to grow staffing of non-teaching personnel. The rate of increase is alarming: over 14% of education spending in 2018 was to cover pension costs, compared to only 7.5% in 2001. The Los Angeles Unified School District has seen pension costs more than double since 2014. In West Virginia, student enrollment fell 12% from 1992 to 2014 as non-teaching staff increased 10%, and in Kentucky over the same period non-teaching staff grew over six times as fast as student enrollment.

Solutions to Make the Unsustainable Sustainable

The K-12 public education system is unsustainable and in terminal decline. Yet a few simple reforms would drastically improve the situation for students, parents, taxpayers, and great educators.

  • States should enact statutes that require teachers’ unions to stand periodically for recertification, allowing active teachers to make their own decisions as to whether they desire union representation.
  • Politicians and administrators should prioritize within school district budgets active teacher salaries and student-teacher ratios (meaning new teacher hires) over pensions, retiree healthcare, and hiring of non-teaching staff.
  • Collective bargaining agreements and administrators must clearly define measurable performance criteria for student proficiency levels in reading, writing, math, and science. If those proficiency levels are not met, it should trigger preestablished corrective actions to ensure accountability and to protect students.
  • A true meritocracy should be instituted when setting teacher merit increases, promotions, and advancement opportunities. The best teacher in a school should earn substantially more than the poorest performer. The best should advance to more responsibility and opportunity while the worst should be considered for removal in lieu of improvement.
  • School choice should be encouraged via policy and be an option for students and parents, particularly in school districts that post poor student proficiency levels. If public education is not serving the customers with the quality product that the customer paid for, the customers should be free to take their business elsewhere.

Although these simple reforms would drastically improve the lives of countless children, accomplishing the reforms will require long, brutal campaigns on a state-by-state and school district-by-school district basis.

Yet we would be hard-pressed to find a more worthy fight.