Here is our take on the articles summarized below:

The energy transition marches on. To begin our summaries this week, we examine how one of the key elements of the renewable energy shift – cobalt – has become a critical issue in the US China rivalry, with China holding the lion’s share of world supply. From there, we look at how the actions promised at the COP26 conference still fall short of the goals of the 2015 Paris agreement, though they are certainly an improvement. Finally, we close with a look at how the size of governments has ballooned over the past century, examining how economic and demographic factors have facilitated increased bureaucracy.

Race to the Future: What to Know About the Frantic Quest for Cobalt A Power Struggle Over Cobalt Rattles the Clean Energy Revolution

Eric Lipton, Dionne Searcey, and Michael Forsythe; New York Times

In 2016, American mining giant Freeport-McMoRan sold two Congolese cobalt reserves to Chinese conglomerate China Molybdenum, solidifying China’s strategic global portfolio of key natural resources. The metal is a key component of batteries, especially those used in electric vehicles; as the world pushes for electrification, Congo’s rich natural reserves of the metal will come into high demand, with the International Energy Agency forecasting a shortage by 2030. As of 2020, nearly 79% of the cobalt- producing mines in Congo were owned or financed by Chinese interests, with a nearly $124B line of credit provided by the Chinese government. In addition to owning and operating mines, China has made significant investments in Congo’s infrastructure, funding roads, schools, hospitals, and other critical infrastructure in exchange for access to ten million tons of copper and six hundred thousand tons of cobalt, an agreement totaling more than $6B worth of assets. Unfortunately, this development did not come with improvements to mining safety; though official numbers indicate a decrease of workplace injuries, interviews with safety officials reveal a pattern of bribery and intimidation intended to deflate injury tolls from the actual increases caused by more lax standards. In addition, as trespassers have made off with cobalt from these mines, the mine operators have called in the Congolese military, with one digger shot and killed. Disputes over unpaid royalties have led Congo’s government to consider forcing China Molybdenum out of a key cobalt mine. Still, China’s ties to the cobalt mining industry (and natural resource production in general) have given it a significant advantage in the race to electrification in the economy of tomorrow; the US will need to make up a great deal of ground to remain competitive and retain access to key materials.

Dancing on the Edge of Climate Disaster

Martin Wolf, Financial Times

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The United Nations Climate Conference in Glasgow last month, dubbed COP26, was “both triumph and disaster.” Nations made some significant pledges to reduce carbon emissions and reduce the pace of global warming, but the commitments fall short of what is needed “before the damage becomes unmanageable.” The Climate Action Tracker warns that global warming is set to exceed the ceiling of 1.5C by 2030 even with the full implementation of all announced targets, including net-zero targets, long-term strategies, and nationally determined contributions (NDCs). Even in this best case scenario, the world’s temperature is expected to increase 1.8C. According to data from The Climate Action Tracker, only the European Union, the United Kingdom, Costa Rica, and Chile have adequately designed net-zero targets and the current net zero commitments across the globe only cover 80% of total emissions. On the positive side, progress was made at COP26, with major climate agreements emerging between countries and organizations, including between the US and China. However, skepticism is warranted and much more needs to happen if the world is going to achieve recommended emissions reductions by 2030. The author of this article, Martin Wolf, says a more active private sector could narrow the gap. At COP26, the Glasgow Financial Alliance for Net Zero (GFANZ) was formed with the aim to “build a financial system in which every decision made takes climate change into account.” The group, which consists of the world’s largest asset managers and banks, has the potential to make a huge difference through its allocation of resources to net zero objectives and through its ability to bring together stakeholders, including governments, businesses, NGOs, civil society organizations, donors and other development organizations. GFANZ and other private sector actors will also play a major role when it comes to funding climate action in the developing world. While the world has come quite a long way from where it was even a decade ago, there is still a long way to go for both the public and private sectors. As Mr. Wolf puts it, “We need to act powerfully, credibly and quickly and, not least, we must agree to do so together.

Governments Are Not Going to Stop Getting Bigger

The Economist

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Over the last two centuries, governments have been getting bigger and bigger.

Government growth is a “hallmark of modernity”: from 1274 to 1691 the English government raised less than 2% of GDP in tax. As the 18th and 19th centuries came around, governments began spending more, expanding spending capacities and raising taxes, especially in times of war. In the 1870s, wealthier countries were spending only 10% of GDP as compared to 20% in the 1920s. Now, many developed countries are spending more than double the levels of the early 20th century. What is driving this trend? The author of this article highlights five forces: the incentives that politicians and bureaucrats face, the rising cost of government services, the demands of voters, climate action pledges, and an absence of opposition to a larger state.

First, according to public choice theory, bureaucrats have an interest in expanding their “turf” and taking on new responsibilities while politicians are often more rewarded for creating new programs than shutting old ones down. Second, a large chunk of government spending is in areas where labor productivity growth is low as lawmakers try to keep a somewhat even playing field in terms of wages. Education and healthcare are two major sectors for government spending. As people become richer, they spend more money on these “superior goods”, and if it is the government that provides these services, the government must spend more. Third, the number of women and working-class citizens who are voters has increased substantially over the last century. Political scientists argue growth in social spending is correlated with this growth in voters. Today’s voters are also more likely to be old as the demographics in the developed world shift: “Over the next 40 years the share of the total rich-world population over the age of 65 will rise by half.” According to data out of the United Kingdom, this demographic requires four times as much healthcare per person, which means spending on healthcare and social services for the elderly are destined to significantly increase in the coming years. Fourth, developed countries will be investing heavily over the next few decades to eliminate net carbon emissions and meet climate action goals. Finally, while government spending is usually associated with the political left, an increasing number of politicians on the right are happy to preserve spending on the elderly, intervene in markets, and invest in infrastructure development. The era of big government spending seems to be far from over, and according to our author, “stopping further growth of government over the coming decades will be close to impossible. The most important debates to come will be about the state’s nature, not its size.”