Advocates of the Environmental, Social, and Governance (ESG) movement urge shareholders and corporations to look beyond the bottom line toward a better world. But the movement is not succeeding in that aim when — often through government-backed initiatives — ESG-style policies make it harder to feed the planet.
Source: National Review
Specifically, pressure from the eco-lobby (which encompasses ESG thinking, which it influences and is in turn influenced by) against both the exploration of natural gas and the manufacture and use of synthetic chemicals has complicated the acquisition and use of effective fertilizers in farming.
Tragic events in Sri Lanka and tumultuous events in Europe — perfect case studies demonstrating some of the consequences of ESG-friendly policies — foreshadow what could happen if ESG and the mandates it has spawned aren’t curtailed.
Fertilizer isn’t sexy, and that’s one reason why, so far, it hasn’t been part of the front-line battles over environmental policies in the U.S. Gas stoves and gasoline-powered cars — similarly under threat from Green New Deal–style regulation at the state and federal level — are more visible and better-loved. “Most people don’t think about fertilizer,” writes Alex Fitzsimmons in the Atlantic, “but few innovations are as central to modern life.”
Fertilizer supplies nutrients to make plants grow. For centuries, fertilizer was made from composted food waste and human and animal manure. Agriculturalists made various improvements to these methods — including crop rotation to delay the depletion of nutrients in the soil — but farmers still generally couldn’t supply food for a substantial increase in population without acquiring more land.
The creation of synthetic fertilizer in the early 20th century changed all this. In 1909, German chemist Fritz Haber developed a process to turn nitrogen in the atmosphere into ammonia by combining nitrogen with fossil fuels under high pressure. When exploration methods for natural gas improved, it became the choice fuel material and is today the key fuel in 70 percent of synthetic fertilizers in use across the world.
Synthetic fertilizers enabled greater food production with less land, proving the adage of the late economist Julian Simon that human ingenuity is the “ultimate resource.” In the 1960s and 1970s, doomsayers predicted mass famines because of increases in population in developing countries such as India. But Simon, pointing to advances in the manufacture of synthetic fertilizer and other agricultural innovations, disputed this, making a famous bet with leading population “expert” Paul Ehrlich that natural resource prices on average would fall. Simon won his bet, and the mass famines predicted in countries like India failed to materialize. Synthetic fertilizers helped fuel the “Green Revolution,” the farming phenomenon that sent global agricultural output skyrocketing and food prices falling from the 1960s to the 1980s. India became a net exporter of food grains in the 1990s.
Yet Simon warned in his 1996 book, The Ultimate Resource 2, that ill-conceived government policies could cut off this progress in feeding the world and lead to disastrous consequences. “Though a ‘simpler way of life’ has an appeal for some, it can have a surprisingly high economic cost,” Simon wrote. He pointed out that one calculation found that if U.S. farmers were to forswear modern “tractors and fertilizers to ‘save energy’ and natural resources,” they would require 180 million additional acres of cropland to sustain current output, about half of the cropland now in cultivation.
Unfortunately, the hypothetical abandonment of synthetic fertilizer became a reality in Sri Lanka in recent years with tragic results. In April 2021, Sri Lankan president Gotabaya Rajapaksa banned the import and use of chemical fertilizers and pesticides in farming. Almost overnight, farmers had to go back to relying solely on the composting and manure fertilizers that existed before the Haber process was created more than 100 years ago.
According to the Daily Caller, “The move was part of Sri Lanka’s effort to pursue environmental, social and governance (ESG) goals.” Sri Lanka had signed onto a “green finance taxonomy” agreement with the International Finance Corporation of the World Bank — which doles out aid to Sri Lanka and other developing nations — in which it pledged to move away from synthetic fertilizers.
The consequences were immediate and disastrous. According to the Guardian, harvests of crops fell by 50 percent for many farmers. This massive decline in crop yields led to a severe food shortage, with prices for food soaring by 80 percent. The Guardian reported that “several farmers” told the publication that “last season they barely sold any of the rice or vegetables they cultivated, instead keeping it just for their own consumption to ensure their family wouldn’t go starving.”
A few months after the fertilizer ban’s disastrous results, hunger-driven riots led Rajapaksa to resign from office and flee the country. In November 2021, the government lifted the ban, but Sri Lanka still hasn’t fully recovered, and fertilizer is still scarce. Food prices continued to rise annually by 30 percent after the fertilizer ban.
ESG-like policies have also caused harm in Europe. While the situation is nowhere near as dire as in Sri Lanka, fertilizer availability in Europe has fallen sharply over the past few years, causing food prices to rise. Part of this is due to mandates on farmers such as the plan to reduce nitrogen emissions implemented by the government of the Netherlands that would sharply decrease the amount of synthetic fertilizer that Dutch farmers could use, shrinking their livestock herds, and so on. The plan is justified by its supporters as necessary to achieve a European Union directive, but opponents and observers say the plan exceeds EU rules. By the Dutch government’s own estimates — as reported by BBC — the plan would put 11,200 of its farmers out of business. This has resulted in large demonstrations by farmers opposed to the plan and the election of more opponents in the legislature of the Netherlands — but so far, there have been no significant changes to the plan.
The biggest threat to synthetic-fertilizer supply across the European continent comes from crackdowns on fossil fuels. Several European Union nations banned fracking for oil and natural gas, mandated publicly traded companies to disclose fossil-fuel use, and pressured banks to cut off lending for fossil-fuel projects. Combined with Russian gas exports to Europe plummeting by 75 percent after Russia was sanctioned for the invasion of Ukraine, these policies led to the “perfect storm” for a price spike of fossil fuels.
While this is most visible in the higher prices European consumers and businesses now must pay for energy, it also harmed European fertilizer manufacturers. Major fertilizer plants in Europe have closed, or their existence is threatened, because they lack access to affordable natural gas needed to make synthetic fertilizer. The lack of fertilizer, in turn, is a factor contributing to sharp increases in the price of European food.
Yet there is hope. Human ingenuity once again proves to be, in Julian Simon’s terms, the ultimate resource. U.S. energy producers ignited a revolution in energy production through the development of fracking to find and extract more oil and natural gas, and improvements in the processing of liquified natural gas (LNG) have made it much easier to distribute and export gas.
European entrepreneurs are syncing up with American innovation even as their governments may lag. The Switzerland-based MET Group, for instance, is helping fill a void in the European continent by distributing liquefied natural gas (LNG) sourced from the U.S. and Europe. It is now seeking to acquire the majority shares of Lithuanian-based fertilizer producer Achema Group and use the MET Group’s know-how in acquiring natural gas and LNG to ensure a steady supply for the fertilizer plants.
In an interview with this author in Washington, D.C., shortly after he attended the Gastech Exhibition and Conference in Houston, MET Group CEO Benjamin Lakatos explained that this vertical integration of natural-gas distribution and fertilizer production would create many more efficiencies, including energy conservation through logistics management that cuts down on transportation costs. “We are trying to implement new operations and trading strategies for the joint optimization of the two value chains. We believe if we could optimize the logistics and the related price management of natural gas and the fertilizer industries, we could have a more competitive fertilizer [sector] in the EU.”
MET has a renewables division, and Lakatos believes the sector holds promise, but he also takes a practical view of its limitations. Referring to wind and solar, Lakatos says, “When the wind is not blowing, the sun is not shining, my refrigerator would not turn on in Switzerland,” He is hopeful that the regulatory climate in the U.S. and Europe will become more nuanced when it comes to policies affecting fertilizers. “We have to eat, right?”
At the same time, innovation is underway to make fertilizer more efficient, precise, and effective. However, ESG advocates who still believe their tactics lead to a better world should take a hard look at the harmful and tragic effects of their actions on fertilizer and the food supply across the world.