The charts below are from the International Energy Agency’s fantastic “Net Zero by 2050” report. The sheer breadth, depth, and work in the report boggles the mind. Designed to “…inform the high-level negotiations that will take place at the 26th Conference of the Parties (COP26) of the United Nations Climate Change Framework Convention … in November,” it offers a global pathway to net-zero carbon global emissions by 2050.

We are stunned and grateful for the countless people who toiled to assemble such a remarkable piece of research. We are equally concerned that its message is being misunderstood. We believe it has been used as fuel for the “peak oil demand” view that has become ever more popular since the emergence of Covid. While offering a path to decarbonization, in our view, the report shows just how far we are from actually hitting net-zero targets.

The KCR research team includes a collection of people who are attempting to raise nearly a dozen children. These children range in age from 2 to 17 years of age. Like many parents, we are concerned for their future. Climate change is not something we take lightly. This piece is just what we learned reading the research.

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We hope our work shows that peak oil DEMAND requires a set of unlikely assumptions. We have been consistent in stating that we are not energy experts, far from it.

In a recent CFTC, we showed how “Magazine Covers” had done a remarkable job being a contrarian indicator and was flagging us that oil was a “buy.” In that piece, we discussed how we thought people were over-extrapolating the demand shock from Covid.

Below is the chart from the IEA’s report showing a huge collapse in oil demand. We will do our best to briefly walk through how the IEA gets to these estimates in just a few pages. Summarily our view is that “peak oil demand” views take too much for granted. Further shocks from a resurgent Delta virus will only exacerbate what we believe may be a material shortage of oil supply.

Total Energy Supply in the NZE shows oil demand collapsing

The International Energy Agency: Take-Aways from “Net-Zero by 2050” (NZE Scenario)

The KCR research team is, once again, going to pound the table: we are not energy experts. What follows is our take on the IEA’s “Net Zero 2050” report. We believe advocates of the end of energy causing greenhouse gas emissions, while well-intentioned, may be missing a bigger and more alarming message.

In KCR’s view, the report is designed to say “what people claim to want is possible but immensely challenging” and in no way represents a report heralding the end of oil.

That is just our view, and we will explain why by


That is just our view, and we will explain why by quoting from their report around a few of their charts. For starters, they are not exactly shy about voicing reservations around the assumptions in the NZE report. On page 3 they describe the path to Net Zero as “…narrow and extremely challenging…” with the report setting out over 400 milestones necessary for their low-carbon, climate-neutral path to work.

  1. As a reminder for our Financial Advisors: our models are available on a continuous basis, and most have been in production for over a decade.  If you are looking for simple, concentrated, low turnover, and tax efficient model portfolios we would like to talk with you.  KCR also offers a wide range of easy-to-use but sophisticated tools.  Our toolkits can help identify mispriced stocks with the best and worst risk/reward characteristics, estimate a stock’s duration and warn you when a company is engaging in low-quality accounting. Over the last 12 years, KCR has built and offers time-tested and class-leading products built by experienced and proven money managers for fixed to low prices.
  2. Kailash Capital’s sister company, L2 Asset Management, runs market neutral, long/short, large-cap, and mid-cap long-only portfolios with a value and quality bias.  L2 employs a highly disciplined investment process characterized by moderate concentration, low turnover, high tax efficiency, and low fees. While nobody can predict the future, we believe the recent resurgence in risk-adjusted returns seen across all products is the beginning of what may be a long period where speculation is punished, and prudence and patience rewarded.
The topics discussed in this article are aimed at seasoned professionals, as such, we have included some extra for anyone seeking out more information related to the topics above.

[1] Page 13

[2] Page 14

[3] Page 15

[4] Page 17

[5] Page 21

[6] Page 22

[7] Page 24

[8] Page 29

[9] Page 37

[10] Page 37

[11] Please read section 1.3 of page 36 for much more granular detail

[12] Page 18

[13] Page 40 population and economic growth are the same in STEPS and APC

[14] Page 47 and Page 200, population growth in the NZE scenario also increases by 2 billion people

[15] Page 36, “…the global average surface temperature rise would be around +2.7 degrees Celsius in 2100 (with 50% probability).”

[16] Page 31 and Page 40 uses “pledges” and “targets” to describe the APC

[17] Page 32, further note – of these countries only 10 have made it a legal obligation, and these 10 appear to account for < 10% of CO2, Fig 1.1

[18] Page 34

[19] Page 43

[20] Page 44

[21] There is nothing basic about the research that went into this tremendous endeavor

[22] Page 71

[23] Page 71

[24] Page 84-85

[25] Page 86

[26] Forbes, December 4, 2020, Peak Oil Demand, Really? Some Lessons From the Debate Over Peak Supply

[27] US Energy Information Administration, Annual Energy Outlook 2021, page 2

[28] KCR does NOT have any relationship with Goehring & Rozencwajg, we simply found the their research superb, h/t AN

[29] Goehring & Rozencwajg, The Problem with Copper Supply, page 14

[30] Goehring & Rozencwajg, The IEA Ushers in the Coming Oil Crisis, page 2

[31] Goehring & Rozencwajg, Ignoring Energy Transition Realities, page 6


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September 22, 2021 |

Categories: Quick Takes

September 22, 2021

Categories: Quick Takes

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