The renewable energy boom need not be real to be really profitable

Have you seen your free monthly issue of Zero Hour Alert yet?

We lopped off the section which mentions specific shares – what to buy and sell. But if you’re wondering what’ll happen to post-Brexit Britain, you might be surprised.

My predictions are inspired by Germany’s very own “no-deal exit”. An unapproved departure from an unelected technocratic government run by Brits and others, which had imposed overbearing regulations on the German economy.

After leaving without a deal and without giving any advance notice, the German economy boomed and quickly grew bigger than Britain’s.

Could we turn back the tables?

Find out here.

Today’s Exponential Investor questions the meaning of numbers.

Which sounds a little odd. You’d think that the meaning of numbers can’t be fudged. That’s the whole point of numbers, isn’t it?

But you’d think wrong when it comes to the world of renewable energy, pollution and climate change.

Here’s a warm-up to get you sceptical brain going, provided by the Guardian.

This chart shows, “The top 20 companies on the list have contributed to 35% of all energy-related carbon dioxide and methane worldwide, totalling 480bn tonnes of carbon dioxide equivalent (GtCO2e) since 1965”.

Source: The Guardian

Look at all those evil corporations! One alone is responsible for “4.38% of the global total on its own.”

There are plenty of things wrong with this chart and its interpretation. Which plenty of people have pointed out all over social media and blogs.

But I want to focus on the meaning of these numbers. What do they actually tell us?

The fact that certain companies are responsible for certain amounts of CO2 is completely meaningless. The information has no value.

Here’s why: let’s say Saudi Aramco was split into ten different companies of equal size. Those ten companies wouldn’t feature in the above chart any longer. And yet, the amount of future CO2 coming from Saudi Aramco’s oil wells would not change.

In other words, the chart above highlights the size of companies, not their pollution. But the size of companies in the industry has no bearing on the amount of overall pollution. Demand and usage of oil does.

Whether we have many small oil companies, or a few large ones, makes no difference to what matters about pollution and oil. Vilifying a company for being large is pointless.

In fact, it may be counterproductive for pollution protestors.

How much CO2 is emitted by the producer per unit of future CO2 pumped out of the ground is the relevant figure. The efficiency of the company’s operations. And I suspect that large companies are more efficient at getting oil out of the ground. But that’s just a guess based on the amount of private jets oil executives use. Less CEOs means less flights.

My point here isn’t about the chart. It’s about the misleading nature of the numbers. About outrage and conclusions driven by emotions that are not connected to the numbers being portrayed.

It’s a bit like the complaints about a particular company’s profits being too large. You have to adjust for the size of the company. A million-dollar profit for a corner store is not the same as for Sainsbury’s.

Splitting up Saudi Aramco into ten pieces might reduce the amount of protest directed its way, but it wouldn’t change anything else. And yet, it is the amount of CO2 from each company which protestors and the Guardian focus on. Their cause is completely misguided.

My fear is that the climate change and pollution debate is usually misdirected and misunderstood in this type of way. In all of its many aspects. And so the results are misguided too.

In the Aussie Senate, a politician recently pointed out similar examples. When comparing solar and coal power, a scientific study assumed they have the same lifetime. But solar panels have about half the lifetime of a coal power plant. To do a fair comparison, you need to double the capital expenditure of solar.

My overall conclusion is that the nature of the climate change debate is simply too pliable. Numbers and their meanings are too easily manipulated or misunderstood. The climate change movement, however valid it might actually be, is a craze.

Because of the nature of the numbers, apart from pointing out the flaws in others’ calculations and interpretations, there is simply no point engaging in this sort of debate. This email from my reader mail inbox shows how this realisation gradually breaks through even committed climate science debaters:

The bottom line is simple, the climate is very complex, but the only thing that matters here is whether adding more CO2 to the atmosphere will make the world much warmer?

Everything hinges on this one question. If Carbon Dioxide is not a significant cause, then carbon sequestration, cap-and-trade, emissions trading the Kyoto agreement and the IPCC (UN Intergovernmental Panel on Climate Change) are a waste of time and money.

These are the things that drive the trends/developments that you guys are looking at every day.

So what is the “scientific” evidence?

Remembering that true scientific evidence relies on observations made by people at some time and place. Things you can see, hold, hear and record.

In a nutshell if temperatures followed CO2 levels in the past (and they didn’t) or the atmosphere showed the characteristic heating pattern of increased greenhouse warming (and it does not) they may have some justification for this nonsense.

It gets worse the atmosphere is made up of nitrogen 78% Oxygen 21% Greenhouse gases 1% of which CO2 is one of them, various sources will tell you that CO2 has risen to a staggering 380-415 part per million, so CO2 is 0.04% of the total atmosphere. CO2 is natural element, Volcanos produce more CO2 than humans, Animal and bacteria produce 150gtons humans 6.5gtons. The oceans are the biggest producers of CO2. In conclusion CO2 produced by human activity accounts for about 12ppm of the 380-415ppm so how can such a miniscule amount influence our atmosphere/climate it is scientific impossibility.

The whole issue politically driven by world organizations (IPCC) and governmental money determined to steal our wealth so please focus on outing them as you have done with the Eurozone.

If the whole issue is politically driven, then the science doesn’t matter. So why bother arguing about the science? The numbers will persuade no one.

One way or the other, we’re going to get the green bubble – the Grubble. And the bottom line is isn’t the science of climate change. The bottom line is the bottom line – the one you’ll find in your bank account and pension balance statement.

The real question isn’t about the science. It’s about the investment angle. Should you invest in something that is a purely politically created industry?

Our energy expert James Allen got back to me about yesterday’s question. I asked about the state of the industry offering carbon offsetting/sequestering/capturing and whatever else is out there:

Be careful when you refer to carbon capture companies as opposed to carbon offset companies.

Carbon offsetting allows companies or individuals to invest in environmental projects to balance out their own carbon footprints – eg, by purchasing carbon offsets that support things like reforestation, solar energy, methane capture or a dozen other ways to reduce CO2 emissions, individuals and companies can basically balance their carbon budgets.

Helped by Greta Thunberg and her like, sales of carbon offsets are indeed skyrocketing. In fact there’s been a five-fold uptick in credits in a year – good news for those providers of offsets. The global voluntary offsetting market is now worth around $200 million a year, though there’s room for a lot of growth. For instance, airline uptake for carbon-offsetting remains below 2% on average.

Carbon capture involves trapping the carbon dioxide at its emission source, transporting it to a storage location (usually deep underground) and isolating it. This means we could potentially grab excess CO2 right from the power plant, creating greener energy.

Up to now carbon capture at scale hasn’t amounted to much (costs are prohibitive) but new “carbontech” is coming that’s going to convert CO2 emissions into marketable materials like cement or synthetic fuels. Unlike the first iterations of carbon capture, these could be viable given their potential to turn a profit.

There are now around 250 carbontech firms in North America and Europe alone, and they’ve already raised $2 billion in combined investments to capture and use carbon – even though most are years or even decades away from achieving commercial success.

It sounds like the frothy phase of the Grubble is nearing the point where you can invest.

Will you continue to argue about the science, or will you be ready to profit, however misguided it may be?

Until next time,

Nick Hubble
Editor, Southbank Investment Research

Category: Energy

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