Question: How is our portfolio going to be impacted by the transition to new “greener” energy sources? (VK: I rephrased the question.)
Answer: The transition to “green” energy will be rocky, expensive, and not-so-green – our CO2 emissions will likely go on rising. The beauty of being in my seat: IMA clients are not paying me for political views or political correctness. I am getting paid for pragmatism. Let me make this point clear – I want clean air and I don’t want temperatures to rise. Really, my coworkers at IMA put a parka on when they come into my 65 degree overly-air-conditioned office. Spending the formative years of my life in Murmansk, a city located above the Arctic Circle, where the ground was permafrost, must have rewritten my DNA. As you can see, I have personal reasons not to be a fan of global warming. I also very much want to leave a better planet for future generations.
Now that I have hopefully convinced you that “Big Oil” is not my middle name, let’s discuss a topic that should not be politically sensitive but somehow is – energy.
Solar and wind are not good sole sources of energy – they are intermittent, relying on the kindness of Mother Nature, who is temperamental and not always kind. To compensate for this weakness in our green sources, when Mother Nature takes a break, we need either cheap and ample batteries (we have neither), or to turn on peak demand power plants that run on natural gas (if we are lucky) or coal.
Being rich has allowed us to develop what some call “luxury beliefs” – ideas and beliefs that make us feel good about ourselves but that horribly fail upon contact with objective reality. We ignore inconvenient truths about our green energy weaknesses and keep marching on, trying to convert an even larger portion of our economy to wind and solar power.
The US is not the only country that is inhibited by luxury beliefs. Take Germany for instance. After Japan’s Fukushima incident, it gave up nuclear and went “green.” Except that “green” was anything but. Germany’s CO2 emissions went up and so did its electricity prices. Yes, the coal-fired peak power plants that Germany uses to provide electricity on the days when the wind doesn’t blow or the sun doesn’t shine are more expensive and produce more greenhouse gasses than nuclear power plants. Another example, just a few months ago, electricity prices in Europe skyrocketed because (I kid you not), the wind stopped blowing in the North Sea.
When it comes to power generation, luxury beliefs are dangerous. Electricity is anything but a luxury; it is a necessity. In addition to powering the internet, which allows us to watch cat videos on Facebook, it is what separates our society from our ancestors in the Stone Age. As we keep decommissioning nuclear power plants and going “green,” in the end we’ll go “brown” as our CO2 levels mount, or in the worst case it will simply be lights out as we are forced to ration power.
China is not as rich as we are and struggles with horrendous air pollution which must be killing tens of thousands of people a year. China cannot afford luxury beliefs; it is pragmatic. It has announced that it will be building 150 (!) nuclear power plants over the next twenty years.
Still, I am optimistic about future greener, more stable sources of energy. Billions of dollars are being poured into research and development of alternatives to fossil fuels. Just as we have seen with Covid vaccines, if incentives are high enough, scientists and entrepreneurs make great efforts and success follows. This is the beauty of capitalism. Unfortunately, for the short run, and fortunately, for the long run, there is a good chance these incentives will only become greater over the next few years, as energy costs globally are likely to skyrocket.
Doubling or tripling electricity bills and $6-9 gas prices will bring pragmatism back and divorce us from luxury beliefs in solar and wind. I have a hunch higher energy price will trigger more politicians calling for FTC investigations into utilities and energy companies. Politicians know the true cause of high energy costs: the capital cycle (low oil and natural gas prices result in less exploration and production of oil) and their own policies (throwing sticks in the wheels of energy and pipeline companies, decommissioning nuclear power plants, doubling down on wind and solar). Politicians will deflect their responsibility onto “evil big oil.” I really don’t want to come back in my next life as an oil company – I am damned if I produce and damned if I don’t.
These are my thoughts on investing during climate change – in the short run we’ll most likely have higher energy prices, which in the future will bring us more truly green energy.
Key takeaways
- Green energy sources like solar and wind are intermittent, requiring backup from fossil fuel plants or expensive battery storage, which complicates the transition away from traditional energy sources.
- The push for green energy has led to some “luxury beliefs” in wealthy nations, ignoring inconvenient truths about the current limitations of renewable energy technologies.
- Germany’s experience with green energy shows that hastily abandoning nuclear power can lead to increased CO2 emissions and higher electricity prices, contrary to environmental goals.
- China’s pragmatic approach to energy, including plans for 150 new nuclear power plants, contrasts with the luxury beliefs driving green energy policies in some Western countries.
- While I’m optimistic about future greener energy sources, the transition will likely be rocky and expensive, potentially leading to higher energy costs that may ultimately spur more pragmatic approaches to green energy development.
Enjoyed your article. I have been looking for a good entry point for investing in nuclear power. Three companies are on my list.
My wife and I were going to watch the 2004 Phantom of the Opera and got sidetracked watching the 1978 version of Death on the Nile. I’m not particularly interested in musicals, but the Phantom trailer looked interesting. Maybe next weekend.
Here in the Pacific Northwest we are fortunate to have Hydro Power. It is constant and cheap. It would be cheaper if the surrounding states would be more conservative and not drain our sourses. I cringe everytime I see a windmill going up the Columbia Gorge, Because I know for a fact that they cannot even support them selves. ( continuous breakdowns, and parts that are unavailable.) I know because I have dealt with the local farmers who were sold a bill of goods. The Government said they will receive X number of dollars for the use of their land. But did not say that that money would only come when the Windmills were in operation. And that’s not very often due to breakdowns. So to keep up the power they say they need they have to build new ones. Without the Government subsidies these albatrosses would not even exist. and in 20 years all you will see down Hwy 97 from Biggs Juction South to Grass Valley will be a bunch of partly dismantled or totally vacant cement pads taking up large portions of Farmers fields. And solar might be ok for homes, but not to power a city, there is no way to store the energy they might over produce. The Ganola Heads here had the TROJAN NUCLEAR PLANT Dismantled. it was by far the best solution to our power needs. And with Hydro Power being second, We had the power needs taken care of. California and the rest of the country needs to have Nuclear Power. Talk about being Green.
People love to claim the science behind climate but seem to leave out the engineering effort needed to make it work. Engineers need tons of money to make things work. Also lots of time. We need to make a career out of it.
SMR with Hydrogen is the path to the Hydrogen Economy. It’s not going to happen overnight, but it fits with electrification and CO2 decarbonization with 3D farming. In the interim SYN-gas production with Natural gas, Hydrogen + Sabatier + Fischer Tropsche Helps. SMR Nuclear is a path to green. The initial costs are going to be huge. The long term benefit will only occur over time. Synchronicity with the Physics of the weather systems is critical. The energy systems need to be able to sustain catastrophes. Long term, technology is the only path out of these issues. Cold fusion is far off, but these types of breakthroughs could play a positive role in a transition away from hydrocarbon based energy technologies.
Hi, I was recently introduced to you by my mentor in investments and I must say that we have lots in common. However, you are quite wrong in many of your assumptions.
Assumption no 1: The “climate change” agenda is 100% a product of the scientific process.
In actuality it isn’t. Thus, the most prominent experts on the planet overtly disagree with the doom and gloom scenarios. Take for example Richard Lindzen of MIT. He basically says that CO2 is so little in the atmosphere that there’s no way it can have any countable effect on the Earth’s climate. I remind everyone (especially the person above, that CO2 is no more than 0.04% of the total volume of the atmosphere and to that minuscule amount humans contribute just a 4% to 5%, that’s it).
Moreover, the only measurable side effect of the increase of CO2 is … the greening of the planet!!!!!
Source: https://www.nasa.gov/feature/goddard/2016/carbon-dioxide-fertilization-greening-earth/ (never mind the rest of the rationalizations they make in this article, these are attempts to put weight on assumed “whys” and undermine the “whats” (happening). I concentrate on “what” is happening vs “why” it’s happening.
I have been following climate science for the past 15 years, almost daily as a hobby and I can tell you with 100% confidence that the knowledge gaps in the relative sciences are enormous (and there’s a huge mix of scientific fields that contribute to what they label as “climate science”, from computational fluid dynamics, to mathematical modelling, physics, geophysics, geology, paleontology, oceanography, atmospheric physics,etc, even astronomy).
We really don’t know very much when it comes to the contributing parameters of climate shaping.
As a matter of fact, very recently (October 2021) a breakthrough study was published in Nature’s scientific report that links solar activity to cosmic ray influx and subsequently to the ionization of the atmosphere which affects cloud formation and, as a result, the climate. This mechanism was not known/proven before this study (Svensmark et al. 2021) and it sheds light to how the Earth’s energy budget is what it is. The CO2 forcing hypothesis weakens a lot in the presence of such a revelation.
Now why do governments and politicians insist going in the path they are going (perhaps) knowingly that they can be mistaken?
In my opinion it is because they are actually centrally planning to induce inflation and, thus destroy sovereign debt (for obvious political and socioeconomic sustainability reasons). Even their political careers are going to be preserved as the movement is global and the responsibilities greatly dispersed. If everybody’s doing it, no one is to be blamed individually and a mere “Mea Culpa” could restore faith to deceived voters of the present and future.
Assumption No 2: Big Oil is an enemy of the “climate change” agenda.
They are not (and everybody can see that in their own sites and their active projects on renewables).
You are a very smart individual but for the life of me I cannot understand how someone could think that one of the most powerful lobbies on the planet (if not THE most powerful) could allow politicians to damage their core business without the powerful lobbyists having a say.
I agree with you that the energy transition realities are not exactly in favor of renewables for the reasons that you and many others (like G&R, Kopernik, Horizon Kinetics, etc) have pointed out, but Big Oil is not going to be affected at all by this agenda.
It’s already evident and it’s in the numbers.
Global oil demand keeps increasing y-o-y and it is expected to increase indefinitely as emerging markets and the third world are becoming richer (and their energy demands will certainly go up). At the same time regulators stifle or even ban small competitors of Big Oil (for example frackers in the US) and combined with a tightening in oil supply (from many reasons – as you know better than me) they are going to be taking a larger piece of the market pie when the time comes.
I read in a Cameco report that the cheapest way to store reserves is to leave them in the ground. I think that’s what Big Oil is actually doing right now (with their discovered/proven reserves – not the wells they closed down, that’s a different discussion and they might be even destroying some of these reserves in doing so) and they are going to capitalize on that when social and pricing pressures start “begging” them to extract that oil and supply it to the market.
Halliburton’s CEO said something like “It’s going to be the first time in history where the customer will be looking for a barrel of oil instead of barrels of oil looking for customers”.
In the meanwhile, regulators will be forming a moat for Big Oil’s business interests and on the side they’ll be pulling the lever of a rising inflation so as to destroy sovereign debt. A win-win for both parties (a lose-lose for the rest of us). The rising energy costs are, as you well know, a catalyst for inflation hikes as energy costs affect everything.
Lastly, a small detail, Germany’s air quality went down partly because the lignite-powered baseload generators aren’t efficient when they are cycling on and off (they are at optimal efficiency and cleaner burning when operating constantly, their startup/warmup procedures are the most polluting phases of their operation).
Thanks for your work.
You are quite right. The Stone Age didn’t end because of a shortage in the supply of stone. People found something better. Similarly, the coal age gave way to oil and gas, which are giving way to nuclear and renewable forms of energy. I hope uranium will eventually give way to thorium, which is much safer but has no military uses, and eventually to controlled nuclear fusion.
Meanwhile, greenhouse gases are wrecking our lovely planet and will harm the lives of many people who are alive today, not to mention future generations. Market forces need a helping hand in my opinion, with incentives to go green and dollar-for-dollar taxes on polluters, to redeem our generation in the nick of time.
“Meanwhile, greenhouse gases are wrecking our lovely planet and will harm the lives of many people who are alive today, not to mention future generations.”
>>That’s not true. Even per the IPCC the only observable warming in 150 years of somewhat reliable observations and data is not over 1C in average global temperatures (average global temperatures are now 1C warmer than 150 years ago meaning that of the planet’s temperature ranged from -7C to +14C not it ranges from -6C to +15C and that’s what “global warming” is all about). Note that the starting period of 150 years ago was, actually, the end of a Little Ice Age which was the coldest period in 10000 years! It is absolutely expected to get warmer in relation to that period. In the meanwhile all that the higher CO2 does is . . . greening the planet.
https://www.nasa.gov/feature/goddard/2016/carbon-dioxide-fertilization-greening-earth
The agenda is political.
* “average global temperatures are now 1C warmer than 150 years ago meaning that if the planet’s temperature ranged from -7C to +14C now it ranges from -6C to +15C and that’s what “global warming” is all about” corrected a few spelling errors in the above comment.
Wait — this all? “Still, I am optimistic about future greener, more stable sources of energy. Billions of dollars are being poured into research and development of alternatives to fossil fuels.” Maybe just clickbait with the title saying “won’t be forever?” I’m sure that you have more to share than this statement — or I missed it. Is there a continuation of the article? Thanks for sharing more!