When did it become cool to criticise net zero? After spending most of February and March writing an unexpectedly large report on the implausible energy transition we’re legally committed to, I went on holiday to Sydney, Australia for a rest… only to get an endless barrage of net zero scepticism thrown at me from all angles.
I couldn’t pick up a newspaper without reading about how, “Net Zero fanaticism is dragging us back to the Dark Ages”.
I couldn’t look at my Twitter feed without seeing hilarious memes about Germany demolishing wind turbines to mine for the coal underneath.
Facebook showed me diesel generators being used to charge electric cars.
When I turned on the hire car’s radio, I heard the former boss of Australia’s largest renewable energy project describing the Australian government’s 80% renewables target by 2030 as “bulls—t”! And they didn’t even censor the swearword, let alone the content.
The books on my Amazon account are full of net zero critical titles.
YouTube is showing me videos about net zero which I didn’t think were permitted by the censors.
My friend with whom we stayed in Sydney had recently worked on a wind farm project. He told me about the inability of renewable energy projects to connect to the grid. In the UK, the Financial Times reports, it can take ten years, which is half the life of a wind turbine…
I’ve never seen a swing in the media quite like it. We’ve gone from fanatical climate change zealotry to taking pot shots at those who invested time and money into reducing pollution in perfectly reasonable ways.
It’s not like renewables are inherently a bad idea everywhere and always. Anyone who has been to Japan in winter can agree that insulation is a good idea. (They heat their toilet seats and dining tables for a reason.)
Financial market prices can shift just as fast as public opinion, of course. Just hours after Jerome Powell of the Federal Reserve declared the banking crisis over, it made a dramatic comeback with another bank’s share price falling 50%.
So, what are the investment implications of net zero becoming a public punching bag? At first sight, they are fairly obvious…
At the moment, or at least until recently, investors were clamouring for the companies that’ll make our net zero future happen.
Given China’s stranglehold on much of the net zero industry, that basically means certain resources. Lithium, nickel, copper and plenty more would be in extreme demand if we make a decent attempt at net zero. Which, I had thought, was a given.
Ironically, because mining is energy and emissions intensive, as well as ruining the environment, the climate change movement constrained the supply of those metals that were needed to make net zero plausible.
But this just increases the size of the investment opportunity for those stocks that do have the resources needed. If supply cannot adjust and has been constrained by regulation, then the price spike in those commodities will only be larger and the returns greater for those companies that have the goods.
Fine. But what if the net zero campaign is already wobbling, as the media coverage suggests?
Does this mean a scramble back to fossil fuels is already on?
Perhaps, although I don’t see governments admitting their net zero commitments aren’t plausible just yet. Indeed, politicians are usually the last to know when the public has turned on them and their crazy schemes.
So, renewables may have some time to run yet.
Perhaps there’s a better way to look at the question.
A simplification of the idea I’m discussing looks something like this: at some point, as the world realises that its net zero commitments are not plausible, it will transition back to fossil fuels. That is, far more fossil fuels than expected will be demanded because the renewables campaign is struggling to deliver the power we need to fuel our standard of living.
At this point of reckoning, investors should pivot from renewable resources back to fossil fuels too. Because they’ll boom unexpectedly.
But move too early and you risk missing out on the renewables resources boom, and being the target of continuing government attempts to strangle the fossil fuel industry.
So it’s a question of when to make the energy transition in your portfolio.
Ideally, at the end of 2021. That’s when the green energy bubble popped and coal and oil dominated the market for a year.
But time travel is probably very energy intensive and therefore expensive and bad for the environment. And that year was likely just a proof of concept. Think of it as a prototype for the next few years’ investment strategy as we attempt to reach net zero, fail miserably because of resource shortages, and then transition back to fossil fuels.
The 2022 drama was partly triggered by the invasion of Ukraine, which caused an energy supply shortage. Well, the sanctions in response did.
But doesn’t a fossil fuel shortage sound like a rather similar scenario to net zero if renewable energy cannot be built because of resource shortages?
The UK’s FIRES group, which is a collaboration of universities, estimates that, if cost-effective carbon capture technologies do not emerge soon, the UK could lose 75% of its energy supply under net zero commitments. Combine this with electrification and you get a really big shortage of energy.
Unfortunately, so far, the FIRES group has overestimated the ability of the UK to roll out renewable energy. The government’s presumptions about how much energy will be rolled out in the future are just as implausible according to FIRES.
There is no possibility of this level of energy infrastructure being built by 2035, and if anything approaching this rate of construction is to happen beyond then, the public financing commitment needs to be made right now, before the next election.
We haven’t heard it mentioned.
In other words, the government is presuming the renewable energy needed will be there. But this presumption is getting ever more precarious the longer it doesn’t happen.
So, here’s my conclusion if you’re pondering when to transition your portfolio from renewables to fossil fuels…
We appear to face a choice between an energy transition back to fossil fuels and a nearly impossible ramp up of renewable energy.
But, given the climate change motivated constraints put on both mining for the resources needed to build renewable energy infrastructure, and the supply of fossil fuels, if we want to keep the lights on, we’ll likely have to scramble for both fossil fuels and renewables in equally dramatic fashion.
Investors should be positioned to profit from both.
The energy transition you need to focus on is one from power shortages to any sufficient power supply at all.
Editor, Fortune & Freedom
PS There is an argument for every form of investment, from cryptocurrencies to green energy. But it’s not always a good idea to take on more risk when it comes to retirement planning. Which is why, on Friday, we want to introduce you to a different sort of opportunity.
I believe that, when you see how it works – and see the potential effect it could have on your retirement planning – you’ll agree that it is a very sensible approach to boosting your capital. Keep an eye on your inbox this week to learn more.