Your Energy Investment Action Plan

Your Energy Investment Action Plan

Today we continue from last Wednesday’s DR.

 1. The climate is changing. It always has and it always will. There’s plenty of room to disagree with the climate alarmists without falling into the trap of being a ‘climate change denier’. Yes, climate changes, but it’s a slow process and quite complex. What’s needed is observation and experimentation, not hysteria.Having reviewed unsettled real science (as opposed to ‘The Science’ that the elites wrongly claim is settled), what conclusions can we draw? Here’s a summary you can use to guide your own analysis and investment decision-making:

2. Carbon emissions are increasing. These emissions consist mainly (not exclusively) of carbon dioxide (CO2) and methane (CH4). The quantity is small relative to the composition of the atmosphere, but the reflective heat-trapping qualities of carbon dioxide and methane are significant. CO2 alone accounts for 7% of the atmosphere’s heat-trapping capacity. The CO2 concentration has increased from 280 parts per million (ppm) in 1750 to 410 ppm today. Still, most of that increase occurred before significant consumption of oil and gas and most of the increase is from natural causes. So humans are contributing to carbon emissions, but they are not the sole source and the impact on total warming is unclear.

3. Sea levels are rising. This is true, but they have been rising for hundreds of years at about the same pace and there’s no evidence for an impact of global warming on sea levels. The current pace is about seven inches per century. That’s far from an existential threat and, no, cities will not be underwater.

4. Solar modules and wind turbines can contribute renewable energy to the grid to reduce carbon emissions. Yet, they are not a substitute for oil and gas. They are intermittent sources and therefore unreliable. Battery storage is too expensive and causes its own increase in the use of poisonous chemicals. Even as solar and wind capacity increase, global demand for energy will increase faster. EVs have limited range and charge with electricity provided by oil, gas, and coal, and therefore do not reduce overall emissions. EVs are not an answer to climate change.

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Far from the hysterical claims of climate alarmists, the prospect for climate change is straightforward. Climate change will continue despite efforts to reduce emissions. Wind and solar power will grow, but they will not replace oil and gas. The more extreme remedies of the climate alarmists such as global carbon taxes, caps on carbon emissions, and a ban on oil and gas exploration and development will fail because they lack popular support and are not even necessary according to the best available science.

At the same time, some virtue signalling will continue to appease climate alarmists from a political perspective…so there will be costs imposed and inefficiencies locked in because of political posturing.

In the end, CO2 emissions will continue to rise, but at a slower rate. Sea levels will rise for reasons unrelated to emissions, but at such a slow rate it will not be noticeable. Average global temperatures may rise slightly for reasons that science does not fully understand. This will have almost no economic costs and may create economic benefits as certain regions become more productive in terms of agricultural output due to longer, warmer growing seasons. Hurricanes, tornados, wildfires, and droughts will continue as they have in the past, unaffected by climate change or even global warming. Life will go on.

Energy demands will grow as developed economies continue to grow in order to support ageing populations. Developing economies will grow even faster to support a huge youth cohort looking for at least a middle-income lifestyle.

This energy demand will be satisfied with a mixture of carbon-based and renewable resources:

  • Wind and solar industries will grow but their contribution will be limited by unreliability, the expense of batteries, and the laws of physics. Investors need to be wary of company dependence on government subsidies that can be scaled back or eliminated. Management is a key variable. Some projects are well-run; others are fly-by-night and will fail.
  • Growth in hydroelectric facilities will continue, but opportunities for investors are limited. Most such projects are undertaken by governments because of their enormous physical scale and time to completion. Environmental objections are another headwind to launching projects. Investor participation is often limited to bond issues. Geothermal energy sources are not attractive investments because sites are located far from urban concentrations and costs are inordinately high compared to alternatives.
  • Nuclear reactors are a feasible source of carbon-free energy. As is the case with hydroelectric facilities, most development is either conducted by government or done by private companies being paid by governments. The environmental and political objections to nuclear power are even more strident than the objections to hydroelectric. New plants may be launched, but the tempo will be slow, and the investment opportunities limited.
  • Oil and gas are not going away. They are too important, have too many embedded structural advantages, and have huge economies of scale. Once politicians and the media become more aware of the real science of climate change and distance themselves from the false science of the climate alarmists, the oil and gas industries will regain their footing. There are opportunities in beaten-down energy companies today that will rally in the years ahead as the continuing need for carbon-based energy becomes clear.

What results is a palette of choices.

Until next week…


Jim Rickards Signature

Jim Rickards,
Strategist, The Daily Reckoning Australia

PS: This content was originally published by Jim Rickards’ Strategic Intelligence Australia, a financial advisory newsletter designed to help you protect your wealth and potentially profit from unseen world events. Learn more here.