Tag Archives: energy markets

An Impossible Made Possible: the Green Energy Revolution

Since the cost of renewable energy can now be competitive with fossil fuels. Government, corporate and consumer interests finally seem to be aligning.  The stock market has noticed. After years of underperformance, indexes that track clean-energy stocks bottomed out in late 2018. The S&P Global Clean Energy index, which covers 30 big utilities and green-technology stocks, is now up 37% over two years, including dividends, compared with 18% for the S&P 500.

This year’s Covid crisis will delay some renewable projects, but could speed up the energy transition in other ways. Alternative-energy spending has held up much better than spending on oil and gas. Globally, clean-energy investment is now expected to account for half of total investment in the entire energy sector this year, according to UBS.  Moreover, the crisis has pushed governments to spend money, including on renewable technologies. The massive stimulus plan announced by the European Union last month is decidedly green. The German government increased electric-car subsidies as part of its pandemic-related stimulus package rather than rolling out a 2009-style “cash-for-clunkers” program. China’s plans include clean-energy incentives, too.

Solar and wind are now mature technologies that provide predictable long-term returns. Big lithium-ion batteries, such as those that power Teslas, are industrializing rapidly. More speculatively, hydrogen is a promising green fuel for hard-to-decarbonize sectors such as long-haul transport, aviation, steel and cement.  Many big companies—the likes of Royal Dutch Shell, Air Liquide and Toyota —have green initiatives worth many hundreds of millions of dollars. They are, however, a relatively small part of these large businesses, some of whose other assets may be rendered obsolete by the energy transition… Early-stage electric-truck maker Nikola jumped on its market debut this month to a valuation at one point exceeding that of Ford.

Investors might be better off looking at the established specialists in between. Vestas is the world’s leading manufacturer of wind turbines. Orsted, another Danish company, has made the transition from oil-and-gas producer to wind-energy supplier and aspires to be the first green-energy supermajor. More speculatively, Canadian company Ballard has three decades of experience making hydrogen fuel cells.

Rochelle Toplensky, Green Energy Is Finally Going Mainstream, WSJ, June 24, 2020

Markets for Natural Resources: China

A nationwide  carbon-trading scheme, to be set up in 2017, is the most visible example of a broader trend in China towards using market mechanisms in environmental matters…[A] reform plan issued by the government on September 21st, 2015  laying out the basis of future policy, talks about developing “a market system which allows economic levers to play a greater role in environmental governance”. If the plan is to be believed, China will go further than any other country in developing environmental market mechanisms.

The plan talks of selling “green” bonds, ie, those financing projects certified as environmentally sound. The government will improve financial guarantees for low-carbon projects. But those are becoming common. More fundamentally, the reform says China will separate the ownership of all natural resources from the rights to use them—and sell the usage rights at market.

This is much more radical. The idea is rooted in communist dogma, which says all natural resources—land, rivers, minerals and so on—are collectively owned. The reform plan begins by calling for a massive Domesday-like inventory of who owns what, whether central government, provincial governments or lower tiers. It then says, with utter insouciance, that “with the exception of natural resources which are ecologically important [eg, national parks], the ownership rights and use rights for all other natural resources can be separated”. And, having separated them, the usage rights can be bought and sold, rented out, used as collateral or as the basis of loan guarantees, and so on.

The carbon-trading scheme suggests what this could mean in practice. It is like a market in energy-usage rights, with the carbon treated as part of the cost of using fossil fuels. A market in water rights will also be set up. Trials will be held in Gansu and Ningxia, two north-western provinces. The plan talks cryptically of setting up a “natural resource asset exchange”.

Excerpts from Markets and the environment: Domesday scenario, Economist, Oct. 3, 2015, at 46