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About Me

Darren Winters is a self made investment multi-millionaire and successful entrepreneur. Amongst
his many businesses he owns the number 1 investment training company in the UK and Europe.
This company provides training courses in stock market, forex and property investing and since
the year 2000 has successfully trained over 250,000 people.

Friday, 26 September 2014

Sustainable Energies

Climate change and fossil fuels have been a hot button topic this week and it might be making some investors in oil and gas companies hot under the collar. First it was the news that a foundation tied to the Rockefeller family, heirs to the Standard Oil Co. fortune would be joining other groups in exiting coal and tar sands investments. Then came the United Nations (UN) climate summit in New York, with its usual theme that the world needs to stem the use of green house gas emitting energies and move towards sustainable energies.

But should investors in the conventional oil and gas companies be worried?

These environmental summits, with all their benign intentions, haven't really yielded anything tangible in the past. In fact the UN has been trying to broker a deal on climate change for the last 21 years with apparently no beneficial results.

So why should this latest summit in New York be anything different in reaching an effective deal to cut down on greenhouse gasses?

The last time so many high-level delegates met about climate change was back in 2009 in Copenhagen and they failed to reach a plan on cutting greenhouse emission gasses.
But four years on from the previous summit, greenhouse gas emissions have become more of a pressing issue. Indeed, emissions of carbon monoxide being released by the world's power plants factories and auto-mobiles since 2009 has increased by an alarming rate of 50 percent.
At this rate by just 2019 there will be more than double the amount of carbon monoxide in the earth's atmosphere compare with the global emissions in 2009.

So the big oil companies are keenly listening in on the latest climate change summit in New York.
Some of them have even sent their own executives to the New York summit, including China's Sinopec.

However, there is something paradoxical about these climate change summits. On the one hand, we have western leaders banging on about the need to wean ourselves off fossil-fuel energy and cut down on carbon monoxide, meanwhile fossil-fuel companies remain the largest recipient of government subsidies. Between 1994 and 2009 the United States oil and gas industries received a cumulative 446.96 billion USD in subsidies, compared to just 5.93 USD billion given to renewable energies in those years. Incidentally, the nuclear industry received 185 billion USD in federal subsidies between 1947 and 1999. So it seems rather odd that we have the United States trying to spearhead a deal on curtailing carbon emissions, meanwhile it continues to heavily subsidises the energy industries that are responsible for producing most of the carbon emissions.

Let's cut down the rhetoric speeches about the need to cut carbon emissions and the numerous high-level climate summits that have yielded nothing tangible. If there was a genuine drive to cut carbon emissions then we would see taxpayers' money flowing the other way. But it is the contrary, the oil companies are big net recipients of the energy subsidising policies.

Typically, public subsidies are used to help nourish emerging industry. But when subsidies continue year after year with no projected end in sight, then public money stops being a catalyst, and starts becoming a crutch. Are we not seeing this happening already with the oil companies, who have become so powerful that they just influence governments to perpetuate their own support.

Moreover, subsidising the oil industries keeps prices artificially low for consumers and fattens oil sectors profits. Another way of looking at it is that tax payers are subsidising the profits of the oil companies.

Perhaps that is an extreme view, bearing in mind the huge cost of exploration and the development of fossil-fuels. Moreover, energy is a strategic business and energy security is so vital to an economy that it even influences a nation's foreign policy. So the strategic reason is probably another factor why the oil companies are heavily subsidised. After all, fossil-fuels are a reliable source of energy that keeps the lights on and the wheels of industry spinning, irrespective of whether the sun shines or the wind blows.

Nevertheless, what about the Rockefeller Brothers Fund and the other180 institutions and local governments and 654 individuals who have so far pledged to cut investments in 200 coal, oil and gas producers from their asset holdings. Total divested funds are 50 billion USD and commitments to sell have doubled so far this year. Could this be “like a snowball, that is going to get more and more mass as it rolls forward,” according to Stephen Heintz, president of the fund.

While this might be a signal to the investment community it doesn't necessary mean that jumping on board would workout to be profitable.

The reality about sustainable energy companies is that when the subsidies are pulled from under their feet they can't compete with their hugely funded and mega powerful rival, big oil.

That's not to say that investors can't make money dabbling in sustainable energy stock. Take for example SolarCity in the US, its initial IPO price in 2012 was 8 USD and at one point it was trading at 82 USD. But the secret to that success is that its billionaire founder, Elon Musk who also started PayPal built SolarCity almost entirely on government handouts, which is about to end soon.

So investing in sustainable energy is a high risk bet, investors could make a lot of money, or lose it all. What is likely to determine the outcome is whether government subsidies will continue or end, therefore a reason to invest might be more political, rather than business based.

With respect to the fossil-fuel companies, it's probably still going to be business as usual as they are just too big and too powerful to touch. Investors in these companies can sleep easy.


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