FOSSILIZED ASSET ALLOCATION STILL MIS-PRICING ENERGY AND RISK

As I wrote in 2008 in “Updating Fossilized Asset-Allocation Classes”, all energy sectors are still treated alike, dominated by fossil fuels.  This means that energy assets based on commodities: coal, oil, gas, uranium are confused and conflated with energy technology stocks in solar, wind, batteries, efficiency, hydro, ocean-based and other emerging technologies which are drowned out in this oil-dominated model.  Even as oil prices fluctuate wildly, dipping below $50 in January 2015, this commodity price volatility affects both other commodities’ asset values as well as highly leveraged producers and refiners, since 16% of junk bonds are energy-related.  While macroeconomic effects are very real and wildly divergent between countries and sectors, this >focus is on data, models and metrics.  Oil prices primarily affect and misprice the energy technology players whose sunk or securitized capital costs are now producing fuel from the sun’s daily photons which are free!

Oil price volatility will continue as a wild card in 2015 and presents an opportunity to address today’s massive mispricing of energy and risk!  Confusion and misallocation of investments in the energy sector now can only be clarified by further disaggregation and granulation of data while splitting fossilized asset allocation buckets into newer energy commodities and energy technology classifications while including subsidies across all energy sectors.

  • Energy commodities should be split from other commodities – particularly food affected by unsustainable land-based biofuels. Separate “buckets” are needed for fossil-based fuels: coal, oil, gas, uranium and mining with fossil fuel-producing equipment and refining companies also treated separately.  Photon-based energy captured by solar, thermal, photovoltaics, wind, ocean turbines, wave power, all of which are free after sunk or securitized capital investment, are covered by Ethical Markets and in Bloomberg New Energy Finance.  These sources should be broken out for comparison with fossilized fuels and nuclear fuel (uranium).
  • Energy capital requirements for non-renewable fossil fuel production, refining and marketing should be broken out such as by Carbon Tracker. Photon-based renewable energy should be separately tracked and accounted for – so actual comparisons can be calculated.
  • External costs of production of all energy sources should be calculated, such as by Trucost, and stated in shadow pricing: e.g., water use comparisons between nuclear, coal, oil and gas electricity versus solar thermal, PV, wind, hydro and low-head hydro. Safety costs should also be calculated.
  • Energy efficiency and storage technologies need separate classification to capture the real price of waste and inefficiencies. These and subsidies, calculated by energy and exergy experts, waste up to 40% of possible productivity across entire economies in the USA, China, India, Canada, Russia and Eastern European countries.
  • Sustainability Sector — Lastly, we need a new asset allocation bucket for the burgeoning green sectors and technologies we cover in our Green Transition Scoreboard®: solar, wind, geothermal, efficiency, storage, wave power, hydro, biofuels from seawater-grown algae, electric vehicles, green infrastructure, green bonds, yieldcos and fossil-free portfolios. Such private investments since 2007 currently total $5.7 trillion worldwide.  We project that these current levels of $1 trillion or more annually can leave the fossil fuel era behind by 2020 as humanity enters the knowledge richer, cleaner, greener, more equitable societies of the Solar Age.
This entry was posted in Articles by Hazel Henderson. Bookmark the permalink.