海角大神

滨苍听迟丑别颈谤听聽last week,聽Al Gore and one of his business partners characterize the聽current market for investments in oil, gas and coal as an asset bubble. They also offer investors some advice for quantifying and managing the risks associated with such a bubble. Their article is timely, because I have been seeing references to this concept with increasing frequency, including a聽聽in the Financial Times, as well as in the growing literature around聽.

Although bubbles are best seen in retrospect,聽investors should always be alert to the potential, particularly after our experience just a few years ago.聽In this case, however, I see good reasons to believe that the case for a 鈥渃arbon asset bubble鈥� has been overstated and applied too broadly. The following five myths represent particular vulnerabilities for this notion:

1. The Quantity of Carbon That Can Be Burned Is Known Precisely

Mr. Gore is careful to differentiate uncertainties from risks, which he distinguishes for their amenability to quantification. For quantifying the climate risk to carbon-heavy assets, he refers to the widely cited 2掳C threshold for irreversible damage from climate change, and to the resulting 鈥溾�� determined by the International Energy Agency. As Mr. Gore interprets it, 鈥渁t least two-thirds of fossil fuel reserves will not be monetized if we are to stay below 2掳 of warming.鈥� That would have serious consequences for investors in oil, gas and coal.

The IEA鈥檚 calculation of a carbon budget depends on a parameter called 鈥渃limate sensitivity.鈥� This figure estimates the total temperature change聽. The discussion of climate sensitivity in the recently released聽聽of the Intergovernmental Panel on Climate Change (IPCC) sheds more light on this parameter, which turns out not to be known with certainty. Their聽聽includes an expanded range of climate sensitivity estimates, compared to the IPCC鈥檚聽2007 assessment, of 1.5掳-4.5掳C with a likelihood defined as聽. It also states, 鈥淣o best estimate for equilibrium climate sensitivity can now be given because of a lack of agreement on values across assessed lines of evidence and studies.鈥澛�

The draft technical report that forms the basis for the Summary for Policy Makers provides聽聽on this.聽It further assesses a probability of 1% or less that the climate sensitivity could be less than 1掳C. That shouldn鈥檛 be surprising, since temperatures have already apparently risen by 0.8掳C above pre-industrial levels. At the same time, the report indicates that recent observations of the climate 鈥� as distinct from the output of complex climate models 鈥� are consistent with 鈥渢he lower part of the likely range.鈥�

In other words, while continued increases in atmospheric CO2 resulting from increasing emissions are widely expected to result in warmer temperatures in the future, the extent of the warming from a given increase in CO2 can鈥檛 be determined precisely before the fact. For now, at least, the CO2 level necessary to reach a 2掳C increase would be consistent with calculated carbon budgets both larger and smaller than the IEA鈥檚 estimate. That means that the basis of Mr. Gore鈥檚 suggested 鈥渕aterial-risk factor鈥� 鈥� as distinct from an uncertainty 鈥� is itself uncertain.

2. The Transition to Low-Carbon Energy Is Occurring Fast Enough to Threaten Today鈥檚 Investments in Fossil Fuels

There is no doubt that renewable energy sources such as wind and solar power are growing at impressive rates. From聽聽global solar installations grew by an average of 58% per year, while wind installations increased by 20% per year. Yet it鈥檚 also true that they make up a聽聽of today鈥檚 energy production, and that the risks for investors of extrapolating high growth rates indefinitely proved to be very significant in the past.

For some clarity on this, consider the IEA鈥檚聽, the agency鈥檚 analysis of global energy trends. (The latest annual update will be published on November 12.) As of last November, the IEA expected global energy consumption to grow by 35% from 2010 to 2035 in its primary scenario, which reflected an expansion of environmental policies and incentives over聽those now in place. In that scenario, the global market share of fossil fuels was expected to fall from 81% to 75%, but with total fossil fuel consumption still growing by 25% over the period. Only in their 鈥�450鈥� scenario, based on similar assumptions to its carbon budget, would fossil fuel consumption fall by 2035, and then only by 10%.

Moreover, in its April 2013 report on 鈥�,鈥� the IEA warned, 鈥�.鈥� This concern聽was based on their observation that from 1990 to 2010 the average carbon dioxide emitted to provide a given unit of energy in the global economy had 鈥渂arely moved.鈥� That鈥檚 hardly a finding to be celebrated, but it serves as an important reminder that while some renewable energy sources are growing rapidly, fossil fuel consumption is also growing, especially in the developing world 鈥� and from a much larger base.

The transition to lower-carbon energy sources is inevitable. However, it will take longer than many suppose, and it cannot be accomplished effectively with the technologies available today. That鈥檚 a view聽聽by observers with better environmental credentials than mine.

3. All Fossil Fuels Are Equally Vulnerable to a Bubble

As Mr. Gore correctly notes, 鈥淣ot all carbon-intensive assets are created equal.鈥� Unfortunately, that鈥檚 a distinction that some other supporters of the carbon asset bubble meme don鈥檛 seem to make, particularly with regard to oil and natural gas. The vulnerability of an investment in fossil fuel reserves or hardware to competition from renewable energy and decarbonization聽doesn鈥檛 just depend on the carbon intensity of the fuel type 鈥� its emissions per equivalent barrel or BTU 鈥� but also on its functions and unique attributes.

The best example of this is coal, which was in the news this week for a major transaction involving the聽. What鈥檚 behind this isn鈥檛 just聽聽making it much harder to build new coal-fired power plants in the US, but some fundamental, structural challenges facing coal. Power generation now accounts for聽, as non-power commercial and industrial demand has聽. This聽leaves coal producers increasingly reliant on a utility market that has many other (and cleaner)聽options for generating electricity. That鈥檚 particularly true as the production of natural gas, with聽聽per Megawatt-hour of generation, ramps up, both听补苍诲听. Coal accounts for聽聽of the global fossil fuel reserves that Mr. Gore and others presume to be caught up in聽an asset bubble.

Compare that to oil, which at 29% of global fossil fuel reserves, adjusted for energy content, still has no full-scale, mass-market alternative in its primary market of transportation energy. Despite a decade-long expansion, biofuels account for聽聽of US聽, on an energy-equivalent basis. They鈥檙e also encountering significant聽聽and concerns about the degree to which their production聽. This has contributed to recent efforts in the EU to limit the share of crop-based biofuels to around聽. Biofuels have additional potential to displace petroleum use, particularly as technologies for converting cellulosic biomass become commercial, but barring a prompt technology breakthrough they appear incapable of substituting for more than a fraction of global聽oil demand in the next two decades.

Electric vehicles offer more oil-substitution potential in the long run, though they are growing from an even smaller base than wind and solar energy. Their growth will also impose new burdens on the power grid and expand the challenge of displacing the highest-emitting electricity generation with low-carbon sources.

Meanwhile, natural gas, at 20% of global fossil fuel reserves, offers聽the largest-scale, economic-without-subsidies substitute for either coal or oil. In any case, it has the lowest priority for substitution by renewables on an emissions basis, and so should be least susceptible to a notional carbon bubble.

4. A Large Change in Future Fossil Fuel Demand Would Have a Large Impact on Share Prices

Although Mr. Gore鈥檚 article includes a good deal of investor-savvy terminology, it is entirely lacking in two of the most important factors in the valuation of any company engaged in discovering and producing hydrocarbons: discounted cash flow (DCF) and production decline rates. Unlike tech companies such as Facebook or even Tesla, the primary investor value proposition for which depends on rapid growth and far-future profitability, most oil and gas companies are typically valued based聽on risked DCF models in which聽near-term production and profits count much more than distant ones.

At a conservative discount rate of 5%, the unrisked cash flow from ten years hence counts only 61% as much as next year鈥檚, while cash flow 20 years hence counts only 38% as much. Announced changes in near-term cash flow due to unexpected drops in production or margins would normally be expected to have a much bigger impact on share prices than an uncertain change in demand a decade or more in the future.

This is compounded by the decline curves typical of many聽large hydrocarbon projects. If the first 3-5 years of a project account for more than half its undiscounted cash flows, it won鈥檛 be very sensitive to long-term uncertainties, nor would a company made up of the aggregation of many projects with this characteristic. This is even truer of shale gas and tight oil production, which yield faster returns and decline more rapidly.

I can鈥檛 speak for oil and gas analysts, but I鈥檇 be surprised based on past experience in the industry if the risk of a 10% or greater drop in global demand for oil or gas in the 2030s would have much of an effect on their price targets for companies 鈥� certainly not enough to qualify as a bubble.

5. Fossil Fuel Share Prices Don鈥檛 Already Account for Climate Risks

The assertion of a carbon bubble in fossil fuel assets ultimately depends on investor ignorance of climate-response risks, presumably because companies haven鈥檛 quantified those risks for them. To the extent the latter condition is true, it represents an opportunity for companies seeking to capitalize on the boom in sustainability-based investing.

However, you needn鈥檛聽be an adherent of the Efficient Markets Hypothesis for which Eugene Fama聽was just named as a聽聽to realize that thanks to the Internet,聽average investors聽have access to聽most of the same information on this subject as Mr. Gore and his partners. Institutional investors, who make up the bulk of the shareholding for at least the larger energy firms, along with the analysts who follow these companies, have the resources to access even more information.

Nor is the idea of a carbon bubble exactly new. I鈥檝e been following it for聽a聽couple of years, as it took over from waning interest in Peak Oil. It鈥檚 not an obscure risk, either, in the sense聽that sub-prime mortgages and credit default swaps were in the lead-up to the failure of Lehman Brothers in 2008. It鈥檚 becoming more mainstream every day, but聽the burden聽of proof that this risk is mispriced rests on聽those advocating this聽view.

Conclusions 鈥� A Real Bubble,聽Or An Attempt to Project One?

Before concluding, a word of disclosure is in order. As you may gather from my bio, I spent many years working with and around fossil fuels, though my ongoing聽involvement in energy is much broader than that. As a result of that experience, my portfolio includes investments in companies with significant fossil fuel holdings. I strive for objectivity, but聽I can鈥檛 claim to be聽disinterested. However, neither can Mr. Gore. As a major investor in renewable energy and other technologies through聽聽cited in the article and聽, he has as much at stake in promoting the idea of a carbon bubble 鈥� and on a very different scale 鈥� as I might have聽in dispelling it.

The carbon bubble is an interesting hypothesis, even if I don鈥檛 yet聽find the arguments made in support of it convincing. Despite that, I see nothing wrong with investors wanting to track their carbon exposure, consider shadow carbon prices, or ensure they are properly diversified.

However, the biggest risk I see that might eventually warrant considering divestment聽isn鈥檛 based on the merits of this analysis,聽but on the possibility of聽creating a self-fulfilling prophesy by means of drumming up social pressure on institutional investors. You might very well think that applies to this Wall St. Journal op-ed. I couldn鈥檛 possibly comment.

厂辞耻谤肠别:听