Michael Liebreich on Fossil Fuel Investment Risk

Michael Liebreich, founder and CEO of Bloomberg New Energy Finance, has very helpfully posted a series of tweets about things he said in 2012 on his Twitter feed.

One of those is an interview with Renewable Energy Magazine last August.

Besides some other very interesting points, Liebreich there warns against certain risks associated with investing into fossil fuel energy. One of them is policy risk. From the interview:

But as an investor, you don’t know where that debate is going to end up. There could be five bad hurricanes in the US, and suddenly there will be this emphasis on really doing something dramatic to accelerate the shift to clean energy. At that point, what are your shares in Peabody worth? And the answer is, probably very little. What is the value of your coal- or gas-fired power station worth? And the answer is, less than you paid for it.

The historical precedent for this is of course Germany’s decision to phase out nuclear after the Fukushima accident. It took only about three months to enact legislation that basically killed nuclear energy in Germany. Some investors took a loss from that. For example, Vattenfall wants compensation of $4.6 billion for lost profits from its nuclear stakes in Germany.

Very much in the same way, it may only take a couple of high profile events (“five hurricanes”) to completely shift the policy debate on fossil fuel in multiple countries.

Besides the moral duty to protect future generations against the worst consequences of the global warming mess, there is a cold cash duty to protect your own investment against this kind of risk. Bill McKibben’s campaign for divesting college trust funds from fossil fuel may well turn out to be a shrewd investment move, as well as the right thing to do.

And he doesn’t even face any liability for insider trading for that. Anybody can look at the facts and see that global warming is a huge problem, and that it will sooner or later lead to strong legal restrictions on the use of fossil fuel.

Published by kflenz

Professor at Aoyama Gakuin University, Tokyo. Author of Lenz Blog (since 2003, lenzblog.com).

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