Al Gore claims we are facing a dangerous “Carbon Asset Bubble” (VDE, IYE)

algoreIf you had a good chuckle when Al Gore claimed he invented the Internet, you must have really loved his op-ed piece in Wednesday’s Wall Street Journal. You say you didn’t read it? Maybe that’s because you had something more important to do. Like, say, filing your fingernails.

Gore claims we are facing a dangerous “Carbon Asset Bubble,” that oil and gas assets will soon become “stranded” (i.e. lose economic value because they won’t be used), and investors should “divest fossil fuel assets.”

Sounds scary. But then Gore specializes in scaremongering. And it turns out he knows even less about the energy sector than he does about inventing the Internet.

But let’s take a closer look at his argument anyway…

Two Degrees of Separation

Gore claims a two-degree Celsius increase in Earth’s average temperature will cause “devastating and irreversible damage to the planet,” that we will cross this threshold in the near future, and that two-thirds of fossil fuel reserves will not be monetized if we are to stay below this two degrees of warming.

In short, hundreds of billions of dollars of oil and gas will be unused… and wasted. Bottom line? Sell your oil stocks!

Sell them, that is, if you take your investment advice from the Scaremonger-in-Chief. And you shouldn’t.

I’m going to entirely skip the debate about how much of climate change is caused by human carbon dioxide emissions and how much by other factors. There isn’t space to hash all that out here and, besides, it isn’t necessary to refute Gore’s claims.

There are a couple of big holes in his argument. For starters, Gore is silent on how we’re going to run our cars, trains and planes, or heat and cool our homes and offices, or even keep the lights on using solar, wind and geothermal energy sources alone.

Don’t get me wrong. Dramatic energy innovation is coming. Higher oil prices demand it. (That’s one of the reasons for the boom in natural gas.)

But Gore doesn’t believe that the immense rewards offered by a free market are enough.

Forcing the Action

He believes in powerful government action and overarching international agencies. It’s just a matter of issuing the right mandates, prohibitions and regulations. In short, it’s a matter of forcing us to do what he wants.

But that presents an even bigger problem. The United States represents only 6.6% of the world’s land mass and 18% of the world’s carbon emissions. We couldn’t stop global warming alone, even if we had the political will (which we don’t).

If you believe in Santa Claus, the Easter Bunny and the Tooth Fairy, you’ll have no problem accepting Gore’s idea that “the international community” will join hands and come together to dramatically cap carbon emissions.

China, for instance, is responsible for 23.5% of the world’s CO2 emissions. They have made it clear they are not returning to the bicycle as their primary mode of transportation. How is Gore (or anyone else) going to force the Chinese to accept his demands?

India and Russia are responsible for another 11.6% of the world’s carbon emissions. Can you imagine Putin’s response to Al Gore’s mandates? He would barely bother to lift a finger… his middle one.

Don’t get me wrong. I’m not scoffing at the serious challenge of climate change. I’m scoffing at Al Gore’s investment case for divesting your energy assets.

However, to put this in perspective, to truly understand the gravity and seriousness in which market participants view Gore’s warnings, you needed only to glance at two of the leading energy exchange-traded funds: iShares Dow Jones US Energy Sector (ETF)(NYSEARCA:IYE) and Vanguard Energy ETF(NYSEARCA:VDE).

On the morning of Gore’s scare bomb in The Wall Street Journal, they opened unchanged.

Good investing,

by Alexander Green, Chief Investment Strategist, The Oxford Club

Investment U provides cutting-edge research and strategic financial recommendations for all levels of investors through its morning publication Investment U Daily and its related publications.

Leave a Reply

Your email address will not be published. Required fields are marked *