Investing in clean energy is both an economic and a moral decision. From an economic perspective, I believe that constrained supplies of fossil fuels (not just Peak Oil, but also Peak Coal and Natural Gas) are leading to a permanent rise in the value of all forms of energy. From a moral perspective, I know that we and the vast majority of our children are limited to this one planet for generations to come, so we should abuse it as little as possible, so, of all the possible forms of energy to invest in, clean energy (Renewable and Energy Efficiency) is my moral choices.
A Short Walk Down Wall Street
The investing decision does not have to stop there. In addition to buying stocks we like, we can also sell (short) the stocks we hate. There’s a lot of truth in the caricature that environmentalists are much clearer about what we don’t like (cars, mining, coal, pollution) than what we do. For instance, "organic" is typically defined by the processes which are not used (chemical fertilizers, GMOs, pesticides) rather than those that are. Smart Growth means "avoiding urban sprawl." Those of us worried about global climate change want to reduce Greenhouse Gas Emissions.
I may be exaggerating, I also believe there is more than a (sustainable, local, organic) grain of truth in the caricature of the environmentalist as the wild-eyed environmentalist who chains himself to a tree (or runs around naked) in an attempt to stop some blight on the face of the planet.
Why not embrace the stereotype in our investing? When even wind turbines can kill birds (if less so than skyscrapers and pollution from coal plants) and solar panels are awfully expensive, it can be hard to agree on the companies or technologies that are truly "green" and which ones are just greenwashing. Many well-meaning people make the case that we need nuclear power and/or "Clean Coal" to fight global warming, but it’s hard to get behind a power source that involves finding someplace underground to store hazardous waste for centuries or millennia at great expense.
If we can’t agree on what we like, at least we can agree on what we hate. So why not short the companies which do the things we hate?
That’s a rhetorical question. Shorting is extremely risky, and should only be done with a careful eye to risk management. That said, I’m generally bearish on the outlook of the stock market, so in addition to giving some simple rules to help people decide to sell what they already own, here are some ideas for those of you with courage of your convictions wanting to strike a blow for what you believe in.
It has been claimed that the biggest step you can take to reduce your carbon footprint is to eat less meat. Some of these claims may be exaggerated, but it’s certainly true that the way we currently raise and transport meat, it’s extremely energy intensive (not to mention unhealthy for both the animals and ourselves.)
SHORT IDEA: The rush to ethanol (caused by peak oil) is most likely to harm the economics of pork and poultry, so the vegan investor might consider shorting meat products companies such as Tyson Foods (NYSE:TSN), despite their partnership with Conoco-Phillips for Green Diesel.
As well as eating vegetarian, ethical eaters also look at the energy necessary to get their food onto the table, as well as the energy costs of transporting all those Chinese-made gee-gaws. While the distance of transport is an extremely poor proxy for the energy needed to get the item there (containerized shipping is so efficient that we’re likely to burn more fuel driving to the grocery store and back than we’re likely to save by buying local foods while we’re there), growing herbs in your own garden is likely to be much more energy efficient than flying them in from South America… especially if it saves you a drive to the grocery store for a singe ingredient.
SHORT IDEAS: Investors might consider shorting country ETFs of highly energy intensive economies with little local energy resources. China is the first country which comes to mind for me, although the thought of shorting China scares me almost as much as global warming. A safer anti-globalization short might be airlines (although they seem to be declaring bankruptcy so fast that we may have missed the plane on this one. Truckers are also feeling the pinch of high gas prices, so if you, like me, feel that there’s more where that came from, take a look at long-haul truckers.
#3: Urban Sprawl
Urban sprawl is the unwanted child of our ill conceived love affair with the car, and keeping the brat happy is one of the major factors keeping us together. The biggest investment many of us will make is a home, so living near where you work is probably more important than your financial investments. But that doesn’t mean you can’t strike a blow against sprawl with your brokerage account.
SHORT IDEAS: Housing developers who slap ’em up cheap in the suburbs and exurbs, and the road construction industry.
#2: Coal & Oil Cos.
I personally loathe the coal industry. Devastation caused by mining adds injury to the insult of massive carbon emissions. Some oil companies have been making moves towards biofuels, but it’s small potatoes compared to their main business. Nevertheless, I’d stay away from shorting these two industries no matter how much you hate them… the same rising energy prices that will benefit clean energy will benefit the old fossil fuels. Although both will have considerably less to sell as time goes on, they should be able to command premium prices.
Although I can see a scenario where massive carbon regulation actually depresses the price of coal, I don’t expect lower coal prices anytime soon.
SHORT IDEA: Don’t do it.
#1: Sport Utility Vehicles
I’m convinced that the personal car will never be green. The most forward thinking car companies, like Toyota, realize this, and are already starting to plan for a day when the personal car is obsolete (at least according to a presentation I saw at a recent conference.) But it’s likely to be too little, too late, especially for companies which seem to believe that
an SUV that burns ethanol and gets 22 MPG is the height of greenery. They may even have to go head-to-head with Wal-Mart. This is the one short idea here I feel strongly enough about to actually dabble in. I just took small short positions (actually far out-of the money January 2010 short calls) in Ford (NYSE:F) and General Motors (NYSE:GM.) Admittedly, these companies have many other problems besides peak oil and global warming, but those are well known, and likely to already be factored in to the stock prices.
SHORT IDEA: If you’ve ever been tempted to vandalize an SUV, here’s a legal option.
DISCLOSURE: Tom Konrad has short positions in F, GM.
DISCLAIMER: The information and trades provided here are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance. Please take the time to read the full disclaimer here.
its good to have you back Tom!
I’m afriad this is just the start of 2 months of spotty posting on my part… I expect to be consumed by CFA study until mid June. -TK