Whistling in an ill-wind

It’s a timely question from David. Profiting from government interventions in the market has an immemorial lineage because government schemes, wars, dams, highways and the like often produce extravagant opportunities. The ‘South Sea’ fraud—in which, over a period of more than a decade, the UK’s Lord Treasurer and later the Chancellor of the Exchecquer, turned a slave-trading monopoly into a sham scheme for factoring the national debt— is the most remarkable historical example. But corporate profiteering in Iraq or busting UN sanctions seems little different in principle.

The difficulty for the small peculator speculator is the volatility of the returns. It’s all about the timing and who you know. The most lucrative investments are very likely to be outside a risk profile acceptable to the ‘average Joe’.

But there will be more prosaic opportunities. There may be higher demand for low-carbon and non-carbon-based energy production; wind, solar, bio-hydrogen and geo-thermal, for example. At a minimum there will be an expectation of higher demand. Unfortunately, the price of assets specialized in non-carbon production will rise quickly, too, undermining any windfall gains and eroding long-run super-profits. Up goes the price of windy promontories, geysers, desert skies, power-inverters…

Turning to the demand side, the higher overall price of energy will also cool the market demand for the ‘average Joe’s’ investments. Higher energy prices will drive savings across the board resulting in lower use of energy from all sources. Demand for non-carbon-based energy will soften too, especially since it’s mostly meeting marginal energy demand not base-load.

Then there’s the messy overlay of government interference to contend with: licenses, standards.

About the only boom you can be sure about in this turbulent outlook is the market for influence. My prediction (confident but unreliable) is that even more money will go into lobbying than into actual carbon emission permits for the first few years. So invest in a lobbying firm is my advice. Remember: you heard it here first.

Incidentally, I doubt that it matters much which side of the lobbying effort—’Green’ or ‘Brown’—you invest in since the money will follow the potential subsidies on both sides of the market: direct support of low-carbon production and compensation for emission quotas. At this stage it’s much-of-a-muchness.

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