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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