One good thing about all the recent euro-backstabbery is that we’ve been spared hand-wringing headlines over another big government summit to save the world.
Meanwhile, the latest big summit on climate change has just ended in Durban, South Africa. Europe signed up to an extension of the Kyoto protocol on cutting carbon emissions. But the Canadians pulled out. And with neither the US nor China signed up, the agreement covers less than 13% of global emissions, according to Canada’s environment minister.
So is the world doomed? Far from it.
Governments may have got bored with the climate change project. But companies are taking the underlying issues very seriously indeed. And that spells opportunity for canny investors…
Self-interest is the key to people’s hearts
When it comes to climate change, I’m more than happy to take the word of scientists. The scientific method isn’t perfect, but it’s the best way of understanding the world that we’ve got. Scientists seem to agree that the world is warming up, and that human beings probably have something to do with it.
But as far as I can tell, that’s about it. Within that scientific consensus, there’s a wide range of views on exactly what the implications of global warming are, and the timescale involved. So getting any sort of clarity on what ‘needs’ to be done is impossible, particularly when you have lots of egos on both sides of the debate who are more than happy to data-mine or outright lie to make their case.
The other problem is that environmentalists tend to have a fondness for big government solutions. They’re mistaken to think this is the way forward. Firstly, you can’t tell voters to take a big cut in their standard of living now because of some nebulous event that may or may not happen in the far future. They won’t buy it.
Secondly, you can’t trust governments to stick with anything. Politicians are easily bored. Post credit-crunch, the green movement has lost a lot of its glamour. There are more immediate issues to worry about. Hence the lack of interest in the Durban talks.
But the green movement shouldn’t fret. The fact is, people are able to change their ways. And it’s all thanks to the most effective incentive of all – self-interest.
High prices encourage more efficient energy usage
I don’t know about you, but these days, any time I fill up my car, or get an electricity bill through the door, my first thought is: ‘I really need to find a way to use less of this stuff.’
I’m not the only one thinking like that. During November, for example, US drivers used 3.5% less petrol than they did last year, according to the latest Energy Information Administration report.
No wonder. Apart from a brief fall when the 2008 credit crunch nearly paralysed global trade, the price of oil has remained uncomfortably high throughout the ‘Great Recession’. That’s partly due to all the money that’s been printed, and partly due to China’s ongoing appetite for the stuff.
But whatever the reason, high energy prices give people a good incentive to use fuel more sparingly, and more efficiently. Using less petrol doesn’t necessarily mean driving less; it could mean using a more fuel-efficient car.
And this goes far beyond the transport sector. Even emerging market economies, in the midst of industrialising, are paying attention to alternative energy. Why? Because pollution – river-poisoning, can’t-see-three-feet-in-front-of-your-face pollution – is a major problem. Citizens in these countries might not get worked up about carbon emissions, but smog and poisonous water are urgent issues that need to be dealt with.
In the developing world meanwhile, households and companies are looking to reduce their energy bills by upgrading buildings and investing in ‘smart’ grid technology. To cut a long story short, ‘smart’ power grids enable utility companies and consumers to control their power usage far more efficiently. Supply can be matched with demand more readily, and as a result, people use less and save money.
Global investment in energy infrastructure is set to average $1.5 trillion a year from now until 2035, reckons the International Energy Agency. A big chunk of that money will go into improving efficiency.
So how can you profit from all this?
My colleague James McKeigue looked at ways to invest in promising clean technologies in a recent issue of MoneyWeek magazine: Clear up in the cleantech boom. If you’re not already a subscriber, subscribe to MoneyWeek magazine.
Another interesting option is Switzerland-listed electrical engineering group ABB (Zurich: ABBN). The company “occupies the sweet spot in energy efficiency”, says US financial newspaper Barron’s. It makes half of its money from emerging markets, and half from developed. That means it’s well positioned to benefit from rising energy demand in the likes of China, while it will also profit from the shift towards electric vehicles and smart grids in the US and Europe. The stock trades on a p/e of around 12 and a forward dividend yield of around 4%.
• This article is taken from the free investment email Money Morning. Sign up to Money Morning here .
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