The Coming Green Bubble
By Bill Moore
The premise of Dr. Robert Bell's latest book, 'The Green Bubble' is simple and stark.
"The sudden and increasing public panic over global warming will be combined with the decreasing reliability of the oil supply and that will result in a stampede out of oil and ultimately other fossil fuels into renewable energies," states the chairman of the Economics Department at Brooklyn College, City University of New York.
A year, six months ago such a scenario would seem far-fetched to most people, but with Brent crude over $70 a barrel as I write this and gasoline prices in American at all-time record levels at the start of the summer driving season, Bell's hypothesis has a sobering credibility to it.
Dr. Bell has been a long time reader of EV World and when he offered to send me a review copy of the book, I naturally accepted. I read most of it during my recent foray to Mexico City and found it a compelling read. I emailed him from Mexico that I wanted to interview him as soon as I got back home. That interview took place, fittingly but also tragically, over the Memorial Day weekend, a weekend when 10 U.S. servicemen died in a combined helicopter shoot-down and roadside ambush in Iraq. This is the same Iraq disgraced World Bank chairman and Iraq war architect Paul Wolfowitz said was going to finance its own reconstruction from its oil revenues.
It is tragedies like Iraq and New Orleans that will help propel with the force of an RPG unprecedented investment capital into the green energy sector. The investment 'stampede', as he refers to it ,"will be combined with a huge worldwide, worldwide... bull market in renewable energy. The bull market, which will continue for so number of years, will then culminate in the biggest, worldwide stock market bubble in history."
Talk about going out on a limb! But fortunes are made -- and lost -- with just such gambles.
Bell stressed that while his book might be viewed as an investment guide, he is not offering advice nor is he an investment professional, although his personal investments in key companies, which he identifies in the book, have grown 125% in the last 18 months.
He sees the risks posed by global warming and peak oil as the primary drivers in this story. Because of this, any industry that is tied either directly or indirectly to the release of fossil fuel-derived carbon dioxide, which he calls the "new asbestos", will become a high risk investment.
"So coal, right off the bat, is obviously bad as a long-term investment no matter what you do with it. Oil unreliability means that focusing on a system that uses diesel as a fuel for cars, trucks, anything is not really a viable direction, either from a policy standpoint or from a buy-and-hold investment standpoint."
The question that will be repeatedly asked over and over again as we move deeper into the next energy or environmental crisis will be "What works now?"
"Not in three years or five years or ten years, but today; and the answer is really quite limited," he noted. "Hybrid vehicles, wind turbines, photovoltaics and other solar systems, biofuels ..." He pointed to Abengoa, a Spanish company that is slated to bring on line in the near future the first commercial-scale cellulosic ethanol plant. He is less upbeat about geothermal simply because its application is limited to a few select areas geologically.
Besides the role played by global warming and peak oil, he also sees a third element coming into play to create a vast "green bubble": Arthur Anderson-type accounting in which huge liabilities were left off the books of companies like Enron.
"Based on this fact that "Arthur Anderson" accounting is used in energy be wary of comparison based on so-called 'market forces.' I am not opposed to market forces at all. I am in favor of market forces, but in many instances in this story, we just plain don't have them in any serious way because there are so many hidden, blatant or ignored subsidies."
Bell contends that the true price of a gallon of gasoline isn't the current $3-4 dollars Americans pay, but closer to $10-11 dollars because of the military costs of protecting the flow of oil from the Middle East. [Milton Copulos draws the same conclusion in The Hidden Cost of Our Oil Dependence.]
He charges that because of this it is doubtful that "anyone can make an honest comparison between gasoline (and oil) and any other fuel."
I asked Bell what event or events in the future might become the catalyst for this sudden shift of investment capital and he agreed that it could be any number of events from an expanded war in the Middle East with Iran to major collapses of Greenland's glaciers, which would immediately cause a rise in sea levels. But the real indicator of when the shift will begin in earnest is likely to be when property insurance companies begin to refuse to write, renew and even cancel homeowner and business policies along storm-prone coastlines. In fact, that's already begun to happen.
"That by itself, the cancellation of policies by insurance companies, could be the precipitating event.
"Transitions, in fact, happen quickly," he argues pointing to the example of the growth of the Internet and the subsequent over-builiding of fiber optic networks, only a tiny fraction of which is currently being used. All the rest has remained "dark."
He commented that in 1962, he took an ocean liner to England and when he returned a year later, the piers on the west side of Manhattan had already begun to be dismantled. Jetliner had, in very short order, made ships like the United States and the SS France obsolete. Planes and interstate travel by private automobile spelled the end of passenger rail service in America in the course less than a decade.
When the rush into renewable energy happens, Bell believes that wind turbines will be manufactured and assembled with the urgency of fighter planes in World War Two.
"They will be our principle weapon against global warming. Rosie the Riveter will be reincarnated this time making [proverbial] plowshares," Bell said, adding that the shift into renewable energy will not be a job destroyer but a job creator on a massive scale.
"It will also be a job changer. That is people who are doing one thing now won't be doing the same thing in a few years, but they will have plenty of job opportunities; and they'll be well-paying jobs."
He explained that in the case of wind turbines, they can't really be built overseas by cheap labor because of their sheer size; they have to be built relatively close to where they are going to be installed. In addition, decisions about buying multi-million dollar wind turbines aren't made on who has the cheapest price, but on which machines are the most reliable for the money.
"They are bought by a utility or in some cases by a group of investors. The people who make the actual choice are not looking for a cut-rate price. They are looking for [someone] they can blame if something goes wrong; they are looking to cover their backside.
"The buyer isn't looking for the sharpest deal, but the most reliable deal."
Bell's hypothesis places a lot of weight on the financial clout of the insurance industry, a position that he supports by pointing out that just one large insurer, AIG has a larger market capitalization that ChevronTexaco.
"Let me add, that [insurance companies] will act because they will quickly go broke if they don't. In other words, insurance companies act on real market forces, unlike so many so-called 'market forces' in the energy story. And they will act when governments are too corrupt or too cowardly to act. Insurance companies will act because they will have absolutely no choice and act very quickly."
He sees the insurance industry as every bit as powerful as the oil and gas industry and unlike the latter, much more nimble and able to adapt to economic, environmental or political change. Oil companies, by contrast, have much of their equity tied up in leases of often undesirable land or far offshore, as well as in aging, rusting infrastructure.
"You have only to look at the piers on the west side of Manhattan... or any Rust Belt abandoned factory to see fast a viable asset can become abandoned junk."
By contrast, insurance companies have relatively liquid assets. "The oil companies do not," he stressed.
"So, in this coming fight between the insurance companies [who have publicly recognized the threat posed by global warming] and the oil companies, I would bet on the insurance companies every time. They have vastly more flexibility than the oil companies do."
And because he sees CO2 as the "new asbestos" Bell can envision a time when insurance companies will refuse to underwrite any oil, gas or coal company, "or any of the companies linked to them."
It is the insurance industry's "staggering portfolio" that will accelerate the shift from fossil fuels to renewables, Bell argues.
MP3 File Download URL: http://www.evworld.com/evworld_audio/greenbubble1.mp3