Investors must be on the right side of history

Are we seeing the rise of green economics?

Article updated: 7 June 2019 12:00pm Author: Michael Baxter

The world is changing, public opinion is polarised, as a result, politics is in disarray. But it is not the forces of nationalism that will triumph, we are seeing the triumph of green economics.

In the UK, all we hear about is the rise of the Brexit party — a party that came from nowhere to a position of political strength in weeks. The narrative is misleading, it is like looking at the music charts in 1970 and observing that this George Harrison chap has come from nowhere.

Across Europe we are told that the forces of nationalism are winning — the end of the EU is nigh. Great patriots agree, or so we are told, conveniently ignoring comments by the Queen this week, who said: “After the shared sacrifices of the Second World War, Britain and the United States worked with other allies to build an assembly of international institutions, to ensure that the horrors of conflict would never be repeated.”

But there is another narrative that is not getting the same level of publicity — the rise of the Green Party, and its ideology. In the UK, its share of the vote in the European elections trebled, in Germany, polls now show it is trailing Angela Merkel’s Christian Democrat party by just one percentage point — 26 versus 27 per cent. Its popularity has surged across much of Europe, Scandinavia, Benelux countries and Austria, for example.

Whether this rise continues remains to be seen, but what is clear is that green ideology is gaining popularity and in direct contrast to the parties of Nationalism that tend to be cynical about climate change.

And we are seeing a divide — on the one hand, you see a mindset that is typically technology literate, fearful of climate change and embraces ethnic diversity. On the other side, you see an ideology that is fearful of the way technology is changing society, hate the way local cultures are being changed and is dubious about climate change.

Donald Trump appeals to this latter mindset — when he talks about beautiful clean coal, for example.

Investors should be cynical about a lot of things, in producing an investment portfolio they need to be pragmatic and throw emotion out of the consideration.

But they also need to aware of the balance of risks, see underlying trends and ignore one-offs.

The case for anthropogenic climate change is not proven, but the evidence is strong. It may turn out to be a trivial threat, but it may turn out to pose a threat to our species. Taking a risk with the future of our planet is not acceptable.

But the economics are favouring the green side. According to a recent report from Irena, the cost of electricity generated from onshore wind fell by 13 per cent between 2017 and 2018. Energy from solar photovoltaics fell by a similar amount. “In most parts of the world today, renewables are the lowest-cost source of new power generation,” or so it was stated in the report.

The report also stated: “Since 2014, the global-weighted average cost of electricity of solar photovoltaics has also fallen into the fossil-fuel cost range...

Onshore wind and solar PV are set by 2020 to consistently offer a less expensive source of new electricity than the least-cost fossil fuel alternative.”

This change in the energy market is as far reaching as you can imagine. The threat of climate change gives this change an imperative, economics makes it inevitable.

And we are seeing the shockwaves everywhere. Ford is closing the Bridgend engine plant. Why? It said: “Changing customer demand and costs,” were behind the decision.

Brexit hasn’t helped, but auto companies like Ford have been caught wrong footed by the rise of electric cars.

But the falling cost of renewables, the imperative of climate change, the rise of electric cars and then the rise of autonomous cars converging with the sharing economy, will have far more dramatic effects in the years ahead.

We have seen a tsunami engulf the political landscape but the earthquake which caused it is still mild in comparison to what we will see over the next decade.

The economic tsunamis will become more frequent and more intense.

Investors must strap themselves in, the period of super rapid change is just beginning. Make sure your money backs the right side of history.

These views are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees

Michael Baxter portrait photo
Michael Baxter

Economics Commentator

Michael is an economics, investment and technology writer, known for his entertaining style. He has previously been a full-time investor, founder of a technology company which was floated on the NASDAQ, and a director of a PR company specialising in IT.

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