That’s unfortunate, because the environmentalists have it wrong.
This will strike many as counter-intuitive, but “black energy” – meaning the established hydrocarbon sources (oil, coal, and natural gas) – are the true environmentally friendly alternatives.
How can I say that? Well, because any proper analysis must include both the seen and the unseen.
In the current jargon, “environmentally friendly” is a euphemism for low- or no-emissions energy. Wind turbines and solar panels, for example, are often cited as the preferred “green” alternatives to oil, coal and natural gas.
To be sure, alternative energy emits fewer airborne pollutants. That said, the emissions from hydrocarbon energy have been vastly reduced over the years.
Take the gas combustible engine. From the 1960s-era automobile through the mid-1990s, exhaust emissions were reduced 96%.
And the improvements continue. A U.K. trade group – the Society of Motor Manufacturers and Traders – reports that average CO2 emissions from new cars sold in 2011 were 31% lower than the prevailing level in 1997.
Yes, there are more cars on the road. And yes, they will continue to emit CO2 and NOx (nitrogen oxides). But each year the average car emits less of both.
Let’s also keep in mind that the environment is more than atmosphere … it’s also land. Hydrocarbons are relatively land efficient for each unit of energy produced.
The same can hardly be said for wind turbines and solar panels. Wind projects occupy anywhere from 28 to 83 acres per megawatt produced. As for solar, most estimates I’ve read from pro-alternative energy literature say the world could be electrified by solar with an area the size of Spain.
Call me a skeptic.
For one, both wind and solar require back-up generating capacity. This redundancy is provided by burning hydrocarbons. (If you start with hydrocarbons, you don’t have to be redundant with hydrocarbons.) Redundancy means even more land and more resources must be allocated to “green” energy production.
Hydrocarbons, in comparison, are more land-friendly than many environmentalists admit.
Consider Alaska oil. The controversial Arctic National Wildlife Refuge (ANWR) comprises 19 million acres in North Alaska. Of those 19 million acres, 17.5 million are off-limits to any economic activity. Of the 1.5 million available, only 2,000 acres would be needed to tap 10 billion barrels of oil reserves, should the federal government ever permit it.
Being efficient also mean being green. And hydrocarbons are the most efficient energy. If all energy is put on equal footing – no taxes, no subsidies, no tariffs – hydrocarbons produce the biggest bang for the buck; that is, the most energy received for the fewest dollars spent.
Capital allocated to technologies that use hydrocarbons (such as the gas-combustible engine) will lead to technologies that are even more efficient and more environmentally friendly in the future. But when capital is artificially diverted to other sources – through subsidies, tax credits and tariffs – there is less capital investment and less technological advancement in hydrocarbon-useless capital.
Efficiency evolves at a less optimal pace, and more pollution is the result.
This is an important concept, because when all energy sources are measured on an equivalent scale – such as millions of tons of oil-equivalent consumption – hydrocarbons are by far the preferred energy source. Of world energy consumption in 2011, oil accounted for 33.1%, coal accounted for 30.3%, and natural gas accounted for 23.7%.
“Green” energy – solar, wind, biomass – commands headlines for posting exceptional double-digit annual growth (17.7% year-over-year growth in 2011), but only because it is growing from such a minute base. In 2011, these energy sources still accounted for only 1.6% of global-energy consumption.
These ratios won’t change for decades, which is to say it’s green (environmentally friendly) to invest in black. The more capital that flows into hydrocarbon production and into the engines and machinery that run on hydrocarbons, the greener the earth becomes.
I point all this out to emphasize that “socially responsible” investors focus on the seen. Rarely do they focus on the unseen.
The seen is an emissions-free turbine spinning in the wind. The unseen is the lower capital investment in the far-larger unseen of traditional-energy technology that reduces emissions and waste while concurrently raising living standards around the world.
From a financial perspective, there is no contention – black is by far the greener alternative.
And by “greener” I mean return on invested capital. There’s a reason why I include only black energy recommendations in High Yield Wealth. These investments provide return on capital that leads to superior income and consistent price appreciation.
In other words, they produce wealth.
In fact, the “black energy” investments featured in High Yield Wealth yield between 6% and 10%. I have yet to find any worthwhile investment in the alternative universe that comes close. Indeed, most heavily subsidized alternative energy sources are money losers (Suntech and Solyndra are among many failures.)
The bottom line is that environmental discussions aren’t as black and white – or should I say as black and green – as they might seem. In other words, black energy is more environmentally responsible than you might think.
The environment matters to all of us. That said, being environmentally friendly and earning a high rate of return are not mutually exclusive.
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