Foreword
The Green Transition is the new name given to the idea that human activities are affecting the natural environment negatively, and that effort should be made to transition the economy to a more sustainable and Earth-friendly path.
Over time, it has garnered much discussion both for and against the idea, and right now, is a politically charged topic, when it really shouldn’t be.
As usual, a reminder that I am not a financial professional by training — I am a software engineer by training, and by trade. The following is based on my personal understanding, which is gained through self-study and working in finance for a few years.
If you find anything that you feel is incorrect, please feel free to leave a comment, and discuss your thoughts.
Background
It is hard to deny that global temperatures have been rising steadily, on the average, across time. Most of the debate in recent times have centered around whether this is a temporary cyclic phenomenon which will revert by itself, and whether this phenomenon is due to human activities, and thus whether human efforts can pause, halt or even reverse the change.
As with most charged debates where both sides are firmly entrenched, politics have gotten involved, and that has dragged in more polarization based upon one’s political affiliations.
Not helping is the apocalyptic language used by some proponents, especially earlier in the discussion (around the 80’s), in some cases suggesting the Earth may be inhabitable by around this time. Ooops. To make matters worse, it has come to light recently that some of the climate studies supporting the narrative have been doctored, fueling conspiracy theorists on the other side. Of course, that big moneyed interests are involved on both sides (building new green infrastructures vs existing fossil fuel based infrastructures) just makes this into an all out dog-fight.
My personal opinion
Before we go on, just as a disclaimer of sorts, here’s my personal take. I have not personally gone over the climate change data in detail — I am not a researcher in the area so the data will just go over my head anyway. I have, however, read quite a bit on the summaries of studies, as well as various layman oriented articles published by both news and scientific outlets.
While I am not 100% convinced, I lean heavily towards the belief that human activities are affecting global climate, and that the current means by which humans extract energy is unsustainable. I have no idea if changes in human behavior will pause/halt/reverse the effects, but I figure it can’t hurt, and more importantly, we need to find more sustainable sources of energy anyway — at some point we’ll run out of dead dinosaurs.
To the tree huggers
A message to the those who are for the climate change narrative — calm down. Yes, I think the scientific evidence leans heavily towards supporting your views, and some hypotheses floating around suggest that not doing anything, or even doing too little, could be disastrous. But crying your eyes out, screaming at the Earth murderers is not conducive to rational debate, and certainly does nothing more than alienate your audience.
Instead, think of it rationally — there is no point crying over spilled milk. The world and reality is what they are now, and we must make do with what is available to us, instead of crying over what it should have been.
First of all, it is impossible that all fossil fuel programs will stop right now, no matter how much you wish it. For all the advancement in sustainable energy sources, there are severe downsides:
- Solar energy is terrible for base load power supply — there is too much of it during the summer, and way too little during the winter. While batteries can bridge the gap between day and night, even across multiple days to account for rain vs shine, there currently exists no battery technology that can store power across months at a large scale. Do not fret though, this is a well recognized problem, and there is a lot of scientific research into this area (more later!).
- Wind energy works across the seasons and times of day, but is unpredictable because the wind itself is unpredictable. Also, during periods of strong gusts, wind turbines actually have to be shutdown to prevent damage to the turbines, an irony not lost to the other side. Wind turbines are also loud which means they need to be situated further from their use, and the nature of them requires much larger land acreage to deploy. Finally, like solar, wind energy isn’t very reliable in winter as extreme cold can sometimes require the turbines to be shutdown. So while less dependent on battery technology, wind energy still requires battery backup.
- Tidal and hydropower sources tend to involve installing largish installations over rivers/beaches. Tidal energy is not deployed right now due to various issues, mostly to do with concerns about their effects on marine life, the sediment process (i.e. how beaches are formed), and that the turbines tend to need a lot more maintenance/replacement than other forms of green energy. Hydropower similarly affects the natural landscape and thus the wildlife and population centers that depend on it, and while much more durable, breaks in the dams built for hydropower can have devastating consequences for the people that live downstream.
At the same time, the transition is going to cost vast sums of capital, capital which the vast majority of the world simply does not have. Yes, over long periods of time, sustainable energy sources generally pencil out to be more cost effective, but that’s not the problem — the problem is the start up costs. Most countries simply do not have the resources to embark on such large scale transition, especially when there are attendant problems with the technologies (which, again, hopefully will be resolved with time). While it is easy for us in our air conditioned offices to type out articles about how the world should behave, it is important to understand that reality is very much different in other parts of the world. Current fossil fuel energy sources remain the most abundant and easily accessible energy sources for the less affluent countries. Yes, over time, investments in sustainable energy sources are very likely to pay off, but that does not address the very real need these countries need, to survive, now — it is hard to think of a better future when current reality simply demands all your focus.
Finally, and most importantly, it simply doesn’t work to shut off all fossil fuels immediately, not in a “we can’t afford it” way, but in a “it hurts the green transition” way. For the green transition to proceed, there things that we simply cannot do without — steel, fiber glass, copper wiring, etc.
As an extreme example, currently, steel cannot be made without coal — each ton of steel requires about 750kg of metallurgical coal, so if we shut down all coal mines, we’ll also be shutting down all steel production. No steel, no wind turbines, no solar panels (admittedly not a lot of steel is needed in solar panels), etc.
And more importantly, until the transition is over, we actually do need fossil energy to, well, power the transition! How else are we going to transport those gigantic wind turbines to remote parts of the country? How are we going to power the factories that manufacturer the solar panels?
A pet peeve of mine, and to illustrate the counter-productiveness of indiscriminate green protests, is the demand for shutting down of coal mines in some industrial countries. Shutting down a coal mine does not eliminate the fact that some industries (steelmaking!) and power plants need coal still to operate — they can’t simply shutdown overnight and leave entire towns without power. So what happens is that the same amount of coal is mined elsewhere, and then shipped to the original country. Think about it, instead of mining the coal nearby and then using it, we now:
- Mine the coal elsewhere, often in a less regulated part of the world, thereby increasing the amount of environmental disruption (though admittedly out of sight),
- Expend more energy, often in the form of burning fossil fuels, to ship the coal to where it is still needed.
How dumb is that?
To the climate deniers
Hey, I understand — those holier-than-thou, green woke hippies can be annoying. Like, really annoying. But let’s ignore their juvenile tactics for now and think rationally for a bit.
What if, just what if, they are right? Even if it’s a 1% of 1% chance, you have to admit, if they are right, the amount of gloating you’ll have to suffer through will be intolerable. But more than that, the Earth itself may be uninhabitable. Kinda makes the whole point of that Hummer pointless, no?
Now, I get it — you love your gas engines — they’re reliable, refuel in a minute and sound awesome. But the price of gas has been on a tear lately, and that is a bummer right? What if I told you, that there is a way for you to secure more gas for yourself, a way that’ll outright prevent some other folks from buying gas? Less demand, lower prices, I mean, you gotta love that right?
Which is why, I think you should support EVs. Yes, they are terrible — they take forever to charge, they don’t work right when it’s cold, and they simply have no soul. But you don’t have to drive one! Just encourage everyone else around you to buy one. Once they buy an EV, they will stop going to the gas station, and there’ll be less competition for gas, which should, all else equal, reduce the price of gas that you have to pay. Imagine paying for a tank of gas with a $50, and getting change!
Similarly for electricity. The more those climate idiots spend of their money developing new energy sources, the more supply of electricity there will be. And Economics 101 tells us that with increased supply, prices should go down. In parts of Europe, power generation during the daytime is so high due to solar power that energy prices went negative. Negative! Imagine being paid by the power company to blast the A/C at max?
So, don’t do it for them. They are wrong. But do it for your wallet. Smile politely and nod as they make their nonsensical case, and tell them to go about their plans, because it is good for you. It’ll lower the price of a tank of gas, it’ll reduce your monthly electricity bills, and more importantly, you get to gloat about how those idiots are paying you to live your life. What’s not to like?
Supporting the green transition
Now, whether you believe in climate change or not, I hope I have made the point that investment (by others, not necessarily you!) into new green technologies is beneficial.
And here comes the controversial part — buying the shares of “green” companies does almost nothing. Yes, maybe it makes you feel better to own shares of “Green Company XYZ”, but you have to understand that when you buy shares on the stock market, you are buying them off someone else, someone who is not “Green Company XYZ”. The company itself sees none of the money that transacted. While there is a case of be made that a higher stock price makes it easier to hold secondary funding rounds, the reality is that most public companies never, ever hold secondary funding rounds — it is generally seen as a sign of weakness, and the stock price tends to get demolished because of it. Also, a high share price does not make it easier for the company to hire better people. Stock/option grants are based on the current price of the share, so for those employees to benefit, the share price doesn’t have to be high, it has to be rising, and it is generally easier for shares with lower prices to rise than for shares with higher prices.
Instead, if you are willing and able to invest to support the green transition, I would recommend that you invest in the debt of green companies, or even better, to invest in green startups. Unlike stock, companies issue debt all the time, and tend to do so on a recurring basis. So the price of their debt is actually important to them, and affects their ability to continue operating. By buying their debt, you are providing another source of demand for that debt, and with higher demand comes higher prices, which directly helps the company during their next debt funding round.
Finally, startups are almost always in need of equity funding. Unlike buying shares from the stock market, investing directly in a startup means the money goes directly into that startup’s treasury, meaning the money is directly available to them to pursue their business needs.
Right now, the areas which I believe are most in need of research are:
- Battery technologies, specifically long term energy storage with minimal leakage. Battery energy density research are good too, as they can help make EVs more palatable by having longer ranges.
- Solar energy efficiencies. Solar power panels typically have an efficiency of under 20%, which is pretty abysmal — 80% of the energy that falls on the solar panel are simply not captured. Increasing that to just a barely passing 60% will decrease the surface area of panels needed to supply the same amount of energy by 67%! Imagine if a solar panels of roughly the size of a dinner table being able to supply all the power needs of a home!
- More efficient/synergistic technologies. Right now, a lot of electricity is wasted simply because existing technologies are terrible at reusing heat. Think about it — we use electricity to remove heat from our fridges, which then dumps that heat in our homes. We then use electricity to turn on the A/C to move that heat outdoors, while at the same time using more electricity to heat up the pool/hot tub (for those who are lucky enough to have one). What if we could just remove the heat from inside the fridge, bypass the rest of the house and dump that heat directly into the pool/hot tub? While we’ll still need A/C to cool down the house during a hot day, the need will be reduced, and even better, that heat can also be pumped into the pool/hot tub! This basic idea of reusing heat can be applied to other areas too — heat generated from cooling of EV batteries can be used to warm up the interior of the car during winter, heat removed from giant datacenters can be used to heat homes, etc.
- Cleaner fossil fuels. Refinement techniques to reduce emissions when burning fuels, while not a long term solution, can buy humanity more time for the green transition. At source carbon capture and sequestration techniques can be developed to reduce and safely store emissions from polluting industries, etc.
Closing
Whether you believe in climate change or not, the fact remains that all of us are stuck on this little rock floating around in space. So maybe let’s stop arguing and let’s start finding commonalities, and where particular efforts can be win-win.
Janky Thoughts 