There Ain’t No Thing Such As A Free Lunch

This week I read in Tradewinds News of a speech the Lord Mayor of London made during London Shipping Week. “All businesses face a stark choice: You can either go green, or go home. It’s not an either-or situation. To paraphrase that political phrase: ‘It’s the green economy, stupid.” He echoed the words of former Bank of England governor Mark Carney who described decarbonization as the investment opportunity of a generation. I agree with Carney. Unfortunately for them, it is the other side of the trade in conventional fuels and shipping.

It is relatively simple. Energy prices are increasing in Europe because the wind didn’t blow as expected. Together with reduced power generation as renewables have become a large portion of the energy mix, short-term power generation prices have risen dramatically. In the US, natural gas prices are running 2x their recent historical averages. Typically, the oil majors in the US would have responded to higher prices with more drilling, but under the green leadership of Blackrock and other investors, they are focused on low carbon technologies and standing pat.

You learn in your first economics course that “There ain’t no such thing as a free lunch.” No one seems to acknowledge that it is very expensive to replace high density, low cost energy with high cost, low-density energy. You can easily reduce carbon emissions by slowing vessel speeds or by returning to clipper ships, but transportation costs will dramatically rise. Fertilizer prices are rocketing as European plants close due to skyrocketing LNG costs. If the Lord Mayor of London, Mark Carney, Extinction Rebellion or Larry Fink endorse rising prices and lower living standards as smart and worthwhile, so be it. One of them may want to have a conversation regarding the costs to the Vox Populi if they don’t want a backlash. In the meanwhile, it has created the investment opportunity of a generation in shipping.