Fidelity Monitor's Jack Bowers on being a climate realist, and optimist, too
How the economy can transition from fossil fuels successfully and for less cost than expected
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(Mark Hulbert, an author and longtime investment columnist, is the founder of the Hulbert Financial Digest; his Hulbert Ratings audits investment newsletter returns.)
CHAPEL HILL, N.C. (Callaway Climate Insights) — Is it possible to be both realistic about the threat posed by global warming and, nevertheless, also optimistic?
Jack Bowers thinks so. He is editor of the Fidelity Monitor and Insight advisory newsletter. According to my investment performance auditing firm, his equity-oriented model portfolios have on average beaten a broad stock market index fund by 1.2 annualized percentage points over the past 35 years. That’s better than the vast majority of investment advisers across Wall Street. (See full disclosure note at the end of this column about how my auditing firm is compensated.)
I was particularly drawn to Bowers’ analysis because optimism is a rare commodity among those who work on mitigating climate change. To many it seems that there’s little to no hope, in fact. Many are even deciding not to have children because the future is so doomed. You’re accused of burying your head in the sand to even entertain the possibility that not all hope is lost.
These dynamics remind me of the anti-Vietnam War protests in which I participated in the late 1960s. You’d be accused of going “soft” if you detected any progress toward shifting public opinion against the war. To avoid such an accusation, people would adopt an attitude that a friend of mine called “peace and social justice macho” — an attitude in which things were worse than ever and the prospects for the future were even worse.
The sources of Bowers’ optimism are the technological advances that have already taken place and confidence in further advances in coming years. A decade ago, he said in an interview, it seemed impossible that by 2050 the world could run without fossil fuels. But today it’s not only theoretically possible but within reach.
“Over the last decade, PV solar and wind turbines have become the lowest-cost sources of power generation. The declining cost of LFP (Lithium Ferro-Phosphate) batteries has set the stage for a similar scaleup in battery storage, which allows grid power to be stored at night and delivered during the daytime, potentially doubling peak capacity while boosting grid stability.”
Another source of Bowers’ optimism is that he believes it’s possible to shift away from fossil fuels without hurting the overall economy. That’s important because it’s a hard sell asking people to sacrifice today for a benefit that is decades into the future. “Allocating capital to renewable power generation, battery storage, and electrification is unlikely to negatively impact the economy. These are things that improve overall efficiency and grid reliability, and the investment return is likely to remain attractive over the long run — with or without government incentives.”
Bowers mentioned in this regard Tesla’s TSLA 0.00%↑ “Master Plan Part 3,” which was published in April. The report argues not only that the technologies already exist that make it possible to “reach a sustainable global energy economy” within 20 years, but also that the total capital investment required to support such a transition is less than what would be required by the oil and gas industry to merely sustain their existing system.
Bowers reminds us in this regard that “U.S. shale oil production is peaking, suggesting that the U.S. may not remain the world’s largest oil producer longer-term. As a shale producer, you have to run hard to stay even when it comes to maintaining output of oil and gas; any significant decline in the return on investment for shale projects would portend the loss of U.S. energy independence for a second time.”
Much of the Tesla analysis is speculative, needless to say. But if the report’s conclusions are even close to being on target, the transition to a carbon neutral world doesn’t depend on a special category of ESG-oriented mutual funds and ETFs. All that would be required is for investment managers to favor those projects that provide the greatest return on capital, which of course is something they’re doing already. It’s a source of considerable optimism to have the full force of Wall Street potentially supporting the green transition.
Hulbert was the founder of Hulbert Financial Digest, which closed in 2016. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be reached at mark@hulbertratings.com.
Read more from Mark Hulbert:
Your ESG fund may beat the market for reasons that have nothing to do with ESG
Here’s how investors really behave at a ‘woke’ mutual fund firm
Why climate adaption stocks might be more profitable than climate solutions
Eureka! This one chart shows that divestment of oil stocks works
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