Anti-climate change and asset revaluation

Buy low, sell high

One of the things that I am interested in within the politics-lobbying-climate change nexus is motivations and incentives. To date, my reading has revealed that there is a substantial connections between the fossil fuel industries and the politicians/advisors/government officials.

There are campaign contributions, offers of jobs post-government service and loans and other gifts from fossil fuel companies to key people. Some of this has been documented.

The question that continues to trouble me about the climate issue is that I don’t have a feel for the motivations and incentives of those who seek to slow the climate response. The common refrain is ‘it’s about the money’ but I ask ‘what amount of money, earned by who and how do they get it?

Often we see discussions of multi-national, diversified companies seeking to maintain asset valuations.

My question is about other groups (maybe small and non-public) buying distressed fossil fuel assets (particularly when a climate policy has negative impacted the valuation), push for a slowdown or reversal in climate response policy and revaluing the assets at higher levels before sale or float.

I think about the CarbonTracker chart of US coal sector and related policies which is one of my all-time favourite charts.

While I see the decline of coal as policies relating to emissions are introduced, the converse is also true. Reversing those policies should have an immediate positive share price effects. In fact, it is almost possible to forecast the likely impact so you could know how much money to put at risk for how much likely return.

For instance, the introduction of MATS (mercury emissions policy) in 2011 stops the upward trend of the coal sector. Remove that policy and the assets should be positively revalued.

Is this the play for fossil fuel exposed assets in Australia? Small to medium sized companies and investors buying at low prices and then advocating to turn policy around to generate extreme positive revaluations?

Part of me wants to believe that there is not a group out there who are saying ‘we have a vested interest in making sure climate change happens – i.e they we inherently evil’ but that there is a amoral flipping business in play where short term asset revaluations provide strong incentives to push for delay or rollback. The investors might say ‘well, if I didn’t take this opportunity, someone else would have’.

Think the 2008 financial crisis moral hazard around lending.

But the impact on effectively responding to climate by having a group of borderline speculators seek asset revaluations is still immense and super dangerous.

How would I prove that this is a factor?

I would need a list of mines and mining permit ownership changes over the last decade. The trend would have to be a noticeable movement from large, publicly owned to small, non-public ownership. Any vulture funds or known ‘traders’ (i.e. someone who has distressed asset transaction history) would be even better.

A brief search does not suggest that this information is easy to come by.

But what does my thesis mean?

It may mean that protesting the mega companies may be like ‘closing the gate after the horse has bolted’ as the pressure to slow/reverse policy is coming from smaller, non-public groups that have purchased assets in the recent years and are working on an asset-by-asset basis to generate revaluations.

If this is a credible issue, it is frightening to think about the global impact of a potential short term revaluation action by a small number of investors.