As Rockefeller Brothers Fund Divests Oil and Gas, Climate Change Meme Heats Up
By Staff News & Analysis - September 24, 2014

Germany's energy policy is expensive, harmful and short-sighted … Berlin is failing the poor while protecting neither security nor the climate. – Financial Times

Dominant Social Theme: This global warming is a problem and only Green solutions can cure it.

Free-Market Analysis: There are two parts to this analysis. In the first part, we'll take a look at what's going on in Germany.

In the second part, we'll discuss the announcements by Rockefeller Brothers Fund officials that they were divesting the fund of fossil fuels. Our discussion will yield up an investment conclusion that utilizes the High Alert VESTS model.

First, let's look at a little more of the article excerpted above. It's from March of this year, but it provides us with some interesting insights when contrasted with the just-announced Rockefeller Fund news:

The Ukrainian crisis has again put German energy policy in the spotlight. As long as Europe's green energy is expensive and unreliable, it favours Russian gas and leaves the continent's energy policy unsustainable.

Germany's energiewende, the country's move away from nuclear and fossil fuels towards renewable energies has been regarded by some commentators as an example for the rest of the world.

But now Germany shows the globe how not to make green policy. It is failing the poor, while protecting neither energy security nor the climate. Last month, the government said that 6.9m households live in energy poverty, defined as spending more than 10 per cent of their income on energy.

This is largely a result of the surcharge for renewable energy. Between 2000 and 2013, electricity prices for households have increased 80 per cent in real terms, according to data from the OECD and the International Energy Agency.

This means more and more money is going from the poor to the rich. Low-income tenants in the Ruhr area or Berlin are paying high energy prices to subsidise wealthy homeowners in Bavaria who put solar panels on their roofs.

What we can see here is predictable: German energy policy – like such policies around the world – doesn't adequately address supposed environmental problems but is driving up the price of energy enormously.

In fact, we read that a report to the German Parliament pointed out that regulations made it easier for companies to continue to offer old and inefficient solutions such as "wind, solar and biomass" due to subsidies than to try new and riskier technologies. A revised version of the program in question (the German Renewable Energies Act) was implemented last month but it's not comprehensive – and Germany's track record doesn't exactly inspire confidence.

"German energy policy is an expensive way to achieve almost nothing [the report concludes]. For solar alone, Germany has committed to pay subsidies of more than €100bn over the next 20 years, even though it contributes only 0.7 per cent of primary energy consumption.

These solar panels' net effect for the climate will be to delay global warming by a mere 37 hours by the end of the century, according to a report cited in Der Spiegel. A McKinsey study published earlier this year found that Germany energy prices for households are now 48 per cent above the European average.

Such news simply reaffirms criticisms about these kinds of programs. Over and over, governments attempt to legislate alternative energy solutions and simply end up inflicting vast inefficiencies and inequities on users.

It is noteworthy this is happening in Germany, which has a reputation generally for (relatively speaking) public and private efficiencies. The problem is so bad, the article goes on to say, that Germany runs the risk of becoming uncompetitive if alternative policies are not put in place.

The conclusion is that if new energy technologies are pursued that offer the promise of ever-cheaper energy, Germany can continue down a Green path in a more cost-effective way. Perhaps this is what the Rockefeller Brothers Fund sees occurring – as its officials recently and surprisingly announced that the fund was further divesting investments in "fossil fuels."

Here's an excerpt from a New Yorker article written yesterday that summarized developments:

The Rockefeller Brothers Fund Gives Up on Oil … On Monday, the Rockefeller Brothers Fund posted a carefully worded message on its Web site, which announced that it was "committing to a two-step process to address its desire to divest from investments in fossil fuels."

The organization, established in 1940 by Rockefeller heirs, is smaller than the better-known Rockefeller Foundation. But because of the timing of the announcement—following several large environmental marches held around the world, and before the United Nations hosts a climate summit in New York—and because the fund carries the name of the Rockefellers, whose fortune came from Standard Oil, the announcement attracted outsized attention.

This wasn't, however, like the heirs to the McDonald's fortune suddenly giving up meat. In fact, the Rockefeller Brothers Fund has been moving in this direction for years. In 2010, its board of trustees committed to investing up to ten per cent of its endowment in companies that meet sustainable-development goals.

… Environmentalists and some scholars have pointed out that investors value energy companies based largely on the reserves of coal, gas, and oil that remain underground. They argue that as climate change gets more intense, governments will increasingly enact laws that make it difficult—even illegal—for companies to extract all those resources.

Those fossil fuels could become, in other words, "stranded assets" that are, for all intents and purposes, useless. That could lower the stock prices of the energy companies that have made money by taking them out of the ground.

… It's too early to know how the stranded-asset theory might play out; it depends, in part, on how aggressively governments move to enact climate-change laws. In the U.S., the Environmental Protection Agency has proposed requiring a thirty-per-cent cut in carbon emissions from power plants by 2030 (compared with 2005 emissions levels).

… For now, the new focus on the financial implications of fossil-fuel investments seems like a sign of the growing practical-mindedness of environmental activists: those seeking to address climate change realize that they need to show investors that divestment doesn't just make you good—it can also make you rich.

This is the crux of the matter, of course – are fossil fuel investments now seen as unpromising ones? This is the only way we can see the Rockefeller decision as making any sense.

And this is where we can apply High Alert's VESTS model. This strategy asks investors to decide whether elite dominant social themes are going to add value to a given investment or whether what we call the Internet Reformation will make these themes inoperable and thus strip them of value.

Of course, there is considerable question as to whether the world NEEDS to reduce dependence on oil and gas, and this is part of a VESTS analysis as well. One must consider whether Internet information has raised enough skepticism about "alternative energy" to render it basically inoperative or at least ineffective as a broad-based legislative device.

This is obviously a consideration for officials running the Rockefeller Fund and a reason why they remain cautious in terms of implementing their strategy.

From an investing standpoint one has to decide whether elite themes and methodologies will carry the day or whether the considerable skepticism fostered by 'Net reporting will make these thematic elements impossible to impose.

The Rockefeller Fund is obviously banking on legislation that will eventually "strand" the resources of even the largest traditional oil and gas companies. Do they know something we don't? Is such legislation now being written with an eye toward introduction and eventual implementation?

We have no conclusion to offer regarding what's taking place, but probably, like many VESTS analyses, clarity will occur over time.

After Thoughts

This significant and controversial meme bears watching – especially because it has now been advanced by the Rockefeller Brothers Fund.

Posted in Oil & Gas, STAFF NEWS & ANALYSIS
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