The term “stranded assets” is something we’re going to become very familiar with over the next couple of years. It is a fancy term for the well-known idea of creative destruction. We all know and understand in a dynamic economy that new products and processes become available all the time, that consumer preferences might change, and past entrepreneurial decisions may be ex post unprofitable. Investors might lose money. Sunk investments are written off and the like.
The environmental movement are making an argument that this is about to happen to fossil fuel investments in general and coal investments in particular. The argument that they make, however, isn’t that nuclear fusion is about to become scientifically and commercially viable and solve the world’s energy needs. Rather they argue that sovereign risk is higher than is being priced in markets and existing fossil fuel reserves will be expropriated and become commercially non-viable as governments force energy companies to leave them in the ground.
Rather than being concerned about investors and investments already been undertaken the environmental movement are engaged in a stand-over tactic.
That’s a nice coal mine you’ve got there. Wait until my mates have monstered your suppliers of finance, your employees and customers. Wait till I lobby government to expropriate your assets. Then we’ll see how nice it is.
When rent-seekers run secondary boycotts we get the kind of campaign we’re currently seeing. What makes me all the more suspicious is that many of the individuals involved in advocating coal divestment are also advocating increased investment in renewable energy stocks. So this looks like an old fashioned stock market manipulation. To the extent that the divestment campaign is encouraging investors to make valuation errors and divest funds from viable activities and invest in activities that only survive due to government subsidy we will see some very poor investment outcomes. It will be very interesting to watch if the government agency created to prevent this sort of behaviour notices and investigates. Of course, my first preference is that ASIC be shut down, but failing that it should at least perform its function.