Energy Musings - January 20, 2025

The Trump presidency begins today and with it will come many changes in America's economic, energy, and environmental policies. Renewable energy's poor financial results were known but ignored.

Trump Versus Davos On Green Energy

Today is the inauguration of Donald J. Trump, the 45th President of the United States, as the 47th President of the United States. He will be the first president since Grover Cleveland (the 22nd and 24th) in 1893 to be elected after being defeated when he ran for re-election earlier. Today also marks the opening of the 55th Annual Meeting of the World Economic Forum (WEF) in the village of Davos in the Swiss Alps. Trump and the WEF’s views about the future direction of America and the world differ. One’s view of the future is in ascendancy as the other is descending.

Three thousand leaders from 130 countries will descend on Davos for a four-day, nonstop gabfest starting this morning. Among the attendees are 350 government leaders, including 60 heads of state. Once he is in office, President Trump will appear virtually. Everyone anticipates a radical shift in U.S. energy, economy, and environmental policies. Trump’s vision for the next four years and beyond will emerge with the publication of his rumored 100 Executive Orders. The media will be abuzz with stories about the actions and plans by tonight.

As Trump’s new energy and climate policies are unveiled, Davos attendees will discuss the WEF’s agenda headlined Collaboration for the Intelligent Age. What we know from Trump’s first term in office and his presidential campaign is that he believes climate change mandates are detrimental to Americans. His philosophy, as presented by his targeted discussions and proposals, is America First, with a strong push to revive the principles of the Monroe Doctrine governing the Western Hemisphere.

In contrast to the MAGA doctrine, the WEF focuses on increased globalization. The key policy difference is over the amount of government involvement in the everyday decisions of Americans and whether the public will make the correct decisions about climate policies and social activities through free market principles. The WEF sees globalization as the only way to integrate people into society and requires the breaking down of regional and national barriers erected to protect local economies. According to the WEF, mandates decided by an elite group of policymakers and regulators lead to better outcomes than allowing the public to define their future collectively.

Climate change has been an aspect of globalization that has dominated the WEF agenda for decades. It is considered a global issue. Therefore, the elites of the West have determined that limiting CO2 requires not only that the developed world reduce its energy emissions but also that the developing nations limit theirs. For developing countries, it means restricting their rate of industrialization, which is key to improving the lifestyles of their citizens. This is problematic for the 700 million people who lack adequate access to electricity and its lifestyle improvements.

The effort to promote climate change began in earnest in the early 2000s, notably with Al Gore’s documentary An Inconvenient Truth, designed to educate and scare the public about the dangers of global warming, the original terminology for climate change. With the support of the United Nations Intergovernmental Panel on Climate Change (IPCC), the pace of global warming was determined to be accelerating, leading to disastrous outcomes. To slow warming, hydrocarbon emissions must be reduced or eliminated. Renewable energy and other non-carbon energy sources, principally nuclear and hydropower, were promoted to power the future global economy.

In 1998, Professor Michael Mann, with collaborators, published a paper containing a hockey stick-shaped graph of global average temperatures indicating that global warming was accelerating. The graph, prominently displayed in the IPCC 2001 report, became the rallying cry for climate warming scientists and alarmists. Other scientists questioned the foundation of the graph, which they saw depending on cherry-picked data. For most of the 2000s, the climate warming advocates, with the help of academic journals, blocked the publication of studies countering the warming narrative. A rash of extreme weather events, such as Hurricane Katrina, which devastated New Orleans and its surrounding areas in 2005, cemented the belief that the science of climate change was “settled” and not open to any debate.

Towards the end of the 2000s, the idea that the world needed to stop burning hydrocarbons and switch to renewable energy – solar and wind – gained traction. That was despite these energy sources failing to deliver on two of the three key attributes of electricity that the public demands. Although renewable energy may be clean, it is neither reliable nor cheap.

The WEF became an aggressive cheerleader of the need to force this global energy transition. The strong momentum behind the switch, constantly trumpeted by compliant media, spurred asset managers to create investment products that appealed to those individuals wanting to profit from the shift from dirty energy to clean energy.

In 2009, Standard & Poor’s created a clean energy index based on the investment fortunes of companies participating in the global energy shift. After being introduced, the index rose and remained elevated until 2010, when it slid. After a brief rally, it fell further before hitting bottom and trading flat from 2013 to 2020. Like many fad investments, the clean energy index contained many green energy companies that struggled to generate profits (consistently) for their shareholders. Between January 2, 2009, and January 31, 2020, the index lost 483.97 points, producing a negative 38.33% return. This was a poor performance for an investment riding the wave of popular sentiment in support of efforts to transition the economy from hydrocarbon to renewable power.

When COVID-19 emerged in early 2020, the push for more renewable and less hydrocarbon energy resulted in the clean energy index soaring by 160%. Since that price spike, however, the index has steadily declined. The recent price action may reflect the growing pushback against the green energy mandates, which restrict consumer choices for everyday living, driving electricity prices up sharply and contributing to power blackouts.

Except for 2020, clean energy has not been a profitable investment.

The real problem with green energy investing is that the industries and companies at the center of the global energy transition require subsidies. They have also been slammed by higher interest rates and supply chain issues, with the former being the more significant challenge. Many green energy business models are highly capital-intensive, necessitating huge up-front investments before generating income and profits. Solar and wind are prime examples of green energy businesses that are highly sensitive to interest rate levels and their impact on returns on capital investment.

While renewable and clean energy investments have struggled, they compete against profitable and rapidly growing technology businesses for investor dollars. The profits pouring out of tech companies have mesmerized investors into valuing their stocks highly. Such investor sentiment has supported the creation of new tech products, especially artificial intelligence and the equipment needed to support its growth. The result has been record corporate America profits and record stock prices for the Dow Jones, S&P 500, and NASDAQ indices.

Concentrating on green investing rather than the broad market represented by the S&P 500 Index has been costly for investors. From the start of 2009 to last Friday, investors in the clean energy index lost 42.02% compared to making 770.94% in the S&P 500. If green energy is the future of the world’s economy, then those companies should be making significant profits. They are not. Many of them have proven to be major loss-generators, including several prominent ventures that have gone bankrupt. Even established companies experimenting in green energy markets find it difficult to earn a profit.

Clean energy’s disastrous investment returns versus the market.

Trump’s arrival in the White House will create additional headwinds for the green energy industry. He opposes green energy subsidies for electric vehicles and dislikes building more wind turbines, especially offshore. He is a promoter of using and capitalizing on domestic hydrocarbon resources as part of the America First agenda. Furthermore, the public is upset with rising electricity bills due to clean energy mandates and the forced shutting down of reliable hydrocarbon-generated power. The change in administration is not good news for green energy investments.

Another significant shift is the growing number of major financial institutions abandoning the United Nations’ Net-Zero Banking Alliance. While the banks leaving the organization claim they will maintain their sustainability targets, the costs of climate reporting, challenging targets, and possible anti-trust scrutiny are barriers to remaining. At the same time, leading environmental states, which enacted laws to force the green energy transition, are suddenly confronting the reality that their goals and time frames are unrealistic. California has withdrawn requests for Environmental Protection Agency waivers for its diesel truck rules designed to push the state’s trucking industry to phase out internal combustion engine trucks in favor of electric ones despite their cost, limitations of delivery ranges, and the shortage of additional drivers required to haul the same goods in a larger fleet of EV trucks.

Around the world, governments leading the green energy transition through mandates are being defeated when standing for re-election. The repudiation of the green energy transition is growing. Davos/WEF will discuss the need for green energy and ending hydrocarbon energy. Trump will act to promote hydrocarbon energy and minimize green energy expansion.

A new four-year struggle between these contrasting views of how to power economies begins today. The battle will be fun to watch and comment on. The 15-year performance of the S&P clean energy index highlights the challenges facing renewable energy. It will not be easier in the future.