{"id":7561,"date":"2023-11-07T16:00:00","date_gmt":"2023-11-07T16:00:00","guid":{"rendered":"https:\/\/ibkrcampus.eu\/?p=7561"},"modified":"2024-01-22T07:45:24","modified_gmt":"2024-01-22T07:45:24","slug":"finance-follows-physics","status":"publish","type":"post","link":"https:\/\/www.interactivebrokers.eu\/campus\/traders-insight\/securities\/esg\/finance-follows-physics\/","title":{"rendered":"Finance follows physics"},"content":{"rendered":"\n

In the world of energy, the voice of Michael Liebreich<\/a> is one worth listening to. For those unfamiliar with Michael\u2019s background, not only does he have a Masters Degree in Engineering from Cambridge University, but he was also the founder of New Energy Finance in 2004. The business was sold to Bloomberg in 2009 (and now operates as Bloomberg New Energy Finance<\/a>). Michael currently undertakes a range of speaking and consulting roles as well as serving on numerous industry boards. Your author was lucky to hear Michael\u2019s thoughts on energy transition over coffee and exceptionally good Portuguese nata. The key takeaways were as follows:<\/p>\n\n\n\n

\u201cThere are better ways of doing things\u201d<\/strong>, Michael said passionately when asked about the current state of affairs. Sure, the United Nations\u2019 Paris Agreement<\/a> (a legally binding international treaty on climate change) was \u201cground breaking\u201d but the reality is that the world remains highly dependent on fossil fuels<\/strong>. This is a function of their deeply embedded nature in almost everything we do \u2013 from fuel to transportation \u2013 and also the \u201cheavy resistance\u201d to change. Michael described this as a function of regulatory and political capture<\/strong> as well as the vested interests of incumbents<\/strong>, views to which we are sympathetic.<\/p>\n\n\n\n

Nonetheless, there are major causes for optimism<\/strong>. Most importantly, this is simply because \u201cfinance follows physics.\u201d Put another way, understand how the science of energy works and how these learnings can be applied practically, and then the investments should follow. Electric vehicles are over three times as energy-efficient as those with internal combustion engines<\/strong>. Logically, we should see increasing deployments of EVs. The \u201cfast and dramatic\u201d rise of wind and solar energy<\/strong> \u2013 to c15% of the global electricity mix versus zero a generation ago \u2013 is another case in point.<\/p>\n\n\n\n

Against this background, Michael is confident that \u201cwe will get to net zero.\u201d <\/strong>Even if current targets may be \u201caspirational\u201d, there is a clear need to plan towards them currently. The \u2018S-curve\u2019 is a well understood concept in business: slow and steady progress, then exponential growth before eventual flattening. If 2050 is the goal for net zero in the developed world, then a lot needs to happen: invest now and remove barriers before 2030, to make sure the real change (the steep part of the S) occurs in the following decade. Better policy<\/strong> and fewer regulatory hurdles<\/strong> will help. Technological change<\/strong> can be an enabler <\/em>(a favourite theme of ours). However, it will also be \u201cnecessary to put money on the table.\u201d<\/strong> If we want clean steel or green aviation fuel, then we may just have to pay up for it.<\/p>\n\n\n\n

—<\/p>\n\n\n\n

Originally Posted November 2, 2023 – Finance follows physics<\/a><\/p>\n\n\n\n

The above does not constitute investment advice and is the sole opinion of the author at the time of publication. Past performance is no guide to future performance and the value of investments and income from them can fall as well as rise.<\/em><\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"

In the world of energy, the voice of\u00a0Michael Liebreich\u00a0is one worth listening to. \u201cThere are better ways of doing things\u201d, Michael said passionately when asked about the current state of affairs. 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