Copenhagen and the aim to create the biggest bubble in energy

(This article was published in Cotizalia on December 10th)

We are reading many headlines these days about the Copenhagen summit and the commitments that are expected to come out of it. I will not discuss the scientific findings that lead to this group of nations to meet, but would warn about the plan to create the biggest energy and financial bubble in history: a huge fund to drive CO2 through the roof.

In this summit governments will take the first global decision since the industrial revolution that is not based on an improvement in economic efficiency. It is about intervention on a global scale to promote industrial processes which are more expensive and inefficient than current technologies, and managing the global energy policy from the UN, not from markets and sovereign governments.

The interventionist governments have already created a commodity, CO2, and assigned a fabricated supply and imposed demand. This artificial commodity was allowed to trade on the markets with the goal of encouraging speculation, the same speculation that is demonized when it comes to gold or oil.

But the problem is that the prices that they had expected, €40-50/ton CO2 did not materialize; given that when markets are allowed to work they fastidiously often reflect the true dynamics of supply and demand, and prices sometimes fall. Now the CO2 (December 2010 contract) is trading around € 15/T. And the plan does not accept price falls, as they need to generate price inflation to justify the transition to expensive alternative technologies. Thus, the world’s governments are meeting this week to create a huge fund, estimated at more than 300 billion dollars, financed with our taxes, to revive the bubble, where the laws of efficiency, supply and demand are abolished in favour of a supposed climate benefits in 2050. A bargain.

The expected agreements could be summarized in three parts. First, developed countries would commit to reduce their emissions to a specified amount.

Second, developing countries would commit to reduce the “growth in emission intensity.” As the reader may have guessed, the sum of the two will not reduce emissions, but increase it. Why? Is there no commitment to save the Earth? No, because the objective is not to save anything except the mega-bubble by creating more emissions than required so countries will buy more expensive CO2.

Come to the third: They want to create the previously mentioned $300 billion fund dedicated to the transfer and technological adaptation.

Let me translate: Dear friends of developing countries… please forget about using your natural resources to grow at $ 40/bbl as we will force you to use foreign technology and increase your energy bill to $ 110/bbl or more.

In short, a fund controlled by politicians from the UN, with such a great track record as managers, that decides and orders on global industrial development with an objective that is unquantifiable in any economic or efficiency term. The UN will impose foreign and expensive technologies on developing countries at a reasonable price or free to begin with, but a very high cost subsequently, in order to increase their dependence. This is a fund that will be created through higher taxes, increasing the bill for the CO2 bubble. And the bill to purchase CO2 credits will cost Spain, for example, 3 billion Euros between 2008 and 2012, and the UK will pay around 5 billion in the same period.

I agree that CO2 emissions are a problem to solve. I am convinced that many renewable technologies will be competitive without subsidies in the short term, and I firmly believe in companies that innovate and lead the change process. But this change can not be managed by supranational agencies with no positive track record. The law of supply and demand, as well as innovative and efficient technologies should be the axis of a profitable and efficient change, but not imposed.

About Daniel Lacalle

Daniel Lacalle (Madrid, 1967). PhD Economist and Fund Manager. Author of bestsellers "Life In The Financial Markets" and "The Energy World Is Flat" as well as "Escape From the Central Bank Trap". Daniel Lacalle (Madrid, 1967). PhD Economist and Fund Manager. Frequent collaborator with CNBC, Bloomberg, CNN, Hedgeye, Epoch Times, Mises Institute, BBN Times, Wall Street Journal, El Español, A3 Media and 13TV. Holds the CIIA (Certified International Investment Analyst) and masters in Economic Investigation and IESE.

5 thoughts on “Copenhagen and the aim to create the biggest bubble in energy

  1. Daniel,

    I am a little surprised by this take on carbon markets from someone with your background. If you agree (as you seem to do) that reducing emissions is necessary there are only three options:

    (1) Cap and trade;
    (2) Carbon tax;
    or (3) Subsidise renewable energies directly.

    You appear to imply that even without any of these the market would still deliver low-carbon energy. I am not sure how or why that would happen.

    Of the three policy options I would favour (1) or (2). In economic theory the result should be the same if you had perfect foresight. In reality what will happen is that a carbon tax gives you certainty on the price of carbon (which would arguably be helpful to developers of low carbon technology, renewables or nuclear) with uncertainty as to the impact on emissions, whereas cap-and-trade would give you certainty on emissions reductions (attractive to policy-makers) with uncertainty on price.

    What is happening in any case, at least in Europe, is that we already have (1) and (3) and more countries look set to follow the path of France and apply a carbon tax as well. It seems like overkill to me and am not sure that the emissions trading scheme has such a birght future ahead of it.

    Of course I agree with you on the point that there are huge problems associated with having international bureaucracies like the European Commission or the UN managing these markets, but I think that is a secondary order consideration.


  2. Incidentally, some time back you congratulated me on my blog. I would like to send yo my CV to see whether I am the sort of person you could see working in your organisation, but I note you have not made your contact details available. If you think you could be interested in having a look at it grateful if you could email me @ so I can forward it to you.

  3. The science behind climate change is a joke.. without going back too much, Danish people should know well that until the XIV century Greenland was actually GREEN LAND, after there was a significant cooling (just look at ice skater in Flemish paintings). Just looking at that for me is difficult to accept blindly that mankind is the cause of climate change

    However also given for grant that carbon is the cause of climate change: the current policy will change nothing

    Scientists tell us that WHAT MATTER is the concentration of Co2 in the atmosphere.. to reduce this concentration we should emit less Co2 than what the whole system is able to absorb. The truth is that “the system” is able to absorb very little … also a Co2 reduction of -50% overnight would not be sufficient to reduce the concentration


    Summing up climate change for me is a joke, but people want to invest there, politicians can get votes and it is now 5% of world GDP, so if you cancel this industry you will have double the impact of current crisis on world GDP.

    WHAT TO DO? In the end what everyone wants is Co2 price to go up, so don’t bother with investing in renewables or related stuff… just buy directly Co2 today with a cheap ETF (50bps management fee and no performance fee, with daily liquidity) ou buy at 15 today , you get 30/40 in 4-5 years with a NET 15-20% annual return.

    PS: for those who are afraid that the melting of the ice will increase sea levels and destroy their second home on the seaside… don’t bother, the melting of icebergs will not increase sea level, as for the principle of ARCHIMEDE: the total mass of the ocean and ice remains unchanged even when the ice melts. Just try to let melt the ice in your drink, you will see that your drink will not go up!

  4. AGW, which has now been rehyped, err, remarketed as “climate change” is a hoax. Anyone advising people to “invest” in this sector is little more than a politically correct charlatan, reminiscent of the hypsters during the craze a decade ago.

  5. Thank you for your comments, I have been traveling and posting in my blogs has been difficult. Climate Change is a difficult subject and difficult to believe when scientific data is so manipulated. However, even if climate change is a hoax (or not), investing in alternative energies is worth it if only to counterbalance the impact of declining fossil fuel supplies.

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