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BlackRock’s decision to dump coal signals what’s next (theconversation.com)
627 points by evolve2k on Jan 16, 2020 | hide | past | favorite | 236 comments

Matt Levine, as always, provides the most honest and direct commentary about this. Here's the start, but the whole piece is interesting, as pointed out by a reply.


> Will BlackRock’s decision to send a strongly worded letter about environmental sustainability reshape how corporate America does business? Well, I remember two years ago when Larry Fink sent a strongly worded letter about how companies needed to make society better, and that too was supposedly “likely to cause a firestorm in the corner offices of companies everywhere,” and now, uh, same society really.

> Now BlackRock will send a strongly worded letter to CEOs about the environment. It will arrive on the desk of the CEO of, I don’t know, giant state-owned oil company Saudi Aramco? A company where, according to Bloomberg data, BlackRock is the largest outside shareholder. A company that did a bond offering last year—after the Saudi government murdered and dismembered Jamal Khashoggi, after Fink sent that letter about making society better—in which BlackRock was also a big investor. “We wanted the Aramco bond to be much bigger,” Fink said, way back in April, when his public-relations goal was to butter up Saudi Arabia. Now it is January, and his public-relations goal is to butter up environmentalists, so BlackRock “will make investment decisions with environmental sustainability as a core goal.” Next time a big oil company is looking for money, presumably that will change again.

> I could keep being cynical about this all day.

Disclaimer: I worked for BlackRock for about 3 years on an investment team (but its been a while and I don't have a dog in this fight)

BlackRock is a very simple business to understand. First, they only investment money on behalf of their clients and they take investment fees for making decisions on behalf of their clients (investing their money).

They break the business in to two parts:

Alpha: old school mutual funds, new school quant funds, real estate etc. Anything where managers get paid big bucks to make investment decisions on behalf of clients.

Beta: passive investment vehicles that blackrock tries to deliver for the lowest price with lowest tracking error (i.e. deliver as close to what the index returns as possible).

What BlackRock is doing here, is a VERY, VERY big deal. They are allowing clients to now pick passive investment strategies which exclude coal or other businesses that people find morally objectionable. What that means is that if you care about the environment you can move your money to these new passive investments. As more and more people do it, it will decrease demand for equity in those companies and increase their cost of capital.

On the active side, they already had that feature, and many of their clients already ask BlackRock to exclude investments from their active portfolios and were willing to accept less return. (BlackRock has offered that for a very long time).

I find very few things interesting that asset managers do, but I am going to look at all my passive investments and try to get them moved over. I bet passive funds without coal etc. will outperform while more and more people move money from vanilla S&P500 to S&P500 without coal.

Eventually those coal companies may fall out of indexes all together which will really increase their cost of capital.

Brilliant move by Fink, and I applaud it.

Or less environmentally-conscious investors will step in, take advantage, fill the gap, and keep the equilibrium. Obviously, there is a line where decrease demand for equity will not be compensated but we don't know where it is and whether we'll reach it.

Except that even from a totally selfish standpoint, coal is a walking corpse anyway, the growth is clearly in renewables. Even if I didn't care at all about environment, I would prefer the coal-less products. Maybe some investors will profit from coal in the short term, but many will be left holding the bag.

This. Suppose the goal is to buy and hold some index for your pension in 30 years time. It's hard for to imagine that fossil fuels are going to grow faster than the other index components. So I'd rather cut them out.

But this wouldn't really be a return-maximizing strategy, would it? I wouldn't expect to hold the same stocks for the entire 30 years, rather I would be constantly looking for medium-term gains and then trying to lock them in once I think they've peaked. I.e., maybe I think fossil fuels are going to continue growing for at least a 5-year time frame, and then maybe around them, I would re-evaluate whether that's still true. In other words, the return-maximizing strategy would seem to be to treat them like any other investment.

There's truth to what you're saying; assuming one knows where relative medium term peaks and troughs are in multiple asset classes. That's a whale of an assumption. As is the assumption that fossil fuels are going to be higher growth rate over the medium term. Your strategy also requires attention and likely incurs more transaction costs if executing it yourself.

I thought I would do a ballpark check. Random first index of oil & gas I found was FTSE 350 Oil & Gas. Start 2010 value: ~7914. Start 2020: ~8253. Return: 1.043. General FTSE350 at the start of 2010: 2718. Start 2020: 4311. Return: 1.59. So we'd have done better buying a fossil fuel divested index 10 years ago. I see no reason to think this trend will reverse.

The fundamentals to me are that fossil fuels are likely only see more regulation, divestment and less importance to new technologies. While the upside wildcards in energy are most likely not in fossil fuels.

If that were so obviously the case it would tank without any intervention or 'class action'.

I think it will indeed tank in the next few years, and to be honest, my bet is that the main reason for the "intervention" by BlackRock is also that they believe it to be the case. I don't believe it's just a matter of public image, let alone morals.

Time will tell.

The reason is unrelated to any views individuals at the firm may have on the profitability of coal. They will not be marked on performance, that is the whole point of passive indexing. You _are_ the benchmark, no judgement required.

It's not only passive funds. From the article: "The announcement by BlackRock, the world’s largest fund manager, that it will dump more than half a billion dollars in thermal coal shares from all of its actively managed portfolios".

I was responding based on the Matt Levine quotes (GPs) rather than the article. But accede entirely

Well if you take a look at coal performance in the US, that's pretty much what is happening.

What if you take a look at coal performance in China, Asia and Africa?

It's a tragedy of the commons, one cannot expect it to be solved by decisions of individuals.

This was also my thought. I think the only fail-safe strategy is if renewables are cheaper than coal (or more convenient / popular from the consumer's side).

I'd love to be able to buy something that was exactly like VTI but scrubbed clean of oil, coal, gas, and other sources of environmental damage.

There are some specialized ETFs like KRMA, but I don't know anything that has environmental criteria that also follows the total market or some large cap index.

ESGV excludes more than you want but does exclude fossil fuels:


Unfortunately [in my opinion] it excludes nuclear power too

Unless you're Gates or the like with deep pockets, you shouldn't be near nuclear power as an investor unless public policy shifts to properly reward nuclear for its low carbon generating profile. This is why nuclear has closed up in states unwilling to subsidize it; it's not cost competitive with combined cycle natural gas, wind, or solar.

You could buy individual symbols (on top of an ESG ETF/fund vehicle) to get exposure to nuclear if you absolutely had your heart set on it. I would not recommend doing so.

There's not many nuke stocks anyway. Can easily back-fill the few that are public to diversify into that.

> I'd love to be able to buy something that was exactly like VTI but scrubbed clean of oil, coal, gas, and other sources of environmental damage.

Show me one large company that doesn't do environmental damage?

This would be a cogent argument if there weren't degrees of damage.

I was about to say show me even a person or household that doesn’t do environmental damage.

Create it synthetically by shorting the things in which you do not want to invest.

That’s a lot of work and not equivalent

Wouldn't the loan fees on the shorts disrupt that plan though?

If the stock is readily available the short fees are next to nil. Only hard to borrow securities have impactful loan fees. In the common case you get paid to short as it’s a rebate on potential interest for the principal.

> In the common case you get paid to short as it’s a rebate on potential interest for the principal.

What does this mean?

You're borrowing money for their shares; you can earn interest on that.

If you don't mind explaining, how does this work in practice?

You give back shares on a later date. But sell the borrowed shares for money now.

If you don't know it, don't try it. You are playing with money, you don't have.

Thanks for clarifying, I know what shorting is but have never done it in an account where it made sense to do what the parent was suggesting.

You’re already accepting a lower return by excluding these equities from your portfolio, just accept a slightly lower, lower one.

Excluding certain securities doesn’t lower your expected return, it just raises the volatility very slightly because you are less diversified.

This presumes a difference of opinion in what blackrock thinks the security is going to do vs the investor. If blackrock thought it could get a better rate of return without a particular security, then there's no moral justification needed for dumping it.

IShares CRBN does something similar, I think.

"Eventually those coal companies may fall out of indexes all together which will really increase their cost of capital."

This seems to contradict your expectation that "passive funds without coal etc. will outperform". If the cost of capital for coal companies is higher then the return for investors in those companies is also higher.

Yep. There's a good Cliff Asness post on this: https://www.aqr.com/Insights/Perspectives/Virtue-is-its-Own-.... Increasing expected return for sin stocks is exactly what you want if you're serious about ESG investing.

Only if they can collect enough capital to fund projects. Esp multi-billion dollar projects could be harder to fund with less support from the market, destroying parts of the business altogether.

Surely China will pony-up for more coal?

Why would China care where their power comes from ? If renewables are cheaper, then they’ll use them. That’s it.

Quite so. I'm not sure China cares there's an environmental cost associated with coal. With no other buyers, won't that make dirty coal the cheapest?

China has a major public health and pollution issue they are actively and constantly trying to remedy. The thing is everyone is making environmental investing out to be some "moral" approach, when in reality there are real and expensive repercussions and associated long term costs with using something like coal. It might be cheap immediately, but that doesn't mean it benefits society and when it adds stress to a public health system, or causes environmental damage which requires constant government intervention to clean up messes, then it's not a great idea to go for the supposedly "cheapest" option. China has the highest output of carbon in the world, but also the largest population. They aren't net producers of energy that releases CO2. They are net consumers. That's a big and important distinction. That means they don't have any vested interest in CO2 producing energy sources and if the market can adjust to provide them energy without over producing Co2 they will respond without the costs being prohibitively more expensive they'll be all about it. China is one of the largest consumers of Solar energy for e.g.

China absolutely cares about the environmental cost. Perhaps more so than the USA in the current political climate...

He's saying they'll have to pay more when they issue bonds, leaving less to pay as dividend.

This is a nuance barried in my comment, but if you buy an asset today and the cost of capital increases for that asset, that means the price went down all things equal and you lost money

I think demand for fossil fuel free holdings is more of a risk reduction strategy greenwashed as something more.

I think you're right for most cases. And that's OK. We still end up with an investment climate that's fossil-investment-averse, and that's good for the atmosphere/ocean in the long run[1] conducive to H. sap's continued existence.

i.e. People doing the right thing for the wrong reasons is just fine. The right thing ends up being done.

[1] for some value of 'long'...

>People doing the right thing for the wrong reasons is just fine.

It's not laudable though.

I'll take "alive" over "laudable" any day of the week.

I understand the desire to dig into intentions here but we're not losing if we invest less in coal.

Potentially we are if an even more polluting investment becomes more profitable and they go for that. Gas, for instance, usually emits less CO2 but emits a lot more methane, which is ~90 times more warming. This is what coal is typically being replaced with.

I'd like to know what is the point of giving investors a pat on the back for engaging in selfish behavior? It's like thanking a full tiger for not eating you.

It could be legal too. Imagine an organization whose members voted to ban its management from investing in any fossil fuel (no matter the motives). Or a country whose law forbid any investment in some particular resources (e.g at some point, we could ban coal like we ban some drugs and weapons).

> I find very few things interesting that asset managers do, but I am going to look at all my passive investments and try to get them moved over. I bet passive funds without coal etc. will outperform while more and more people move money from vanilla S&P500 to S&P500 without coal.

Isn't it exactly the opposite? If capital for oil becomes more expensive, it means the producers need to pay more for it. Thus being an investor on them is more profitable.

I remember a long time ago reading an article on how Vice stocks do well precisely because of this effect, but I don't know if it resisted time.

In the end, if oil stocks give a higher profit, then supposedly rational actors will compensate the objectors behavior by allocating more of their portfolio to oil, making the effect neutral, but more people exert their own preferences.

Ta for the considered comment. Your stated opinion gybes very well with my assessment of the state of things and you come from a very, very different part of the world to me, both physically and workwise.

I feel like you were looking for the north American slang word "jive"

TIL that "gybe" is an alternate spelling for "gibe," but only in the sailing context ("to shift your sail from one side of the vessel to the other"). "Gibe" also means to heckle. "Jive" has to do with music. The word your parent wanted is "jibe."


I probably, wanted "dovetail". I know I have heard and used a word that sounds like jibe in this context but given I was a sailor, I would automatically make that into gybe. Jibe is probably correct.

There are two main ways of changing a sailing boat's direction. I wont discuss them (its complicated) but tack and gybe are the keywords.

The active ESG funds are a bit pricey in terms of fees so this is great indeed. Is there an ETA for the fossil fuel free index funds?

"They are allowing clients to now pick passive investment strategies which exclude coal or other businesses"

I don't think this would be new in the world of index funds, but it also seems like not what is being reported. According to the link active funds are having coal removed, and the rest is breathless speculation.

> As more and more people do it, it will decrease demand for equity in those companies and increase their cost of capital.

If I had to guess, Chevron, Exxon and Aramco doesn't have too many problems with cost of capital. All you're doing is making them cheaper for people like me who don't invest based on moral posturing.

While I don't have money in markets directly, I think overall I'm happy with the idea of concentrating those who "don't invest based on moral posturing" into investments in dying industries (going to happen, just the time frame that's not determined yet).

Slide your money over into that sinking ship, and right along with your whole cohort, we'll watch those businesses fall out of favor or even run out of capital completely, and we won't feel a thing for your losses. Not this week, not this month, not this year, but soon enough.

I don't even care if the door hits you in the a on the way out.

The importance of oil and gas will obviously decline over time as the cost of extracting marginal deposits will push demand down, but a lot of the current climate change posturing is just that, posturing. People in the developed world love their high-carbon lifestyles and there is no viable alternative to oil/gas in the near to moderate term that will allow those lifestyles to be maintained at current levels. Oil and gas companies aren't going out of business any time soon, and I expect them to do quite well over the next decade or so, as climate activism causes them to reduce investment in future production, leading to future price increases.

Also, to preempt some criticism: I'm not saying AGW isn't real. I'm saying we won't stop using fossil fuels despite AGW because there is no other way to maintain our populations and living standards at such high levels, at least without a complete overhaul of the entire economy (everything depends on oil and gas in our globalized world).

I don't think they are going to roll over and accept fate as a dying brand, big oil companies are some of the largest investors in alternative fuels. Also, that 5% yield is looking real nice at the moment

If the companies affected shift away from fossil fuels, that's excellent as well. I'm not worried about the entities per se, just the emission reduction and overall environmental track record.

If ten years from now, a much healthier Exxon is a part of the non-fossil economy, so much the better.

Yep, heard this with Philip Morris and Mickey-D's as well when there were moralistic lawsuits and shorts against them: a couple of great trades.

Thank you for your service.

Maybe at some point y'awl will realize how nitrogen fixing works in current year (aka "Haber-Bosch process"), and where food comes from. Also good luck convincing the developing world to forgo a hydrocarbon economy.

There is one issue that I can see with this, which is when the stock is valued near to some calculated future value of dividends. The price of a stock can go down while the dividend remains constant. Hence, some will take up coal stocks that now have a high dividend for the value of the stock; essentially a discount (which may in this way be naturally corrected).

However, in terms of capital available to a company, often a company needs enthusiastic investors (Uhm... WeWork anybody?) that generate funds for large capital expenses.

Since you worked at BlackRock, I'll take your word for it that the former will not take preference over the latter. I'm too young to have money to invest and don't know enough about the nuances for big time issuer companies to know the exact impact of Fink's [1] move.

[1] The CEO of BlackRock https://en.wikipedia.org/wiki/Laurence_D._Fink

Couldn’t one argue that the only reason BlackRock is willing to exit coal positions because most lose money? Perhaps it just happens to align with investors ethical desires for once?

> As more and more people do it, it will decrease demand for equity in those companies and increase their cost of capital.

And what will happen if those investments fail?

How does that work? Is BlackRock starting new passive funds? The news stories I've seen don't say anything specific about what they're doing.

Thanks for your brilliant commentary here.

Your post quotes the cynical piece of Levine’s editorial (literally his next three words are “but let’s not”, referring to “being cynical all day”), but it’s worth reading in full for the more nuanced perspective. I found the last two paragraphs surprisingly enlightening:

> The right model of BlackRock is probably that it is mostly an aggregator of preferences, but it is also, at the margin, a shaper of preferences. It passively reflects what investors want generally, but it has some ability to push those investors to want different things. There are other things that BlackRock does—it votes the shares of stock that it owns on behalf of investors, it meets with managers to talk about their sustainability plans, it writes strongly worded letters to CEOs—but I suspect that they’re mostly less important than the basic core function of taking $7 trillion from investors, channeling it where the investors want it to go, and slowly and subtly diverting those channels so that the money moves more in the direction that BlackRock wants it to go.

> This is an unavoidably uncomfortable role. If you want BlackRock to do more on climate change, you will be annoyed that it mostly offers broad passive products that buy all the stocks, including the ones you don’t like. If you want BlackRock to do less on climate change, you will be annoyed that it is pushing its clients into sustainability-focused funds rather than neutrally giving them all the stocks, including the ones BlackRock doesn’t like. Mostly it is an uncomfortably powerful role: BlackRock really is a general aggregator of preferences, so it speaks with the authority of its $7 trillion and its universal ownership, which means that its ability to shape those preferences matters.

No, these are two very different cases. The earlier one was about corporate social responsiblity, the new one is about investment profitability.

And if you are wondering if the BlackRock head is right, do a google search on "fossil fuels stranded assets"

>Larry Fink sent a strongly worded letter about how companies needed to make society better

On the topic of executives needing to improve society, Fink here was important in the creation of the MBS market.

There’s nothing inherently wrong with mortgage-backed securities (they exist today!). In fact, there’s a lot right with them - they allow specialization by firms within the mortgage process and participation by investors with various risk profiles. It’s applying the Unix mindset of specialized composable functions to mortgages.

The 2008 crisis happened because MBSs became a bubble - investors stopped performing diligence (and risk models were crappy), so securitizers started packaging up crap, underwriting standards dropped, etc.

If you're familiar with the market and the dogma at the time, the idea was that securitization used mathematical techniques to actually reduce risk, and these were being sold as such. What's wrong was after this bubble popped, the taxpayer was on the hook for the socialized bailout, while the temporary profits were privatized. As such, while people like Fink may not have seen this through from start to finish, their ignorance or unwillingness to blow the whistle on something as destructive as this calls into question--in my opinion--their competence or earnestness in indicting others to effectively do what he should have done.

While there were definitely a bunch of shady things going on (e.g. Paulson helping Goldman negotiate a 100% payout of AIGs CDS obligations) during the crisis, the treasury actually made a profit of $15.3bn on TARP.

Australia needs to exit the export coal business. We should go dig some other rocks up out of the ground, we have a lot of them...

We are responsible for 37% of global coal exports. That's massive. If we halt coal exports it would put a squeeze on the coal supply and that raise prices; probably significantly. Coal power plants are already on thin margins. If cost of coal increased for a sustained period (a few years) coal would be considered unviable as a fuel source. We should see a lot of the plants close down.

Australia always talks about its self as being insignificant and anything we could do to help prevent climate change would have no measurable impact. This incorrect relatively and absolutely, we are one of the largest per capita emitters. But we are also the third largest exporter of fossil fuels.

This is Australia's opportunity to actually do something significant to help address climate change.

[1] http://www.worldstopexports.com/coal-exports-country/

[2] https://www.abc.net.au/news/science/2019-08-19/australia-co2...

"In 2014–15 mineral extraction in Australia was valued at 212 billion Australian dollars. Of this, Coal represented 45,869 million, oil and natural gas 40,369 million, Iron ore 69,486 million, Gold ore 13,685 million, and other metals 7,903 million." [1]

45B is still a lot of money to remove from the economy. It's less than I would have predicted (mining is only 5.8% of economy), but it's still a non-trivial amount. And 45B gets you a lot of lobbyists.

[1] https://en.wikipedia.org/wiki/Economy_of_Australia

45B of revenue does not translate to 45B of revenue effects in the Australian economy. it underpins GDP. next to none of it appears as either royalties or income because the companies have massive tax holidays and find ways to legally avoid the upside. Its more like 4B of effect in the functional economy than 45 and has to be set against Tourism which is probably 9B and directly into small to medium enterprise, which has massive effect on rural economy directly.

Economics is dismal. 45B evaporates very quickly when you (sorry) drill down.

And where does that $45B evaporate to? They will invest that money somewhere, which can spur on Australian business. Even if they don't invest it, it'll still be in a bank account, which means that it can still be loaned and invested. The only way I can think of where it wouldn't benefit Australia is if the investors of the mining companies are not from Australia or don't invest it in Australia.

>because the companies have massive tax holidays and find ways to legally avoid the upside.

Another thing to note is that quite often the way companies legal avoid taxes is by investing that money instead of taking out profits. That's still beneficial for Australia. The world doesn't only revolve around how much people pay income taxes.

The only way I can think of where it wouldn't benefit Australia is if the investors of the mining companies are not from Australia or don't invest it in Australia.

Invest meaning purchase Australian Goods and services, and invest in Australian enterprises. Well.. Labour hire aside, there aren't many heavy machinery manufacturers onshore, and there are cost issues in sourcing construction materials fabricated onshore. The least-cost tender tends to favour Chinese and Indian sourced goods and materials, even if made with Australian steel they don't always come from domestic sources. The shareholdings are a mixture of Australian and International and there is a huge upside in shareholder benefit which includes pension funds and state investment funds, no denying that.

Another thing to note is that quite often the way companies legal avoid taxes is by investing that money instead of taking out profits. That's still beneficial for Australia. The world doesn't only revolve around how much people pay income taxes.

Yes, but they also seek tax holidays for sunk costs, and then seek co-funding for investment costs, so they avoid the cost of actually having to build the ports and railway lines, but get a tax holiday on the investment made: the state government has to pick up the difference. Investments are valuable for australia in the longer term, but have to be offset against longer term downside costs, like remediation of the minesite which has historically been avoided, or damage to the water table, or the groundwater, or the effect on local property prices which disadvantages local residents not engaged in mining, or the downside effect on tourism from damage to the environment..

Nothing is simple. if I over-state the evaporation of the $45B, then the positives of the $45B have been equally if not more so overstated. Much of the money is fictive, never actively enters the economy, and instead "enhances shareholder value" at the expense of actual, incurred real-world costs in the state.

Mines make money: they also incur costs. Who bears the costs is not the same as who makes the money.

Maybe a contrast with how Norway manages their Oil Fund would better illustrate your points.


The Iraqi who saved Norway from oil https://news.ycombinator.com/item?id=19594153

It evaporates to other countries such as China, India and Japan.

A small handful of union backed Australians get paid ridiculous amounts for relatively easy work and those unions kick up a massive fuss whenever discussions of shutting down the industry come up.

Thermal coal adds little tangible value to the lives of everyday Australians.

It’s also doing a great job of ruining agriculture, tourism, water catchments and the natural environment.

And yet 50% of the coal we export is metallurgical coal. The kind needed by humanity in almost every kind of construction and large scale manufacturing.

For some reason though, it's always lumped in with thermal coal by protesters and so-called environmental activists.

Also, you are massively kidding yourself if you think that Thermal Coal doesn't affect your everyday life in Australia. Enjoy no power and a collapsed grid if you remove most of the baseload power in the grid. The energy sector is forecasting an energy shortage in NSW and Vic due to them prematurely closing coal plants without adequately replacing that capacity.

South Australia may be "net green" or close-to if you are to believe headlines, but it would collapse instantly without the baseload of Victoria stabilising its grid and supplying power when required (and Vic later accepting power and lowering its coal output for the close to free useless power).

There is close to 0% chance that QLD alone will be able to supply the missing power that NSW and Vic will require.

No, the grid will have issues because there isn't a transition plan in place, it's technologically viable to run of mostly solar and wind with some gas peakers. It's obviously, politically sensitive to plan for this transition. So it hasn't happened and now you're arguing that coal is the only way to provide "baseload".

Think about how much sun covers Australia and you're telling me there isn't enough sun? What about wind, uranium and gas? Look to the stars my friend.

To your point about the ratio of thermal to coking coal. What's your point? So Australia stops exporting thermal coal, and increases taxes on coking coal to pay for the transition to a renewable grid and support coal miners while they find other work in renewables (which they should've done 20 years ago). There's no problem with that plan.

There are a huge number of problems with that plan. It will cost a fortune and on net more Australians will be worse off than if the government does nothing.

And that is just in Australia. The customers of our coal markets will lose out as we unilaterally try to cut them off from the raw resources they need. That is probably a cost you are willing to bear, but it is still a problem.

> The energy sector is forecasting an energy shortage in NSW and Vic due to them prematurely closing coal plants without adequately replacing that capacity.

There's also a massive backlog of green power efforts to connect to the grid, because the grid is badly designed. It was designed to take power directly from coal stations to cities, it wasn't designed to be an effective or efficient network.

Saying we need coal because we haven't upgraded the grid to meet modern demands is like saying someone with a broken arm needs a sling. It is true, but it isn't permanent, and the goal should be to get rid of it or you'll hurt yourself more in the long run.

Even if the grid was completely overhauled into some kind of futuristic design, our current understanding does not allow it to work with a majority of the power coming from distributed tiny producers (like rooftop solar) or majority renewable configurations. The existing examples you see of states or countries that claim to be mostly renewable, only work having the entire grid backed up with non-renewables for when shit hits the fan.

We still don't have answers for relay desensitization and ferroresonance in particular.

The bigger renewable producing projects pose less problems, but still don't replace baseload in the grid or serve to stabilise the grid. They can only follow the grid within a given tolerance.

The worst part is that the powers that be are likely to ignore all of the above and roll out anyway. The grid will have already been syncronized by the things they turn off and things will for the most part roll along fine (service disruptions just becoming a part of daily life)... until something happens that requires a grid restart (think along the lines of a cyber attack or a natural disaster). That's when shit really hits the fans. Restarting the grid is a pretty manual and time consuming process, and renewables simply add too many variables to the equation to make this process possible. They would need to split the grid into lots of micro-grids, but then they would need interconnectors between each micro-grid that will be constantly tripping and incur substantial maintenance costs in normal operation.

I am aware that you are not the original commenter I was responding to, but I can't help noticing that you did not respond to the main thrust of my previous comment though, about metallurgical coal.

"Even if the grid was completely overhauled into some kind of futuristic design"

Has technology just blown your mind?

I've not heard a single reputable scientist or engineer claim this is such an impossible task as you. Yes it will take policy change [1], but honestly you sound like a defeatist and a denialist and really what is the alternative except for moving forwards? Australia just keep exporting thermal coal to Asia and not change our ways and die from famine, drought and heatwaves ?

Edit: I just want to say this whole argument you're making about "the grid not working without coal", just sounds like such a con. Just like the way the Government of Australia scares everyone with talk of a loss of jobs and growth whenever someone discussing stopping the Adani coal mine. It's just an unsubstantiated claim.

[1] https://www.theguardian.com/australia-news/2019/nov/06/ross-...

> They will invest that money somewhere, which can spur on Australian business.

Or drive up Australian housing prices? Or pay off the government to remove environmental protections. Or invest overseas in more mines.

> They will invest that money somewhere,

and keep some of it in off shore tax havens.

How much money do you think climate change is going to take out of the economy? Its going to be a lot more than 45 billion.

Long term of course. But you still need power in the mean time, as well as money and jobs.

You’re also assuming those who are good at mining coal could somehow instead be good at both protecting the planet AND making as much money. That’s seldom the case.

How many people are employed by the mining of thermal coal in Australia. You’re taking like it’s greater than 10%. I can assure you it’s not as many as you would imagine.

That assumption is not necessary to make it a huge net negative.

$45 billion in 1913 would be $1,179 billion today purely through inflation. Money that's available right now can be invested to make life better in the long run. That's why governments usually borrow money.

I think it's not that straightforward of a situation.

Inflation does not represent an increase in value. Otherwise Zimbabwe would have turned into the world’s richest country.

Further there is a weak link between resource extraction an long term economic growth. It requires a huge investment in resources and education that becomes worthless after the resource runs out. Just look at West Virginia to see the long term boons from coal mining.

>Just look at West Virginia to see the long term boons from coal mining

I don't understand what you're getting at. Compare the life of an average person in West Virginia today to the average person in West Virginia before coal mining and the person today is immensely better off. Technological improvements are the payoffs from investment.

Technology has increased standards of living everywhere, that’s independent of coal mining because the technology was developed globally. West Virginia however has fallen behind the economic development of other states without coal.

So fill in the blank. Climate change will cost X billion a year by 2050. If you don't have any idea, then it shouldn't be hard to Google an estimate from someone knowledgeable, but shouldn't you already know before you make a comment?

How much has the cost of the fires been so far?

Australia produces ~6% of the worlds coal [0]. That is the only thing nature could care about; figures like % exports and per capita numbers are meaningless. 6% is a big enough slice of the pie for everyone to argue about. The 34% figure specifically is a bit meaningless because it is by value and there is big price (about x4?) difference between met coal (Queensland) vs. thermal coal (NSW). It doesn't make sense to try and compare Australian met coal exports to, say, Indonesian thermal.

Also as a counter argument, attempting to pressure China economically by choking their imports would probably end badly for us.

[0] https://en.wikipedia.org/wiki/List_of_countries_by_coal_prod...

The reason i was referencing export % vs production % is that a change in the availability of coal for import would change the market price differently than if we assumed that all coal produced is available on the international market (which is false).

But yes 6% in absolute terms is worth caring about.

Your comment was insightful; I think the GP missed your main point, which is one of economic pressure through constrained supply.

It is important to keep in mind the two categories of coal in terms of their final use. Most people think coal is only thermal coal, which is predominantly used in power plants to generate energy. A non-negligible 20% of Australian coal is the other sort, metallurgical. This type is used predominantly in steel production (think carbon in steel) and is, at the present, very unlikely to be replaced for a long time. Roughly half of coal produced in Canada is metallurgical, for instance, and that production is unlikely to end unless steel production does.

I've been wondering lately how and whether Australia could use its position as the biggest exporter to deliberately wreck the global thermal coal market, and consequently, coal usage.

I'm definitely not an economist, but would it be feasible, if coal production could be co-ordinated nationally, to manipulate the market through (I'm guessing) either or alternately dumping coal on it or suddenly cutting it off, possibly in an unpredictable manner? Does Australia have enough weight to make a difference? And would this have any effect greater than cutting off production entirely?

Sure but it has a huge financial impact. Its the second largest source of export earnings and the main source of electric power. The Australian economy has been hugely successful thanks due to coal, there is no way voters will take a big cut to their standard of living, especially with most of them overleveraged into property.

Imagine what we could do with just a 1% export tariff and funneling that money into renewable energy sources. At 10% we could invest in renewable energy projects in other parts of the world.

Don't let your imagination run wild, just do the math. Coal exports are on the order of $50 billion[1], 1% of that is $500 million.

Meanwhile, the money already going into renewables is on the order of $15 billion per year (for the past two years)[2].

[1] https://en.wikipedia.org/wiki/Coal_in_Australia#Production,_...

[2] https://www.news.com.au/national/federal-election/almost-30-...

Which means Japan needs to exit the coal import business, they are the largest importer of Australian coal.

This is a really cool mining-cost-model site:


Coal prices are currently slumping. I’m sure all the coal companies would love it if Australia increase their revenue by driving up price.

If Australia was able to double the price of coal, it would be what it was back in 2011.

Australia needs to take a more enlightened attitude to the environment at home first. Just as Norway still exports a lot of oil but has the largest density of electric vehicles.

I personally agree with you 100%, but of course the economy is more important that addressing climate change.

It's so blatantly obvious the current political leadership in Australia is in bed with the coal industry, but like all the other democracies that have been bought by mega corps - what are you going to do?

The government hasn't addressed the economy or the environment. They have shouted the same crap on repeat so many times that we have forgotten that coal is not a good investment and only serves to funnel government money in to a few corporations.

At this point, this is one of those policies which is both environmentally friendly and makes piles of economic sense. Even without clean energy subsidies, coal is rapidly becoming a bad investment. The cost of running existing coal plants has exceeded the cost of building new solar & wind power plants. Over the next few years, demand for coal is likely to implode.

As bankers and insurers start to internalize this idea, the number of people willing to continue investing, insuring, or financing coal operation is going to vanish and the industry will collapse completely.

[1] https://www.forbes.com/sites/energyinnovation/2018/12/03/plu...

Next they should do the same with natural gas. The data on the investments of nat gas fracking make it doubtful that it will pay back even the last round of capital investment.


As the cost of renewable power continues to drop, investing in extracting oil/ natural gas/ coal from the ground is going to make increasingly less sense. Coal has the fewest uses outside burning for power and the greatest environmental impact, so it's the most vulnerable, but oil and NG are going to come under increasing pressure.

It’s a great stocking stuffer.

It's coming; coal is unprofitable largely because it's been displaced by gas. But solar and wind are starting to gain critical mass, which could mean that natural gas craters faster than coal has. Fossil fuels are starting to look very risky.

The point of that article is that nat gas, even without additional climate externalities loaded onto it (which they should be), looks like it will turn out to be a poor investment. If we then add future analysis of climate costs onto that, they should already be as dead an investment avenue as coal.

Natgas can’t and won’t die in the short term. It is necessary to balance the intermittency of renewables in electrical generation, at least until there is viable utility scale battery storage. I’m not sure there is another good alternative at the moment. Even if loads were to decrease dramatically (unlikely in my opinion) it would still set the marginal price for electricity in most areas.

There is a massive oversupply globally of natgas at the moment, which is why the long term investment outlook looks bad. It has been overproduced via copious debt, increasing efficiencies have made the extraction price very low, and it’s a pesky byproduct of oil production in some areas (and pricing reflects that in those areas with prices actually going negative at some times). Perhaps if the environmental externalities of extraction were priced in, it would be more expensive but it’s a big reason why the US has been able to retire so much coal over the past decade. Arguably this is a huge net win environmentally speaking.

Sealed nuclear reactors [1] will likely play a big role here. They are much safer and far less expensive than nuclear tech currently in operation (which dates back to the 70s or earlier). The astronomical cost of building a nuclear power plant has been a huge barrier to adoption, but that should come down significantly over the next decade.

[1] https://www.world-nuclear.org/information-library/nuclear-fu...

I hope you are right. I think nuclear power is probably the best thing that can be adopted. The new build costs are astronomical compared to natgas though and I’m not entirely sure why. We’re talking almost an order of magnitude the last time I looked - 1200/kw for gas vs 8000/kw for nuke. Gas costs have come down dramatically over the years while nuclear costs have increased. I hope this trend can reverse. Don’t know anything about the sealed reactor that you’re discussing though.

Renewable + storage, for intermittent supply, is already cheaper than a natural gas peaker plant for intermittent supply.

I think this is wrong in terms of new build cost. Especially if you take away subsidies. As far as I know, local factors aside, wind gen costs around 1500/kw without storage. Solar is similar, and gas is around 1000-1200 for a combined cycle and 800 for a simple ct (which would likely be a peaker). If I am remembering correctly, Duke energy recently completed a combined cycle plant that came in significantly under cost - around 900/kw.

If you add utility scale batteries, you’re looking at much more for renewable. I’m not sure what type of storage you have in mind though. Add to that, the capacity factors are very high for gas, while notably low for renewable. This impacts payback severely and I’m not even sure if you can sell capacity against a renewable plant - I may be wrong here.

What type of renewable are you talking about and what type of storage? Also what are the new build costs you are referencing? Or are you simply saying that a utility scale battery costs less than building a peaker?

But part of the reason why coal is a poor investment is the issue of climate change. Work on solar panels and other renewables is at least partly spurred on by the threat of climate change.

fracking is a very expensive form of gas, versus say Qatar. Also seems to have large greenhouse effects via leakage.

It used to be, my understanding is that these days many fracking operations are viable at $40 a barrel.

The US didn't become the world's largest oil producer by producing the most expensive oil.

$40/barrel break even is still way more than most conventional oil fields. It's killed off say, tar sands and some of the more expensive off shore/arctic plays (say, like some pre-salt fields). The other thing about shale is that it tends to be short cycle (most of the production in a few years), rather than long cycle payoffs. That might be more attractive to majors avoiding risks.

Why do you care if the saudis can extract it cheaper especially considering they are the ones manipulating the supply just to increase their profits? As long as I'm going to pay 60 bucks a barrel, I'd rather pay my fellow americans especially since it is making us energy independent which hopefully means we can avoid any more stupid wars in the middle east (one can dream at least).

Plus, this doesn't even consider the environmental affects on the water supply. These fracking chemicals are poison and not contained well.

Remember that price paid for an asset is the primary driver of returns for the investor. Even as coal implodes, one can make money as the near term cash flow on invested dollars is high enough to offset declines.

Smoking has been in decline for decades yet cigarette companies have been phenomenal investments.

Aside from a few industrial uses, nobody buys "Coal"; people buy power. There is no differentiation. If it's cheaper to put in a new solar array with batteries than it is to continue burning coal, then power companies will shutter the coal plants.

This isn't really analogous to tobacco because there is no direct substitute for smoking. So long as people are addicted to tobacco there is a predictable and steady decline curve which allows these guys to milk it over time.

There is also a fairly predictable decline curve for coal and shutter dates. I’m not talking about building new plants. That makes no sense I agree (as do the utilities). Existing coal plants absolutely make money as they simply need to cover variable costs.

The big difference is for tobacco, the curve is decades long and may continue to decline for decades more. For coal power, it's unlikely to last until the end of the decade.

Smokers gonna smoke, but outside a few specific places, nobody is going to be generating power with coal in 20 years. Unlike smoking, the consumers of coal power are pragmatic and driven by profit.

The earnings yield is much higher to compensate.

Maybe I don't understand what you're saying but it sounds like you're implying a homeostatic mechanism prevents capital from being withdrawn from coal.

If no company or sector could decline due to declining profits, then nothing in the economy would work at all.

I take your point, but... In fact the number of smokers has been increasing globally. It's going down in the West, but up elsewhere, and global population is increasing, overwhelming the reduction in smoking prevalence.

Even domestic cigarette investments have done phenomenally. Not just PM. Look at LO for instance (no longer listed as it was bought out).

> this is one of those policies which is both environmentally friendly and makes piles of economic sense

To a broader point, this is how real change is enacted: make it matter to enough folks, usually by means of economic pressures. I.e., make bad things cost more than good things. Although obviously ham-fisted tariffs, etc. aren't very effective for a host of reasons. You gotta be more subtle than that.

Carbon needs to be taxed to create incentives to reduce use, and for society to capture the externality cost of burning fossil fuels.

> ham-fisted tariffs

Tariffs could and probably should be used to punish nations that doesn't want to play with reasonable rules though. Given reasonable politicians it could be used to make sure that everyone are applying carbon taxing and/or similar policies.

Yes, my point is just that the one-dimensional "raise prices on bad stuff" strategy invites circumnavigation efforts which make it ineffective. Tariffs for economically punishing bad actors is a useful tool in the right scenarios.

> The cost of running existing coal plants has exceeded the cost of building new solar & wind power plants. Over the next few years, demand for coal is likely to implode.

That article cites a report written by climate change activists who want coal to be banned as fast as possible. If their fantasy were a reality, market forces would achieve their goals without intervention. Naturally, they're going to argue that government intervention is necessary to speed things along.

Federal reports suggest coal will decline slightly over the next several years, but won't disappear. Some forms of renewables are competitive with coal (onshore wind, hydro, geothermal), but they cannot be used everywhere. Solar and offshore wind are still not competitive with coal, nuclear, or natural gas.

[1] https://www.eia.gov/outlooks/aeo/pdf/aeo2019.pdf

[2] https://en.wikipedia.org/wiki/Cost_of_electricity_by_source#...

That was my thought too. I wonder if they're just dressing up their findings in environmental speak for points. What other industries do they plan to drop in the name of the environment?


> Do you think people run coal power plants to generate profit? Profit doesn't matter.

Depends on where you are in the world; quite a lot of the west has privatised its generation and does dispatch through markets, so the coal plant really will be run if and only if it's profitable.

The UK has almost completely closed all its coal generation in the past decade.

Quite a lot of the East does not. Also, UK replaced it's coal for natural gas because large coal mines are not near it.

The decision whether or not to buy shares in the secondary market will make little difference to existing coal companies (who are largely cash flow positive and trade at near 25% earnings yields). Regulations are what matter. All that secondary investors can do is increase WACC via lowered demand for marginal primary debt/equity issuances. If you want to phase out coal, focus on government regulation instead of secondary investments.

It can (and often does) make sense to invest in industries in terminal decline as price paid for an asset’s cash flow is the primary determinant if returns for the investor. You can buy coal stocks for 25%+ earnings yields. Even if those plants are phased out in 6 or 7 years, one can make solid returns.

Indeed I have invested in cigarette shares in the past while wishing the government would do more to stop smokers. The fact that I hold the equity doesn’t change demand for cigarettes, and only in aggregate does the investor appetite effect WACC. Someone must always hold existing shares. For every buyer there is a seller and vice versa.

Lastly I should mention that metallurgical coal as opposed to thermal coal is a necessary “evil” to smelt steel.

I’ve used this recent hate for coal investments(and weakness in NG) to take positions at high earnings yields in ARCH and HCC.

> Lastly I should mention that metallurgical coal as opposed to thermal coal is a necessary “evil” to smelt steel.

Hydrogen can be used to smelt steel, and hydrogen can be produced from renewable energy.


That is really cool. Looks like they’re targeting 2050 to be 100% hydrogen based. That leaves 30 years of metallurgical coal consumption for one of the world’s most progressive steel companies. I’m long HCC for this reason.

> Lastly I should mention that metallurgical coal as opposed to thermal coal is a necessary “evil” to smelt steel.

It's worth pointing out that only about 7% of coal is used for metallurgical purposes.

That's not strictly right. If the pool of potential buyers for these coal stock shares dries up, the price of the shares will be much lower than it otherwise would be. This makes in increasingly less attractive for these companies to raise capital for new mines or mine expansions. It even makes merging less attractive. It also makes recruiting and retaining skilled executives harder. All of this surely impacts these companies in the longer term (say 5-10 years from now)-- they are likely to be a lot smaller and to employ fewer people.

So... that is exactly what I said. How is it wrong? I specifically said the only impact is on WACC and cost of capital of marginal debt of primary issuances... which are minimal considering these companies are for the most part cash flow positive and have no need to issue equity (in fact they are buying it back).

The cost of debt has slightly more of an impact but still minimal.

What’s wrong is that you dismissed this as not having a real impact on these companies. This will have a very large impact that will only grow over time.

Given the publicly traded coal companies are cash flow positive they have little reason to tap the equity markets for capital. These are mature companies in the decline phase. For the most part they do not need incremental primary equity offerings. This isn’t like say, Tesla, which burns huge amounts of cash but has tons of things to invest in for future returns and is therefore heavily reliant on the demand for the shares. The coal companies are milking the cash flow in the decline phase for dividends and buybacks.

Therefore the decision/demand for the existing shares in the secondary market has little bearing on the company. So no - it doesn’t make a big difference.

Indeed, most are buying back shares in huge amounts.

The debt side of the equation makes a larger impact as the companies roll the debt and most lever the FCF to the equity. The aggregate demand for the bonds will have an impact on profitability... still not much of a difference.

> It can (and often does) make sense to invest in industries in terminal decline as price paid for an asset’s cash flow is the primary determinant if returns for the investor. You can buy coal stocks for 25%+ earnings yields. Even if those plants are phased out in 6 or 7 years, one can make solid returns.

For Blackrock, those 25% yields you talk about don't exist. If Blackrock were to retain a significant investment in those companies, share prices would be higher and yield lower.

What makes sense for a small investor often doesn't make sense for large corporate investors.

That said, investments like what you describe have their own risks. At this point it largely depends on contracts and how quickly alternative power sources can ramp up.

You are the second person to mention tobacco, and I think it's a poor comparison. People are literally addicted to tobacco which guarantees long term demand. Even if that demand is decreasing over time, it's predictable and not severe. Coal does not share those characteristics.

This is really just Wall Street generating volatility. Coal isn't going anywhere in the next decade or two:


I wish it died but it won't. Not yet.

Thanks for the link, sadly the data isn't that up to date with everything happening :(.

Data is all the way back to 2015

Yeah. Since 2015 for example UK coal usage dropped 60%.

American coal production has dropped significantly too, though not as dramatically as UK consumption:




From 896 million short tons in 2015 to 690 million in 2019. More decline ahead in 2020:

EIA estimates that U.S. coal production declined by 65 million short tons (MMst) (9%) to 690 MMst in 2019. In 2020, EIA expects total U.S. coal production will decline by a further 14% to 597 MMst because of anticipated declines in both exports and domestic consumption in the electric power sector.

Here’s a comparison to the US energy consumption. For the sake of getting a full picture: https://en.wikipedia.org/wiki/Energy_in_the_United_States

BlackRock is dumping coal because coal is a dying business. The climate change point is just a convenient PR booster. If coal was still generating lots of free cash flow we wouldn't see this.

With that being said, it's nice to see that the coal industry is losing its economic strength. Hopefully other environmentally unfriendly industries follow suit soon.

the only comment that makes sense.

the whole comment section shows how much HN knows about markets and economics. pretty much nothing.

a company wants to dump its position and people think they do it because of the environment.

much hopium.

But you see, it's because of the environment that that it's not as economical viable.

Green sources are becoming more and more cost effective because of lots of tax money went into them because people care about the environment.

Eventually there shall be plenty of more green alternatives that are more economically interesting than coal, but they only reached that place in refinement because environmental focused measures took place.

I think you’re both way off base on this one. Index funds by their nature pretty much replicate the index, it’s a mathematical play generally with no position on dumping or actively positioning on any stocks.

This was always the climate problem, neutral is not ex-climate stocks.. neutral was maths, just matching the index.

Pure indexing was not taking a climate position.

This is why this is so huge, they’ve reset neutral and are challenging others to do the same.

If they gain net inflows into their updated index products this will move fast.

It would be stunning if they were changing all their indexes to exclude coal or something.

They're just creating some new/modified indexes as far as I know. There are already more ETFs than individual stocks, I remember reading somewhere.

A great article posted in May 2019 by Saul Griffith from Otherlab/Makani/Instructables on decarbonisation[1] and another posted yesterday suggesting the idea of a "climate loan"[2]:

"The future can’t be built on lay-away; we need a loan. America’s strength for much of the 20th century was inventing new financing models and exporting those banking skills to the world. We need to put that to work once again, this time for climate change. The key insight here is to extend infrastructure financing closer to the home where the infrastructure of the 21st century will sit."

[1] https://medium.com/otherlab-news/how-do-we-decarbonize-7fc2f... [2] https://medium.com/otherlab-news/solving-climate-change-with...

The big handicap in this for the US is a president that doesn't believe climate change exists at all. Will be interesting to see weather it will mean the US misses the boat on the next big economic development and if so who will jump into that void as a new world power. So far China doesn't look very interested in climate change either and Europe is very divided.

>So far China doesn't look very interested in climate change either

I disagree with this, I think it's easy to paint China as the villain across a cultural, lingual divide in an attempt to make the case that one's own obligations to reduce emissions don't matter. China has a carbon market now and produces more nuclear power than any other country. Climate change is a very real problem for a country with an encroaching desert.

Everyone acts like the US president has unilateral power to do whatever they want which is not at all how it works in reality.

I’d go as far as 90-95% of power is in other branches or covered by judicial limitations.

From the article:

> contradiction between the company’s new activist stance and

I don't think I agree with calling BlackRock activists. An activist investor uses investment choices as leverage to apply pressure to achieve some other goal.

But BlackRock's statement seems to say that they are doing this for financial reasons. It says they're doing it because regulation (existing or potential) is making those investments riskier. From BlackRock's letter (as quoted in the article):

> Thermal coal production is significantly carbon intensive, becoming less and less economically viable, and highly exposed to regulation because of its environmental impacts. ... we do not believe that the long-term economic or investment rationale justifies continued investment in this sector

They also mention "ESG risk" (https://en.wikipedia.org/wiki/Environmental,_social_and_corp...) later.

So in other words, BlackRock isn't using pressure to change the world. It's responding to pressure and uncertainty. This is just market forces causing BlackRock to keep its distance purely for financial reasons.

Highly recommended, Matt Levine's take on it: https://www.bloomberg.com/opinion/articles/2020-01-14/blackr...

I don’t think I’ve ever read a Levine article and not been impressed. The man’s a national treasure! Also, you can get his articles sent to your inbox to bypass the paywalls.

How do you subscribe to receive those emails?



Use reader view in the browser.

There are tons of economic analyses that show that these kinds of boycotts or divestment efforts (usually driven by naive university students) rarely cause any noticeable change in policies or operations at the targeted companies.

What is usually happening is that other technological or consumer behavior is already leading to the decrease in business of some industry, and the divestment push happens simultaneously (because of people's awareness) and is merely a symptom of their final decline.

Take South Africa in the 80s, or the ridiculous grape boycott of the 90s, etc. None of those symbolic acts led to actual changes happening -- those were all consumer or political changes already in flight.

People create much more effect by voting with their dollars than by symbolically calling for divestment. It usually turns out that there is someone willing to take your place as a buyer when you choose to divest. It's only through fundamental change in demand or supply that a business is affected. Stop believing in the effectiveness of the feel-good boycotts. Even Blackrock won't make a difference.

This isn't simply a divestment campaign. This is one of the largest shareholder telling the companies to change their practices. There was a business group that played a major role in negotiating the end of apartheid in South Africa (see https://law.yale.edu/sites/default/files/area/center/private...).

So, big shareholder tells coal companies to change their ways, or what? Blackrock will sell its shares? Hard to believe. And even if it sells its shares, someone has to buy them -- perhaps at a slightly lower price if they dump a lot at once. But what change has it produced?

Yes, well said. Government enforced constraints can foster economic culture shifts too.

To build on this, I found this New Yorker article interesting in explaining the underlying mechanism of why divestment is arguably not as useful unless certain other conditions are met: https://www.newyorker.com/business/currency/does-divestment-...

Wouldn't neglect from passive index investors simply mean that active investors pick up such undervalued assets themselves instead? I don't see this sort of divestment as fundamentally altering the price discovery aspects of the market. All that changes are which individuals (or institutions) benefit.

I'm curious who will take the other side(s) of this trade. If you can invest capital in large chuncks (aka. PE/HF) why not just go long? If you can provide enough capital to manage down the business better than where it's priced now... that's an opportunity.

Yet China continues to expand use of coal power and mining their vast reserves in the western part of the country.

Nope, China’s coal consumption peaked in 2013.

I can honestly not grasp what China is doing. Between PV, Coal, hydrogen industry.. do you have a synthesis to read ?

China's central government is pursuing multiple goals at once:

- Cleaner air

- More electricity production

- Developing energy technologies with a substantial export market potential

- Maintaining employment and social stability

The last goal can override the others, depending on current economic conditions and public sentiment. Provincial officials may hew to the last goal even more closely than the central government would like. Provincial government also sometimes faces perverse incentives like getting tax revenue from each ton of coal mined locally but no tax revenue from renewable electricity generated locally.

45 year old Chinese coal miners don't like switching careers and locations much more than 45 year old American coal miners do. China has also faced more and more-recent civil war than America. They will build a bunch of surplus coal plants and keep having coal miners perform make-work to fuel them if that's the price of social stability.

I flew from Shanghai to Amsterdam 2 years ago, there was a point there where there were windmills as far as the eye could see 100s and 100s, I tried toicount and gave up .... looking closer they were clustered around open cast coal pits and presumably dirty power stations - this was west of Beijing and I'd guess a big source of their horrible pollution.

It's a smart thing to do, essentially they're leveraging the existing transmission line infrastructure for coal for future wind

I wonder if it is the gansu wind farm that you saw. 7.9 GW nameplate capacity. Absolutely massive.

And I thought the walney wind farm in the UK (just under 1 GW) was massive.

You're right about the conflicting goals. But if you look at the trends in recent years, it's clear it is moving to get off of fossil fuels. It's just going to take many years to turn that huge ocean liner around.

India is similarly expanding their use of coal.

Leadership by example is one of the strongest ways to lead.

I don’t know if that comparison was intended to make China look bad, but that comment makes China look bad.

If you don't want bad looks don't do bad things?

Whether one likes it or not, for a lot of people this will mean a good investment opportunity.

I would also hesitate to label it a decision made out of moral reasoning. Neither BlackRock nor (the majority of) their clients want to reduce coal exposure because of that. They rather want to reduce their exposure because they expect more regulatory hurting to come for those companies.

It's starting to look like "alternative" energies might be more efficient in near future anyway, despite climate change. It seems intuitive (but don't know) that burning organic matter is not the most efficient way to extract energy from nature.

Efficiency is not the factor when considering energy source. People pay money for stable electricity, not cheap electricity.

>b...but we can store energy!

No we can't. Energy storage systems are catching fires like Australian wildfires and until it gets solved, no dice.

Mass extraction and consumption of oil and coal will happen until these resources are too sparse to warrant building new plants or maintaining existing ones.

I don't really see any future where this doesn't happen. If you remove coal subsidies, or tax them, then some of the energy production currently handled by coal will change to oil, but once the oil becomes expensive enough to extract, coal mines will open back up again.

This just seems inevitable to me. Is there an angle I'm missing?

the cost of solar panels, wind turbines, and battery storage continue to drop. They are already undercutting coal in about half of the world. They’ll depress the prices of fossil fuels until it’s no longer possible to turn a profit on them at all.

There's an Indian equivalent called IndiaLends [0].

They also offer an Online Personal Loan [1].

[0] https://indialends.com/personal-loan

[1] https://indialends.com/credit-card


Hopefully this loop is starting.

Did you really mean to reference the sort of negative feedback used productively in engineering to maintain balance in control systems, op amps, etc?

That concept is quite different from negative feedback related to expressions of disapproval.

>Negative feedback occurs when some function of the output of a system, process, or mechanism is fed back in a manner that tends to reduce the fluctuations in the output, whether caused by changes in the input or by other disturbances.

I’m referencing people dumping coal stocks so coal is less attractive which means less coal is produced/profitable/used which leads to people dumping more coal stocks.

What you describe is properly called "positive feedback" in the engineering sense.

positive feedback -> doing a thing now results in doing more of that same thing in the future

negative feedback -> doing a thing now results in doing less of that same thing in the future

If dumping coal stocks now results in more dumping of coal stocks in the future, that would be the 'positive' kind of feedback.

Which one it is depends on context.

e.g. A negative feedback loop could be

More coal -> more CO2 -> pushback on coal companies -> less coal -> less CO2.

It's to the point where ideals don't matter.

If you invest in energy you want renewables. Purely because of the economics of it. The only exception is if you get some shady Adani deal.

> Taken in isolation, Sweden’s move had virtually no effect on Australia’s bond prices and yields. But the most striking feature of the divestment movement so far is the speed with which it has grown from symbolic gestures to a severe constraint on funding for the firms it touches.

A lesson in the potential value of individual action -- in this case and individual nation, but an individual person can have outsize effects. I help organizations change culture to pollute less. One company refused to consider flying less. One sixteen-year-old girl sailing across the Atlantic opened the dialog.

Has anyone here noted that coal is literally a black rock

Isn't this just virtue signaling? What difference does all this divestment actually make towards the goals?

Surely, someone with less of a penchant for moral grandstanding will be happy to buy up shares of fossil companies at a discount. Fossil fuel business doesn't become less profitable just because parts of the equity markets decide to value it lower.

You may argue that divestment prevents companies from rolling their infrastructure. I disagree, if there's a solid profit to be made, someone will bankroll it.

I think this is a great sign that the industry titans are recognizing the market incentives to migrate away from fossil fuels.

Natural Gas and Oil?

INB4 Short sellers...

It makes me proud of the Hacker News community that there have been so many climate change articles posted at an increasing rate. This is a very important issue, more important than technology since technology won't exist when the climate collapses and destroys civilization. We need to make a serious effort educating the public about climate change, so we need to work together to ensure that, at minimum, the top article on Hacker News is always a climate change story. It would be even better if we keep multiple climate change articles on the front page at all times.

While I agree with you that it's nice that climate change related topics are discussed, this is hyperbole:

>more important than technology since technology won't exist when the climate collapses and destroys civilization.

The type of climate collapse you're talking about here would have to be something so extreme that most disaster movies would pale in comparison. The defining trait of our species is tool (technology) use. As long as there are humans around, our technology will matter. In fact, improvements in technology are likely our only way out of the mess of climate change.

I think that hyperbole about climate charge hurts the cause. Some people will believe you, but once they learn that you were wrong (or lying) they won't trust you or anyone else on the matter anymore.

There was an HN comment a while back about how hard it is for most creatures to evaluate exponential growth. About how a petri dish colony took 2 weeks to get to 50% full but then they all died off in the next 2 hours because their growth was exponential and the environment static.

Once the climate starts worsening visibly, it will get much worse quicker.

The world is literally on fire now (california, australia, the arctic) - guess what's lined up for the next decade.

It will get worse, but maybe not as worse as we’ve been thinking: https://nymag.com/intelligencer/2019/12/climate-change-worst...

https://en.wikipedia.org/wiki/Bushfires_in_Australia is informative and provides perspective!

Seems biased. Isn't the purpose to choose something that is news worthy and interesting to the community?

I think we should let it come naturally.

There should be a user option similar to “show dead”: “show climate stuff”. If it’s enabled (make it the default if you want) then N stories get included on the front page (make N configurable if you want).

Then I can turn it off and go back to ignoring this stuff, along with maybe 30% of the people here.

oh wow, big wall street is dumping coal. clap clap

It's alarming that a company I've never heard of has 7 trillion dollars.

Blackrock is one of the biggest group of funds. Some of them are branded as iShares.

If you've done any comparison shopping on index funds for investments, you almost certainly ran across blackrock funds even if you didn't know it.

Yes, but people are talking about a decision about active funds, not indexes where most of the money is.

It would be earthshaking if they decided to substitute their judgment for the market and take coal stocks out of all the index funds. But that's not what is being reported.

The reporting seems to be kind of willfully implying a connection that isn't there to get clicks, which I guess is basically all journalism these days.

They manage $7T, they don't "have" it in the sense that you have money in your bank account.

They don't really even "manage" most of that in the traditional sense, like a private equity fund sponsor would. The $7.4T refers to "assets under administration" as opposed to "AUM" (assets under management). This is apparent if you observe that they are expected to make ~$16b of revenue in 2020-- if you remove software revenues, that's probably less than 20 bps (0.2%) relative to the $7.4T figure, which is far less than most fund managers earn on average.

According to Valuewalk, they had $6.5M AUM as of July 2019.[0] Their size is primarily a function of the passive indexing they offer, do you consider that AUA? Or AUM? I'd argue that it's AUM. The reason their revenue is so low (by bps) is that indexing is extremely low-fee.

[0] https://www.valuewalk.com/2019/07/top-10-largest-asset-manag...

s/M/T/, yea?

Blackrock is still the largest asset manager.

Vanguard is closing the gap.

If you follow the financial industry, you would have heard of Blackrock sooner or later.

it's been covered in a few documentaries (at least in Europe) but yeah it's still quite a low profile considering it's weight

BlackRock and Vanguard are supposed to be the places where people can put their money into low-overhead index funds that more or less track the market.

It's fine if they want to create new products that exclude certain types of businesses, to give investors more choices.

But what I don't like is them turning this gigantic pool of money into a spear to jab businesses with their pet political opinions. That's not the role investors entrust their money with them for - they're expected to be more of a passthrough type of management.

They've previously done this same thing with gun manufacturers and retailers, who are doing very well, so you can't make the argument some in this thread are making with fossil fuels being a dead end compared to an alternative (renewables).

So whose next on their woke chopping block? Monsanto for killing the bees? Boeing, Raytheon, et al for supporting the military? Facebook, Twitter, et al for the harmful effects of social media? All the software companies like GitHub that support ICE or the next distasteful federal agency? Like they did with guns, divestment in any company you don't like can be couched in deep concerns over "risk."

I think there's a great opportunity here for someone to start a fund that gets back to the basics of passive index funds, instead of chasing woke asspats like the activist board of BlackRock and Vanguard. I'd certainly move my money.

You probably don't own any shares of an active fund from Blackrock or Vanguard. They're pretty obscure. So you can go back to sleep.

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