Backlash fear on going green - David Coombs

Energy prices have soared making life harder for people the world over. If the cost of the clean transition is too great, we risk turning public opinion against the fight on carbon.

David Coombs, Head of Multi-Asset Investments, Rathbones

The cost of energy has soared as economies reopen, squeezing households around the world as petrol, heating and electricity use up more of people’s spending money.

This pressure on the cost of living is unlikely to let up soon, energy prices could yet go higher now Russia has invaded Ukraine. However, this military escalation isn’t the main reason why energy prices are so high to begin with. In some ways, you could argue that the scarcity of energy is partly what gave Russia the confidence to push the West on its grievances over NATO and the foreign policies of its nearest neighbours. The EU is so dependent on Russian energy that supporting sanctions on Russian oil and gas means it would run the real risk of blackouts or power rationing across the Continent.

Going green ain’t cheap

The real cause for rising energy prices, in my view, is the transition to greener energy. Don’t take this to mean I’m a climate change denier or that I don’t think we need to decarbonise our energy sources! This is incredibly important, and we invest a lot of money through our multi-asset funds to help make this happen. However, it was always going to be massively expensive to radically change our whole energy infrastructure. And, unfortunately, I believe governmental strategy the world over has made these costs even greater. Especially in Europe, where huge amounts of nuclear energy have been rapidly taken out of the system at a time when renewables aren’t quite ready to take up the slack. At the same time, oil and gas has become more expensive to find, pump and burn, due to higher levies on emissions and higher rates of return demanded of extractive companies by bondholders and shareholders (which are higher costs for the businesses).

Increasing the cost of carbon-heavy energy and activity is of course the point! By doing so, you encourage businesses to develop cleaner technologies and customers to use them. But if the cleaner alternatives aren’t there – or aren’t able to fulfil all the demands for energy – you get what we are experiencing: a ramp up in the cost of energy overall. And that it is harmful to living standards and economic growth because energy is at the nub of virtually everything we do, consume and create.

High energy prices are effectively a tax on consumption, a squeeze on the spare cash for both households and businesses. This squeeze will attract political attention. For many years, the move away from fossil fuels has been a narrative of “we must do this now”. We are entering an era where the narrative may change to “how are we going to pay for it?”

It’s crucial that policymakers plot a sensible course that ensures there isn’t a backlash against cleaner energy because most people can’t bear the higher cost.

David Coombs, Head of Multi-Asset Investments, Rathbones

David Coombs will be one of the panellists at The Scotsman’s free Annual Investment conference on Tuesday 29th March. In association with Rathbones and Franklin Templeton Register for your free ticket at www.scotsmanconferences.co.uk