Issue 116
October 17, 2021
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This week, a loosely formed group of climate activists collectively known as Build Back Fossil Free (BBFF) demonstrated outside the White House. Among their demands: that the Biden administration take more aggressive measures to limit fossil fuel (coal, oil, & natural gas) exploration and production.

We are sympathetic to BBFF’s position; climate change is genuine. However, we vehemently disagree with the timing of their demands and ways of achieving them. In fact, what transpired outside the White House is illustrative of a mistake repeated over and again by hard-core climate activists, a plethora of wannabes, politicians, and “environmentally-conscious” investors.

Indeed, many people who pout about cutting carbon emissions and reducing capital spending for fossil fuel projects, will undoubtedly be the same individuals to complain about the exorbitant cost to heat their homes this winter; seemingly oblivious to the fact that their demands are contributing factors to rapidly increasing energy prices.


As many of us have learned the hard way, timing is imperative in fostering a harmonious personal relationship. The same goes for energy, and the uneasy relationship between fossil fuels and renewables. To ensure optimal timing in the switch from traditional fuels to renewables, “markets” and “price” must be the primary drivers to effect change. If the timing mechanism becomes distorted by politics and /or suboptimal economic incentives, an unwelcome combination of power shortages, even more reliance on fossil fuels, and price hikes, typically follows. Unfortunately, that is exactly what is transpiring now.

Over the last 12 months, the price of thermal coal (thermal coal is used to power utilities while metallurgical coal is used to make steel) has risen ~400%! Natural gas prices in the U.S. have doubled and risen even more in Europe and Asia. Likewise, the price of crude oil has doubled; gasoline, diesel, jet fuel, and heating oil prices have followed. Below are some excerpts from global news headlines this week:

• “U.S. power plants are on track to burn 23% more coal this year, the first increase since 2013, despite Biden’s ambitious plan to eliminate carbon emissions from the power grid.” – Bloomberg

• “Since May the price of a basket of oil, coal and gas has soared by 95%.” – The Economist

• “The price of US crude oil hit a fresh seven-year high on Monday on fears that fuel demand was recovering faster from last year’s economic slowdown than producers could bring supply to the market.” - Financial Times (U.K)

• “Physical coal prices in China surge on nationwide shortage. Crisis sends China coal a third higher in a Week – Bloomberg

• "China to liberalize coal-fired power pricing to tackle energy crisis." - Reuters

• "Nearly 61% of Chevron’s shareholders supported a call for carbon cuts." – Bloomberg

• "India finds itself in the midst of a power crisis similar to the one darkening China after coal inventories have fallen to just a four-day supply." – Nikki (Japan)

• "The U.S.’ average price for a gallon of on-highway diesel is now $3.586 – the highest point since the week ending Dec. 1, 2014." – CCJ Digital (USA)

• "White House asks U.S. oil-and-gas companies to help lower fuel costs." – National Post (Canada)

• "Several factors have come together recently to cause a power crunch…(including) government-mandated energy cuts aimed at reducing carbon emissions." – WSJ


Despite tangible improvements in the energy mix, the stark reality is that fossil fuels still generate over 80% of the world’s power. Meanwhile, a combination of low-hanging fruit for politicians, litigation, regulation, and public shaming has resulted in a reduction of fossil fuel investment by ~40%, in less than a decade.

When fossil fuel investment is curtailed, output will decrease. When output decreases, if an alternative fuel source cannot be utilized, a shortage will arise. When a fossil fuel shortage arises, the price will increase and will continue to rise until the benefit of investing and producing more of it, outweighs the potential political, legal, regulatory, etc. cost incurred of doing so.

It Takes Two To Tango

It is not feasible to transition to clean fuel efficiently and cost-effectively without also continuing to allocate sufficient capital to traditional forms of power generation. Installations of solar, wind and other forms of renewable energy are increasing exponentially year over year. And renewables continue to take market share from coal, oil, & gas. Those are good things. But currently, there is not enough renewable power generation to compensate for the loss of more than a small percentage of fossil fuel power year-over-year.

Furthermore, we do not know when the wind will blow or when the sun will shine. A dearth of wind equates to less output per wind turbine. A cloudy day equates to less generation per solar farm. Storage is available on a subscale basis. But the technology to store large amounts of power derived from solar and wind is not yet commercially viable. Hence fossil fuels or nuclear power must be used for baseload power.


Nuclear power makes up ~10% of the global total. The upfront outlays to build a nuclear power plant are enormous; multiple times the cost of constructing a coal or gas fired plant or to install a renewables facility. But the life of a nuclear plant is long (~40 years), the power is reliable, and nuclear power does not emit any greenhouse gases.

The public’s attitude towards nuclear, tarnished after the Fukushima disaster a decade ago, is quickly beginning to brighten. Climate activists, many of which were staunchly against nuclear power, are beginning to embrace it. Indeed, nuclear provides consistent, stable, and relatively cheap baseload power regardless of weather conditions. Thus, it should be part of both the transition towards a renewable future and part of the energy mix in perpetuity.

Government Incentives

At TQC, we are free market advocates. Generally, we believe Mr. Market is the best allocator of resources that have alternative uses. However, we believe a targeted government initiative to leverage its scale to induce investment and pull forward demand is appropriate in specific circumstances. The government can and should play a role in helping producers and consumers transition to a carbon-free world more quickly.

Additional tax incentives for clean energy providers should be giveth, existing tax breaks for fossil fuel producers should be taketh away. Carbon taxes and credits should be implemented and / or expanded. Financial subsidies for consumers of renewables should be expanded.

What the government does is important, but as we discussed above, the timing of when they do it can be equally or even more important. Carbon should indeed be taxed, but the taxes should be phased in and scaled up slowly so fossil fuel producers have time to adjust, and prices do not go haywire. Subsidies for fossil fuel projects should be phased out, but investments in fossil fuel projects should not be penalized. Tax incentives for producers and consumers of renewables should be substantive, then slowly scaled down until clean energy is cost competitive with fossil fuels (in some areas it already is).

Global Warming

At TQC we unequivocally agree with most credible scientists who believe global warming is “real.” The dangerous amounts of greenhouse gases emitted into the atmosphere are contributing to an ecological disaster; evidenced by highly abnormal weather patterns resulting in flooding of historically dry areas, droughts in wetlands, record heat, intense storms, rising seas, etc. The damage already done to mother earth, could be irreversible (at least with today’s technology).

The market – coupled with sensible government policies - must be the primary driver in the transition to renewables. If well-meaning but misinformed climate activists, pandering politicians, and suboptimal government initiatives continue to adversely distort the energy markets, the transition to renewables will take longer to achieve, and billions of people will not be able to afford to heat their homes.