One of the main arguments against Green energy, apart from the fact that it is polluting and thus far from clean and Green, is that at many points, communist China has a strangle hold on the entire business, from minerals to manufacturing.
Most notably are rare earth minerals, used in the production of the solar batteries and much else, such as missiles radars and aircraft. These rare earths are in short supply in the West, but China has a lions share of them. In fact, China accounts for 63 percent of the wold’s rare earth mining, 85 percent of rare earth processing, and 92 percent of rare earth magnet production. In the event of war, the supply would be simply cut off, and there are indications that this is coming now, with the gallium and germanium bans. Until the West solves this problem, it is sanity not to base an entire existence upon communist China.
https://www.politico.com/news/magazine/2022/12/14/rare-earth-mines-00071102
“It isn’t so much that China has the biggest resources of these minerals. Rather it has the refining capacity to produce these materials. Note that most of these “lesser known base metals” don’t occur naturally on their own (like copper or tin), rather they occur concurrent with other minerals and are essentially a by-product of refining common base metals. Of course, refining minerals is a messy, polluting, and energy intensive business that few countries want to engage or allow. In doing so, they open themselves up to national security issues.
All rather interesting, but what I’d like to point out is that there exists the probability that this all becomes weaponised. Reducing or entirely eliminating supply of these critical resources to “non-friendly” nations is increasingly becoming a real threat. That in itself would entail significant supply disruptions, higher costs of production (much higher), and subsequent acceleration of stagflation.
The New vs the Old Economy
We thought we had it all before with the TMT bubble of 2000 (goodness, that is now 23 years ago). But history has been rewritten highlighting the extreme performance of one theme against another. Real assets are more out of favour compared to financial assets than at any time since the 1920s. Some random charts we found on the information superhighway providing illustrative view of what we’re saying.
OK, let’s put it another way. What if the US 10-year yield is 10% 10 years from now? How do you think real assets would have performed vs financial assets?
Just a reminder of how out of favour materials and energy are compared to the broader market. Granted this is some 12 months old, but not much has changed since then.
We recall a couple of years ago when Tesla had a greater market cap than the S&P 500 energy sector and Microsoft had bigger market cap than the S&P Materials and Energy sectors combined. Seems like not much has changed on a global scale.
But back to the report. Check out these snippets:
Last August, in an amalgamation of “The Green New Deal” meets “Build Back Better,” President Joe Biden’s Inflation Reduction Act gifted the renewables industry with billions of dollars worth of taxpayer-funded subsidies.
What few backing the bill realised was that the largest beneficiary would likely be China due to its expansive grip on the global solar photovoltaic (PV) industry. Worse than that, it might end up misdirecting the world’s clean energy efforts into dirtier than appreciated energy technologies because of the country’s ongoing dependence on coal-fired energy.
In essence, the IEA are basing their assumptions of how much CO2 is produced in manufacturing solar panels based on European energy data rather than Chinese energy data. China relies on coal more intensively than Europe:
the IPCC claims solar PV is 48 gCO2/kWh. But, as we’ll see below, a new investigation started by Italian researcher Enrico Mariutti suggests that the number is closer to between 170 and 250 gCO2/kWh, depending on the energy mix used to power PV production. If this estimate is accurate, solar would not compare favourably with natural gas, which is around 50 gCO2/kWh with carbon capture and 400 to 500 without.
Here is the conclusion:
A picture emerges of an aspirational Western industry captured lock, stock, and barrel by secretive, coal-loving Beijing. It’s a worry for the West’s economic development, never mind energy security and climate action. If solar is anything to go by, the great transition seems less based on data than a mixture of blind faith and vested interests.
Perhaps the broad populace will awaken to this blind faith when electricity prices go through the roof and standards of living decline significantly. Either way, the truth will eventually come into plain sight.”