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BlackRock’s decision to dump coal signals what’s next

627 points by evolve2k 7y ago

ogre_codes 7y ago
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/plunging-prices-mean-building-new-renewable-energy-is-cheaper-than-running-existing-coal/#6763c5631f31 https://www.forbes.com/sites/energyinnovation/2018/12/03/plu...
- dv_dt 7y ago
  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. https://www.desmogblog.com/2019/12/17/us-fracking-shale-wood-mackenzie-child-wells https://www.desmogblog.com/2019/12/17/us-fracking-shale-wood...
  - deleted 7y ago
    [deleted]
  - wayoutthere 7y ago
    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.
    - dv_dt 7y ago
      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.
      - Mirioron 7y ago
        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.
      - throwaway100773 7y ago
        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.
        wayoutthere 7y ago
        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-fuel-cycle/nuclear-power-reactors/small-nuclear-power-reactors.aspx https://www.world-nuclear.org/information-library/nuclear-fu...
  - ogre_codes 7y ago
    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.
    - erikpukinskis 7y ago
      It’s a great stocking stuffer.
  - justincormack 7y ago
    fracking is a very expensive form of gas, versus say Qatar. Also seems to have large greenhouse effects via leakage.
    - godtoldmetodoit 7y ago
      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.
      - smt1 7y ago
        $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.
        mrep 7y ago
        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).
  - snarf21 7y ago
    Plus, this doesn't even consider the environmental affects on the water supply. These fracking chemicals are poison and not contained well.
- hodder 7y ago
  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.
  - 1over137 7y ago
    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.
    - hodder 7y ago
      Even domestic cigarette investments have done phenomenally. Not just PM. Look at LO for instance (no longer listed as it was bought out).
  - ogre_codes 7y ago
    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.
    - hodder 7y ago
      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.
      - ogre_codes 7y ago
- uoaei 7y ago
  > 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.
  - mobilefriendly 7y ago
    Carbon needs to be taxed to create incentives to reduce use, and for society to capture the externality cost of burning fossil fuels.
  - worldsayshi 7y ago
    > 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.
    - uoaei 7y ago
      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.
- ehnto 7y ago
  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?
- bureaucrat 7y ago
  Wow, seriously? Do you think people run coal power plants to generate profit? Profit doesn't matter. They run it for 24/7 stable energy. >hurr durr coal is unprofitable we need to build solar & wind and close down coal plants God, the press really overestimates peoples' ability to decode facts.
  - pjc50 7y ago
    > 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.
    - bureaucrat 7y ago
      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.
- khawkins 7y ago
  > 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 https://www.eia.gov/outlooks/aeo/pdf/aeo2019.pdf [2] https://en.wikipedia.org/wiki/Cost_of_electricity_by_source#United_States https://en.wikipedia.org/wiki/Cost_of_electricity_by_source#...
deleted 7y ago
[deleted]
gzu 7y ago
Yet China continues to expand use of coal power and mining their vast reserves in the western part of the country.
- mwfunk 7y ago
  I don’t know if that comparison was intended to make China look bad, but that comment makes China look bad.
  - foota 7y ago
    If you don't want bad looks don't do bad things?
- revscat 7y ago
  India is similarly expanding their use of coal.
- ISL 7y ago
  Leadership by example is one of the strongest ways to lead.
- Brakenshire 7y ago
  Nope, China’s coal consumption peaked in 2013.
  - agumonkey 7y ago
    I can honestly not grasp what China is doing. Between PV, Coal, hydrogen industry.. do you have a synthesis to read ?
    - philipkglass 7y ago
      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.
JohnJamesRambo 7y ago
https://en.wikipedia.org/wiki/Negative_feedback https://en.wikipedia.org/wiki/Negative_feedback Hopefully this loop is starting.
- kjhughes 7y ago
  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.
  - JohnJamesRambo 7y ago
    >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.
    - variaga 7y ago
      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.
      - perl4ever 7y ago
        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.
    - deleted 7y ago
      [deleted]
samsonradu 7y ago
Highly recommended, Matt Levine's take on it: https://www.bloomberg.com/opinion/articles/2020-01-14/blackrock-has-green-plans https://www.bloomberg.com/opinion/articles/2020-01-14/blackr...
- ur-whale 7y ago
  paywalled
  - perfunctory 7y ago
    Use reader view in the browser.
- smabie 7y ago
  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.
  - supernova87a 7y ago
    How do you subscribe to receive those emails?
    - steveklabnik 7y ago
      http://link.mail.bloombergbusiness.com/join/4wm/moneystuff-signup http://link.mail.bloombergbusiness.com/join/4wm/moneystuff-s...
      - supernova87a 7y ago
        Thanks!
clSTophEjUdRanu 7y ago
It's alarming that a company I've never heard of has 7 trillion dollars.
- the_watcher 7y ago
  They manage $7T, they don't "have" it in the sense that you have money in your bank account.
  - eigenvalue 7y ago
    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.
    - the_watcher 7y ago
      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-management-companies/ https://www.valuewalk.com/2019/07/top-10-largest-asset-manag...
      - dmoy 7y ago
        s/M/T/, yea? Blackrock is still the largest asset manager. Vanguard is closing the gap.
- dmoy 7y ago
  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.
hodder 7y ago
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.
- eigenvalue 7y ago
  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.
  - hodder 7y ago
    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.
proc0 7y ago
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.
- bureaucrat 7y ago
  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.
H8crilA 7y ago
This is really just Wall Street generating volatility. Coal isn't going anywhere in the next decade or two: https://en.m.wikipedia.org/wiki/World_energy_consumption https://en.m.wikipedia.org/wiki/World_energy_consumption I wish it died but it won't. Not yet.
- iscrewyou 7y ago
  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 https://en.wikipedia.org/wiki/Energy_in_the_United_States
- ckdarby 7y ago
  Thanks for the link, sadly the data isn't that up to date with everything happening :(. Data is all the way back to 2015
  - tomlockwood 7y ago
    Yeah. Since 2015 for example UK coal usage dropped 60%.
    - philipkglass 7y ago
      American coal production has dropped significantly too, though not as dramatically as UK consumption: https://en.wikipedia.org/wiki/Coal_mining_in_the_United_States#Production https://en.wikipedia.org/wiki/Coal_mining_in_the_United_Stat... and https://www.eia.gov/outlooks/steo/report/coal.php https://www.eia.gov/outlooks/steo/report/coal.php 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.
andrewgleave 7y ago
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-7fc2fa84e887 https://medium.com/otherlab-news/how-do-we-decarbonize-7fc2f... [2] https://medium.com/otherlab-news/solving-climate-change-with-a-loan-d1aac4b8259a https://medium.com/otherlab-news/solving-climate-change-with...
- t0mas88 7y ago
  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.
  - nguoi 7y ago
    >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.
  - dmix 7y ago
    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.
RobRivera 7y ago
I think this is a great sign that the industry titans are recognizing the market incentives to migrate away from fossil fuels.
nostromo 7y ago
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. https://www.bloomberg.com/opinion/articles/2020-01-14/blackrock-has-green-plans https://www.bloomberg.com/opinion/articles/2020-01-14/blackr... > 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.
- deleted 7y ago
  [deleted]
- zamfi 7y ago
  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.
coenhyde 7y ago
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/ http://www.worldstopexports.com/coal-exports-country/ [2] https://www.abc.net.au/news/science/2019-08-19/australia-co2-exports-third-highest-worldwide/11420654 https://www.abc.net.au/news/science/2019-08-19/australia-co2...
- flukus 7y ago
  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.
  - gridlockd 7y ago
    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,_exports_and_reserves https://en.wikipedia.org/wiki/Coal_in_Australia#Production,_... [2] https://www.news.com.au/national/federal-election/almost-30-billion-invested-in-renewable-energy-in-past-two-years/news-story/5401643d4ff96e20082bdc767c26cdf8 https://www.news.com.au/national/federal-election/almost-30-...
- grecy 7y ago
  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?
there_the_and 7y ago
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.
- crimsonalucard 7y ago
  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.
- guscost 7y ago
  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.
- Mirioron 7y ago
  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.
  - r00fus 7y ago
hughpeters 7y ago
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.
- omani 7y ago
  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.
  - UserIsUnused 7y ago
    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.
    - evolve2k 7y ago
      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.
      - perl4ever 7y ago
        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.
supernova87a 7y ago
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.
- dpflan 7y ago
  Yes, well said. Government enforced constraints can foster economic culture shifts too.
- HoraceSchemer 7y ago
  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-work https://www.newyorker.com/business/currency/does-divestment-...
- gersh 7y ago
  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/privatelaw/document/makgetla_shapiro._business_south_african_transition.pdf https://law.yale.edu/sites/default/files/area/center/private...).
ineedasername 7y ago
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.
thoughtstheseus 7y ago
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.
F_J_H 7y ago
INB4 Short sellers...
cmpakawangi 7y ago
https://medium.com/@coach_22106/doctor-who-series-12-episode-4-6f37477167c4 https://medium.com/@coach_22106/doctor-who-series-12-episode... https://medium.com/@coach_22106/supernatural-series-15-episode-9-bff73ec25fe3 https://medium.com/@coach_22106/supernatural-series-15-episo... https://medium.com/@coach_22106/bad-boys-for-life-full-movie-download-709041bc32dc https://medium.com/@coach_22106/bad-boys-for-life-full-movie... http://badboysforlife.over-blog.com/6whsgnymjco http://badboysforlife.over-blog.com/6whsgnymjco http://badboysforlife.over-blog.com/legacies209 http://badboysforlife.over-blog.com/legacies209 http://badboysforlife.over-blog.com/wr5hu65uy46654uh56e46hu http://badboysforlife.over-blog.com/wr5hu65uy46654uh56e46hu http://badboysforlife.over-blog.com/gounderwater2020stem http://badboysforlife.over-blog.com/gounderwater2020stem http://badboysforlife.over-blog.com/grggedgrshth2j6yjyfbf69 http://badboysforlife.over-blog.com/grggedgrshth2j6yjyfbf69 http://badboysforlife.over-blog.com/0lkjhfu542lkjbfsbhifdbfv3gor2bc http://badboysforlife.over-blog.com/0lkjhfu542lkjbfsbhifdbfv... http://badboysforlife.over-blog.com/genepbelasijilah454fb http://badboysforlife.over-blog.com/genepbelasijilah454fb http://badboysforlife.over-blog.com/haepi47jugggr23rg http://badboysforlife.over-blog.com/haepi47jugggr23rg http://badboysforlife.over-blog.com/tvod2020rhberfhjiffeggrf http://badboysforlife.over-blog.com/tvod2020rhberfhjiffeggrf http://badboysforlife.over-blog.com/fhdhg41j64y6jhr46h6t6ht http://badboysforlife.over-blog.com/fhdhg41j64y6jhr46h6t6ht http://the-panti-sisters-the-movie.over-blog.com/replayad5bfj3jko http://the-panti-sisters-the-movie.over-blog.com/replayad5bf... http://the-panti-sisters-the-movie.over-blog.com/411tehjtjeaj6 http://the-panti-sisters-the-movie.over-blog.com/411tehjtjea... http://the-panti-sisters-the-movie.over-blog.com/vdvdgsgrsgrhtnssdgfrshr http://the-panti-sisters-the-movie.over-blog.com/vdvdgsgrsgr... http://the-panti-sisters-the-movie.over-blog.com/gdhghjjrry2t3jt6tj http://the-panti-sisters-the-movie.over-blog.com/gdhghjjrry2... http://the-panti-sisters-the-movie.over-blog.com/hshetgfhgjfyjyuiyiy http://the-panti-sisters-the-movie.over-blog.com/hshetgfhgjf... http://the-panti-sisters-the-movie.over-blog.com/dvdaytu6r2jdfnfdn http://the-panti-sisters-the-movie.over-blog.com/dvdaytu6r2j... http://the-panti-sisters-the-movie.over-blog.com/fei-lung-gwoh-gong http://the-panti-sisters-the-movie.over-blog.com/fei-lung-gw... http://the-panti-sisters-the-movie.over-blog.com/movilerrhtehjt662vddvdvd http://the-panti-sisters-the-movie.over-blog.com/movilerrhte... http://the-panti-sisters-the-movie.over-blog.com/gf26sggfhhgj2g6j6g http://the-panti-sisters-the-movie.over-blog.com/gf26sggfhhg...
spodek 7y ago
> 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.
ericdykstra 7y ago
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?
- jes5199 7y ago
  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.
bureaucrat 7y ago
oh wow, big wall street is dumping coal. clap clap
woodpanel 7y ago
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.
qbaqbaqba 7y ago
Natural Gas and Oil?
gridlockd 7y ago
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.
IndiaLends 7y ago
There's an Indian equivalent called IndiaLends [0]. They also offer an Online Personal Loan [1]. [0] https://indialends.com/personal-loan https://indialends.com/personal-loan [1] https://indialends.com/credit-card https://indialends.com/credit-card
funnygrass 7y ago
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.
01CGAT 7y ago
2016: https://www.bloomberg.com/news/articles/2016-04-14/norway-s-860-billion-fund-drops-52-companies-linked-to-coal https://www.bloomberg.com/news/articles/2016-04-14/norway-s-...
languagehacker 7y ago
Has anyone here noted that coal is literally a black rock
waffle_ss 7y ago
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.
- perl4ever 7y ago
  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.
adrianmonk 7y ago
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_corporate_governance 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.

627 points by evolve2k 7y ago

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/plunging-prices-mean-building-new-renewable-energy-is-cheaper-than-running-existing-coal/#6763c5631f31 https://www.forbes.com/sites/energyinnovation/2018/12/03/plu...

dv_dt 7y ago
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. https://www.desmogblog.com/2019/12/17/us-fracking-shale-wood-mackenzie-child-wells https://www.desmogblog.com/2019/12/17/us-fracking-shale-wood...
- deleted 7y ago
  [deleted]
- wayoutthere 7y ago
  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.
  - dv_dt 7y ago
    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.
    - Mirioron 7y ago
      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.
    - throwaway100773 7y ago
      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.
      - wayoutthere 7y ago
        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-fuel-cycle/nuclear-power-reactors/small-nuclear-power-reactors.aspx https://www.world-nuclear.org/information-library/nuclear-fu...
- ogre_codes 7y ago
  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.
  - erikpukinskis 7y ago
    It’s a great stocking stuffer.
- justincormack 7y ago
  fracking is a very expensive form of gas, versus say Qatar. Also seems to have large greenhouse effects via leakage.
  - godtoldmetodoit 7y ago
    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.
    - smt1 7y ago
      $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.
      - mrep 7y ago
        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).
- snarf21 7y ago
  Plus, this doesn't even consider the environmental affects on the water supply. These fracking chemicals are poison and not contained well.
hodder 7y ago
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.
- 1over137 7y ago
  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.
  - hodder 7y ago
    Even domestic cigarette investments have done phenomenally. Not just PM. Look at LO for instance (no longer listed as it was bought out).
- ogre_codes 7y ago
  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.
  - hodder 7y ago
    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.
    - ogre_codes 7y ago
uoaei 7y ago
> 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.
- mobilefriendly 7y ago
  Carbon needs to be taxed to create incentives to reduce use, and for society to capture the externality cost of burning fossil fuels.
- worldsayshi 7y ago
  > 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.
  - uoaei 7y ago
    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.
ehnto 7y ago
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?
bureaucrat 7y ago
Wow, seriously? Do you think people run coal power plants to generate profit? Profit doesn't matter. They run it for 24/7 stable energy. >hurr durr coal is unprofitable we need to build solar & wind and close down coal plants God, the press really overestimates peoples' ability to decode facts.
- pjc50 7y ago
  > 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.
  - bureaucrat 7y ago
    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.
khawkins 7y ago
> 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 https://www.eia.gov/outlooks/aeo/pdf/aeo2019.pdf [2] https://en.wikipedia.org/wiki/Cost_of_electricity_by_source#United_States https://en.wikipedia.org/wiki/Cost_of_electricity_by_source#...

deleted 7y ago

[deleted]

gzu 7y ago

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

mwfunk 7y ago
I don’t know if that comparison was intended to make China look bad, but that comment makes China look bad.
- foota 7y ago
  If you don't want bad looks don't do bad things?
revscat 7y ago
India is similarly expanding their use of coal.
ISL 7y ago
Leadership by example is one of the strongest ways to lead.
Brakenshire 7y ago
Nope, China’s coal consumption peaked in 2013.
- agumonkey 7y ago
  I can honestly not grasp what China is doing. Between PV, Coal, hydrogen industry.. do you have a synthesis to read ?
  - philipkglass 7y ago
    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.

JohnJamesRambo 7y ago

https://en.wikipedia.org/wiki/Negative_feedback https://en.wikipedia.org/wiki/Negative_feedback Hopefully this loop is starting.

kjhughes 7y ago
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.
- JohnJamesRambo 7y ago
  >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.
  - variaga 7y ago
    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.
    - perl4ever 7y ago
      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.
  - deleted 7y ago
    [deleted]

samsonradu 7y ago

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

ur-whale 7y ago
paywalled
- perfunctory 7y ago
  Use reader view in the browser.
smabie 7y ago
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.
- supernova87a 7y ago
  How do you subscribe to receive those emails?
  - steveklabnik 7y ago
    http://link.mail.bloombergbusiness.com/join/4wm/moneystuff-signup http://link.mail.bloombergbusiness.com/join/4wm/moneystuff-s...
    - supernova87a 7y ago
      Thanks!

clSTophEjUdRanu 7y ago

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

the_watcher 7y ago
They manage $7T, they don't "have" it in the sense that you have money in your bank account.
- eigenvalue 7y ago
  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.
  - the_watcher 7y ago
    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-management-companies/ https://www.valuewalk.com/2019/07/top-10-largest-asset-manag...
    - dmoy 7y ago
      s/M/T/, yea? Blackrock is still the largest asset manager. Vanguard is closing the gap.
dmoy 7y ago
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.

hodder 7y ago

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.

eigenvalue 7y ago
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.
- hodder 7y ago
  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.

proc0 7y ago

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.

bureaucrat 7y ago
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.

H8crilA 7y ago

This is really just Wall Street generating volatility. Coal isn't going anywhere in the next decade or two: https://en.m.wikipedia.org/wiki/World_energy_consumption https://en.m.wikipedia.org/wiki/World_energy_consumption I wish it died but it won't. Not yet.

iscrewyou 7y ago
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 https://en.wikipedia.org/wiki/Energy_in_the_United_States
ckdarby 7y ago
Thanks for the link, sadly the data isn't that up to date with everything happening :(. Data is all the way back to 2015
- tomlockwood 7y ago
  Yeah. Since 2015 for example UK coal usage dropped 60%.
  - philipkglass 7y ago
    American coal production has dropped significantly too, though not as dramatically as UK consumption: https://en.wikipedia.org/wiki/Coal_mining_in_the_United_States#Production https://en.wikipedia.org/wiki/Coal_mining_in_the_United_Stat... and https://www.eia.gov/outlooks/steo/report/coal.php https://www.eia.gov/outlooks/steo/report/coal.php 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.

andrewgleave 7y ago

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-7fc2fa84e887 https://medium.com/otherlab-news/how-do-we-decarbonize-7fc2f... [2] https://medium.com/otherlab-news/solving-climate-change-with-a-loan-d1aac4b8259a https://medium.com/otherlab-news/solving-climate-change-with...

t0mas88 7y ago
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.
- nguoi 7y ago
  >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.
- dmix 7y ago
  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.

RobRivera 7y ago

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

nostromo 7y ago

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. https://www.bloomberg.com/opinion/articles/2020-01-14/blackrock-has-green-plans https://www.bloomberg.com/opinion/articles/2020-01-14/blackr... > 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.

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zamfi 7y ago
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.

coenhyde 7y ago

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/ http://www.worldstopexports.com/coal-exports-country/ [2] https://www.abc.net.au/news/science/2019-08-19/australia-co2-exports-third-highest-worldwide/11420654 https://www.abc.net.au/news/science/2019-08-19/australia-co2...

flukus 7y ago
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.
- gridlockd 7y ago
  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,_exports_and_reserves https://en.wikipedia.org/wiki/Coal_in_Australia#Production,_... [2] https://www.news.com.au/national/federal-election/almost-30-billion-invested-in-renewable-energy-in-past-two-years/news-story/5401643d4ff96e20082bdc767c26cdf8 https://www.news.com.au/national/federal-election/almost-30-...
grecy 7y ago
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?

there_the_and 7y ago

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.

crimsonalucard 7y ago
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.
guscost 7y ago
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.
Mirioron 7y ago
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.
- r00fus 7y ago

hughpeters 7y ago

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.

omani 7y ago
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.
- UserIsUnused 7y ago
  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.
  - evolve2k 7y ago
    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.
    - perl4ever 7y ago
      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.

supernova87a 7y ago

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.

dpflan 7y ago
Yes, well said. Government enforced constraints can foster economic culture shifts too.
HoraceSchemer 7y ago
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-work https://www.newyorker.com/business/currency/does-divestment-...
gersh 7y ago
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/privatelaw/document/makgetla_shapiro._business_south_african_transition.pdf https://law.yale.edu/sites/default/files/area/center/private...).

ineedasername 7y ago

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.

thoughtstheseus 7y ago

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.

F_J_H 7y ago

INB4 Short sellers...

cmpakawangi 7y ago

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spodek 7y ago

> 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.

ericdykstra 7y ago

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?

jes5199 7y ago
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.

bureaucrat 7y ago

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

woodpanel 7y ago

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.

qbaqbaqba 7y ago

Natural Gas and Oil?

gridlockd 7y ago

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.

IndiaLends 7y ago

There's an Indian equivalent called IndiaLends [0]. They also offer an Online Personal Loan [1]. [0] https://indialends.com/personal-loan https://indialends.com/personal-loan [1] https://indialends.com/credit-card https://indialends.com/credit-card

funnygrass 7y ago

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.

01CGAT 7y ago

2016: https://www.bloomberg.com/news/articles/2016-04-14/norway-s-860-billion-fund-drops-52-companies-linked-to-coal https://www.bloomberg.com/news/articles/2016-04-14/norway-s-...

languagehacker 7y ago

Has anyone here noted that coal is literally a black rock

waffle_ss 7y ago

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.

perl4ever 7y ago
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.

adrianmonk 7y ago

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_corporate_governance 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.