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Guilty Carbon

This is the week of the self-proclaimed World Economic Forum. To be pedantic, it is the Annual Meeting of the Forum, held in the never-knowingly-understated Swiss resort of Davos. I know nothing about skiing other than the theme tune to Ski Sunday, but I believe that the attendees at the Forum have been greeted by some snow. Had the jamboree happened a fortnight ago, it might have been that budgie-smugglers would have been more appropriate.

For anyone unfamiliar with the Forum, it is based on an admirable aim. The plan is that the movers and shakers of both government and commerce should have an annual shindig at which they sort out the problems of the world. Except that they do not. The World Economic Forum shares a lot of common ground with the annual COP meetings. Too many people fly into a conference centre, profess that climate change is terrible and that more things must be done, before flying back home and watching nothing happen. It is all quite frustrating and entirely predictable.

Greta Thunberg no longer has the media presence that she once commanded. That does not mean that she should not be listened to. Her core thesis is simple and searingly insightful. Decarbonisation, which is necessary to slow, or even stall, global warming is too difficult and will not happen. It is too difficult because it is long-term, and both politicians and chief executives are judged on the short-term. All of which should be painfully self-evident.

This, however, creates a problem for both politicians and chief executives. Despite decarbonisation being potentially too unpopular to actually do, they are also required to pay lip-service to the aim of saving the planet. That means setting targets. Some of these grand ambitions (“we will be net zero by 2050”) will be sufficiently long-term that they avoid any blame, but not all of them. And this is where things start to get interesting.

Decarbonisation has been designed from the word go with a get-out-of-jail (almost) free card. Which is the concept of ‘net zero’. If a company or business can not actually reduce its carbon production, then it can use Plan B. Let us describe Plan B as being ‘anti-carbons’. A simple equation would be: one carbon plus one anti-carbon equals net zero. If I fly to Davos, how many trees must I pay someone to plant for me to theoretically offset all that kerosene that my Lear Jet has burned?

Planting trees has become very big business. It is going to become bigger and bigger business. Regulators and legislators the world over and forcing businesses to set targets for reducing carbon, and investors are increasingly holding them accountable for delivering these. Investors as a whole, however, are also not prepared to accept whatever diminution in profits might occur as a result of cutting out carbon. And employing a tree-broker is usually very much cheaper than investing into newer and lower-carbon technology. We can follow the logic a little bit further yet. Trees need land. Land with trees, and land suitable for growing trees, is going to become increasingly sought after.

There is another string to this as well. You might remember an old advert, or public information film, about the evils of teenage litterers with the slogan ‘it only takes a minute to bag it and bin it’. For those companies which produce large amounts of carbon dioxide as part of their primary activity, there is the modern-day option of bagging and binning. Rather than stopping doing whatever it is that created the CO2 (usually burning something), they can figuratively stick a big bag on top of their chimneys, catch the gas and throw it in the bin. The process is given the grandiose name of carbon capture. It is also very big business. The world needs not only the technology to catch CO2, but also some very big gas dustbins in which to keep it. Luckily, there is a ready-made solution we are reinventing old oil fields as enormous underground holes (are there overground holes?) for storing captured, convicted and jailed carbon dioxide. There is perhaps an ironic circularity that we need to burn more oil and gas in order to create the space store the carbon created by that burning.

Markets were rather cheery again last week. The rate of inflation in the United States fell precisely as expected. On Wednesday this week we have the monthly updates to the inflation rates in the UK and Europe, both of which are proving to be more sticky. Next weekend brings the Chinese New Year and the year of the rabbit.

Finally, either my winning streak continues or Every Little thing She Does is Magic was too obvious to merit an answer. Today, what is happening here: “On a morning from a Bogart movie, in a country where they turn back time, you go strolling through the crowd like Peter Lorre contemplating a crime”?

Jim Wood-Smith – Market Commentator and Head of Climate Transition

All charts and data sourced from FactSet

Hawksmoor Investment Management Limited is authorised and regulated by the Financial Conduct Authority ( with its registered office at 2nd Floor Stratus House, Emperor Way, Exeter Business Park, Exeter, Devon EX1 3QS. This document does not constitute an offer or invitation to any person in respect of the securities or funds described, nor should its content be interpreted as investment or tax advice for which you should consult your independent financial adviser and or accountant. The information and opinions it contains have been compiled or arrived at from sources believed to be reliable at the time and are given in good faith, but no representation is made as to their accuracy, completeness or correctness. The editorial content is the personal opinion of Jim Wood-Smith, Market Commentator and Head of Climate Transition. Other opinions expressed in this document, whether in general or both on the performance of individual securities and in a wider economic context, represent the views of Hawksmoor at the time of preparation and may be subject to change. Past performance is not a guide to future performance. The value of an investment and any income from it can fall as well as rise as a result of market and currency fluctuations. You may not get back the amount you originally invested. Currency exchange rates may affect the value of investments.

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