Missing the mark on a "strong economic case"

Former US vice-president and environmental advocate Al Gore and David Blood (Blood and Gore?!) have contributed a piece in the FT outlining his case against investing in coal assets and looking to the low-carbon economy instead. It can be found here.

I think this article misses the mark as it chooses to highlight opinions of the authors on vague future trends rather than looking at anything that is quantifiable about industry trends. Indeed, for an article titled "Strong economic case for coal divestment", it doesn't provide any kind of numerical analysis that are essential for winning over the investment community.

And there are important, observable trends in coal markets that would support the argument for an article with this title. For example, those with the largest economic stakes in the coal industry, owners of mines, are already radically rethinking the value of their coal assets and are divesting.  A very immediate example is the recent sales of Rio Tinto's Mozambique coal assets for just $50m, after purchasing them for close to $4bn in 2010.

Or the fact that coal prices have fallen dramatically over the past 3 years and are way below previously held long term assumptions about costs, which seem to be falling rather than supply being cut.

While weak prices has partially been because supply has been cheaper than expected, which is hardly good news for the environment, it has also been because demand growth has been weaker than expected too. This is particularly the case in China, where coal burn has unexpected slowed from high to low single digits. It's likely that this will remain below the previously assumed trend.

So really there is no need to speak to some endowment funds divesting in coal because they don't like the environmental consequences (not a "strong economic case"). Speaking vaguely to the positives of investing in alternative energy like solar power also misses some of the pitfalls in investing in that industry, like the collapse in the price in solar panels that has affected manufacturers.

The key point is that to make a "strong economic case" to investors, its better to come armed with analysis and numbers rather than assertions without much basis.