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The climate is right

Ostensibly, the book is a survey of the sad and often deluded bands from the Middle Ages – from the flagellants to the Ranters – who preached the imminent second coming of Christ when evil doers would be condemned to everlasting torment and they – the righteous – would enjoy the fruits of the New Jerusalem.

Shift forward to 2020 and we see something similar in the climate-change movement. Not for nothing does Extinction Rebellion give itself a name straight out of the millenarian tradition. Arguably, however, what’s different between the disparate groups of medieval Europe and today’s climate-change activists is that today’s pilgrims have captured the mainstream message, whereas the medieval peasants were judged a threat to the social order and treated as such.

True, the notion of the apocalypse was part of conventional medieval eschatology. It was just that the final days were only ever imminent according to the revolting peasants and never according to those in positions of privilege and power. Today, the notion of a secular apocalypse, which – granted – has a sort-of scientific basis, is as enthusiastically embraced by the elite as by woke millennials.

What this means is that the colossal amounts of taxpayers’ money that have been thrown at reducing greenhouse-gas emissions will be as nothing compared with what will be spent. In other words, serious amounts of money are going to be made in the usual way in the pursuit of net zero emissions. The question is whether retail investors – the peasants of the investment industry – will be permitted to join the frenzy or whether they will end up much as the sad little creatures who joined successive children’s crusades in the 13th century.

The precedents are not good. It has been difficult to make half-decent investment returns from climate change, especially in its purest form – cutting greenhouse-gas emissions. Three disparate investments spring to mind, two of which are still with us. The one that has gone – and pretty disastrously – is Trading Emissions, an Aim-traded investor in so-called certified emissions reduction schemes, typically in China. Such schemes produced carbon credits by generating electricity from renewable sources – methane, in the case of pig farmers. The credits could be sold to energy users whose emissions were restricted by the European Union Emissions Trading System.

The company’s business model rested on the assumption that carbon credit prices would rise inexorably. A combination of over generous emissions’ allowances and recession followed by dull recovery meant that carbon prices, which should have been €30 per tonne of CO2, fell below €3 at worst. For Trading Emissions, which had raised £300m in equity in 2005 and 2006, the consequence was that the company went into voluntary wind-up in 2012. That process was finished in 2018 by which time the company had distributed about £100m back to shareholders.

Not so bad, although hardly great, has been the share price progress of a company that seems to epitomise the through-the-looking-glass logic by which parts of the clean-energy industry operate, London-listed Drax (DRX); through the looking glass because, by becoming a ‘dirtier’ power generator, Drax has become cleaner and is subsidised heavily for conjuring its illusory transformation.

By burning wood (biomass) instead of coal in four of its six boilers, Drax, which supplies about 7 per cent of the UK’s grid, generates dirty and expensive electricity under the guise of renewable energy. That it can do this rests on the fiction that generating electricity from wood rather than coal emits zero greenhouse gases since the CO2 released by burning wood was only taken out of the atmosphere recently – when the trees were grown – and will be sucked back when new trees take their place.

But, as a climate-change think tank, Sandbag, said last month in a report about plans to convert more coal-fired power stations, “biomass delivers questionable carbon savings, perhaps not realised for many decades (if at all) at a cost much higher than of fossil fuels”.

Meanwhile, Drax’s delivery to shareholders has been variable dividends and a share price, at 281p, that is 23 per cent lower than it was five years ago; over the same period the total return from the FTSE All-Share index has been 39 per cent.

Perhaps investors should, as it were, go straight to source, or as near to the source of emissions trading as they can. That would mean units in the London-listed exchange-traded commodity Wisdom Tree Carbon (CARP), which aims to track futures contracts in carbon credits traded on ICE Futures Europe. True, since it was listed in 2008 this fund has produced poor returns (less than 5 per cent). Maybe that simply reflects the point that cutting emissions has been honoured more in the breach.

Until now, that is. As the apocalypse dawns, as every paid-up member of the great and the good flashes his or her orthodontic smile and tells us than nothing is more important that averting climate disaster, then the cost of emitting CO2 will get to levels where serious returns can be made – even for retail investors. Maybe.