Forbes Piece: Placing Bets in the Global Energy Casino

BERLIN, GERMANY - MAY 26: John Kerry, Special Presidential Envoy for Climate, speaks during the welcome by the Federal Environment Minister and the Federal Climate Protection Minister before a meeting of the G7 energy ministers on the situation. GETTY IMAGES

[Note: This story was also posted at Forbes.com]

If you think investing in energy projects is an activity akin to placing bets in a Las Vegas casino, you aren’t alone. The similarities are so ever-present and obvious, in fact, that even public officials fall into the use of gambling language to describe some policy decisions.

Using the Language of Gambling

At the conclusion of a ministerial meeting of G7 member countries over the weekend, U.S. Climate Envoy John Kerry said that there can be no rolling back of progress on the energy transition that the U.S. and other G7 governments are attempting to subsidize into reality because “private companies have made major bets on the future and they’re not going to reverse them.” That is, of course, how it all works on any game of chance on the floor at Caesars Palace, Aria or the Golden Nugget: Once you’ve placed your bet, it can’t be taken back. You can lose it entirely (the most likely outcome, because those multi-billion dollar casino palaces with 3,000-room hotels weren’t built on the backs of winners), but you can’t just wipe it off the table.

Reducing that risk is of course what all the trillions in debt-funded subsidies are there for: It’s like playing with what the casinos refer to as “house money.” What seldom gets mentioned is the unalterable fact that, in offering the subsidies, the governments of the G7 and other countries all over the world are also gambling, not with “house money” or their own money, but with the money of their constituents, and their future generations.

They do it all with claims of high-minded goals and an unending stream of constantly-rising fright rhetoric, but at the end of the day it is all undeniably still a series of big gambles. Eventually, the house comes to collect from the losers.

The Biggest Policy Gamble in History

Make no mistake about it: The entire “energy transition” amounts one of the biggest policy gambles in world history. The governments of the G7 are all betting the farm on the proposition that they can force the collective boogeyman they’ve targeted - fossil fuels - out of business and subsidize their replacement with three chosen rent-seeking industries: Wind, solar and electric vehicles, along with some hydrogen, carbon capture and maybe even a little modular nuclear power tossed onto the “come” line at the global craps table.

One of the big proposed bets that apparently wasn’t made by the G7 ministers during this most recent meeting was a proposition floated early in the proceedings that they would jointly roll the dice on $7.5 billion to boost mining and China-free supply chains for the array of minerals that are critical needs for their selected “green” industries. The final communique released April 18 includes no language specific to any such fund, only a vaguely-worded statement asserting, “We will work to strengthen secure, resilient, sustainable, responsible, transparent, and diverse critical minerals supply chains essential for net zero economies and clean technologies, and diversify wider clean energy supply chains to support the global energy transition.”

The statement employs all the right nouns and adjectives, but does not include any new, big bet. Perhaps the global banking crisis is causing a temporary shortage in house money. Or, perhaps it was due to objections coming from China itself, whose government denounced the group’s communique’ as being “full of arrogance, prejudice against China and we have made a strong demarche to the host Japan."

After all, China recently placed a huge bet of its own on securing a new supply of lithium, locking up the contracts in January to produce Bolivia’s enormous store of the critical mineral and manufacture batteries with it. The initial stage of that bet alone involved a Chinese “belt and road” investment of $1 billion to upgrade Bolivian roads and other infrastructure before the process of recovering, processing and manufacturing with the lithium resource even begins. That’s a big ante at the lithium poker table.