Climate Sceptics Should Buy Carbon Credits

Last week, we discussed why the world needs emission-free oil. Green energy in the form of electricity isn’t really going to cut it.

But for today, what is emission-free oil?

It’s better known as hydrogen.

Now you probably can’t think of anything worse than sitting on a hydrogen tank attached to four wheels going down a highway. Isn’t that what the Hindenburg had on board?

But there are plenty of busses outside our office here in London which run on hydrogen. And you’ll see plenty more of them promoted during the Tokyo Olympics. The fourth and final refuelling station those busses will use was completed this week.

There are now more than 100 hydrogen refuelling stations in Japan. And some of their hydrogen is set to come from Australia in the next few years.

The world’s first hydrogen transporting ship was also recently launched in Japan. It’s called the Suiso (hydrogen) Frontier.

Here in Europe, they’re adding hydrogen to the gas pipelines which supply homes with heating and cooling. In Italy they’re testing a 10% blend. In the UK, 20%. Supposedly you can’t tell the difference. But the climate can.

The list of hydrogen projects is getting mighty long, all around the world.

Why is the world going mad for hydrogen? Because it cuts emissions drastically, or eliminates them altogether. Hydrogen-powered fuel cells emit water vapour, heat, and electricity. No carbon emissions or other harmful gasses.

In Japan, some homes feature hydrogen fuel cells advanced enough to capture both the heat for heating and the power for electricity too. This is especially surprising given the lack of insulation in the country…

But there is one gigantically large fly in this climate change ointment. Producing hydrogen in the first place is not very emissions friendly. Yet.

There are a few methods to produce hydrogen and they all require a lot of power. The Aussie company set to ship hydrogen to Japan does it by burning coal. The hydrogen ship is powered by diesel…

In other words, hydrogen just shifts the problem of emissions. It only solves the problem I highlighted last week — it creates an emission-free oil. Creating the hydrogen itself is the new problem. A problem Japan seems happy to outsource to other countries…

But it’s far from insurmountable. Carbon offsetting is up and running, allowing hydrogen to be carbon neutral…at a cost. The Olympics busses will have their hydrogen production emissions offset with carbon credits, for example. According the Shell, anyway.

Burning fossil fuels to produce something described as emission-free isn’t really going to cut it though. And there’s a better way than paying someone to offset your carbon footprint.

Renewable energy is famous for producing energy at precisely the wrong time. The excess capacity could be used to produce hydrogen, without adding hardly any marginal cost. Hydrogen made using excess renewable and clean energy really is close to carbon neutral.

Now you might think that my focus today is on hydrogen. But you’re wrong.

What if carbon offsetting is the real boom in all this?

Think about it. All the pledges we’ve seen on climate change are about going carbon neutral. This involves a combination of green stuff and emissions offsetting for anything that isn’t green enough. The focus of investors seems to be on the former. But what about the latter?

I’ve criticised the ‘grubble’ plenty in the past — the green bubble. And carbon offsetting is part of that grubble. But maybe that’s a mistake.

If green energy fails to live up to its silver bullet hopes, will carbon offsetting become the investor paradise as a result? I think so.

If nations are compelled to go emissions neutral, but green energy doesn’t work out so well, then traditional energy combined with carbon offsets may be the way to go instead.

Solar and wind energy deliver disappointing and unreliable energy, in my view. They need backups. And those backups will need offsetting. The worse solar and wind perform, the more offsetting will be in demand.

So, perhaps a bet on carbon offsetting is the best way to bet on the grubble’s failure. Perhaps sceptics should be buying carbon credits!

If Tokyo’s showpiece of emission-free oil relies on carbon offsetting to work, that’s a rather big hint I’m onto something.

Until next time,

Nick Hubble, For The Daily Reckoning Australia