Anyone interested in investing in nuclear power will benefit greatly from having an understanding of the science and politics surrounding climate change. Government policies will greatly affect what energy systems come to the market - witness the recent proposed EPA mandate that would basically outlaw coal power plants in the U.S. - and so they will affect investment opportunities accordingly. In other words, legislative risk due to climate change concerns is especially high for those investing in the energy sector.
Currently, the legislative bias is very much in favor of reducing carbon emissions. This has worked to the advantage of nuclear power (NUCL) and natural gas (NAGS), while creating potential for bearishness in coal (KOL) - although as I noted in my article on the EPA mandate linked to above I do not think coal prices will stay down unless other nations follow with similar legislation.
So one key question we can ask ourselves is will this legislative trend continue? To help us answer that question, here are some key points to consider:
1. The integrity of the data used by the IPCC, the division of the United Nations that studies the environment, has been called into question. Personally I've always been a bit skeptical of arguments pertaining to anthropogenic global warming, largely because of the great interest shown by institutions like JPMorgan (JPM) and Goldman Sachs (GS) in creating a carbon market. The idea of a carbon market is deeply flawed, in my opinion - I doubt the government can actually come up with an accurate, meaningful supply constraint, and that our current markets are actually efficient and capable of pricing it properly. But moreover, once the issue becomes financialized, there is a strong incentive to see emissions as a problem and a carbon market as the solution regardless of what may actually be the case. Bottom line: if people begin to see the carbon market as corrupt, or if the science supporting anthropogenic global warming falls out of favor and is seen as dishonest, the need for legislation against emissions could fall. Investments in nuclear power could thus be especially impacted, and fall out of favor relative to emission-producing sources of energy.
2. In Antarctica, the Vostok ice cores lock in carbon levels from many years ago. This provides scientists with an idea of carbon emissions from thousands of years before our current times. The evidence suggests carbon emissions are cyclical, and that current levels of CO2 emissions may in part be a result of cyclical changes. So what happens when the next downcycle begins? If the data and implications from the Vostok drilling becomes more widespread, it could lead to calls for reduced regulations against carbon emissions.
3. Carbon sequestration - finding ways to capture carbon that has been released - and more controversially, geo-engineering, are also potential substitutes for carbon emissions control; sequestration can pull carbon out that has been emitted, while geo-engineering can minimize the impact of climate change (by partially shielding the earth from the sun, for instance). These ideas are currently being proposed as complements, not substitutes, for controlling carbon emissions, but it is worth keeping an eye out for signs of change.
Ultimately, here is my stance on how this all relates to investing in nuclear power:
- Carbon legislation is alive and well and will have a significant bullish impact on the nuclear industry. Relevant ETFs here are (URA) and, although as I've noted in my previous Seeking Alpha articles, I favor select uranium miners like Cameco (CCJ) and Uranium Energy Corporation (UEC).
- If there are any signs that the aforementioned factors are being considered by governments, I would recommend taking a more protective stance - meaning taking some profits, moving to breakeven, or closing out the position depending on where price is relative to where you entered.