06/07/2011 - 09:12

Analysis: investors ignoring carbon tax

06/07/2011 - 09:12


Upgrade your subscription to use this feature.

Voters appear to be abandoning the Prime Minister, Julia Gillard, and her rush to introduce a carbon tax. Money is just ignoring her.

Analysis: investors ignoring carbon tax

Voters appear to be abandoning the Prime Minister, Julia Gillard, and her rush to introduce a carbon tax. Money is just ignoring her.

Two "opinion" polls can be used to test those claims.

The first is contained in the weekly flow of voting opinion with the most recent showing that support for the Gillard government, on a national basis, has fallen to as low as 30 per cent. How much of that slump is carbon-tax related is anyone's guess, but it is a factor.

The second "poll" is the stock market where money continues to pour into the ultimate carbon stocks, coal miners, and out of the theoretical winners of a carbon tax, renewable energy stocks.

Investors are, in effect, voting with their wallets and reckon that coal has a bright future and the family of renewable companies only has a future if plugged into a government life-support mechanism - funded by the carbon tax.

To say this is an odd situation is an understatement because rising prices for coal stocks flies in the face of the never-ending publicity associated with the fear-and-guilt campaigns orchestrated by the government, and funded by taxpayers.

In fact, arguing about which side is right in the carbon tax debate is a sideshow when the money factor is considered - though it is stunningly obvious that it matters not a jot what Australia does about carbon pollution when the rest of world, especially Asia, is making up our carbon cuts in a matter of hours.

The stock market is showing that investors understand that the carbon tax is an almost totally political event and a way for the government to plug a revenue hole created by the botched mining tax, and ambitious spending programs, such as the National Broadband Network.

Consider what's happened since the start of the calendar year, about the time Gillard back-flipped and reneged on an election promise to not introduce a carbon tax - with the best way to do that through two baskets of stocks, one containing coal stocks, the other filled with renewables.

If, for example, an investor had loaded up on Macarthur Coal, Metro Coal, New Hope Corporation, Bathurst Coal, Aston Resources and Carabella Resources, he would be laughing with five of the six have risen, three of them substantially.

Metro has more than doubled from 30c to 69c. Bathurst is up from 75c to $1.08. Carabella is up from $1.12 to $1.87. New Hope is up from $4.85 to $5.08. Aston is up from $8.07 to $8.72. Only Macarthur has let the side down, slipping from $12.70 to $11.13.

True believers in renewable energy would be a lot poorer today than their coal-believing cousins because not a single one of their favourites has risen.

Infigen Energy, a wind-power specialist, is down from 55c to 35c. Ceramic Fuel Cells is down from 16.5c to 13c. Geodynamics, a "hot rocks" explorer is down from 37.5c to 26c. Quantum a solar energy specialist, is down from 7.5c to 3.6c. Dyesol, another solar energy stock, is down from 73c to 56c, and Energy Developments, a waste to energy specialist, has slipped from $2.68 to $2.50.

Different results might be obtained by picking a different basket of stocks, though those two baskets (with changes made for takeovers) is one first used in a coal v renewable investment exercise two years ago - with the same result; a win for coal.

What investors are saying is that one side of the great energy debate, coal, is a business which makes profits and does not rely on the fickle flow of government hand-outs.

Most stocks in the renewable sector cannot yet be described as viable businesses, and might never be, relying on government support - until it is withdrawn, with catastrophic results as the solar cell sector has recently discovered.

We'll have to wait a year to test this prediction, but it's a fair bet that if those baskets of stocks are price-tested again next July it will produce a similar result.


Subscription Options