Recently, the Norwegian government legalized large-scale commercial sea mining. Many expected environmentalists to applaud the sea floor production of natural elements like lithium and cobalt, elements that are used to create large batteries for the storage of renewable energy.
After all, one major complaint about solar and wind power is that energy production dwindles on cloudy days and evenings when the atmosphere is quiet. With powerful batteries, though, energy that is generated on sunny and windy days can be stored for later use when production facilities lie fallow.
Many environmentalists, however, protested Norway’s decision on the grounds that sea mining would disturb ocean life. Jellyfish, for instance, may become “stressed” by commercial activity.
Thus, financial valuation models must now account for the competing scenario probabilities that: (1) government will take action to protect the air through the development of battery technology for wind and solar projects, thereby accelerating the drive to eliminate carbon emissions, versus (2) government will opt to strengthen regulatory protection of the sea, resulting in our legislators’ refusal to approve mining activities that produce battery material for wind and solar projects.
The concept is similar to the one that economists describe regarding substitute goods. As we first learned in our undergraduate Economics Principles courses, we can expect the price (and value) of coffee to increase when it becomes more difficult and more costly to produce tea.
In the current analogous situation, a financial analyst who prepares a valuation model for a Norwegian commercial sea mine would need to assume a certain level of government policy support for eliminating carbon emissions from the air. More policy support for the cleansing of the air would strengthen the market for renewable energy batteries, thereby yielding a higher tolerance for disturbing the environment of the sea.
That would be good news for individuals who care about carbon emissions. It would be bad news, though, for the jellyfish.
Originally published at michaelkraten.blogspot.com. All rights reserved by author.