A climate storm for investors
Beware the coming climate storm. A moment is approaching when science and markets will collide, but then merge, with chilling consequences for investors who miss the moment, and great excitement for those who are well prepared.
The signs are all around us now. Signs that a storm of climate action will soon rage through the economy, sweeping away denial and, along with it, those companies, politicians, investors and industries that aren’t ready.
Signs like our past two opposition leaders and Prime Ministers being removed with climate change a central issue in their downfalls. Signs like 2008 being the first year when the money invested in new renewable energy generation projects was greater than that invested in new fossil fuel energy generation. Signs like the last decade being the hottest on record, as of course each decade has been since 1980. Signs like the first new car company IPO in the USA for half a century being a disruptive electric car company.
There is great investment and excitement now in renewables, with over $100 billion invested in 2008 and the same in 2009, despite the uncertain financial climate. Yet we see growth in coalmines, new coal export facilities and a lack of action in politics in Australia and the US. What is an investor to do with such confusing signals?
Simple. Observe the science, because the science drives everything else.
The facts are now very straightforward on the problem and its causes, as stated by the peak US science body The National Academies of Sciences. They said last month the science of climate change is in the category of those theories that had “been so thoroughly examined and tested, and supported by so many independent observations and results, that their likelihood of subsequently being found to be wrong is vanishingly small. Such conclusions and theories are then regarded as settled facts.”
So this is not a philosophy or a political viewpoint. These are facts. Smart investors deal in rational analysis, not ideological perspectives or wishful thinking. As US Senator Daniel Patrick Moynihan said "Everyone is entitled to his own opinion, but not to his own facts."
So if you believe in facts, you will be understand that science will, in the end, overcome resistance and denial, as argued by Professor Stephan Lewandowsky from the University of WA: “The laws of physics will relentlessly assert themselves, unswayed by public opinion, political shenanigans, or elections. Ultimately, the laws of physics will speak so loudly that no amount of wishful thinking can prevent them from being heard.”
The reason we can be so confident that this storm, when it hits, will be ferocious and effective at driving change, is by considering what happens when science meets markets. The science dictates that when we act it will now have to be dramatic action.
We know that to avoid catastrophic risk we must keep warming below two degrees and, as a result, this is the target agreed to by governments from US, to China, to India to Australia. If you don’t like political metrics then consider that this is also the target endorsed by hundreds of global corporations from GE to Rio to HSBC.
Acting as late as we are, achieving this target will require us to virtually eliminate CO2 emissions from coal oil and gas within a few decades. This means eliminating whole industries and replacing them, which is where the science meets the market.
Markets are particularly good at challenges like this, using what Austrian economist Joseph Schumpter called “creative destruction”. Markets are unconcerned about collateral damage and friendly fire. They won’t deliver the change steadily or calmly. Markets don’t play politics and will have no regard for sunk capital or prior commitments.
When we act on climate this will be creative destruction on steroids, with the resulting economic storm wreaking havoc and wiping out companies and whole sectors, while creating tomorrow’s new economy and corporate giants. It will be volatile, chaotic and exciting for investors, with fortunes made and lost based on the quality of judgements.
It’s hard to look at today’s politics and investment strategies and accept this analysis. It’s hard to imagine so many people being so wrong. It was also hard to imagine, in 2007, that the world’s governments would nationalise banks and car companies and spend trillions bailing out the financial system. It was hard to imagine, in the USA in 1940, that the coming four years would see military spending go from 1.6 per cent to 37 per cent of GDP and that government would take over and direct the economy, with actions like banning the production of private vehicles. In hindsight, though, such things are always obvious. And with the benefit of hindsight in 10 years time, the coming climate storm will have been obvious as well.
There is only question you have to ask yourself when you see the signals that are now flashing in bright neon lights, screaming “warning, warning, everything is about to change”. Am I ready?
Paul Gilding is a writer, advisor and advocate on climate change and sustainability
Comments on this article
What facts, Roger?
Sorry Roger, I wasn't aware that I was trying to sow doubt to muffle the voices that matter.
Would Paul's be one of these? Good, because in that case he, or you, might answer my simple question: given that it is well-known that the earth has been much hotter at times over the geological timescale than it is now; and that there have occasionally over the same timescale been periods when CO2 concentrations have been much higher than they are now; what caused that?
The science was settled - by the facts - years ago
Keep it up, Paul. Our young people will need your brand of stirring poetry if they have to take demands for action into the streets.
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Ignore the wobbly voices. Insincere about the future, they try to sow doubt to muffle the voices that matter.
Sorry, the science is far from settled
I am very interested in the business of renewable energy and the cleantech sector, so I welcome the website: but I groaned aloud at the welcoming "the science is settled" rant. Paul, for the 1000th time, causation – as opposed to correlation - has never been proven between rising levels of carbon dioxide and rising temperatures. Anyone who proved that would win a Nobel Prize. You can wish for that to be proven; you can assert it as fact until you are blue in the face; but I’m sorry, no-one has ever provided real (empirical) evidence) that warming due to rising CO2 levels has happened. It is just as likely that the correlation runs the other way.
In short, all you have to convince me is a 0.6 degrees Celsius rise in average surface temperatures between 1900-2000 – a rise that has subsequently gone into reverse, which confounds the IPCC models utterly.
I’m not yet convinced that:
a) that rise is recorded reliably, eg the corruption of the surface measurement process by the urban heat effect;
b) that it is 'global' (Antarctica is cooling);
c) that it is over and above natural fluctuations; and
d) that we have anything to do with it!
Your problem is that the theory that you assert to be proven is, at this point in time, nothing but conjecture distilled from computer models – and models that are in fact programmed and fed with data precisely in order to come up with what they do. The modelling has as many holes in it as Swiss cheese. To give an obvious example, none of the IPCC’s model predicted the cooling that has happened since 1998 in the face of rising CO2. Not one. They are completely unreliable as predictors. They cannot deal with even naturally occurring cycles like El Nino, the Pacific Decadal Oscillation, etc. Moreover they do not even work when back-tested against known climate, let alone as predictors.
The IPCC case in its entirety is based on models: you do not have one single observation. And those models are not only erroneous - they are in fact deliberately fudged, because the only way that the IPCC can come up with its future warming prognostications is to assume that all feedback effects (particularly water vapour) are positive. But not only is that not the case, the 'Hot spot' that all IPCC models assume to be present in the high troposphere at the tropics because of the models’ water vapour assumption has never been found - because it does not exist. The effect of clouds and role of the sun’s magnetic field in their formation – only just remotely beginning to be understood – is another reason why the statement “the science is settled” is nothing more than an assertion.
I would simply ask you this, Paul: it is well-known that the earth has been much hotter at times over the geological timescale than it is now; and that there have occasionally over the same timescale been periods when CO2 concentrations have been much higher than they are now. So, what caused that then?
A-PAUL-LING !
I remember another Paul, Paul Erlich , who would have us believe that due to overpopulation and GLOBAL COOLING (and the resultant decline in food production that it would cause) the "End of the World was nigh".
Interestingly , he is now a supporter of the wealth creation and taxation system that is driving the GLOBAL WARMING crusade.
Having read the article( aka the ideological rant) "A climate storm for investors" methinks THIS Paul is "gilding the lily" while dusting off the sandwich-boards to take the righteous fight up to "us" of differing opinion and longer,more accurate memories !
Sorry ! This is one Paul too many !
Let's Get The Balance Right
Congratulations on the new website. Hopefully it will be as successful as Business Spectator. I am one of those people who is not a sceptic or a true believer, but a person who believes that whether the science is correct or not, action should be taken to reduce pollution and green house gases. I also believe that our current industries should not be decimated over night by radical and impractical thinking. If this website has a balance of views from industry, interest groups and "people in the know", it should be a success, but if it just becomes a platform for political gain by extremist groups, or oneupmanship for political points, I feel it will denigrate a noble cause. Let's hope the balance is right and we have an informative and useful site. Good luck with the project.