Climate Spectator: 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, says Paul Gilding in his first article for Climate Spectator. Take a look at this new daily online news service edited by Giles Parkinson, on green business, clean technology, carbon markets and climate change policy.

A climate storm for investors

By Paul Gilding  in the Climate Spectator (12 July 2010):

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 such as our past two opposition leaders and prime ministers being removed with climate change a central issue in their downfalls. Signs such as 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 such as the past decade being the hottest on record, as of course each decade has been since 1980. Signs such as the first new car company IPO in the US for half a century being a disruptive electric car company.

There is great investment and excitement now in renewables, with more than $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. It 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 such as 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 US in 1940, that the coming four years would see military spending go from 1.6% to 37% of GDP and that government would take over and direct the economy, with actions such as 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?

Take a look at Climate Spectator, this new daily online news service edited by Giles Parkinson, on green business, clean technology, carbon markets and climate change policy. Like abc carbon express, it is a free subscription service. Go online to register.

Source: www.climatespectator.com.au

World Cup Scoop: Kick Goals & Generate Energy

The World Cup has unearthed a lot of football talent, but thanks to Luke Whistler of the FWR Group, it also uncovered a great scoop. A soccer ball that generates and stores energy while it’s being kicked around. It generates enough energy to power an LED light or charge a small electronic device–which may not seem like much power. But in Africa, it could literally mean the difference between life and death.

By Brian Merchant in PlanetGreen:

It’s a pretty ingenious idea, there’s no doubt about that: a soccer ball that generates and stores energy while it’s being kicked around. It generates enough energy to power an LED light or charge a small electronic device–which may not seem like much power. But in Africa, it could literally mean the difference between life and death.

Not to get melodramatic there, but it’s true in a sense. A common way for developing nations to get light is to burn kerosene lamps. And these lamps are terribly harmful to human health—when burned indoors, they create an effect that’s equivalent to inhaling two packs of cigarettes a day. It’s hard to determine how many deaths are caused by kerosene, but there’s no doubt there are far too many.

There’s also the environmental impact to consider—kerosene lamps also contribute 190 million tons of carbon emissions to the atmosphere a year, or 38 million cars’ worth. So wouldn’t it be nice if all those dangerous, polluting kerosene lamps could be replaced with a community-building, exercise-promoting game? Indeed it would.

Green Inc. explains how the sOccket ball would work:

Early prototypes of the ball use an inductive coil mechanism similar to the technology found in shake-to-charge flashlights. The movement of the ball forces a magnet through a metal coil that “induces” voltage in the coil to generate electricity. For each 15 minutes of play, the ball can store enough energy to illuminate a small LED light for three hours.

The idea is fast gaining traction–soccer is incredibly popular in many developing nations, Africa included. Players are known to kick the ball around for 8 hours a day–so why not convert that into usable energy?

The group behind sOccket, which initially conceived the idea as a class project at Harvard, recently tested the ball in South Africa. It seemed to be a hit, even though it’s not quite on par with normal balls: “Obviously, this won’t be a regulation ball,” Ms Lin, one of the founders, told Green Inc. “You won’t see David Beckham using it. But it’s a big improvement over some of the makeshift balls the kids create from things like old plastic bags.”

Now, the group is faced with finding a way to make enough sOcckets to deploy to developing nations. But they’ve already got a plan:

Using a “buy one-give one” model, the sOccket team hopes to sell the ball in Western markets, as a high-end tech gadget, then use the profits to distribute the balls at little or no cost in poor countries through development organizations like Whizz Kids United.

It seems like a fine idea, if development issues can be overcome—they may be difficult to mass produce. This will definitely be an idea to watch.

Source: www.planetgreen.discovery.com and www.fwrgroup.com.au

Lucky Last: Carbon Pricing Is Left, Right & Centre

Policymakers, economists, industry and environmentalists all broadly agree that Australia needs to move to a lower emissions trajectory, and that the single-most important tool is to put a price on carbon emissions. Australian industry has been factoring in for years that there will eventually be a price on carbon. Most industry players want an end to policy uncertainty. Industry fought hard over the carbon pollution reduction scheme, but just like with the mining tax, the fight is over the rules and over who pays how much, not over the need for reform itself. Frank Jotzo writes in The Age.

Frank Jotzo in The Age (8 July 2010):

Carbon pricing is central to any national strategy to cut emissions.

IF THE government is re-elected, can it deliver a carbon price for Australia? Prime Minister Julia Gillard has flagged that a consensus about climate action needs to be reached first. A broad community consensus of this kind existed about two years ago, then it eroded amid a global campaign against the science of climate change, disappointment about Copenhagen, confusion about emissions trading, and political mud-slinging. But there is a clear way forward.

The temptation for the Gillard government might be to announce some climate projects before the election, and go slow on the issue after the election. But that would fail the country on a long-term issue that simply will not go away, and would guarantee political pain if the Greens hold the balance of power in the Senate, as is highly likely.

Policymakers, economists, industry and environmentalists all broadly agree that Australia needs to move to a lower emissions trajectory, and that the single-most important tool is to put a price on carbon emissions. And there is increasing realisation that our collective Copenhagen hangover stems mostly from overblown expectations and misperceptions. In particular, the mistaken notion that China is not doing anything has been put to rest with an ambitious target to cut the carbon intensity of China’s economy.

US President Barack Obama has been facing an uphill battle on emissions trading, but still it is likely there will be federal US legislation to cut carbon emissions, in addition to the policies already in place in many states. And emissions trading itself is far from dead, with the EU pushing on, New Zealand just having introduced it, and other countries preparing it.

Australian industry has been factoring in for years that there will eventually be a price on carbon. Most industry players want an end to policy uncertainty. Industry fought hard over the carbon pollution reduction scheme, but just like with the mining tax, the fight is over the rules and over who pays how much, not over the need for reform itself.

Amid the wrangling with business, the government failed to explain its scheme to the public, but made ever more concessions to emitters. NGOs, think tanks and universities also missed the mark, spending most of their effort arguing over nuances rather than explaining fundamentals. Add to that the fact that both major parties used climate policy as a political wedge, and it is easy to see why public support for the scheme evaporated.

The next government has the chance to cut through the confusion and complexity of the scheme, and make a start with a simpler way of pricing carbon. There are several ways of doing this, including charging a carbon tax to large emitters, or at the point of production or import of coal, gas and oil. And there is a middle way between the carbon pollution reduction scheme and a carbon tax. It is to use the basic building blocks of the emissions trading system, but bring it online with a predetermined (and rising) carbon price. ”Fixed-price emissions trading” along these lines was proposed by Ross Garnaut as a viable second-best option, and it is now supported by the Greens. It gives certainty about carbon prices in the near term, and allows shifting to a fully market-based system down the track, without the need to then begin a completely new system. And it could be implemented quickly.

The next government will also have the chance to revisit industry assistance, and to allocate more of the revenue to consumers rather than shareholders – which would be in line with Gillard’s emphasis on fairness and economic opportunity for all.

If the Coalition wins the election, then carbon pricing is ostensibly off the agenda. But despite the ”great new tax on everything” rhetoric, it is a fair guess that a Coalition government would not be able to escape the logic of carbon pricing for long. It is worth remembering that the Howard government supported emissions trading during its last year in office.

Both major parties have endorsed a 5 per cent cut in emissions from 2000 to 2020, with the possibility of cuts up to 25 per cent. The emissions targets other countries have put on the table at Copenhagen imply Australia should move to a target of around 15 per cent, according to the government’s criteria submitted to the international community. Achieving those kinds of reductions will mean a bigger effort than many people think, because Australia’s economic and population growth means the underlying carbon trend is up.

A range of policies will be needed to turn around Australia’s emissions trajectory, including support for the development of clean energy and the deployment of renewables, standards for energy efficiency, research and regulation to retain more carbon in forests and soils, and investment in cutting emissions in developing countries such as Indonesia.

But carbon pricing is the central plank of any viable strategy to cut carbon throughout the economy and to do it without unnecessary cost. Consensus on that is all but inevitable. But it will take some political will.

Frank Jotzo is fellow at the Australian National University Crawford School of Economics and Government and deputy director of the ANU Climate Change Institute. He was economic advisor to the Garnaut Climate Change Review.

Source: www.theage.com.au