Market Beat: The economics of climate change
August 8, 2013
Climate change — there are a couple of words sure to divide people into separate camps. Climate change has become such a politicized issue that it's difficult to discuss rationally. If you read the news you tend to only see articles where extreme viewpoints are presented.
This year, Reno recorded its warmest July in history, and that information made the newspaper. The same week that news of Reno's record warmth came out, another headline read, "Unprecedented July Cold — Arctic Sees Shortest Summer on Record."
Individuals struggling to find the truth about climate change have to learn to dig deep and eliminate the extreme viewpoints on both sides of the aisle.
Robert Watson, the former chairman of the IPCC said, "The mistakes all appear to have gone in the direction of making it seem like climate change is more serious by overstating the impact. That is worrying. The IPCC needs to look at this trend in the errors and ask why it happened."
That quote appeared in the IPCC's third assessment report which also said the following, "Projected climate change will have beneficial and adverse effects on both environmental and socio-economic systems, but the larger the changes and the rate of change in climate, the more the adverse effects predominate."
I recently had the pleasure of interviewing IPCC lead author Dr. Hans Von Storch on the radio. Dr. Von Storch has analyzed the IPCC climate models and found that virtually none of them projected the 15-year stagnation in warming that we have observed since 1998.
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Long-term investors should definitely consider the effects of climate change. Food stocks might make a lot of sense. With projected global population increases, pressures on food supplies should increase regardless of warming. In the event that warming becomes worse than expected, those pressures could increase even more.
Fossil fuels are a finite resource; eventually we'll have to transition to other sources regardless of the warming trend. Natural gas could be an ideal bridge fuel as we transition to alternatives and the US has an abundant supply.
Traditional energy companies are likely to lead the way into the energy solutions of the future. Currently, Chevron is the world's largest supplier of geothermal energy.
Dr. Richard Tol, professor of climate change economics at Sussex University, thinks that solar energy will also play a greater role in the future and that we're likely to see improvements in solar technology to make it even more viable, but he's not as excited about the future of wind energy.
I'd advise that you consider the effects of climate change on your long term investment strategy, but be careful of anything you read from the deniers or the fear mongers with an agenda to push.
Kenneth Roberts is a Truckee-based Registered Investment Advisor. Information on his money management service can be found at his blog at http://www.sellacalloption.com or by calling 775-657-8065. Past performance does not guarantee future results. Consult your financial adviser before purchasing any security.