by Elliott R. Morss
The global financial meltdowns resulted from the use of risky derivative instruments developed by a group of MBAs and Ph.Ds. But while all this was happening, another group of experts was meeting to determine the effects of something that will prove far more important to mankind – global warming.
In earlier articles, I looked at lessons from earlier transitions and where we are now. In the most recent piece, I concluded that CO2 emissions will be greater in 2030 than they are today. As a consequence, global warming will continue. The question to be addressed here is what do we really have to worry about?
Take a look at Table 1. It provides estimates of emissions by source in 2004.When you look this table and studies on this subject, you realize that global warming is one of several contributors to climate change. The climate will change without the human race. But a growing population and its energy, food, water, and other demands are causing changes that otherwise would not occur. And the global population is expected to grow by another third (from 6 billion to 8 billion) before leveling out in a few decades.
Table 1. – Global Emissions by Source, 2004
Figure 2 – Changes in Global Temperatures, Sea Levels, and Snow Cover
Table 2 – Fatalities from Extreme Natural Events, 1900 - 2010
The Intergovernmental Panel on Climate Change (NASDAQ:IPCC)
The research on global warming is no small endeavor. It has involved experts from climatology, atmospheric physics, meteorology, ecology, biology, hydrology, environmental science, socio-economics, natural resource management, public health, food security, natural hazards, economics, energy, transportation, industrial processes, engineering, and finance. Since it was formed in 1988, the IPCC has issued 30 major reports and has involved approximately 10,000 experts as authors or reviewers.
What Have They Learned?
The globe is warming. Since a picture is worth a thousand words, take a look at Figure 1. It shows what happened to temperatures since early in the 20th Century. They have gone up. These are not outlier/random blips. Temperatures have increased everywhere on earth. It also appears that models employing both human (anthropogenic) factors as well as natural variables do far better at predicting temperature changes than models just using natural variables.
Figure 1 – Temperature Change by Region
Higher temperatures have implications. One is that snow melts and sea levels rise. Figure 2 shows what happened to average temperatures, sea levels and snow covers from 1961 to 1990. It is apparent that in addition to higher temperatures, sea levels have also risen. The data on snow cover is less convincing, but it appears snow cover has fallen somewhat.
Losses from weather and climate-related disasters have increased. Monetized asset losses are greatest in developed countries, while fatalities are greatest in developing nations. Estimates of annual asset losses have ranged since 1980 from a few billion dollars to more than $200 billion annually, with the highest value for 2005 (the year of Hurricane Katrina).
Table 2 lists the ten natural events causing the highest number of fatalities in the last 100 years. With the exception of the 1923 earthquake in Japan, they were all in low income countries. During the period from 1970 to 2008, over 95% of deaths from natural disasters occurred in developing countries.
Will This Continue?
In my last article, I used projections from the International Energy Agency and Bloomberg to estimate CO2 emissions 20 years from now. They will be higher. The IPCC experts agree. In fact, they see emissions increasing by as much as 90%.
As a result, the IPCC’s best guess is that temperatures will increase 0.4°F per decade, or enough to increase sea levels 1” to 5” per decade. And regional variations in these numbers are expected. For example, Responding to Climate Change in New York State, a study based on IPCC research, has estimated a temperature increase in the range of 1.5°F to 3.0°F.
Systems and activities that are particularly sensitive to climate change and related changes in sea level include: forests; mountain, aquatic and coastal ecosystems; hydrology and water resource management; food and fiber production; human infrastructure and human health.
The IPCC has estimated economic losses associated with a 4.5°F global warming (the mid-range estimate of equilibrium global temperature increase associated with a doubling of equivalent CO2 concentrations) on a world similar to today’s (i.e., similar demographic characteristics, social structures, economic conditions) as follows:
· Developed country impact: 1–1.5 per cent of national GDP annually;
· Developing country impact: 2–9 per cent of national GDP annually;
· Overall global impact: 1.5-2% percent of global GDP annually.
Needless to say, simplifying and controversial assumptions were required to make these estimates.
So temperatures will increase a degree or two every ten years, and sea levels will rise a bit. Why all the concern? Can’t we adapt? Just avoid doing stupid things, like locating a nuclear plant near the ocean. Sure, there will be transition costs, but through history, people and animals have moved as weather has changed. And remember that some regions will benefit.
With all the effort we the world is putting into renewables, the projection from my previous article is that the renewables’ share of global energy will only increase from 2% in 2010 to 3% in 2030. Is the current renewable investment of $211 billion and government subsidies of $66 billion in 2010 really worth it?
So what? Here is the problem (I quote from the IPCC):
“Natural climate variability and human-generated climate change influence the frequency, intensity, spatial extent, and duration of some extreme weather and climate events; since 1950, the frequency of extreme hot days and heavy precipitation have increased…. For some species (and hence systems), thresholds of change in temperature, precipitation, or other factors may exist, which, once exceeded, may lead to discontinuous changes in viability, structure, or function.”
This is a bit ominous – it is the non-linear effects – like rapid glacier ice melt – that we have to worry about. The IPCC estimates that “rapid dynamical changes in ice flow” could quadruple sea level rise. The other extreme (non-linear) events expected by the IPCC include:
· Increase in average maximum wind speed and associated heavy rainfall – Very likely;
· Increase in warm days and nights – Very likely;
· Increase heat wave frequency – Very likely;
· Contribution of sea level rise to extreme coastal high water levels (such as during storm surges) – Very Likely.
Policy Making When There Is Little Certainty
Policy making with so much uncertainty is an art form and hard to get right.
What if you were made the global energy czar and given $1 trillion for each of the next ten years to deal with climate change? What would you do? Would you continue to invest $200 billion a year on renewables if it will only cut reliance on fossil fuels by 1% over the next two decades? Why not put that money into energy research and wait for new and better energy technologies to be developed?
My thoughts, for what they are worth, follow:
· Non-linear climate changes are a worry, but the payoff from investments in renewable energy projects using existing technologies is not great; and probably most of the windmills and solar panels being installed now will be outmoded trash in less than a decade. Ok. But we are learning some important things by “doing”.
· While non-linear climate changes are a worry, they are not my greatest concern in the energy field. As I noted in an earlier piece, 50% of oil traded internationally comes from the Middle East, Libya, Nigeria and Venezuela. These are tinderboxes ready to explode. And because of this, every effort should be made to reduce the world’s dependency on oil.
Given these concerns, what would I do?
· I would spend $750 billion annually infrastructure to mitigate the expected non-linear climate change events, with more than half of it going to lower income countries;
· Globally, we are spending less than $10 billion on renewable and other energy saving research. I would quadruple that. A good portion of it will be wasted. So what? We will discover some good things, like maybe figuring out how to store electricity more efficiently;
· The balance of my $1 trillion would continue investments in renewable energy projects.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.