Global Climate Change

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Global warming could mean more freak storms like Hurricane Katrina, pictured above--bad news for insurance companies.

Global Climate Change is a term that refers to the exploration of both the question of whether the climate of the entire planet might be changing, and why, and what the impact of those changes might be on investments in companies that may be affected by global changes in climate. For thirty years now, many scientists have been predicting that global warming could result in a future of powerful storms, rising sea levels, and widespread crop failures. [citation needed] The science behind these claims remains highly controversial and was strongly opposed for many years, especially by the fossil fuel industry. However, recent public sentiment in many countries has increasingly shifted towards an acceptance of the concept of global warming and the possibility that warming may be correlated to human activities. Fueled by more reliable scientific studies (see the 2007 report from the Intergovernmental Panel on Climate Change) as well as the popular media (such as Nobel Peace Prize-winner Al Gore's documentary, "An Inconvenient Truth"), global climate change has emerged as a key issue in the political and economic arena. Global warming is an increasingly questioned phenomenon, and progressive national governments around the world have started taking action to respond to these environmental issues. Recent discussion in the scientific community including that in credible scientific papers and presentations, such as some presented at the January 2009 Mission Earth seminar attended by climatologists and Peak Oil experts, have exposed the failure of the vast majority of global warming research to properly account for the affect of Peak Oil on "predictions" made regarding climate change, including those made by the IPCC. These critical failures have called into question the credibility of the scientists and organizations at the center of the global climate change controversy and the soundness and validity of their conclusions and recommendations to business and governments, including the soundness of the "Kyoto Protocol" and the question of whether Peak Oil may make the Kyoto Protocol obsolete and the costs to business of enforcing the treaty unnecessary. Although the "scientific consensus" in 2009 is that the planet's atmosphere is warming, and consensus appears to indicate a correlation to human activities, science by definition is constantly evolving and it would be wise to recall that, for example, the concepts of Newton were considered to be the accepted scientific consensus until those concepts were superseded by the concepts of Einstein. Regardless, in the investment sphere, many companies will soon be affected by both changes in environmental legislation as well as predicted environmental results of continued climate change.


Background

Cause

Global climate change is thought to be a product of global warming, an observable atmospheric phenomenon. Since the Industrial Revolution, average global temperature has risen by a full degree Fahrenheit - seemingly very little, but the global distribution of temperature means that this change is greatly amplified at the poles. There are a number of possible causes for global climate change, examples of which include the increased intensity of solar energy or the cyclicality of Earth's temperatures. The majority of scientific evidence, however, points to the greenhouse effect: increasing levels of greenhouse gases, especially carbon dioxide, reflect more and more infrared light exiting the atmosphere back to the Earth. This causes the atmosphere (and, subsequently, the ocean) to warm. Greenhouse gases are released primarily through the burning of fossil fuels like coal, oil, and gas; over the past fifty years, as the world economy and worldwide energy use has grown exponentially, so too has the concentration of carbon dioxide in the air. According to the evidence, the more greenhouse gases there are in the atmosphere, the more intense the greenhouse effect is and the more the atmosphere will heat up.

Effects

Scientists are predicting a number of adverse effects if the current global warming trends continue or increase in speed:

  • Melting polar ice caps will cause rising sea levels and coastal flooding; melting glaciers and warmer temperatures in mountain regions will lead to decreased snowmelts, intensifying worldwide water scarcity.
  • The influx of cold water from the poles will interact with the warming ocean water to cause oceanic temperature fluctuations across the globe, possibly causing global ecological damage as sensitive keystone organisms (plankton, for example) die in their new environments, leading to organisms that are higher in the food chain (tuna, for example) increasing in scarcity.
  • Warmer air and water would cause more intense weather patterns; for example, warmer water creates more powerful hurricanes as it allows more water to evaporate and creates faster winds, making hurricane season more dangerous.
  • Rapidly changing ocean salinity from polar fresh water could interact with the temperature fluctuations in the ocean to disrupt or even shift the Gulf Stream, an underwater current that is responsible for modern climate conditions. Were this to happen, weather patterns all over the world could "snap", changing drastically in a period as short as ten years. Worldwide climate shifts could have major effects on agriculture all over the world.

Responses to Climate Change

Though many scientists agree that it is too late to stop some of the preliminary effects of climate change, almost all are in agreement that the process can be reversed by halting global warming. The only way for this to happen would be to stop releasing more carbon dioxide into the atmosphere than can naturally exit. It is predicted that this would take a worldwide reduction in greenhouse gas release of about 60% - an incredible amount considering the growth rates of developing countries like India and China, as well as the energy consumption of developed countries like the U.S. Governments all over the world are enlisting economists, politicians, and scientists to figure out how to prevent climate change; many governments around the world are instituting emissions caps, carbon trading schemes, and the use of clean, renewable energy sources like wind energy and solar power. These solutions may force a restructuring of the energy market; traditional forms of energy, like coal and oil, are thought to be contributing to global warming. Reducing emissions means reducing worldwide energy dependency on fossil fuels - a difficult transition, since fossil fuels are far more cost-effective than current forms of renewable energy. With Europe, Japan, and California taking the lead in adopting new energy standards and pressuring the U.S. and the developing world to do the same, however, the energy market is slowly but surely beginning to shift.

On February 4th, JP Morgan Chase, Citigroup, and Morgan Stanley stated that they would put into effect a set of "Carbon Principles" by which they would give investment priority to clean energy groups, and force any company planning to build coal-powered plants to show how they would deal with the carbon dioxide pollution in order to get investment money.


Who Benefits

Who Hurts

  • Insurers like Allstate and reinsurers such as Renaissance Reinsurance, Ace limited, Berkshire Hathaway (BRK) and XL Capital, are highly vulnerable to the damages caused by more powerful natural disasters, as they would bear the brunt of the reconstruction costs.
  • Agriculture companies like ConAgra, DuPont, Monsanto, and Archer Daniels Midland could be hurt by fluctuating oceanic and atmospheric temperatures. Unstable temperatures have the potential to damage any industry that is reliant on agriculture, by killing crops and fish. These companies would be hurt by reductions in food production, which would raise costs and lower profits; any company that uses these agriculture companies as production inputs, from McDonald's to Tyson Foods to Pepsi, would also be hurt by rising production costs.
  • Increasing water scarcity from melting glaciers and declining winter precipitation would hurt water companies like Suez, Vivendi, and RWE, as dwindling supplies would damage productivity, raising costs. Industries that use water as inputs, like steel, iron, paper, petroleum, textile, and chemical, would also be damaged by rising water prices.
  • Companies like Chevron, Exxon Mobil, British Petroleum, Peabody, Massey Energy and Arch Coal could be greatly damaged by a restructuring of the energy market. Energy paradigm shifts mean a major shift away from the established forms of energy that are currently releasing greenhouse gases. Oil and coal would suffer the greatest damages, as shifts away from coal powered electricity production and gas powered vehicles would lead to decreased demand, prices, and profits.
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