Weekly Angst:

Global Warming will cost plenty, either now or later
Most Americans (65%) believe global warming will hurt the economy over the next decade, according to a recent poll by the Earth Day Network. And they are right.

Global Warming is going to have a huge economic cost, one way or the other. But the cost of doing nothing will be much higher than the cost of making the massive changes necessary to drastically cut CO2 emissions. Hurricane Katrina gave us some idea of the costly damage we’ll incur if we doing nothing.

One world estimate, from the German Institute for Economic Research, puts damages at $20 trillion a year – or 6-8% of global economic output – by 2100 if nothing is done to reduce GHG emissions. That number could be reduced to $8 trillion annually if $3 trillion a year were spent on climate protection.

Another estimate, from the University of Cambridge, says that in the absence of new policies, the average annual damages through 2200 will be $26 trillion. This model also finds that about half the damages can be avoided by immediate action.

And the Stern report in England estimated it will cost 1% of global GDP to curtail the warming, but at least 5% of global GDP if we do nothing, and maybe even as high as 20%.

Money managers convene
Recognizing the impending economic danger, a group of about 80 money managers and corporate types from around the country met at the University of Chicago Thursday for the Investor Forum on Climate Risk, to talk about the economic risks and opportunities of Global Warming. Needless to say, they are among those in the business community who are leading the way to recognize the problem and find solutions.

Impact on insurance
The insurance industry already has faced severe financial consequences from climate change, and will be impacted more if weather catastrophes increase as predicted.

“The insurance industry will be taxed to its limits,” said panelist Tim Wagner, insurance director for the state of Nebraska.

“Insurance availability will be an issue,” he said. “It will be much more expensive in coastal areas and that will affect property values. There is a $2 trillion risk in coastal Florida alone. Another panelist said he no longer buys municipal bonds in coastal areas.

Insurance is based on probabilities, which are now clouded with uncertainty, Wagner said. There were $57 billion in losses in 2005, and $27 billion the year before, he said, and the insurance industry has a limited amount of capital. “Insurance is a building block of our economy,” he said. “It’s 10% of the economy. We need to maintain its stability.”

Risks to many businesses
The risks that industries, and specific companies, face from climate change are substantial and should be considered in recommending investments, several panelists said. A representative from Goldman Sachs said they already include climate-change risks in their research and analysis of stocks.

While energy companies and utilities clearly face risk, many other businesses would be hurt by catastrophes like Hurricane Katrina, with its $120 billion in losses (not all insured). Such catastrophes not only destroy homes and businesses, but also interrupt transportation, supply chains, telecom and fresh water needed for production. Melting permafrost will affect oil and gas, lack of snowpack will hurt the tourist industry, as well as cause water shortages, and timber can be decimated by wildfires. Companies also face risks from regulation and possible fines for polluting.

Disclosure
A new report by Friends of the Earth finds that companies are disclosing climate-change risks in reports to the SEC, at nearly twice the rate they did last year. The study focused on industries likely to be impacted by climate change and GHG regulation:
*100% of the electric utilities surveyed reported, as did
*78% of oil & gas companies,
*28% of petrochemical companies,
*26% of auto manufacturers, and
*15% of insurers.
Among the 100 companies studied, about half forecast that climate risks would adversely affect their firms, while 15 said change would have both positive and negative effects.

Opportunities abound
The other side of the coin is that when there is change there are new opportunities – in this case in renewable technologies, which are growing at about 30-40% a year.

“Look at capital flows to see what’s happening,” said Richard Sandor, chairman and CEO of the Chicago Climate Exchange, which trades greenhouse gas credits. Carbon trading represents enormous financial opportunities, Sandor said, as do “green tech” and water rights. “The major opportunities are in the billions of dollars and where the smart money is going,” he said. This year, there is $63 billion in clean energy, he said, and about $7 billion in the carbon markets.

Success story
A recent column by Tom Friedman in the New York Times told the story of a Chinese billionaire who has made his money in renewables.
Shi Zhengrong is China’s leading maker of silicon photovoltaic solar cells, which convert sunlight into electricity. He is the seventh-richest man in China and expects continuing success, since China passed a law requiring 10% of its energy be from renewables by 2020. His company, Suntech, is listed on the New York Stock Exchange.

Do something

Those who want to put some of their money in new technologies can buy the Dow Jones Sustainability Index (DJSI), which surpassed the S&P Index over the past three years, according to keynote speaker Win Neuger, executive VP and CIO of AIG Investment Group. Also, most brokerage firms have an SRI (Socially Responsible Investing) fund.



News briefs

1. Fossil fuels will still rule in the year 2030, DOE says
Greenhouse gas-emitting fossil fuels are expected to provide 86% of the nation’s energy in 2030, according to the Energy Department’s latest forecast. That’s about what it is now. As natural gas production declines, the U.S. will burn more coal to meet increasing needs for power, the DOE said last week. The forecast is based on current public policies and fuel technologies. The agency predicted a growth in nuclear power but a decline in its portion of the whole. Coal’s share will jump to 57% from 50%, because it’s cheap. All of this assumes the status quo in climate policies. Under the current policy of voluntary caps, CO2 emissions are expected to grow an average of 1.2% a year. Fuel efficiency in autos is expected to rise to 29 mpg from the current 25 mpg. Sales of flex-fuel, hybrid and turbo-diesel vehicles will increase to 28% of new cars from the current 8%. Petroleum will remain the main fuel in the automotive sector, but biofuels will gain market share because of high oil prices. Corn-based ethanol will dominate the ethanol market, with 15 billion gallons in 2030, compared with 4 billion now. Any significant changes in technology or policy could change this outlook, DOE said. (Source: E&E Daily)

2. Alps heat up – less skiing and more hiking in future?
The Alps are experiencing their warmest temperatures in 1,300 years, reports Reinhard Boehm, at Austria’s Central Institute for Meteorology and Geodynamics. The current warming period in the region began in the 1980s, he said. Because of an unusually warm fall this year, many Austrian ski resorts do not yet have snow. One resort, St. Anton am Arlberg, has the capacity to make artificial snow, but cannot do it now because the ground is too warm. Instead they are urging visitors to go hiking and enjoy the wildflowers that are blooming. This year the temperature in Europe, from Norway to the Mediterranean, is 5 degrees above normal. Average snow levels are half what they were 40 years ago. Central England had the warmest autumn since records began in 1659. Swiss and German national meteorologists say November and early December were 10 degrees warmer than usual. (Sources: AP, AOL and CBS News Interactive)

3. No bull! Livestock generates more GHG than automobiles
The livestock industry emits more GHG than the transportation sector, according to a new U.N. Food and Agriculture Organization report. Livestock generates 65% of the world’s nitrous oxide (a greenhouse gas) that comes from human activities. Most of the nitrous oxide comes from manure. The problem will grow as the world needs twice as much meat by 2050 and nearly twice as much milk. The study’s recommendations include improving animal diets to reduce fermentation and methane emissions. (Source: E&E News PM)

4. U.S. officials to discuss climate change with Chinese
Five cabinet members, lead by Treasury Secretary Henry Paulson, will meet this week with Chinese officials in Beijing to talk about a range of economic issues, including technologies that could help reduce China’s GHG emissions. The meeting comes a month after the International Energy Agency reported China is on track to surpass the U.S. in GHG emissions by 2009, a decade ahead of schedule. Paulson has long shown interest in energy and the environment. As CEO of Goldman Sachs, he supported limits on emissions and he was on the board of the Nature Conservancy. The delegation includes the secretaries of Labor, Energy, and Health and Human Services, as well as the Federal Reserve chairman, EPA administrator and U.S. Trade Representative. The meeting is scheduled for Dec. 14-15. (Source: E&E News PM)

5. Active hurricane season predicted for next yearThe 2007 hurricane season should see 14 named storms, with 3 major hurricanes and 4 other hurricanes, a Colorado researcher predicts. William Gray, at Colorado State University, said a late-developing El Nino helped cause a calm 2006 season, when no hurricanes hit the Atlantic coast, but those conditions are not likely to be replicated. He sees an active hurricane cycle continuing for another decade or more.
Another prediction comes from Tropical Storm Risk in London, forecasting 16 storms, with 9 hurricanes, 4 of them intense.
(Source: The Coloradoan)