Friday, June 6, 2008

Global Warming Plan Of Action Created: Now We Just Need $45 Trillion

IceburgThe International Energy Agency (IEA) has created a comprehensive plan on how the world should combat global warming. The price tag? $45 trillion. Essentially the goal of the IEA is to have the world cut greenhouse gas emissions by half by 2050. Their plan to accomplish this feat, among other things, includes the creation of 1,400 nuclear power plants and approximately 700,000 new wind turbines, according to the Associated Press. The catch--beyond the price tag, that is--is that we can’t wait to act. All of these things take time to build and the longer we wait, the worse things will get and the higher our chances of a cataclysmic environmental disaster.

When I read this report I thought it sounded like a good and fairly reasonable solution. After all, the IEA is only trying to spur action, and in order to do so, wanted to prove that it could be done. Are there other ways to accomplish the same end? Of course, but now we can physically see at least one of these ways. Since the report projects 40-plus years out and only uses technology available to us today, there will certainly be adjustments made, but it acts as a great starting block.

I’m not a scientist by any right, and I can’t even opine on whether or not global warming is real. But what I can see is that there are without a doubt changes going on in our environment, things that don’t make sense to me. I don’t know if these changes are natural, or if they are being caused by humans, but I can see they are causing damage. At the end of the day I know for a fact that pollution is harmful to humans and animals; whether or not it has anything at all to do with global warming is a separate issue. So in my mind I feel like we are better off assuming that global warming is being caused by humans and working towards reducing harmful pollutants. Worst case, if in 100 years we find out that global warming was a natural occurrence, so be it; at least we made the earth a cleaner and healthier place to live. But on the flip side, what if global warming is caused by humans? If we fail to take action now it will soon be too late, and then not only do we still have all the harmful pollutants, but we also are going to have to deal with a bunch of new environmental problems. We are talking rising oceans, the extinction of numerous species (in fact, just today it was announced that the Caribbean monk seal is extinct) and so on.

My investment philosophy has always been to plan for the worst and hope to be pleasantly surprised. When I look to buy a property I take the worst case projections, and if the numbers still work, I do the deal; if not, I walk. I would much rather be pleasantly surprised (which I typically am) than be overly optimistic going in and end up with a money-sucker. I think the same philosophy can be used in regard to this issue as well. The worst case scenario if we fail to act is much worse than the worst case scenario if we act but are proven wrong. The difference is so incredibly skewed toward the one side that it seems like this decision should be a no brainer. So what’s the hold-up?

Ultimately, as you probably guessed, the hold-up revolves around money. Any action we take to attack global warming is going to come at the expense not only of governments and taxpayers, but of big fossil fuel businesses. The last thing these businesses want is added expenses for the clean-up of their pollution, or loss in revenue because people are using other energy sources. It is bad for their business, and since they have money, they also have a lot of clout with politicians. They are going to hire scientists to disprove the global warming theory, and they are going to talk about how many jobs would be lost and how the economy would suffer. In addition, another of the big hold-ups is with developing countries such as China, which rely heavily on fossil fuel to power their economic growth. In their mind it isn’t fair that the U.S. got to enjoy the economic benefits of growth spawned by fossil fuel usage while they don’t get the same opportunity.

There is certainly some weight to the economic argument, however, they are likely forgetting the fact that many jobs in the fossil fuel industry would be replaced by new jobs in the alternative fuel industry. Instead of working at the coal power plant, now workers will have to be trained to work at the nuclear power plant, and so on. Sure, in the end some jobs will probably be lost, but better a few jobs lost than a world ruined by the effects of global warming.

In response to the developing country dilemma, this one is much harder, as these countries certainly have a case to be made. In my mind, the developed countries who contributed the most to the problem should have to compensate for that. So the U.S., for example, should have to pay a large portion of China’s expenses to combat global warming and help pay for new alternative energy sources or the cleaning up of their coal power plants and so on.

What does this mean for investors? Well, if the world starts getting behind the IEA’s plan, or some similar one, there is going to be a huge surge in the alternative energy industry. 1,400 new nuclear power plants and 700,000 new wind turbines is a huge number by any stretch and since there are only so many companies that can make these things you can bet they are going to be extremely busy.

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June 7, 2008 at 4:42 PM zfolwick said...

I will say the same thing as I said when I saw this on digg:

Is an entire planet not worth the investment? Then bomb the planet and get it over with.

Tell the people who stand to lose everything that it's not important enough to spend money on cleaning up the planet.

Or you could look at the $45 trillion price tag and say instead, "gosh, I think that figure may be exaggerated!"

Also, just curious but. . . where exactly is the nuclear waste for these 1,400 nuclear plants going to go? Could we put it in the backyards of those who are proposing these half-assed solutions? Or perhaps we could apply some of that American ingenuity that we hear about so much (but haven't seen since man walked on the moon).

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