A Stern report on global warming

My eldest sister who had been a resident of Washington DC for close to 40 years now, wrote me last week to report that "it has been so balmy that the cherry blossoms and forsythia are in bloom. The (grand) kids are worried that there won’t be any flowers this Spring. Global warming, that is what it is."

Cherry blossoms in January! Thomas Friedman also wrote last week of daffodils blooming in his front yard. "They now form a nice bright yellow cluster at the bottom of our driveway. Temperatures of 65 degrees in Washington in January will do that."

Earlier, the US government was forced to declare that polar bears were now an endangered species because their habitat in Alaska had suffered from melting ice sheets. Now, the US government is required to act on threats to their survival. I hope clueless Dubya is wondering what the hell is going on.

While it isn’t fair to blame all that is happening with climate change on Dubya, because all these took time to get this bad, the American president must carry the blame of refusing to join the rest of the world in doing something drastic about it. Remember that Dubya unilaterally rejected the Kyoto Protocol in the belief that there is no scientific basis to fears of global warming. But that’s only because Dubya is too ideological and too much a captive of vested business interests to see otherwise.

Luckily, he has Tony Blair as his best pal. The two Iraq allies held private talks on climate change before Christmas and it is likely Mr. Blair furnished him with a copy of the Stern Review on the Economics of Climate Change. This is a report on the effect of climate change and global warming on the world economy compiled by economist Sir Nicholas Stern, on the initiative of Gordon Brown, the most likely successor of Prime Minister Tony Blair.

According to The Observer, sources in the Prime Minister’s office are hopeful Dubya is preparing to make a historic shift in his position on global warming when he makes his State of the Union speech Tuesday evening. There is a feeling at 10 Downing that the US President will now agree on a cap on emissions in the US, meaning that, for the first time, American industry and consumers would be expected to start conserving energy and curbing pollution.

The Stern Report must have knocked some sense into Dubya’s head. Released on October last year, and containing over 700 pages, the Stern Report is one of the first major reports on global warming conducted by an economist and not an atmospheric scientist. Its main conclusions are that failure to invest in mitigating global warming could shrink the global economy by 20 percent. But taking action now would cost just one percent of global gross domestic product.

Stern’s report suggests that climate change threatens to be the greatest and widest-ranging market failure ever seen. He warned "of major disruption to economic and social activity, later in this century and in the next, on a scale similar to those associated with the great wars and the economic depression of the first half of the 20th century."  

Tony Blair said the Stern Report showed that scientific evidence of global warming was "overwhelming" and its consequences "disastrous". It is also one that at the very least, threatens the quality of life as we know it today. And it needs an international response led by the only world superpower. Sir Nicholas, a former chief economist of the World Bank, told BBC Radio 4’s Today program: "Unless it’s international, we will not make the reductions on the scale which will be required."

Stern warns that if no action is taken, we should brace ourselves for the following consequences:

Floods from rising sea levels big enough to flood London, New York, Hong Kong, Tokyo, Shanghai, Mumbai and a number of other major cities, could permanently displace up to 200 million people. Melting glaciers could cause water shortages for one in six of the world’s population. Wildlife will be harmed; at worst up to 40 percent of species could become extinct. More intense droughts could potentially leave hundreds of millions without the ability to produce food.

It is not surprising that global warming, according to a recent issue of The Financial Times, has become a hot topic for investors. "The report’s originality is that, while no one can be certain about the trajectory of the growth of carbon emissions and their relationship with global warming, it connects the economics of uncertainty and risk to the global economic impact of climate change."

The FT quotes Anthony Wilkinson, principal at Asian hedge fund Clean Resources Asia: "The defense of vested interests remains stubborn in many countries. The tide needs to turn more quickly for (developing countries) in Asia to avoid seriously constraining future economic growth, growing social instability and mounting health costs".

Indeed, poor countries, as the FT points out, will be hit hardest by climate change. An additional 145 million people could be living on less than $2 a day in south Asia and sub-Saharan Africa because of GDP losses. Climate change is also a security issue for developing countries, as it threatens the basic elements of life such as use of land for food production, access to water, energy and health. Thus, the need to tackle it now!

But, environmental catastrophe notwithstanding, life goes on. For business, how do you pick likely winners, in view of the Stern warning?

The obvious winners, FT points out, will be those in water. "Investors are already starting to realize that water will become an increasingly scarce commodity. An acute water crisis is looming: China, as an example, is set to use up to 89 percent of its available water resources by 2030. Foreign investment has been trickling into the country’s state-dominated water industry, as Beijing plans to shift part of the financial burden to the private sector, and foreign companies can bring in managerial expertise and technology.

"The demand for fresh water already exceeds the supply in many areas, a condition that can only worsen as the population expands and industrialization reaches more countries. This will drive large investments in the water sector, with the UN anticipating infrastructure investments to increase from $75 billion to $180 billion a year by 2025.

"The other obvious winners are those in renewable energy and in the capture of carbon and storage. The latter has the potential to significantly reduce emissions from fossil fuel power generation and is likely to prove a critical technology in global carbon reduction strategies, particularly for developing countries with fast-growing economies and rapidly growing fossil fuel consumption.

"Some important markets will be created as we struggle to adapt. These are likely to include markets in managing higher temperatures, especially in major cities where there is a need to cope with the magnified "urban heat island" effect; in dealing with vector-born diseases such as malaria, which could become more widespread; in flood defenses; in new methods of food production and so on."

Of course it is important that we all manage to get our leaders to act quickly to mitigate the horrible effects of global warming. There are also implications to our investment portfolios. The FT warned that "if you are not already shaping and planning your 2007 investment portfolio on the assumption that climate change is at the top of the business, political and regulatory agenda, the Stern Review should change your mind."

Definition

Here’s Dr. Ernie E with his latest from Texas.

Gynecologist: Someone who looks for trouble in places where others find pleasure.

Boo Chanco’s e-mail address is [email protected]