Summary
Action on climate change is here to stay whether you believe it is caused by human intervention or not. Burying your head in the sand will only cause long-term difficulties for industry, the investment community and foreign relations.
Analysis
Lets first address climate change, every scientist I have heard agrees with one thing, our global climate is changing and that is undisputed. Where the disagreement comes is whether climate change is caused by human intervention. I have heard compelling arguments to both sides, but again one thing comes clear in almost every argument, humans are causing a degree of that change through the emissions of greenhouse gases. What is totally unclear is the amount that humans are causing, I have heard from as low as 8% to as high as 70%, who’s right. Frankly we can’t tell who’s right and the reason for that is that we can not accurately model the world’s global climate. It is too large and complicated a task to complete. I understand that statement is hard to accept, but it remains a fact, we just can’t in this instance know it all. So what does this mean, do we bury our collective heads in the sand and not address our portion to climate change or do we address our portion whatever it may be and do what we can. The previous presidential administration choose to ignore climate change while the world took steps to change. What did this do for the US; it strained relations with the world and in time if continued would have resulted in trade barriers being erected against the US. It is for this reason the present presidential administration chooses to address climate change with the world.
Given this movement to change policy what can be reasonable expected? A Cap and Trade system can be expected. Will it be to the levels that most of the world is trying to adopt through the Kyoto Protocol, I would think not. What I have read and heard is 14 to 15% absolute reductions from 2005 emissions by 2012 and 80% reductions by 2050. The later target I will not address here, but the 14% to 15% reduction I will. This amount is significant because it addresses both the 14% reduction from 2005 emissions and 100% of the increase in emissions from increased productivity from 2005 to 2012. That may seem daunting, but I can say it is achievable through energy efficiencies, targeted renewable energy replacements and targeted carbon sequestration programs. Not only is it achievable it can be economical and even grow the US economy.
What is industry to do? Well first of all, set a vision to change the way business is being conducted now and begin exploring change options. I can assist with that if required. The low hanging fruit as it were, is in the energy efficiencies and targeted renewable energy replacement that can be seamlessly integrated with current energy production and uses. Another area is in the targeted carbon sequestration programs. All of these can be economical and in many cases revenue producing.
What can the investment community do? Well for starters accept that industry must change and therefore the investment community must change. It may mean different ROI modeling, it may mean that in the long run a company that solves immediate problems with off the shelf technology is more attractive than a company that is developing patents, but is years away from commercialization, it may mean that weighted averages must change and be fluid until finalized structure of the cap and trade system is adopted both domestically and internationally. What can not happen is a chicken and egg mentality. Investors and investment managers must realize it does not matter what came first the chicken or the egg because without the insemination of the rooster or the injection of capital we don’t get omelettes and likewise we don’t get exceptional returns. Remember nothing ventured, nothing gained. I currently hold a database of 300 alternative energy, energy efficiency and carbon sequestration type projects, but not all of them are economical for every industry. There needs to be a targeted approach. In order for a targeted approach more time and effort is going to be needed in understanding the current industries in order to be able to evaluate companies who offer solutions. Again I can help with that.
In conclusion just like the climate is changing, industry, the investment community and governments must change. Whether you agree with the reasoning behind that change is inconsequential; change is occurring. It clearly appears that the new US presidential administration is implementing change in regards to climate change, industry and the investment community needs to get ahead of that curve to realize sustainability and the possibility of exceptional returns on effort and investment.
