Blain’s Morning Porridge – August 10th 2021 – A Code Red Political Crisis is Coming
“It was the day my Granny exploded.”
This Morning – The UN has declared a Code Red Climate Emergency. As we all know addressing climate change has enormous implications for investment strategies, but can governments collectively deliver the joined-up and effective policies required to save the planet? The jury is out…
The United Nations Intergovernmental Panel on Climate Change released its blockbuster 4000 page report yesterday – a remarkable document utterly free of any doubt, caveats, hesitations or repetitions as to their absolute certainty humans are entirely responsible for global warming. 194 Nations agreed the text. Even an attempt by the Saudis to water down “Carbon Warming” to “Greenhouse Gas Warming” was rejected.
If you work in finance or simply read the Morning Porridge for “insider views” on your pension pot, then get real about investing in climate change mitigation. It does not matter whether you personally understand the science or even believe climate change is real or not – the weather and our environment is going to be the most significant long-term force acting on investment since Noah built his Ark.
While the headlines are all about the threats posed by rising temperatures and what the talking political heads are saying, for investors the questions are multiple and complex: how to prepare, what does it mean, and how does it impact strategy?
Costs and values are going to change – for instance; insurance is likely to be spanked but evolve, while real green clean energy becomes so much more valuable. Separating genuine climate mitigants from the chaff of unfulfilled pipe-dreams will be critical. There will be lots of bad decisions, and a few good ones – choosing the right ones will be…. Rewarding. Understanding the politics of climate change will be on aspect of that process.
Climate Change just got mighty serious. Just how much impact the UN report will have in catalysing a response is highlighted by how it was immediately and vigorously briefed against by the usual suspects:
The first email I opened this morning was from a somewhat right-leaning source cataloguing how flawed the report is; questioning the credentials of the scientists, screaming it’s based on unproven science, bogus data and unjustifiable suppositions, and that far more effort needs to be spent on examining alternative weather theories and “facts”. It was all a bit “Donald Trump”: “I don’t need to prove their was electoral fraud.. you need to prove there wasn’t!”
The crux of this particular note was how the entire west coast of the US burning down is nothing unusual. The author says it’s happening now because we’ve stopped it happening earlier by fighting fires, while protecting “spotted owls” and other environmental circuses made the forests more combustible by allowing trees to grow (how foolish of us) and scrub to build up etc. Thus: it’s actually Democrat party Governors’ bad forest management that’s caused wildfires to become more intense – case proved. Therefore.. and by association, Biden has a lot to answer for… !
I am not going to bother defending the UN against climate change deniers.
Smart folk understand the Earth’s temperature is variable. I’ve written many times about the mini-ice age in the 15th century creating enormous wealth for Northern Europe by flooding the Baltic and North Sea with colder water which attracted the shoals of herring. We understand many forests need fires to regenerate … but weather patterns drive the climate.
The simple reality is; over our lifetimes the amount of greenhouse gas – CO2 but others also, have risen faster than any previous historical core sample, bog chronology or rock core shows. The rise is now creating climate instability and a pace of change such as we’ve never seen before. Consequences are inevitable. We have to pay for these consequences of rapid industrialisation. The costs will not fall fairly.
I’ll go with the UN science and agree human activity has created “irreversible” damage to global climate, and that, cutting through the noise… it’s going to cost trillions to address and solve.
The question is how?
How can we actually manage the response to climate change? Through governments and diplomacy? By action? Even in wartime economies political systems struggle to harness the means of production to address the enemy threat. Aligning an economy with strategic objectives is never easy.
The sheer incompetence of Nazi Germany’s mis-management of its economy during the Second World War is documented in Adam Tooze’s excellent “The Wages of Destruction”. The UK’s curt dismissal of Churchill’s government in 1945 highlights how precarious his position had been under the wartime coalition. The ability of the Soviet Economy to transfer whole industries into Siberia out of the reach of invading German panzer-armies was remarkable but massively costly, trading Russian armies by the dozen to create time from the shift – costs that would have been unpalatable in the West.
Yet the success of the US as the Arsenal of Democracy illustrates a free-market economy tends to do better – but again with significant costs.
Private companies respond well to promises of feather-bedded Government cost-plus contracts. The opportunities for profit in a war-time economy – effectively right through WW2, Korea, The Cold War, Vietnam and the Space Race – fuelled the extraordinary American half-century, but ultimately the inflation of the 1970s, boom/busts the speculation of the 80s, the greed of the 90s and the global financial crisis that began in 2007.
Compared to the challenges of addressing Climate Change, wars are relatively simple affairs. More and better ships, planes and boots-on-the-ground to beat the other side. Climate change introduces multiple new conundrums – who pays for the problem of the commons? If we constrain our economy, how can we guarantee others are doing the same thing. Distrust between the US and China is already at impossible levels.
It will require political leadership of the highest order to coordinate the response to climate change…..
Whatever the optics of Biden’s re-joining the climate agenda, the USA has been treading water on Climate Change since 2009. Trying to pass any climate policies will remain a political impasse. The distance between Alexandria Ocasio-Cortez’ New Green Deal and die-hard Republicans looking to ring-fence their local fossil fuel industry looks impossible to bridge. Don’t look to the USA for leadership.
Can Europe replace it? The European Green Taxonomy is a fascinating initiative but is a bureaucratic monstrosity due to its genesis among the 27 members of the EU each horse-trading their way to an acceptable compromise. Here in the UK Boris came up with a forgettable sound-bite yesterday about making Coal history, banking ICE Cars and lots of Cash to combat climate change now.. yawn.
Over in China, Climate change is just as real, just as threatening, and just as much an economic imperative as it is in the west. China has just as much at stake and to lose as the west, and may prove more ruthless to ensure success.
As we watch we the forests burning are we missing the trees for the wood? Yesterday I took puppy for a long walk over Hamble’s old airfield. I have never seen so much Ragwort, a pretty but dangerous weed deadly to livestock. Insects love it – but through the morning I was increasingly concerned; despite the cornucopia of Ragwort and other flowering weeds I saw less than a dozen bees, only a few Cabbage-White butterflies, and blue-bottles on dog-mess.
Where have all the insects gone? If the insects have gone – then we really are in trouble.
Five Things to Read This Morning
Out of time… and back to my holiday… till next week.
Strategist – Shard Capital