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No room for beliefs in climate-change foxhole
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On a recent 14-and-a-half hour flight from Los Angeles to Sydney, I had time to read the columnist Charles Krauthammer鈥檚 collection of essays, 鈥淭hings that Matter.鈥 It made for a disturbing flight.
I have enjoyed Krauthammer鈥檚 writing over the years, but there was something in his book that I found deeply troubling: his description of himself as an 鈥渁gnostic鈥 on climate change. He 鈥渂elieves instinctively that it can鈥檛 be very good to pump lots of carbon dioxide into the atmosphere,鈥 and yet he 鈥渋s equally convinced that those who presume to know exactly where that leads are talking through their hats.鈥
The subject of climate change is not a matter of religion, but of science. According to a 2013 survey of peer-reviewed publications on the subject, some 97 percent of scientists endorse the position that humans are causing global warming. Anyone familiar with the scientific process is aware that researchers are trained to disagree, to contest one another鈥檚 hypotheses and conclusions. A consensus of such magnitude is as close as we ever get to a recognized scientific fact.
Given that even Krauthammer concedes that pumping the atmosphere full of carbon dioxide 鈥渃an鈥檛 be very good,鈥 the next logical step in the debate is to determine the best way to address the problem. Fortunately, voices like Krauthammer鈥檚 are becoming increasingly rare.
A sure sign of a shift in mentality is the growing recognition by financial institutions that loans and investments may be overexposed to the risks of climate change. These risks include natural disasters, more extreme weather, efforts by governments to reduce greenhouse-gas emissions, and the knock-on effect of a technological revolution in renewables, energy efficiency, and alternative technologies.
According to the Asset Owners Disclosure Project, the top 500 global asset owners are alarmingly exposed to the dangers of climate change. More than half of their investments are in industries exposed to the dangers of climate change; less than 2 percent are in low-carbon intensive industries. As a result, there is a risk that their investments and holdings will become 鈥渟tranded,鈥 as changes in policy or market conditions cut the value of infrastructure, other property, and fossil-fuel reserves. As Hank Paulson, Secretary of the US Treasury when the global financial crisis erupted in 2008, once warned, the risks of a climate-induced financial crisis would dwarf those of the sub-prime crisis.
The price of coal, for example, has plunged to around half of its peak level, with plenty of room remaining on the downside. Consequently, shares in coal companies have fallen by as much as 90 percent, leaving asset owners scrambling to divest. By contrast, investing in a company like Tesla Motors 鈥 which has now developed a rechargeable battery for home use, which could lead to a sharp increase in the number of households switching to solar power 鈥 looks far more attractive.
As this realization percolates through the market, asset owners are hedging their bets by increasing their investments in low-carbon industries and companies like Tesla. Over time, this will have a significant effect on the allocation of global investment funds. Krauthammer may think that I am talking through my hat, but I am confident that soon enough he 鈥 and those who listen to him 鈥 will be eating theirs.
John Hewson, a former leader of Australia鈥檚 Liberal Party, is Chair of the Asset Owners Disclosure Project. Copyright: Project Syndicate.
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