Climate change, the global economy -- And your finances

January 31, 2007

One of the key concerns arising from the World Economic Forum was climate change. Here are the points that some experts made:

John P. Holdren, Director, Woods Hole Research Center, would prefer that the term global climate disruption be used instead of climate change because the process is not uniform, nor equally distributed, across the globe. A result of this disruption will be increased warfare. For example, desertification has resulted in the wars in Darfur, Sudan as residents compete for ever scarcer water.

Steve Chu, Director, Lawrence Berkeley National Laboratory, observed that in the last five years the snow pack in California’s Sierra mountains has decreased by 30-90%. A decrease of 20% in the leads to severe water shortages, while a 50% decrease means that agriculture will be gone. Chu added that rising sea levels are now at the upper range of what was predicted five years ago.

Fabian Núñez, Speaker of the California State Assembly, reported that California has voted to reduce its carbon emissions to 1990 levels by 2020, representing roughly 174 million tonnes (2,205 lb/tonne) of carbon reduction. This is an example of the local and national climate change initiatives that are sprouting up in the U.S. Furthermore, 70 mayors have formed a coalition committed to a reduction in carbon use.

These local initiatives are in response to the refusal by the U.S. (along with India and China) to sign the Kyoto Protocol in 1995.

Zhang Xiaoqiang, Vice-Chairman, National Development and Reform Commission, People's Republic of China, stated that China intends to follow the Kyoto Protocol, and urged speeding up negotiations and establishing concrete emission targets.

What climate change means:
The risks and subsequent costs created by climate change will continue, resulting in higher volatility in the markets. For example, there will be more devastation, such as that wrought by Hurricane Katrina, that can’t be planned for.

There doesn’t seem to be an international organization capable of addressing this issue on a global scale. In response, there is a hodge podge of local efforts, none of which can solve the entire problem.

However, given that one of the major solutions to climate change is energy efficiency and carbon sequestration, those communities and companies that are addressing the issue will profit in the long term by lowering their energy usage, and cost.

Action steps:
Ask your financial advisor about investing in companies such as DuPont, which has boosted production nearly 30% but cut energy use 7% and greenhouse gas emission 72%, saving more than $2 billion. BP saved $650 million through similar efforts to improve its energy efficiency. These types of companies will profit as energy costs continue to climb over the coming decades.

Furthermore, a well-diversified portfolio and lifestyle will allow you the personal flexibility to make the shifts necessary in the more volatile world created by climate change.

Source: World Economic Forum web site: Session include” Climate Change: A Call to Action”; “Hurricane, Heat Waves and High Seas,” “The Security Implications of Climate Change”, “Climate Specialists Urge Aid for India and China”.