By Paul Gilding | July 12th, 2010 | Category: Cockatoo Chronicles

Beware the coming climate storm. A moment is approaching when science and markets will collide, but then merge, with chilling consequences for investors who miss the moment, and great excitement for those who are well prepared.

The signs are all around us now. Signs that a storm of climate action will soon rage through the economy, sweeping away denial and, along with it, those companies, politicians, investors and industries that aren’t ready.

Signs like our past two Prime Ministers and opposition leaders  in Australia being removed with climate change a central issue in their downfalls. Signs like 2008 being the first year when the money invested globally in new renewable energy generation projects was greater than that invested in new fossil fuel energy generation. Signs like the last decade being the hottest on record, as of course each decade has been since 1980. Signs like the first new car company IPO in the USA for half a century being a disruptive electric car company.

There is great investment and excitement now in renewables, with over $100 billion invested in 2008 and the same in 2009, despite the uncertain financial climate. Yet we see growth in coalmines, new coal export facilities and a lack of action in politics in Australia and the US. What is an investor to do with such confusing signals?

Simple. Observe the science, because the science drives everything else.

The facts are now very straightforward on the problem and its causes, as stated by the peak US science body The National Academies of Sciences. They said last month the science of climate change is in the category of those theories that had “been so thoroughly examined and tested, and supported by so many independent observations and results, that their likelihood of subsequently being found to be wrong is vanishingly small. Such conclusions and theories are then regarded as settled facts.”

So this is not a philosophy or a political viewpoint. These are facts. Smart investors deal in rational analysis, not ideological perspectives or wishful thinking. As US Senator Daniel Patrick Moynihan said “Everyone is entitled to his own opinion, but not to his own facts.”

So if you believe in facts, you will be understand that science will, in the end, overcome resistance and denial, as argued by Professor Stephan Lewandowsky from the University of Western Australia: “The laws of physics will relentlessly assert themselves, unswayed by public opinion, political shenanigans, or elections. Ultimately, the laws of physics will speak so loudly that no amount of wishful thinking can prevent them from being heard.”

The reason we can be so confident that this storm, when it hits, will be ferocious and effective at driving change, is by considering what happens when science meets markets. The science dictates that when we act it will now have to be dramatic action.

We know that to avoid catastrophic risk we must keep warming below two degrees and, as a result, this is the target agreed to by governments from US, to China, to India to Australia. If you don’t like political metrics then consider that this is also the target endorsed by hundreds of global corporations from GE to Rio to HSBC.

Acting as late as we are, achieving this target will require us to virtually eliminate CO2 emissions from coal oil and gas within a few decades. This means eliminating whole industries and replacing them, which is where the science meets the market.

Markets are particularly good at challenges like this, using what Austrian economist Joseph Schumpter called “creative destruction”. Markets are unconcerned about collateral damage and friendly fire. They won’t deliver the change steadily or calmly. Markets don’t play politics and will have no regard for sunk capital or prior commitments.

When we act on climate this will be creative destruction on steroids, with the resulting economic storm wreaking havoc and wiping out companies and whole sectors, while creating tomorrow’s new economy and corporate giants. It will be volatile, chaotic and exciting for investors, with fortunes made and lost based on the quality of judgements.

It’s hard to look at today’s politics and investment strategies and accept this analysis. It’s hard to imagine so many people being so wrong. It was also hard to imagine, in 2007, that the world’s governments would nationalise banks and car companies and spend trillions bailing out the financial system. It was hard to imagine, in the USA in 1940, that the coming four years would see military spending go from 1.6 per cent to 37 per cent of GDP and that government would take over and direct the economy, with actions like banning the production of private vehicles. In hindsight, though, such things are always obvious. And with the benefit of hindsight in 10 years time, the coming climate storm will have been obvious as well.

There is only question you have to ask yourself when you see the signals that are now flashing in bright neon lights, screaming “warning, warning, everything is about to change”. Am I ready?

Ove and I just published an op-ed in the News and Observer here titled “In the oceans, the heat is really on”.  The graphic that really says it all:

Redrawn by John Cook with data from Murphy, D. M., S. Solomon, R. W. Portmann, K. H. Rosenlof, P. M. Forster, and T. Wong. 2009. An observationally based energy balance for the Earth since 1950. J. Geophys. Res. 114:D17107. doi:10.1029/2009JD012105

The oceans are choking on greenhouse gases. Our emissions are changing ocean temperature, pH and circulation with wide-ranging effects on biological productivity and ecosystem health. These are among the conclusions of five review articles published in a special feature on the oceans in a recent issue of Science magazine.

The world is saturated by coverage of the oil spill in the Gulf of Mexico. Yet the impacts of this tragedy are localized, short-term and trivial compared to the broader effects of climate change.

The oil spill has damaged the lives and businesses of many innocent people. Remarkably, however, every day we are releasing several thousand times as much carbon as the Gulf spill by driving, flying and consuming and by heating and cooling our energy-inefficient houses. Hundreds of years from now, when BP is forgotten and the gulf wetlands have healed, ocean life will still be affected by the fossil fuels we are burning today.

Nearly all of the debate – or at least what is depicted in the media as a debate – about global warming has focused on land surface temperatures. However, over 85 percent of the extra energy trapped by soaring greenhouse gases has gone into the ocean.

We all call this man-made catastrophe “global warming” or “climate change,” but “ocean warming” and “ocean change” are really more descriptive of what is happening.

One value of the Gulf spill is that it has highlighted how tightly coupled the health of ecosystems and human economic well-being really are. In retrospect, the costs of preventing the spill by installing more reliable safety systems are paltry in comparison to the economic losses in the tourism and fisheries sectors. The same is true for mitigating climate change. Responses that cost less than 1 percent of GDP growth over the next few decades are matched against massive impacts on people and industry, especially in coastal areas of the world.

Greenhouse gas emissions are rapidly changing the physical properties and key biological process in the ocean. For example, declining primary productivity is affecting ocean food webs, fisheries and the ability of the ocean to naturally absorb and store greenhouse gases.

Other ominous signs loom. Deepwater dead zones have expanded, probably due to both local nutrient pollution as well as climate change. The melting of Arctic sea ice will allow thousands of species from the north Pacific to colonize the Atlantic. This will be the first mixing of the distinct biota of these regions in nearly a million years. Similar changes are expected in Antarctica, where warming is enabling marine predators to invade shallow-water ecosystems for which the freezing temperatures have been an effective barrier for 40 million years.

To avoid these uncertain worlds, a growing number of scientists from a range of fields have advocated that we keep the concentrations of atmospheric carbon dioxide below 450 ppm (parts per million). To achieve this, we need to cut global emissions by 5 percent per annum starting right now.

A tall order. However, we have no other alternative given the extremely high costs of inaction.

The good news is that there are plenty of solutions at hand, including investment in renewable energy systems or avoiding deforestation. National support for creating competitive renewable energy supplies would cause the required changes to ripple through global economies. Halting deforestation in Brazil and Indonesia would eliminate nearly 20 percent of greenhouse gas emissions. Protecting and restoring coastal vegetation, including mangroves, salt marsh and sea grasses – dubbed “blue carbon” – would maintain or increase the ability of marine ecosystems to capture and permanently store carbon dioxide. Furthermore, all of these solutions have huge benefits for people and biodiversity.

The world’s scientists are calling for society and policymakers to wake up to the perils of our current greenhouse gas emission pathway. This is not merely the consensus of scientists; it is a consensus of evidence. Inaction might be justified if the impacts were trivial or there was nothing we could do to avoid these catastrophic futures. However, with so many affordable solutions in front of the world’s nations, continued inaction is no longer an excuse.

UPDATE:  See the facts and figures about The Australian’s war on Science over at Deltoid.

No doubt you will remember The Australian’s infamous front page story that was exposed on Media Watch by Jonathan Holmes.  Well, it seems that the poor journalism continues at The Australian.  In a front page article entitled “U.N.’s climate report ‘one-sided‘, Ben Webster tries to claim that the Dutch study has revealed serious errors in the IPCC fourth assessment report.

Well, it seems that Ben and The Australian got it all backwards yet again.

The Dutch study actually concludes the complete opposite – that statements within the “impacts, adaptation and vulnerability” section of the IPCC AR4 report were “well founded and none were found to contain any significant errors”. The Dutch study recommended a number of ways to strengthen upcoming reports and eliminate a number of small errors which cropped up.

Was Ben off reading right-wing fossil fuel funded blogs again?  Or was it a case of the ‘ole let’s make up the news when it gets to be all too boring?

What is truly remarkable is that The Australian tries to imply that the report also concluded that the evidence concerning the extreme risk of climate change to Great Barrier Reef was “alarmist”.  A careful reading of the report reveals that the study did not conclude that evidence or the conclusions were alarmist.  Rather, it pointed to a couple of slightly inaccurate references to the peer-reviewed literature.  In fact, it concludes after doing so that “We consider this to be a minor comment”.

Talking to the experts, you find that few have problems with the IPCC statement that “60 per cent of the Great Barrier Reef was projected to suffer regular bleaching by 2020 “. You see, we already are. We have had bleaching since 1979 (and none before) with significant recent events in 1998, 2002 and 2006.  Sounds regular to me!  In several of these events (1998, 2002), more than 50% of the Great Barrier Reef has been affected.

Of course, Australia’s Andrew Bolt has responded with his mirror of this misinformation. Helpful fellow that he is.

Where has Ben Webster and the Australian been? The real shame here is the erosion of trust that we can place in one of our leading papers. With a repeated offences like this like this, why would you read The Australian?  Certainly, not if you wanted to get the facts on any particular issue!

To really understand what the Dutch report says, we recommend readers go to the original report or a rational report such as that in the leading international science magazine, Nature.  Here is what Reuters had to say:

Few fishy facts found in climate report

Dutch investigation supports key warnings from the IPCC’s most recent assessment.

Quirin Schiermeier

05 Jul 2010 14:22:00 GMT

Written by: Laurie Goering

Rajendra Pachauri, head of the United Nations Intergovernmental Panel on Climate Change (IPCC), has defended his science body’s work, saying any errors in its reports were minor. A new Dutch report agrees with that assessment. REUTERS/Bob Strong

In the latest of a series of reports backing the validity of work by leading climate scientists, the Dutch government said Monday that a review of a key report by the United Nations Intergovernmental Panel on Climate Change (IPCC) had found no significant errors.

The Netherlands Environmental Assessment Agency took a look at the IPCC’s Fourth Assessment Report, a 2007 study considered the basis for understanding climate change science, following criticism that the report had in several instances exaggerated climate impacts.

IPCC officials admitted one important mistake – an exaggeration of the rate of melting of Himalayan glaciers – but noted that the error shouldn’t be used to invalidate the rest of the 3,000-page report.

The Netherlands government agreed with that conclusion in its study of the “impacts, adaptation and vulnerability” section of the report, which looks at regional impacts of climate change.

Reviewers found that statements in the section are “well founded and none were found to contain any significant errors,” though some minor errors cropped up. They issued a set of recommendations on how to strengthen upcoming reports, with a view to eradicating such mistakes.

Representatives of the thousands of leading international climate scientists who volunteer their time to produce the reports called the Dutch study a validation of their work, which won a 2007 Nobel Peace Prize.

“The review is explicit in its finding that the key conclusions of the IPCC Fourth Assessment Report are accurate, correct and supported entirely by the leading science in the field,” said Martin Parry, co-chair of the team that produced the “impacts, adaptation and vulnerability” section of the 2007 report.

Climate scientists, under broad attack by sceptics of climate change science, have in recent weeks enjoyed a welcome series of victories. Michael Mann, a Pennsylvania State University climate scientist embroiled in a high-profile stolen email scandal at the University of East Anglia, was exonerated of charges of research misconduct and ethical lapses last week after a review by his university.

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