04-06-07

You can make or break, you can win or lose
That's a chance you take, when the heat's on you
When the heat is on...
  – Glenn Frey, The Heat is On

It's the $64 trillion question. Is global warming for real, or just a load of hot air?

There is enough hot air—on both sides of the debate—to fuel dueling Goodyear Blimps.

Al Gore, the bloviating poster boy of global warming, thunders that civilization as we know it is in dire peril. Listening to Gore preach, one is reminded of Jonathan Edwards—the eighteenth century theologian, not the foppish presidential candidate—belting out "Sinners in the Hands of an Angry Climate."

Macro Musings might take the ex-veep more seriously if not for his $30,000 utility bill and mansion with twenty rooms. Mr. Gore, and other like-minded glitterati, assure us that their "carbon footprint" has been "offset" by environmental credits and virtuous green investments. But this strikes us as hypocrisy in the extreme. It is like the old practice of buying indulgences, from which the church made a mint in medeival times. Sin all you want… as long as you can afford to pay.

On the anti-global warming side, Gore's blowhard nemesis is Senator James Inhofe (R-Oklahoma).

Senator Inhofe, previous chair of the Environment and Public Works Committee, has declared global warming "the greatest hoax ever perpetrated on the American people." A spokesman for Mr. Inhofe has further stated that "C02 is not an air pollutant and should not be treated as one."

After conservative scholar Robert Bork saw his supreme court nomination derailed by opponents, "Bork" became a slang term, as in, "so and so just got Borked." In that spirit, Macro Musings nominates "Inhofe" as a new addition to the political lexicon—as in, "Wow, the Republicans are really Inhofing that issue."

It does not take a great leap to connect the dots between the Inhofe stance and that of Western Fuels Association, a nonprofit coal collective with views feverishly opposite Mr. Gore's. In her excellent book Coal, A Human History, Barbara Freese writes:

At the high profile vanguard of all these [anti-global warming] activities has long been a small, Colorado-based coal cooperative called Western Fuels Association... its president has argued that God gave coal to humanity to use in carrying out the biblical command to fill the Earth and subdue it, and he criticized governments for having "the arrogance to attempt to intervene in the normal, industrial evolution of mankind." This view strongly echoes nineteenth-century sentiments, but it comes with a modern twist. Not only is rising coal use seen as preordained but so are the rising carbon dioxide levels; they are part of the way humanity is reshaping the Earth to make it more hospitable for our expanding populations.

If more C02 benefits greenhouse plants, Western Fuels has argued, it will benefit nature as a whole. The Earth's atmosphere "is deficient in carbon dioxide," and burning coal helps correct that. In fact, the head of Western Fuels publicly stated, apparently seriously, that he'd welcome CO2 levels three and a half times their natural level, the thought of which triggers nightmares in most climatologists. And Western Fuels is not troubled by rising temperatures either, pointing out that "warming is good, cold is bad."

Yikes. Talk about picking your poison. Those of us without an affinity for cults have been left in the cold.

Fortunately, there are some intelligent perspectives out there—again on both sides of the debate.

For example, consider this bit of reporting from Outstanding Investments (yours truly) in late 2006:

Scientists have found a way to study the relationship between carbon dioxide levels and climate shift as far back as 800,000 years. The novel method for doing so involves extracting air bubbles trapped in ancient Antarctic ice cores. Over the long (very, very long) term, pockets of air habitually accumulate in piles of frozen snowflakes. Because it's Antarctica, these piles never thaw. They harden into ice instead. Over time, the layers of air in this ancient ice serve as a sort of time capsule. Concentrations of C02, methane and hydrogen isotopes in the layers give an indication of past temperature shifts. News from the core is disconcerting: Over the past two decades of fossil fuel use, acceleration of C02 parts per million has matched what nature took a thousand years to do.

Consider also this impassioned plea from Sabihuddin Ahmed, former secretary of the Bangladeshi Environment Ministry:

I invite anyone who remains cynical about the impact of climate change on the planet to visit Bangladesh. We have more floods. Our droughts have become more intense. The biggest mangrove forests in the world—the Sundarbans—are dying. We are losing precious biodiversity. You can see the effects of global warming with your own eyes.

Climate change effects can also be seen in the Western United States, as the New York Times reports:

Some $2.5 billion in water projects are planned or under way in four states, the biggest expansion in the West's quest for water in decades.

The scramble for water is driven by the realities of population growth, political pressure and the hard truth that the Colorado River, a 1,400-mile-long silver thread of snowmelt and a lifeline for more than 20 million people in seven states, is providing much less water than it had.

According to some long-term projections, the mountain snows that feed the Colorado River will melt faster and evaporate in greater amounts with rising global temperatures, providing stress to the waterway even without drought. This year, the spring runoff is expected to be about half its long-term average. In only one year of the last seven, 2005, has the runoff been above average.

Last but not least, Australia has it even worse:

(Reuters) The drought affecting more than half of Australia's farmlands, already lasting more than five years, had previously been regarded as the worst in a century.

But officials from the Murray-Darling river basin commission told a water summit of national and state political leaders... that analyses of the current prolonged drought now pointed to the driest period in 1,000 years.

Compelling evidence. Still, the question must be asked: whose fault is all this?

On the anti-global warming side, those who stand oppposed do not dispute rising temperatures or the reality of climate change. They mainly dispute whether man is responsible, and how clearly the evidence supports such a claim.

Dennis Avery and Fred Singer articulate this view in their book, Unstoppable Global Warming: Every 1,500 Years. The Amazon.com summation gives the gist: "Global temperatures have been rising mostly or entirely because of a natural cycle. Unstoppable Global Warming explains why we're warming, why it's not very dangerous, and why we can't stop it anyway."

Other skeptical observers, such as Michael Crichton and Bjorn Lomborg, also disagree with the breathless consensus. The scientific community is presented as unanimously in favor of dramatic action, but as credible researchers like Mr. Lomborg point out, that is not the case.

While the debate rages on (in some quarters anyway), Singer and Avery appear to be correct in at least one thing. Climate change most likely can't be stopped... political climate change, certainly not. Global warming is real where it matters: in the legislation halls.

In Washington, the levers of power have been retaken by Democrats, who are overwhelmingly sympathetic to global warming concerns. European Union leaders, like Angela Merkel of Germany, have made global warming into a banner issue, seeing it as an opportunity for Europe to ‘get out front' and present itself as a leader. Progressive states like California and Maine are embracing deep green regulation of business and the environment.

And regulation efforts were blessed this past week by a landmark US Supreme Court decision. In ruling that the Environmental Protection Agency (EPA) has authority to regulate car emissions, environmental activists have gotten a huge boost.

(NYT) The 5-4 decision was a strong rebuke to the Bush administration, which has maintained that it does not have the right to regulate carbon dioxide and other heat-trapping gases under the Clean Air Act, and that even if it did, it would not use the authority. The ruling does not force the environmental agency to regulate auto emissions, but it would almost certainly face further legal action if it failed to do so.

Writing for the majority, Justice John Paul Stevens said the only way the agency could avoid "taking further action" now was "if it determines that greenhouse gases do not contribute to climate change" or proivdes a good explanation why it cannot or will not find out whether they do.

Ladies and gentleman, the law of the land is now green. (By 5-4 measure, appropriately enough, given the nature of global warming debate.)

What we have, with the supreme court stamp, is official recognition of an environmental juggernaut (think jolly green giant) powered by government regulation, political consensus, and market incentive. The giant was already stomping around, of course; now he wields a fearsome club and full authority to use it.

When government gets heavily involved in anything, you can expect a fair share of buffoonery and waste to follow. There will be plenty of bad rules and bad rulings coming down the pike. Major loopholes have already been exploited, putting big bucks into the pockets of the nimble-fingered and well-connected; as surely as water flows downhll, this will continue.

But legitimate and lucrative opportunities exist nonetheless.

In a word, the green revolution is going to be big. Think multi-billion dollar companies operating on extremely broad scales: letting ten thousand solar flowers bloom in the open desert. Giant wind turbines, taller than football fields, anchored to the ocean floor. Endless miles of corn fields.

Smaller companies—especially those with attractive alternative technologies—will increasingly be seen as takeover targets. The preferred exit for "green tech / clean tech" ventures will be buyout from the likes of British Petroleum or General Electric, just as successful "Web 2.0" companies sought buyouts from Google or Microsoft in recent years.

There will be themes galore tying into this very big trend: natural gas, agriculture, infrastructure, transportation, and so on. Consilient Investor will keep a dispassionate eye fixed firmly on profit... no matter how heated the debate becomes.