As the Climate Changes, Avoid Green Energy Bets
(Bloomberg Opinion) -- Hurricanes, severe winter storms, wildfires, droughts and several recently issued reports have raised fresh concerns about climate change and the threat it may pose to the planet. The first thing investors should do in reaction to the global warming issue is not panic.
Steven Koonin, a theoretical physicist who served as undersecretary of energy and science in the Obama administration, points out that the fourth National Climate Assessment released late last month shows that overall effect of human-caused climate change is quite small. That report’s worst-case scenario assumes an increase in global temperatures of 9 degrees Fahrenheit by 2090, a huge leap and 12 times faster than the 1.4-degree rise recorded since 1880. It also assumes the U.S. economy grows at only a 2 percent annual rate versus, versus the 3.3 percent average so far this year. Still, the forecast reduction in annual economic growth is a tiny 0.05 percentage point.
If you still want to invest in anticipation of rapid global warming, avoid green energy areas because they continue to require huge government subsidies and mandates. Corrosive ethanol would collapse without government requirements that it be included in automotive fuel. Wind farms require government mandates and subsidies to be viable. What the government giveth, the government can taketh away. Also, recall the recent gyrations among solar panel producers after the Trump administration charged the Chinese with dumping them here and restricted their imports.
If you fear significant temperature rises, avoid properties in coastal areas. The Union of Concerned Scientists believes 311,000 coastal homes worth $118 billion are at risk of chronic flooding in the next 30 years, as are 14,000 coastal commercial properties assessed at $18.5 billion. If it gets hotter in Florida, retiring baby boomers may not move there, reducing the demand for retirement communities.
The United Nations’ Intergovernmental Panel on Climate Change says higher temperatures would hit hardest poor countries in tropical and subtropical regions, with reductions in crop yields due to less water and more insects. So avoid investments in the frontier markets of Asia and Africa.
Warmer average temperatures will increase summer tourism in northern and southern latitudes. Rising temperatures would also enhance the growth of forests in North America, Europe and Russia, while more frost-free days each year open huge new acreage to soybeans, corn, wheat and other crops in northern U.S. states and Canada.
Still, I’d bet on the suppliers of the picks and shovels, rather than grubstake gold miners. So consider producers of farm and logging equipment as well as grain merchants. And don’t forget pesticide manufacturers, since higher temperatures spawn more bugs.
If the Arctic Ocean becomes ice-free in summer by mid-century, the sea route from Japan to Europe will be reduced to 7,600 miles instead of 11,300 miles via the Suez Canal. Here again, I favor shipbuilders over the shippers and cruise lines. Lots more global warming would unlock huge quantities of crude oil and natural gas that lie under Arctic ice. Once again, I’d prefer the energy-service companies over the producers.
The earth’s climate is extremely complicated. Even the best of computer models cannot explain many phenomena, and require assumptions that inherently reflect human biases. So don’t expect today’s forecasts to survive the next batch of computer model outputs.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
A. Gary Shilling is president of A. Gary Shilling & Co., a New Jersey consultancy, a Registered Investment Advisor and author of “The Age of Deleveraging: Investment Strategies for a Decade of Slow Growth and Deflation.” Some portfolios he manages invest in currencies and commodities.
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