Investments and/or businesses in climate change can be profitable and do good for the world.
What do these beans in the jar…
have to do with…
these wild turkeys I photoed in our front yard on a foggy August morn?
That fog… and the beans predict a hard Blue Ridge winter… again… after America’s hottest summer on record.
Such weather is a problem and problems create opportunity. Weather change may be… one huge problem.
Blue Ridge lore suggests that we can predict the weather in numerous ways. Watching for early morning fogs in August indicate the number of snows. A heavy fog indicates a heavy snow, and a light one, a mild snow. We have many bean counters up here in the mountains and they are saying that they have an extraordinary number of beans this August. Or… starting building the wood pile… brrrr!
Other local weather predictions include:
* Watching how high or how low the hornets build their nests; High means a mild winter and low, a bad winter. Hornets nests seem to be very, very low this year as I and our hound dog Ma recently discovered when I bumped into a nest built on the face of this patio, while mowing the lawn. Ouch!
* Watching the thickness of spider webs; When it’s going to be a bad winter, there will be an abundance of spider webs.
* Looking at the thickness of bark on the trees; If the bark is thick and gnarly, it is going to be a bad winter.
* If the foliage on the trees is thick and hangs on long in the fall, it’s going to be a hard winter. (Join us this fall for the leaf change at our International investing and business seminar to see).
* If the mast crop (hickory nuts, acorns, etc.) is particularly heavy, it is going to be a hard winter.
* If corn husks are thick, it will be a bad winter.
* If squirrels are busier than usual gathering nuts without chattering, it’s going to be a bad winter.
There is a lot of wisdom in this ancient folklore. However some prefer a more scientific exploration. If so, take a look at the article
“The Causes of Global Warming:” from The Quaker Economist.
Here are excerpts from this article (a link to the entire article is below): This is a brief note on how to evaluate the causes of global warming, without the assistance of super-computers running advanced three-dimensional geophysical models of atmospheric and oceanic dynamics.
My goal in this essay is to show a simple way to evaluate the major hypothetical causes of global warming, such as solar sunspot activity and greenhouse gases produced by the use of fossil fuels (coal, petroleum, and natural gas).
Figure 1 shows the trend in global mean temperatures, from the mid-18th century to the present. The data come from the well-respected Climate Prediction Unit of the University of East Anglia. The curve clearly shows fluctuating global temperatures, culminating in a sustained rise in global mean temperature from about 1980 to 2006, with a dip in 2007.
One contributing cause of changes in global mean temperature is fluctuations in solar activity, which change not only the total amount of radiant energy received on earth, but also the amount of cosmic radiation absorbed by the atmosphere. The numbers of sunspots visible on the surface of the sun is a useful proxy for solar activity of all kinds. Sunspots follow a somewhat irregular eleven-year cycle that has been in place with varying amplitude for three centuries. Figure 2 shows annual midyear sunspot numbers, as reported by the Royal Observatory of Belgium, after smoothing with an eleven-year trailing average. The eleven-year solar cycle is only faintly visible in this smoothed data, but long-term fluctuations in overall solar activity are clearly visible.
The “anthropogenic hypothesis” of global warming is that the burning of fossil fuels by humanity has released enough greenhouse gases of various types (especially carbon dioxide and methane) into the atmosphere as to have caused a rise in global mean temperatures.
If we truncate the data at 1985, i.e. before global warming began in earnest, then fossil fuel consumption has an influence on global temperature that is about twice as strong as solar activity. If, however, we include all the data from 1850 through 2007, then the influence of fossil fuel consumption is almost three times stronger than solar activity, though the latter remains a powerful influence. (Bold is mine).
The relationship between fossil fuel consumption and global mean temperature is strongest when the fossil fuel series is lagged behind temperature by 25 years.
The two curves are shown in Figure 4. The red curve (fossil fuel consumption) has been shifted to the right by 25 years, so that one can see how the rise in temperatures could plausibly have been caused by the increase in fossil fuel use 25 years earlier.
A comparison of Figures 2 and 4 raises some immediate questions: Which is the cause of global warming, solar activity or fossil fuels?
Figure 5 shows how well the two causes acting together predict annual global mean temperatures. The red curve of predicted temperatures based on:
1. solar activity,
2. fossil fuel consumption, and
3. the previous year’s temperature,
explains fully 87% of the variance in global mean temperatures over the time span 1850–2007. As statistical models go, that is an extremely good fit!
Figure 5: Actual global mean temperatures (blue) and as recreated by an autoregressive statistical model (orange), using solar activity, fossil fuel consumption, and previous year’s global mean temperature.
“If nothing else were changed by warming, a doubling of carbon dioxide would ultimately lead to a temperature change of about 1.2 degrees C,” says atmospheric physicist Gerard Roe of the University of Washington (quoted in Scientific American, October 2007). “In fact, because of internal processes within the climate system, such as changing snow cover, clouds and water vapor in the atmosphere, our best estimate is that the actual warming would be two to four times larger than that.” In other words, the earth may warm between 2.4 and 4.8 degrees C.
And therein lies the problem. Any increase of more than 1.5 degrees C may result in the mass extinction of up to a third of all biological species known to science. At this level of extinction, what will happen to the food chain that supports human existence? Worse, this is just one of the dire consequences envisioned in “State of the Science: Beyond the Worst Case Climate Change Scenario” (Scientific American, November 2007). (Bold mine)
This suggests that global climate change has the potential of being a huge problem. This is something many of us already already believe. This is why we have been promoting green investments at this site for almost a decade.
I am in Copenhagen this week speaking for Jyske Bank and one of the other speakers is Bjorn Lomborg known as the “Skeptical Environmentalist.”
Lomborg is a Danish author, academic, and environmental writer. He is an adjunct professor at the Copenhagen Business School, director of the Copenhagen Consensus Centre and a former director of the Environmental Assessment Institute in Copenhagen. I have spoken with him at one seminar before and his ideas are worth the trip across the Atlantic.
He became internationally known for his best-selling and controversial book “The Skeptical Environmentalist”.
In 2002, Lomborg and the Environmental Assessment Institute founded the Copenhagen Consensus, which seeks to establish priorities for advancing global welfare using methodologies based on the theory of welfare economics. I look forward to hearing what he has to say.
What else can one do?
Our recent message “Rules of Wealth“ looked at the International Securities Exchange ISE and the numerous indexes it has created so investors can easily bet on ideas.
The ISE “Earth Wind & Fire Index” offers an alternative for hydrocarbon free investments. This index provides a benchmark for investors interested in tracking companies actively involved in hydrocarbon-free based energy generation.
Here are the companies in the index and their weightings.
I have not found an ETF based on this index so investors would have to use the ISE options to invest in this idea.
There are many clean energy ETSs however. Here are five of them.
PowerShares WilderHill Clean Energy Portfolio (PBW): PBW tracks the WilderHill Clean Energy Index, a benchmark that tracks companies that focus on greener and generally renewable sources of energy and technologies that facilitate cleaner energy. It holds 53 securities and is heavily exposed to companies in the electrical equipment sector.
Market Vectors Global Alternative Energy ETF (GEX): This ETF holds 30 securities and is heavily exposed to firms in the U.S., which make up 44% of the fund’s total assets. GEX is diversified among a variety of alternative power sources; its top holdings are Westas Wind Systems (9.5%) and solar giant First Solar (6.7%).
PowerShares Global Clean Energy Portfolio (PBD): PBD consists of 88 securities and has nearly one-third of its exposure to U.S. firms, the largest single country allocation. Additionally, the fund is heavy on mid and small cap securities; just 14% of the assets are classified as large cap firms.
PowerShares Cleantech Portfolio (PZD): PZD consists of 78 firms which focus on knowledge-based products or services that improve operation, performance, productivity, or efficiency, while reducing costs, inputs, energy consumption, waste, or pollution. PZD’s top holding is Schneider Electric (2.8%).
iShares S&P Global Clean Energy Index Fund (ICLN): This iShares fund allocates its holdings to a wide variety of alternative energy sources. Besides solar and wind, the fund also invests in firms that produce biomass and ethanol and geothermal producers. The top sector is electrical equipment, which makes up about 53% of assets. Independent power producers make up nearly 25% of holdings.
What about Business Opportunity? Create a micro business from what you know.
If hydrocarbons are responsible for a majority of global warming and if global warming is half as serious as the Quaker Economist article above suggests, then hydrocarbon free energy will be a huge future wave.
Changing weather can affect us in almost every way… so the business opportunity comes in what you know. Think about about how weather change will affect what you know.
Research the companies above in the ISE. See what they do. Look for opportunities based around what they do. Climate change offers huge business potential. This is an area where there is profits and a world of good for us all.
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