"It is an immutable law in business that words are words, explanations are explanations, promises are promises - but only performance is reality."
- Howard Geneen, ex-CEO of ITT
On September 23, 2019, the politicians of the world gathered in New York for an annual United Nations meeting. And man, were they surprised to find themselves subjected to a tongue lashing the likes of which I have never seen.
"Ah, it was in New York so it must be Donald Trump who was speaking," you're thinking. Nope. He did make an appearance, but he missed the fireworks at this event.
The individual berating the leaders of countries around the world was none other than 16-year old Greta Thunberg of Sweden. She was angry that more isn't being done to address man-made climate change. After reading her speech, I couldn't help being reminded of the biblical advice, "When I was a child, I talked like a child, I thought like a child, I reasoned like a child. When I became a man, I put the ways of childhood behind me."
The thousands of people that read this newsletter are adults. Unlike children who often view issues as purely black and white, Adults understand that the world is complicated. Let us discuss the issue like adults and allow children to continue thinking like children. They will learn in time.
I really hate the phrase, "I believe in science"...especially when it is uttered by politicians. Science isn't a belief. It's not a tribal identity either. Science is the process - be it thru observation or experimentation - that results in one accurately describing [hopefully] the natural world. The scientific process doesn't work unless people view the results of scientific inquiry with skepticism. Skepticism is important because it is only after addressing the concerns of skeptics can the conclusions reached by science be considered true.
So be skeptical of what follows, but also follow the evidence where it leads. By the way, I've converted what normally is presented in Celsius to Fahrenheit in this conversation because, well, we are Americans.
To understand the climate story, the first thing you have to understand is the "greenhouse effect"...and you can do that by going to just about any decent high school in the country. After saying hello to the front office staff, go to the chemistry lab and find an empty fish tank. Using a bright lamp as a proxy for the sun, shine the light on the fish tank and, after a few minutes, measure the tank's air temperature. Then, pump carbon dioxide into the tank. As you do, you will see the temperature in the fish tank rise.
Why does that happen?
It happens because carbon dioxide acts as an insulator that absorbs the heat from the light that is shining on the tank. That absorbed heat by the carbon molecule causes the heat in the tank to rise.
On a much bigger scale, the earth relies on the greenhouse effect to keep the earth warm. The sun releases enormous amounts of energy and our atmosphere reflects most of that energy back into space. The portion that gets thru is eventually trapped in the carbon molecules in the atmosphere, thus keeping the earth warm. Without carbon and the greenhouse effect, the energy from the sun would hit the earth's surface and bounce back into space. If that were to happen, the earth's average global temperature would be nearly 100°F colder than it is today.
Sure, volcanoes, the circulation of the tides in the ocean, and sun spots also have an effect on the earth's climate, but given the simple, provable, and logical story expressed above which has been verified thru thousands of experiments, there is no doubt that carbon is critically important to the greenhouse effect.
What happens when we put more carbon in the air than nature is used to handling? Well, read on.
Back in the 1800's, we learned that carbon - in the form we call oil, coal, and natural gas - is an incredibly good energy source because it gives us a lot of bang for the buck. Because of that fact, our use of carbon-based energy has increased dramatically (look left) and overall, its use has made human life much, much better. After all, the human population on earth increased from 1.6 billion in 1900 to nearly 7.8 billion today. That huge population increase was influenced not only because carbon could be used as an energy source to make roads, buildings and the like, but because pesticides and fertilizers derived from carbon-based fuels were very successful in increasing crop yields. That discovery has helped to reduce worldwide extreme poverty from 42% in 1980 to 10% today. Our current prosperity and, in a very real sense, our very existence would not have been possible without carbon-based fossil fuels.
Yet, those fossil fuels have had an unintended side effect.
Do you remember the story about Goldilocks, the three bears, and the porridge's temperature being "just right?" Well, I think it is analogous to how the earth naturally cycles carbon between earth, ocean, and atmosphere. What scientists call "the carbon cycle" keeps carbon from building up in our atmosphere and that process has allowed global temperatures to change very slowly over time. Nature makes the porridge "just right."
But we are tinkering with nature's recipe with our use of carbon-based energy sources. Just think about this: It takes 10-20 million years for the carbon in trees, swamps, etc. to be turned into oil and coal deep underground. Through our technological innovation, we are pulling that carbon out of the ground and putting it in the air and sea in only a few hundred years.
Because the earth's natural "carbon cycle" cannot clear the carbon out of the air as fast as we are putting it there, carbon concentrations are growing in the atmosphere. And because of the greenhouse effect and the fact that more carbon drives higher temperatures, the earth's land and ocean temperatures are rising.
Knowing the basics of how carbon works to affect climate in a very general sense is not the issue though. There are three questions that are important. What will the future temperatures of the earth be? How soon will those temperatures arrive? What do we do about it?
Let's address the first two questions. I promise will get to the third question in a bit.
Doing what I do for a living, I appreciate the importance of data and modeling and thus I appreciate the importance of climate models. At the same time, doing what I do for a living, I appreciate the limits of obtaining and interpreting data and thus, I appreciate the incredibly difficult task that the scientific community has in creating models that effectively model such a dynamic phenomenon as the earth's climate.
Should you be skeptical of the accuracy of any model trying to model something as complicated as the earth's climate? Heck, yes. You would be crazy not to be skeptical.
However, you should also look at the model, the criticisms of the model and how the model has been refined over time to address those criticisms, and see if the model "works" to describe what we see happening. Personally, I am very impressed with the models the scientific community has created.
But that doesn't mean that I don't see problems. And the problems aren't so much with the science, but how the uncertainty in the science is being presented to the public.
To understand what I mean, consider the speech young Greta gave at the UN a few months ago. She said, "The popular idea of cutting our emissions in half in 10 years only gives us a 50% chance of staying below 1.5 degrees [Celsius], and the risk of setting off irreversible chain reactions beyond human control."
Think about what she said. Does that science say that average global temperatures will rise by 1.5°C (2.7°F) in 10 years? No. The science says that temperatures could increase by 1.5°C (2.7°F)...dating from the pre-industrial period... to some time between 2030 and 2050. How much have global average temperatures already increased since the Industrial Revolution? About 0.8°C (1.44°F). That means that future temperatures are expected to increase by 0.7°C (1.26°F). If average global temperatures do increase by that amount, is that the end of the world? No, not by a long shot. For the most part, the near and intermediate term forecasts have positive implications for global living standards. As Greta implies that "irreversible reactions" are the end of the world, is the end of the world probable? No. The models allow us to measure the probabilities of something happening, but we should differentiate that while some things are possible, they may be highly improbable.
As I read the stores about the climate in newspapers and magazines, or when I listen to news stories about it on TV, unlikely possibilities seem to be presented as though they are highly probable outcomes.
Let's look at the reports that come from the Intergovernmental Panel on Climate Change (IPCC) to elaborate. The IPCC focuses on data that is "likely" to happen and likely means that the models show that an event has a 66% probability of being realized. According to the research, there is a 66% probability (known as "likely") that the average global temperature will increase somewhere between 2.7°F and 8.1°F by the turn of the century....where the average increase is ~5°F. Will that increase destroy the human race? No, it won't. Will oceans rise? Yes. Will oceans flood all the land masses of the earth? No. The IPCC report forecasts that ocean levels will rise by 1/2 a meter by 2100.
Why the alarm?
One reason is that death and destruction sell well in the news business, so media companies have the incentive to present the situation in the worst possible light. A second reason is more nuanced view about motivation. Because there are people concerned about increasing temperatures, they appear to think that "white lies" that exaggerate the risk are necessary to motivate people to action. Exaggerations, like those that suggest that billions of people may die in the next few decades (i.e. Consider the comments made by representatives or Extinction Rebellion as well as comments made by Alexandria Ocasio-Cortez and Bernie Sanders) fit into this category.
Those exaggerations result in children like Greta Thunberg worrying that she is going to die in the near future. Those same exaggerations cause vast swaths of people in America to discount that climate change is happening at all. Personally, I have to work hard to recognize legitimate points made by people who have damaged their reputations by exaggerating the risk.... when my core reaction is to dismiss them out of hand. I suspect I am not alone.
It is important to "steel man" the alarmist position and let me do that now. As I said earlier, the models allow us to forecast future temperatures as a measure of probabilities. You know how the weather guy might forecast a 10% chance of rain tomorrow and almost all of us interpret that as a sunny day? And then tomorrow comes and it's raining? Well, according to the climate models, there is a 10% probability that the average global temperature at the turn of the century could be 10.8+°F hotter than those at the turn of the last century. Heck, some climate models show temperatures being as much as 18°F hotter (very improbable, but possible). When you start to push global average temperatures temperatures up by that amount, now you are getting into very concerning territory.
Those temperature outcomes are improbable, even very improbable, but they are possible.
How should we frame the risk? Should we plan our futures on the likely outcome (66% probability)? Should we pad our expectations and address the downside risk by planning on a plausible, worst case scenario that has a 10% probability of coming true? Heck, should we plan our future on an implausible, but still possible, worst-case scenario that has less than a 1% chance of occurring?
Those are serious public policy questions and they are good questions to ask. At the same time, I don't believe it is reasonable to even ponder those questions questions in isolation. Instead, those questions have to be asked while simultaneously addressing what we can actually do to change the short, intermediate, and long-run future average temperature of plant earth. After all, we are a nation of 330 million citizens living on a planet of 7.8 billion people.
We don't control the world and this is a world-wide problem.
And that brings me to China.
Coal & China
Regardless of the government involved, we know that what governments say and what governments do are frequently very different things. China is no different, but the scale of its activities makes what it does very important to the climate discussion.
President Xi Jinping has promised to reduce China's reliance on coal and reach peak carbon emissions by 2030. After that date, he clams that China's carbon emissions will begin to decline.
"Fair enough," says the world. "China's a growing country and maybe you need to get rich enough before you can afford to go green," we think.
Why then are coal power plants that have lives of 40-50 years and capable of generating 121 billion watts of power currently under construction in China?
It's because China is lying.
Not only is China lying, but because China is considered the world leader in solar power innovation, its actions regarding coal are demoralizing. For the heck of it, I looked up how many solar panels would be needed to generate 121 gigawatts of power. Assuming 400 watts/panel, the answer is 300,000,000 panels. Per a little online research (of which you should be skeptical), it appears that America has installed only a few million panels in its entire history of solar power.
It gets worse.
Edward Cunningham of Harvard University, a specialist on China and its energy markets, says that China is building or planning more than 300 coal plants in places as widely spread as Turkey, Vietnam, Indonesia, Bangladesh, Egypt and the Philippines. Why is China building coal-fired plants in those countries? It is because, depending on the country, there are millions or billions of tons of coal that can be cheaply mined to generate the energy needed for China's "Belt and Road" initiative. Take a look at this map of coal power plants operating around the globe.
China's Belt and Road initiative is the largest infrastructure project ever to be proposed in recorded history. China wants to build a road that will stretch from East Asia to Europe, but that also includes East Africa and Oceania. It expects to spend $4 trillion to $8 trillion. Not surprisingly, that money is desperately desired by many of the second and third-world countries thru which the road will be built.
Pause for a second and think about what it is like to live in Turkey, Vietnam, Indonesia, Bangladesh, Egypt, or the Philippines today. Heck, think about what it is like to live in rural China. If you were there, would you be really concerned about what the temperature of the world is going to be in 10 years, or in 2050, or at the turn of the century? I doubt it. Instead, your worry might be that the scabs on your arms are the first signs of leprosy. As you don't have a job, you might wonder if a tourist will be inattentive about his phone...so that you can steal it. If someone was to offer you a coal job, you would probably jump for joy and take it.
Now, change your frame from the individual and think about events at the big picture level. As China is spending so much on this initiative, does that spending give China influence over other nations? Of course it does. Is that growing influencing concerning to the US? You bet it is.
Global politics vs. climate change. Where do you place the priorities? Like I said, this is an adult conversation.
As China is growing relatively fast and as it is building coal plants around the world, is it likely that China's excessive carbon emissions will offset the impact of the clean energy policies employed by first world nations? Yes. Of course, the clean energy policies of first world nations will help in not increasing the probability that the worst case temperature scenarios are realized, and that is a good thing. Nevertheless, it also means carbon concentrations in the environment will be increasing. That means that the world remains on an upward trend in global temperatures.
What Do We Do?
This is a wicked, wicked problem.
The greenhouse effect is real. Carbon concentrations are increasing. Temperatures will rise, but by how much, we really don't know. We aren't even sure how to frame the risk. China is innovating a lot around solar power. China is also building, and planning to build, a lot of coal generated power plants around the world. That means that what they give on one hand, they take away with the other. China is also an authoritarian state that is working hard to grow its influence. Do we cede our economic competitiveness so that we can more aggressively implement policies that address the growing presence of carbon in our atmosphere? Do we do it knowing, that at the other end of the effort, China is likely to be the authoritarian leader of the world because it allowed other nations to bear the burden while it reaps the benefit?
The above represents the complexity that is involved in an adult conversation.
While not having the answers to many of those questions, it is fair to say that almost all of the attention thus far has been paid to green energy innovation. In retrospect, I believe it is fair to say that the near to intermediate term focus on a green energy solution was a mistake. I say that because, even though we have had remarkable improvements in solar technology (i.e. Solar energy is now the lowest cost energy to produce.), we still don't have a way to effectively deploy that energy at scale and with consistency. Doing this will take decades. In the meantime, societies around the world will be placing more and more carbon into the atmosphere as they use currently scalable, carbon-based energy sources that keep their economies moving.
The above being true, I believe we must make technological innovation regarding carbon sequestration - the removal of carbon from the atmosphere - a priority. While it is easy to talk about "carbon capture" as a concept, because we need a technological solution that will scrub carbon out of the atmosphere at concentrations as small as 300 or 400 parts per million, it is a serious challenge. A few people are working on this idea and they are finding success.
Enjoy the day. Let me know if you found this discussion interesting.
Bruce Wing is the president of Strategic Wealth, LLC, a Registered Investment Adviser located on the north side of Atlanta.
Entrepreneur, financial guy, husband and father of two great kids.