The Intergovernmental Panel on Climate Change (IPCC) issued its first major report in six years and based upon the findings of some of the earth’s top 800 scientists, they are now 95% certain that climate change is caused by human activity. Carbon dioxide emissions are increasing every year (largely through modernization in developing countries) and models have forecasted average surface temperatures to rise above two degrees Celsius by the end of the century.
The IPCC’s dire warnings have been circulated since its first report in 1990, but there has been much less talk about the ample business opportunities that the changing climate presents. I do not mean mountaintop glaciers will melt into lakes and hotel chains will race to snap up new beachfront property in exotic locales. Rather, companies and investors alike are being presented with more clean energy and efficiency opportunities to maximize financial gains and mitigate losses.
Most of the world realizes the potentially disastrous effects of climate change and that humans are actually in control of their destiny; we can halt and eventually reverse our negative impact on the planet. Despite climate deniers in the U.S. Congress and lobbyists spending millions to ensure fossil fuels continue receiving favorable treatment in Washington, carbon emissions have actually decreased over the past few years in America. Unfortunately, this is not the case globally.
Developing countries led by China and India are driving global emission rates higher than they’ve ever been in human history despite developed countries producing fewer emissions. The desire for developing countries to modernize and become prosperous is inhibiting them from growing sustainably and cleanly.
However, there are signs pointing towards a clean energy future. India recently approved what will be the world’s largest solar power plant and in 2012 China received the most clean energy investment of any country in the world with $65.1 billion being added to their coffers.
According to Paul Simpson, CEO of the Carbon Disclosure Project (CDP),
84% of the world’s largest companies already see the risks that climate change regulation presents to their business. Such risks include regulation that may strand assets, which become unprofitable due to carbon restrictions or business disruptions like extreme weather – which will become more frequent and severe.
Businesses and investors share many similarities, especially when it comes to maximizing profit. The current political environment in the US has largely stymied action on climate change, but it is expected that the EPA will put in place regulations governing emissions from power plants already in existence. President Obama ordered the EPA to unveil new regulations for existing coal power plants by June 1, 2014, with final issued rules one year later. However, this does not mean that the law will come to fruition. It is possible that legal action could delay or even cancel these executive orders, and it is also unknown if and when a supranational governing body like the UN would agree to a treaty requiring action towards preserving the environment. Uncertainty is the enemy of business and causes many financial bets to decrease in value, so companies and investors alike are rethinking their investment strategies.
Hurdles to the 100% clean energy economy remain, even though socially responsible investing (SRI) strategies are becoming more mainstream. Many current investing strategies are optimized for the present climate and political systems and are not environmentally conscious, so a change in the climate system requires a deviation from business as usual. Political and legal changes have been slower moving than climatic ones and impede the full shift to alter the framework necessary for investment in a more sustainable future.
Several supranational organizations have recognized the need for policy implementation and have proposed carbon taxes, carbon caps, and lowered subsidies for fossil fuels. For example, the World Bank has decided to stop funding coal-fired power plants in the developing world, opening the door to funding of alternative energy sources like solar, wind, geothermal and tidal. These present great investment opportunities strictly because of the size of the potential market.
In 2011, two college professors, Mark Jacobson of Stanford and Mark Delucchi of UC Davis came to the conclusion that there are “no technological or economic barriers to converting the entire world to clean, renewable energy sources.” According to them, we have been unable act because of lacking of societal and political will. To accomplish this tall task, we would need to construct nearly 4 million large wind turbines and 90,000 solar power plants. Solar roof arrays would sit on top of some 1.7 billion homes. In Jacobson and Delucchi’s model, we’re getting 50% from wind, 34% from large solar plants and 6% from rooftop solar. The remaining 10% is from hydro, geothermal, tidal and wave energy. Globally, the amount of investment necessary to achieve this vision is $100 trillion dollars.
The IPCC report, with its 95% certainty that humans have been causing climate change since the Industrial Revolution, should provide enough clarity to those who were on the fence to realize our species needs to clean up its act. Money speaks; part of the reason that fossil fuels are ubiquitous is that they have been extremely profitable for businesses and their investors. In 2012, Exxon Mobil made $122 million in profits – per day. I’ve already mentioned how it is expected that coming regulations will slow the usage of fossil fuels, but what could that mean for investments? The multinational bank HSBC has warned that the top 200 fossil fuel companies stand to lose some 40-60% of their equity value if governments take action to curb climate change, so it could definitely be time to diversify investments if they are lumped in dirty energy.
If one plans to divest from fossil fuels to avoid the bursting of a major bubble, what are some possible options? Fortunately, there are several viable investment opportunities where the investor stands to grow his/her wealth and make a measurable social and environmental impact. Chief among these, Mosaic is breaking the mold of energy investing and is shifting power back into the hands of the public. As a mission-driven company, Mosaic’s goal is to democratize and decentralize energy production while allowing more people than ever before to profit from this shift. Join the clean energy movement and leave your mark on the planet.
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