Global Warming: Who Loses—and Who Wins?Whatever happens to our oceans, climate change might also cause economic turmoil by affecting freshwater supplies. Today nearly all primary commodities, including petroleum, appear in ample supply. Freshwater is an exception: China is depleting aquifers at an alarming rate in order to produce enough rice to feed itself, while freshwater is scarce in much of the Middle East and parts of Africa. Freshwater depletion is especially worrisome in Egypt, Libya, and several Persian Gulf states. Greenhouse-effect science is so uncertain that researchers have little idea whether a warming world would experience more or less precipitation. If it turns out that rain and snow decline as the world warms, dwindling supplies of drinking water and freshwater for agriculture may be the next resource emergency. For investors this would suggest a cautious view of the booms in China and Dubai, as both places may soon face freshwater-supply problems. (Cost-effective desalinization continues to elude engineers.) On the other hand, where water rights are available in these areas, grab them. Much of the effect that global warming will have on our water is speculative, so water-related climate change will be a high-risk/high-reward matter for investors and societies alike. The biggest fear is that artificially triggered climate change will shift rainfall away from today’s productive breadbasket areas and toward what are now deserts or, worse, toward the oceans. (From the human perspective, all ocean rain represents wasted freshwater.) The reason Malthusian catastrophes have not occurred as humanity has grown is that for most of the last half century, farm yields have increased faster than population. But the global agricultural system is perilously poised on the assumption that growing conditions will continue to be good in the breadbasket areas of the United States, India, China, and South America. If rainfall shifts away from those areas, there could be significant human suffering for many, many years, even if, say, Siberian agriculture eventually replaces lost production elsewhere. By reducing farm yield, rainfall changes could also cause skyrocketing prices for commodity crops, something the global economy has rarely observed in the last 30 years. Recent studies show that in the last few decades, precipitation in North America is increasingly the result of a few downpours rather than lots of showers. Downpours cause flooding and property damage, while being of less use to agriculture than frequent soft rains. Because the relationship between artificially triggered climate change and rainfall is conjectural, investors presently have no way to avoid buying land in places that someday might be hit with frequent downpours. But this concern surely raises a red flag about investments in India, Bangladesh, and Indonesia, where monsoon rains are already a leading social problem. Water-related investments might be attractive in another way: for hydropower. Zero-emission hydropower might become a premium energy form if greenhouse gases are strictly regulated. Quebec is the Saudi Arabia of roaring water. Already the hydropower complex around James Bay is one of the world’s leading sources of water- generated electricity. For 30 years, environmentalists and some Cree activists opposed plans to construct a grand hydropower complex that essentially would dam all large rivers flowing into the James and Hudson bays. But it’s not hard to imagine Canada completing the reengineering of northern Quebec for hydropower, if demand from New England and the Midwest becomes strong enough. Similarly, there is hydropower potential in the Chilean portions of Patagonia. This is a wild and beautiful region little touched by human activity—and an intriguing place to snap up land for hydropower reservoirs. ADAPTATION
Last October, the treasury office of the United Kingdom estimated that unless we adapt, global warming could eventually subtract as much as 20 percent of the gross domestic product from the world economy. Needless to say, if that happens, not even the cleverest portfolio will help you. This estimate is worst-case, however, and has many economists skeptical. Optimists think dangerous global warming might be averted at surprisingly low cost (see “Some Convenient Truths,” September 2006). Once regulations create a profit incentive for the invention of greenhouse-gas-reducing technology, an outpouring of innovation is likely. Some of those who formulate greenhouse- gas-control ideas will become rich; everyone will benefit from the environmental safeguards the ideas confer. Enactment of some form of binding greenhouse-gas rules is now essential both to slow the rate of greenhouse-gas accumulation and to create an incentive for inventors, engineers, and businesspeople to devise the ideas that will push society beyond the fossil-fuel age. The New York Times recently groused that George W. Bush’s fiscal 2007 budget includes only $4.2 billion for federal research that might cut greenhouse-gas emissions. This is the wrong concern: Progress would be faster if the federal government spent nothing at all on greenhouse-gas-reduction research—but enacted regulations that gave the private sector a significant profit motive to find solutions that work in actual use, as opposed to on paper in government studies. The market has caused the greenhouse-gas problem, and the market is the best hope of solving it. Offering market incentives for the development of greenhouse-gas controls—indeed, encouraging profit making in greenhouse-gas controls—is the most promising path to avoiding the harm that could befall the dispossessed of developing nations as the global climate changes. Yet if global-warming theory is right, higher global temperatures are already inevitable. Even the most optimistic scenario for reform envisions decades of additional greenhouse-gas accumulation in the atmosphere, and that in turn means a warming world. The warming may be manageable, but it is probably unstoppable in the short term. This suggests that a major investment sector of the near future will be climate-change adaptation. Crops that grow in high temperatures, homes and buildings designed to stay cool during heat waves, vehicles that run on far less fuel, waterfront structures that can resist stronger storms—the list of needed adaptations will be long, and all involve producing, buying, and selling. Environmentalists don’t like talk of adaptation, as it implies making our peace with a warmer world. That peace, though, must be made—and the sooner businesses, investors, and entrepreneurs get to work, the better. Why, ultimately, should nations act to control greenhouse gases, rather than just letting climate turmoil happen and seeing who profits? One reason is that the cost of controls is likely to be much lower than the cost of rebuilding the world. Coastal cities could be abandoned and rebuilt inland, for instance, but improving energy efficiency and reducing greenhouse-gas emissions in order to stave off rising sea levels should be far more cost-effective. Reforms that prevent major economic and social disruption from climate change are likely to be less expensive, across the board, than reacting to the change. The history of antipollution programs shows that it is always cheaper to prevent emissions than to reverse any damage they cause. For the United States, there’s another argument that is particularly keen. The present ordering of the world favors the United States in nearly every respect—political, economic, even natural, considering America’s excellent balance of land and resources. Maybe a warming world would favor the United States more; this is certainly possible. But when the global order already places America at No. 1, why would we want to run the risk of climate change that alters that order? Keeping the world economic system and the global balance of power the way they are seems very strongly in the U.S. national interest—and keeping things the way they are requires prevention of significant climate change. That, in the end, is what’s in it for us. Gregg Easterbrook is an Atlantic contributing editor, a visiting fellow at the Brookings Institution, and the author of The Progress Paradox (2003).
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