A 401(k) for a Warming World

Clean Energy? Green Energy? Nuclear Energy? What will power the world's economies?

Climate change could have a broad impact on industrial sectors, and thus help or hurt your stock investments and retirement funds. What types of equity might you want to favor or avoid?

Big Pharma. Rising temperatures might extend the range of tropical diseases such as malaria and dengue fever. A 2005 World Health Organization report suggested that global warming may already cause 150,000 deaths annually, mainly by spreading illnesses common to hot nations. If diseases of the poor, low-latitude regions of the world began to reach developed countries, large amounts of capital would flow into the pharmaceuticals sector as the affluent began to demand protection—so it could prove profitable to be holding pharmaceutical stocks, although exactly which shares to buy would be influenced by laboratory discoveries that are impossible to predict. But consider the social upside: If malaria threatened the United States, this scourge might finally be cured.

Health-Care Service Providers. The contrarian view is that a warming world would, on balance, improve public health in high-latitude areas. Though hot regions in the developing world experience high rates of communicable diseases that scare us, people are still far more likely to die from the cold than from heat—overall death rates in winter are much higher than those in summer. Retirees living in Florida, for instance, have less reason to fear a hot summer than those living in Vermont have to fear a cold winter. If the cold areas of affluent nations became less cold, we would expect longevity to increase. That would be good for society, and also a reason to hold health-care (and pharmaceutical) stocks, since the elderly require far more in the way of hospital services and drugs. The assisted-care industry might also be in for a long bullish run.

Electricity Producers. The World Energy Council has estimated that global demand for electricity will triple by 2050. The lion’s share of the increased demand will be in developing nations, but the United States and the European Union nations will need more megawatts too—and that’s even assuming increases in energy efficiency. It is all but certain that some form of greenhouse-gas regulation will come to the United States; many Fortune 500 CEOs already assume this. The result will be an electricity sector that’s much more technology- and knowledge-sensitive than today’s. Lots of brainpower and skill will be required to increase electricity generation and reduce greenhouse-gas emissions at the same time. It’s reasonable to guess that power-production firms with a track record of innovation, such as Duke Energy (which pioneered many techniques to improve the efficiency of nuclear-power plants), will be the kind of energy-sector stocks to own. Don’t be surprised if nuclear energy, which is nearly greenhouse- gas-free, enjoys a boom in coming decades. General Electric, Westinghouse, and Siemens are some of the leading producers of new “inherently safe” power reactors designed so they can’t melt down even if all safety systems are turned off.

“Green” Energy. Renewable-energy industries—such as solar energy and biofuels—might seem like a promising place for 401(k) chips, but bear in mind that no form of green energy is yet cost-competitive with fossil energy, and no one knows which may eventually win in the marketplace. Solar-cell production, for example, is an expanding sector, but nearly all large solar cells for residential and commercial applications are currently sold in California, Japan, or Germany, which heavily subsidize the installation of solar power. Many investors today are racing to ethanol, but wariness seems advisable. Bill Gates has already invested $84 million in a start-up called Pacific Ethanol; venture-capital firms have moved into the ethanol “space.” If the smart money is already there, you’re too late. Besides, BP and DuPont are now looking past ethanol to bet on butanol, a crop-derived petroleum substitute with superior technical properties.

Agriculture. Should growing seasons and rainfall patterns change quickly, genetic engineering of crop plants might become essential to society’s future. DuPont, Monsanto, Syngenta, and other firms that are perfecting genetic improvement of crops—either through gene splicing or via natural crossbreeding aided by genetic analysis—could become even bigger players if there is significant climate change.

The Deus Ex Machina Industry. Be wary of start-ups and venture capitalists who may soon talk up “geoengineering.” In theory, it could be possible to cause the seas to absorb more greenhouse gases, if oceans were fertilized with substances that encourage the growth of marine organisms that need carbon dioxide. In theory, the upper atmosphere could be seeded with shiny fleck-sized particles that bounce sunlight back into space, cooling the Earth. In theory, if volcanoes could be made more active, their emissions also would reduce global temperature by blocking some sunlight. (The sole exception to the last two decades of warm years resulted from the 1991 eruption of Mount Pinatubo, in the Philippines, which caused cool weather worldwide.) It’s likely that some investors will be tempted by offers of early stakes in geoengineering enterprises. But it’s unlikely that any government will ever approve an experiment involving the entire planet.

Want the profile of what seems the perfect large firm of the future? Think General Electric. The company builds nuclear-power reactors and is ready to build extremely efficient coal-fired power plants, which are likely to become more commonplace than nuclear reactors owing to lower cost and less political opposition. George W. Bush talks grandly of FutureGen, a billion-dollar federal initiative for a prototype coal-fired power plant that emits hardly any greenhouse gases. But the FutureGen crash program doesn’t even break ground until 2009. Meanwhile, GE has already completed the engineering work for an advanced coal-fired power plant able to operate with negligible greenhouse-gas emissions. If greenhouse-gas regulations are enacted, GE may be swamped with orders for its new coal-fired generating station. GE has also recently engineered jet engines, power turbines, and diesel locomotives that require less fuel, and hence release less greenhouse gas, than those now in use. The company has also made serious investments in wind turbines, photovoltaic cells, and other zero-emission energy forms. This big, profit-conscious corporation is at the cutting edge of preparation for a greenhouse world—which is likely to keep GE big and profitable.

—Gregg Easterbrook