Lobbyists, pest control and dikes

Would you like to profit from climate change? Consider lobbyists, pest control and dikes.

On Earth Day, the very idea of profiting from climate change feels vaguely unseemly. It’s like making money from war or selling flight insurance to anxious travelers. Yet just as business helped to create the scary predicament known as global warming, business will have to deal with it.

This, at least, was the premise behind a lively half-day conference organized by Goldman Sachs called “The Business of Climate Change: Risks and Opportunities.” High-level speakers took a cold-eyed look at how the profit motive can help devise solutions to the problem of climate change. Some posed a question: Who stands to win and who stands to lose as we grapple with global warming—or not?

The answer, of course, is that it depends. It depends on how the climate changes, on how quickly we—meaning governments—act to reduce greenhouse gas emissions and, most of all, on what the regulation of greenhouse gases will look like. So there was a lot of talk during the day about whether Congress and the president (or, more likely, his successor) will do, and what they should do.

In that regard, while conventional wisdom in the FORTUNE 500 holds that the best approach to regulation is a so-called cap-and-trade regime, one of the most impressive presentations came from a contrarian CEO named Lewis Hay III. Hay is chairman and chief executive of FPL Group, a big, forward-thinking electric utility based in Florida that has invested heavily in wind power. He argued persuasively that a carbon tax (or fee, if you prefer) would be a much simpler approach, and one that would avoid the looming political battles over how to structure a cap-and-trade approach.

Cap-and-trade is scarily complex, requiring Congress or regulators to decide what the baseline year would be used for allocating emission credits, which industries should get them, and how they should be allocated. These are all billion-dollar questions, and if we go down that road, you can be certain the the first people to get rich from climate change will Washington lobbyists. The stakes around carbon regulation are so extraordinarly high that the K Street lobbying brigades must already be salivating the prospect.

That brings me to pest control and dikes. John Holdren, a Harvard professor of environmental science and director of the Woods Hole Research Laboratory, identified two sets of business opportunities that present themselves in a climate-challenged world. The first (and we’ve heard about these) are products and services that mitigate against global warming—wind, solar-thermal and photovoltaic electricity, biofuels that don’t compete with food, more efficient buildings and vehicles, and the like. The second group (and we haven’t heard as much about these) are products and services that will help us adapt to a warmer planet—water desalinization and purification technologies because water will be in short supply, water storage and distribution businesses to deal with floods and droughts, the development of pest-, drought- and pathogen-resistant crops and trees. (“Pests will enjoy a warmer, wetter word,” Holdren remarked. He mentioned mosquito repellent.) Holdren also talked about improved treatments for human health problems like malaria, dengue and West Nile diseases and, finally, products to cope with storms and rising sea levels like “storm-resistant construction” and “raised, strengthened and additional dikes and storm-surge barriers.” Yes, pest control and dikes.

The need for adaptation will depend on how urgently and effectively we pursue mitigation. As Holdren has written:

Clearly, mitigation and adaption are both essential. Human caused climate change is already occurring. Adapation efforts are already taking place and must be expanded. But adaptation becomes costlier and less effective as the magnitude of climate change grows.

It’s a little scary, isn’t it?

There was lots more at the event, from people like Jonathan Lash and Jonathan Pershing of the World Resources Institute, Phil Sharp and Ray Kopp of Resources for the Future and Bill Reilly, who delivered a behind-the-scenes account of the private equity takeover of TXU. All of it valuable. (I’d report on what they said but I lost my notes from the day. It was Friday the 13th.) Credit for pulling the event together belongs to Mark Tercek, managing director and head of the Center for Environmental Markets at Goldman.

It strikes me now that the fact that the conference took place is probably more important than anything that was said. The problem of climate change is so big and complicated that we’ll need all the brainpower and money we can muster to deal with it. Goldman brings plenty of both to the table. If that means that people will rich by selling wind power, fuel-efficient cars, pesticides or even dikes, so be it. I don’t see any better way out of this mess.

Comments

  1. One of my more climate-worried frieds told me he wanted to buy real-estate puts (options that produce a profit when prices go down) for coastal cities in prepartaion for coastal flooding. Un?fortunately, currently avialable real estate options expire within 9 months, which is a little short of a time frame for serious coastal flooding, even by his pessimistic estimation. So I suggested the dikes idea to him… your got me thinking about it again… I need to do more research on this, but I’ve noticed that one advantage of renewable energy technologies when compared to adaption technologies for the investor is that it’s easier to identify companies which will benefit. Adaption will probably be a great opportunity for contractor, but most contracting companies are small, local, and/or privately held. Denver has a great one, CH2MHill, that does projects across the world, and I know their CEO “gets” climate change (he was taking about sustainability in the early 1990s)but they are unforatunately for outside investors, private. I think dikes are going to be a great business opportunity, but not necessarily a great investment opportunity: their low-tech nature means that there are insuffient barriesr to entry.

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