Some recent events have provided reminders (if we needed them) that policy makers and governments in general cannot be counted on to do too much to preserve the planetary ecology and natural resources that underpin civilization. Copenhagen has failed. Congress has abandoned an energy/carbon/global warming bill for the foreseeable future. The Obama administration has again embraced offshore drilling despite the Deepwater Horizon disaster. Most of the new representatives and senators elected this last November have flatly stated they don't believe global warming exists at all.
And yet the seeds of our own destruction are all around us. 2010 is easily on pace to be the warmest year globally in the era of modern record keeping. Just this past September alone, Arctic sea ice was at its lowest ebb ever, the Siberian and now Alaskan taigas were burning, Pakistan was flooding, and world grain prices had doubled in the previous month as a result of the diminished output all this was causing. Intelligence agencies, retired and active generals, and veterans groups are all screaming that spending nearly $1 billion a day on foreign oil only funds hateful madrasas and terror groups, makes the U.S. economically dependent on unstable regions, and supports hostile governments. Polls show that U.S. citizens are less likely to believe in global warming today than they were in 2005.
Are we mad? How can officials, and the constituencies that support them, fail to act in the face of such obvious evidence of the real possibility of a catastrophic future? The answer is yes -- yes we are mad. And the reason is because… because we're just human, and humans have a very hard time looking past our own short-term economic interests. And right now, our deadly, legacy economy is supporting most peoples' short-term economic interest. As the "Sage of Baltimore," H. L. Mencken, said, "It is difficult to get a man to understand something when his income depends on his not understanding it." Call it ablative dissonance. Of course, this time, the general failure to understand is supported and perpetuated by the disinformation campaigns of big oil and coal (the most profitable and rich companies ever to exist), so there's that working against us. (To be fair, these corporate entities are only, predictably, defending their own short-term interests; that the exercising of those interests may ultimately cause civilization to fail is not a valid datum to them.)
Only two things are likely to turn the situation around. One is a global warming-related disaster so devastating, sudden, and shocking that it polarizes a large majority of the population toward changing to a sustainable (more on the slippery definition of that word in a later post) economy. A large enough majority that policy has to change in meaningful, enforceable ways. Let's hope that this kind of watershed event can be avoided. The other involves marshalling the same forces driving the perpetuation of the legacy, fossil fuel-fueled, unsustainable economy. That is, simply, to make the conditions (technologies, processes, industries and companies) of a sustainable economy aligned with the nation's economic interest. Really, it's about simple economics (what isn't?). Like Adam Smith believed, to change peoples' behavior, you have to make the behavior you wish to encourage aligned with the peoples' economic interest. In this case, we can align economic benefit with what we know is right. Dissonance between economic prosperity and preserving civilization can be abated.
How do we do that? This is where innovation (the greatest wealth-building lever in history), entrepreneurship and private enterprise come in. The green economy is the next economy. It's the next great wave of the industrial revolution, and it will be the largest. Economically, it makes no sense to wait for entrenched policy makers to promote this change. And the smart money knows that and has long since begun to act. There are hundreds of examples, but I'll limit myself (for this post) to one that I really appreciate: MunichRe.
The German reinsurance giant, to be clear, is not a tree-hugging greenie organization. It's a hard-nosed, actuarial-based insurance company, and like all companies, it's hell bent on making the best, most profitable decisions it can. But, being in the reinsurance business, MunichRe's data inputs regarding profitability and climate change are different than big oil's, and subsequently, so are its decisions and projects. As far back as the 90s, MunichRe began to realize that their payouts related to extreme weather events were growing far more rapidly than they had been expecting. They had known that global warming could cause increased storm strength and more frequent large-scale disasters, but for the first time, they saw it hitting their bottom line. Subsequently, they took climate risks out of their general risk management department and launched a new "Geo Risks" division (now known as MunichRe Touch), and they've been a world leader on the topic ever since. I've heard insurance executives speculate that areas sensitive to sea level rise and storm damage may not be worth insuring at all if global warming is not abated or at least slowed. MunichRe, faced with billions in losses over the coming years due to climate change (and, importantly, to diversify its revenue away from insurance), is placing its bets on technologies to slow warming. Most significantly, the company is leading a consortium to build the largest solar power plant on Earth. Their project is called Desertec and it "could be a 100 gigawatt solar thermal power station in northern Africa and the Middle East. It could be finalized by 2050 with power lines connecting it to central Europe and would cost an estimated 400 billion euros ($491.1 billion)" (Reuters).
Okay, this is a huge company with a huge idea. The point that fossil fuels are both killing us and likely to run out sometime, and that the sustainable economy is, as a result, about to emerge and become the fastest growing economic boom in history, with or without the help of policymakers, is not lost on them. Nor is it lost on us, the companies that provide investment conduits into the next economy.
We've made the transition. MunichRe has made the transition. Economically, investing to perpetuate the next economy is the sanest thing to do. Thousands of small and large companies are working toward sustainability, and we can and will achieve that with or without Washington. The next economy, although still small, is already growing much faster than the legacy economy. The scales will tip, and the insanity that is human short-term vision will turn positive.
[Disclosure: As of the time of this writing, neither the author nor Green Alpha Advisors, LLC holds investments in MunichRe]
Garvin Jabusch is the cofounder of Green Alpha Advisors, LLC and manages The Sierra Club Green Alpha Portfolio -- a unique blend of Green Alpha Advisors' Next Economy universe and the Sierra Club's proprietary green-investment guidelines.