Conservatives, climate change and investing

I didn’t mean to start a debate by the religious fanatics of climate change. And I will not do so here. But I will state my position and I do want to talk about the investing implications of climate change.

My position on the political and practical debate (and on the science on which I have limited expertise)

Conservatives have had a funny set of positions on climate change. First they argued that it didn’t exist. That seems to have fallen by the wayside. There is little factual doubt that the world is warmer than it was say 50 years ago. In Australia – where the climate is doing quite strange things – popular opinion says the strange things (sustained drought) are caused by greenhouse effects. I have my doubts about that…

Then conservatives argued that the observed warming was not caused by human driven changes in the CO2 in the environment. That is possible – but I am happy to accept that it is highly likely that humans have caused it. I am far less convinced by the human cause step than the existence step – but I still think that the bet on climate change is having human causes is pretty strong.

It is not clear what conservatives are going to argue next. Starting by arguing with the preponderance of scientific opinion doesn’t bode well…

I was always more impressed by Charlie Munger’s view – which was intellectually honest – and did not start by denying the science. His view – which I believe arguable – is that climate change is real, is caused by humans but that it is essentially unstoppable at any reasonable cost (you simply can’t administer any plausible program to reduce greenhouse gas emissions). He then argues that the cost of the world being marginally warmer are not too high.

I really have no idea at that point. I do not know how big the cost of the world being a few degrees warmer will be and I have no idea whether a system to ameliorate climate change is even practically possible. I have some idea how you would design quotas and taxes to try ameliorate greenhouse emissions and I personally think it worth trying, however I am very unsure as to whether it would be successful.

More generally I think the conservatives without strong relevant scientific skills and who start by denying the preponderance of scientific opinion do themselves disfavour. If they lose the scientific debate they look stupid – and just as importantly – they deny the fundamental intellectual strength of conservatism.

The appeal of conservatism as an ideology is that it is based on a practical observation about the world – decentralised market systems work pretty well on the whole and governments stuff up lots of things. That observation – loosely stated – is grounded in fact. Nobody is responsible for the distribution of bread in New York or Sydney – but it works very well. Someone was responsible for the distribution of bread in Stalingrad and it worked dreadfully. The appeal of conservatism in this regard is that the core part of the ideology is based on observable fact.

I do not understand why conservatives want to latch onto very minority scientific positions (which are probably wrong) on climate change or onto positions which are completely scientifically untenable on evolution (six days, recent origin).

Conservatives have a perfectly defensible ideology – why give up the intellectual high ground for obscurantism? It is not my ideology – but when the facts suggest that I am wrong I am very happy to retreat. If you are not happy to retreat then you count yourself out of serious discussion.

But this is a practical investing blog

I think we can assume (on the strong balance of probability) that CO2 emissions cause global warming. I am not sure we can assume that something effective will be done about it – or even that it is possible within a modern global economy do to anything effective about it. But there is a good probability that governments will try.

How they try is going to dramatically change the investment horizon – and it might do so in strange ways. For instance in Europe greenhouse gas quotas were given to large carbon emitters – and for a while the way to make money was to buy the company with the worst emissions problem. Why? Because the quotas were worth more than the industrial base they had to shut.

I do not want to provoke a debate about whether the human caused greenhouse effect is real – I think that is pretty likely – but this blog is entirely unlikely to contribute in any meaningful way to the debate. I am not a relevantly trained scientist and nor are most my readers.

What I do want to provoke is a debate about how the governmental reaction to greenhouse will change the investment horizon. I may not like it – but if the incentives are for me to buy the ugliest most polluting industry because it is a beneficiary of government action then I will do it. I will not let ideology get in the way of investing. That would be even more stupid than believing in six day creationism – because the belief in creationism is largely personally harmless – but letting ideology get in the way of investment decisions is personally costly.

So this is a plea: let us discuss what really matters to my clients and my readers – which is how do we make some filthy lucre from all of this – rather than argue about science about which we can make little contribution.

And just to make sure the discussion is focussed I am going to break this blog’s policy on censorship of comments. I will censor any comment on the science of greenhouse unless it has an investing implication. I will however let through any comment with investing implications generally or discussions on the practicality of things governments might (try to) do to ameliorate greenhouse gas emissions.

John Hempton