Oxstones Investment Club™Global warming won’t necessarily be bad news for everyone. For some companies and countries, it might even prove quite lucrative.
That’s one takeaway from journalist McKenzie Funk’s provocative recent book, Windfall: The Booming Business of Global Warming. A number of companies, investors, and governments are starting to realize that a certain amount of climate change is inevitable in the decades ahead. And while that may cause problems for many people, it also opens up opportunities to make money. Lots of money.
Funk traveled across the globe and found an array of examples:
1) Greenland has taken advantage of the thawing Arctic, which has opened up new mining opportunities, to push for independence from Denmark. The government is already anticipating millions of dollars in new tax revenue as oil and gas rush north.Alcoa even has plans for a massive aluminum smelter there — powered by Greenland’s rivers of melting ice.
2) Dutch engineers are selling their vaunted flood-management expertise to countries threatened by sea-level rise. One company, Dutch Docklands, has been pitching visions of floating cities to areas that could eventually find themselves underwater.
3) Various investors, from Wall Street firms like Goldman Sachs to wealthy sheiks in the United Arab Emirates, are buying up farmland in anticipation of future droughts and crop failures. There’s also water trader John Dickerson, whose hedge-fund hopes to strike it rich as Australia and the American Southwest dry out and water becomes scarce.
4) The Israeli firm IDE is reconfiguing its desalination technology to help build snowmakersf or ski resorts in the Alps that are endangered by warmer winters. IDE’s desalination projects are also in high demand worldwide; Funk calls the firm an “integrated global-warming response company.”
5) Insurance firms like AIG are now offering personalized firefighting services to homeowners in California worried about the risk of increased wildfires as the summers get hotter and drier. (As Funk found, these private services tend to be selective about which houses they protect.)
In some cases, these developments are encouraging. Markets are responding to new conditions and coming up with solutions to the problems caused by rising temperatures. But Funk also details the darker side of what’s often dubbed “climate adaptation.” Countries that can better cope with the effects of global warming are walling themselves off from those that can’t. If there are benefits to climate change, they certainly aren’t shared equally.
“Adaptation isn’t necessarily going to be a let’s-all-work-together thing,” Funk told me. “The idea that we’re all going to come together to deal with this is a huge assumption that isn’t much tested.” We spoke by phone recently about his book — and how some people are positioning themselves to take advantage of climate change, if they can:
Brad Plumer: Where did you first notice that some people could actually stand to benefit from global warming?
McKenzie Funk: The most interesting case to me was Greenland. It’s become a familiar idea that Greenland is going to get rich from global warming and they should push for independence from Denmark. So I went there in 2009, when they were having their referendum on self-governance.
And the most common reaction there was not “We need to cut emissions,” or “All this ice melting is a big problem for sea-level rise elsewhere.” The reaction was, “We’re going to get something out of this. We’ll have more accessible minerals and oil and gas and improved fisheries [as the oceans warm, fish are expected to migrate northward].” So their response was to get the money. And of course they would. So that really struck me — why wouldn’t other people do that as well?
BP: We’re seeing that more and more in the Arctic — as the ice melts, it’s a huge opportunity for oil companies like Shell or Rosneft or Statoil to access oil and gas that was previously inaccessible. There are shipping lanes opening up.
MF: Yeah, Canada and Russia are great examples here. The current Canadian government under Stephen Harper tends to pooh-pooh climate science and downplay the problem. But the one place they don’t do that is when talking about how the Arctic is changing and how Canada needs to be more robust and stand up to the United States in this region.
BP: There are also some companies that are well-positioned to help countries adapt. You describe one Israeli company that’s rejiggered its desalination technology to make artificial snow for ski resorts in the Alps that are in danger of disappearing.
MF: Yeah, the best example of this was this Israeli company IDE . Not because they yet have a lock in global snow-making, but because they’re also involved in desalination. It’s like an integrated global-warming response company.
So just to get a sense of where they’re working, they were involved in the big Ashkelon desalination plant in Israel, as well as the bigger Hadera plant . But IDE’s now working in Australia, and they’re trying to get the Carlsbad desalination plant built in California, near San Diego. Essentially you have a country that’s already dry, is getting even drier — but it’s also making money off the technology that they’ve come up with to deal with it.
BP: You’d think dry countries like Israel or countries that sit below sea level like the Netherlands would get hardest hit by climate change. But in some ways, it’s a huge opportunity for rich countries in these situations, because they’ve been facing these problems for so long and have developed the technology to deal with it — and now other countries need their expertise.
MF: That’s totally right. If you look at the big desalination companies, they all come from dry places. There’s Israel, but also Singapore, which has long had water issues.
And then the Netherlands, if you go to conferences there, if you talk to Dutch engineers, they’ll say we need to stop talking about climate change as a crisis and start thinking about it more as an opportunity. Dealing with water is in their DNA. Even before sea-level rise, the country’s land has been sinking forever and they’ve been working to reclaim it.
So the addition of sea-level rise is definitely a big deal to the Dutch, and they’re worried about it, but they also know what to do. The government has a whole structure set up to deal with. And so nowadays Dutch engineers are traveling all over the world selling people on seawalls and storm surge barriers and whatnot.
They had a proposal for New York City, they’ve worked in New Orleans, in the San Francisco Bay. When I went to Bangladesh, people showed me projects that the Dutch had built before — which, by the way, didn’t work very well for Bangladesh. So they see this as a huge opportunity. And then there’s all the floating architecture they’ve been pushing. Various Dutch firms have ideas for not just floating houses but also floating cities. There are even plans for floating cities in the Maldives — the poster child of sea-level rise.
BP: Does anyone keep track of all the different companies that could stand to benefit from global warming? You mentioned in the book that Deutsche Bank had a fund that invested in some of these firms — a way to bet on climate change.
MF: There’s not yet a climate adaptation index — that is, there’s not something you can buy where the idea is that if the world gets warmer, we’re all screwed, but these companies will all do better. T here are, however, various funds that have invested in climate change, and adaptation is part of that. Deutsche Bank was one of them, although that fund actually closed down, because it didn’t perform very well.
I think the truth is it’s been hard for big institutional banks to make money off climate change at a timescale that investors care about. Investors might want their money back after a year, say, but climate change happens over many years or decades. So one of the big problems is trying to get investors to have a long enough view to profiteer off this. It’s actually kind of a tricky thing.
The schemes I saw that were most directly focused on climate change often involved hedge funds, who can keep investors money for longer and take bigger bets. Or they involved crazy people.
The Netherlands, not so helpless as it seems. (Dennis Jarvis/Flickr)
BP: You did write about one subset of this, though — water markets. Explain how these could become a bigger deal over time if climate change does make water more scarce.
MF: The basic idea is that a lot of these hedge-fund managers who are dealing with water stocks argue that we eventually need to price water for what it actually costs. Because a lot of the waste of water comes from people who say, hey, water’s cheap, let’s spray it all over our lawns and so on.
And once that happens, water markets will become more common. There are already versions of this in the American West or in Australia or in Chile or in parts of China and Spain. The idea is that water rights are essentially divorced from property rights. You take a certain amount of water and treat it like a stock — where it can be traded and go to the highest bidder. And if you can exchange water rights like a piece of paper, you’ll be able to get it to where it needs to go most, at least according to the market.
So that’s the argument they’re making — that these water markets will necessarily grow, particularly if climate change makes water more valuable.
BP: You spent a lot of time in Australia, which already has some of the most liberalized water markets in the world. How are those working out?
MF: Yeah, I visited these water brokerages that would essentially trade water up and down the Murray-Darling River. And I came in pretty skeptical that water could be treated like any other commodity, to be honest. But it’s not really black and white.
You saw a couple things happen. There were, for instance, farmers who were going broke because they weren’t getting enough water to farm during a drought — they were able to sell off their water and get out of farming. So that worked out well for them. You also saw water go to those who could afford it and use it most valuably, although that was usually bigger, more corporate farms.
The other thing you saw was the Australian government enter these markets, buying water from farmers so that they can have enough water to keep the Murray Darling River actually flowing to the sea — or at least come close. They bought these environmental flows and they were able to keep the Murray-Darling River alive during that last drought in 2010. So a lot of people make the argument that these water markets are actually more effective for conservation.
But you also had a lot of people who argued that turning water into a commodity wasn’t in the long-term good of the country. That it’s not like other commodities. And there were a few little-noticed aspects of Australia I saw. The level of suicides by small farmers was notably high during the time I was there. And driving around there, you see more for-sale signs than you saw in America at the height of the financial crisis.
Drought in Australia (Tim Hume/Flickr)
BP: Now there’s also this global race to buy up farmland around the world that you document in the book. That seems connected to water.
MF: Yeah, you see big investment banks, big hedge funds — everyone is in on the land rush. Big American banks like Goldman Sachs, Gulf state governments, Chinese state-owned corporations. They’re buying up land in Brazil, Cambodia, Laos, eastern Russia, Ukraine, in addition to the places in Africa that everyone talks about.
And it’s absolutely connected to water. The thing about water is that you can’t move it around in ships very easily. The idea that you’re going to put freshwater from Alaska into a tanker and take it to India or California — the numbers just don’t work. But you can ship food. So essentially buying up farmland abroad is a way for companies and countries to trade virtual water by moving food around the globe.
In fact, one of the first papers written about climate investing was by a guy named Eric Sprott, a hedge fund manager and big on the Toronto scene. He wrote a paper in 2005 or 2006 about the impact of climate change on investing and noted that everyone always singled out water as the big thing. But it’s really hard to invest in water — most utilities are heavily regulated, so it’s hard to jack up the prices and make enormous returns.
So instead what they’ve done is buy up and create a large farm in Canada . The idea is that as the climate gets worse, the farming’s going to move up to Canada. So they’re positioning themselves. Some places are going to become worse for growing food, and others may get better.
BP: On that topic, though, one thing that struck me in the book is that it’s not always easy for people to just get up and move to the places that become more hospitable as the planet warms.
MF: Yeah, there is this idea that we’ll have these islands of refuge from climate change — but the flip side is that those outside the refuge will be fucked.
So a good example of this is the giant border fence around Bangladesh that India’s now building — it’s the longest border fence in the world. The fence wasn’t originally built because of climate change. It was built because there was already a lot of migration from Bangladesh into India. But if you talk to people in the defense establishment in Dehli or local activists and they’re saying climate change is going to drive up sea levels in Bangladesh and create all these refugees, and we’ve got to deal with them.
And it’s the same story in lots of places. There are papers talking about how migration from Latin America to the United States could increase because of climate change. There are all these reports from the EU, various think tanks, governments, saying that Europe should expect a lot more migration from sub-Saharan Africa — and there’s a corresponding push to seal off the borders.
I doubt that any country will be able to wall itself off entirely from the effects of climate change, but I think some will clearly do better than others. And I think we’ll respond the way we’ve always done is keep people out. Look at what happened to the Okies during the Dust Bowl — were people in California happy when they came out West?
BP: Oftentimes when you read about how we’ll deal with climate change, there’s this widespread notion that the world will have to cooperate in a variety of ways. We’ll have to work together to cut emissions and deal with the effects of rising temperatures. But as you found, that’s far from inevitable.
MF: Yeah, that was the main point of the book. People who are interested in climate change seem to assume that the way out is that everyone will work together. Rich countries will help the developing world, which is going to get hit hardest by climate change.
But adaptation isn’t necessarily going to be a let’s-all-work-together thing. Certainly the reaction to climate change that I saw, people weren’t always working together — they were working to save their own asses. And the idea that we’re all going to come together to deal with this is a huge assumption that isn’t much tested.
BP: Did you found counterexamples — places where people really did seem to be working together to deal with climate change?
MF: Yeah, I think one reason I didn’t come away totally hopeless from this whole project is that while I saw a lot of reliance on ways of thinking that lead to every person for themselves, you don’t really see pure selfish assholedom in this world.
I didn’t go out for things that were working well, but one example was the Great Green Wall in Africa. Despite a lack of money and the fact that the project may not actually work, you have thousands of kids and soldiers building this wall of trees to stop the Sahara from marching through Senegal. And it was pretty impressive — they were doing this together. I think I made clear in the book that I’m not sure the project will work out, no one thinks it will actually halt desertification, but you kind of wanted it to succeed as you saw it happening.
Interview transcript has been lightly edited for length and clarity.
http://www.msn.com/en-us/money/companies/meet-the-companies-that-are-trying-to-profit-from-global-warming/ar-AAdXi9k?li=AA4Zjn
Tags: buy farmland, Chinese state-owned corporations, climate change, desalination technology, Dutch Docklands, Dutch engineers, global warming, greenland, IDE, mining opportunities