After a (too) long hiatus, Climate + Money returns. The early 2020s, when this project began, seem a distant past. But risk and price and value and exposure have continued to give us data points on what the future holds. In this issue, we look at five simple charts. You should take an interest in that. And you should still subscribe, because it’s still FREE.

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WE ARE BACK! WHAT A DRY SPELL…

Welcome back. It’s great to see you again, still opening newsletters and showing interest in our changing climate.

We are in the midsts of a reset. Not just for this newsletter.

Wait, where did you go?

I continued to work on these questions, but with different hats — many of which blew away in the wind. That journey is best covered in a Washington Post profile piece, found here. I spent time helping on a few projects at the Harvard Center for Green Buildings and Cities. I went down rabbit holes and strange paths on climate-related population fragility and insurance deserts and other curiosities, and many of those insights now sit inside a data platform called Coastline. I also had a second child.

And now we’re here, in this moment of reflection.

Over the coming weeks, I will share a four-part series called ‘The Great Reset’ — it will attempt to sift through the doom, gloom, good news and better than good news, to give this audience a clearer picture.

MY WORLDVIEW: SAME SAME, BUT DIFFERENT

But first, I want to set out my priors, and within the bounds of impartiality, give my ‘take’.

Humanity has always done amazing things when energy has been low cost, widely available and reliable. Right now, we need a lot more energy.

Having abundant electrons that we can use to fuel economic growth and meet rising demand for energy in the United States — which is happening for the first time in decades — is a public good. In a perfect world, I would like those electrons to be generated through methods that don’t give pit miners black lung (coal), or release methane or produce toxic pipe leaks in our apartment buildings (natural gas), or make the scenery less visually appealing with huge spinning turbines (wind), or lead to plant failure risks (nuclear), or take up so much horizontal land with PV panel facilities that the land can’t be used for anything else (solar).

We are in a world of tradeoffs. No energy source is perfect. No energy source costs zero, or has a static, continuous supply chain. There are sensible conversations to be had about the better ones, and the right mix. It takes work and money to move electrons. No energy source is reliable and as of yet, able to meet all the scenarios we need electrons for, at the times we need it. There are legacy reasons for every choice made to this point.

We need more energy, and we need to decarbonise. The reality is the world does not have two eyes on decarbonisation. The pandemic, inflation and energy security have recast priorities. Certainty in the now trumps targets in the future.

I would still like to live in a 1.5C world, and that is now unlikely. When my father was born in 1946, there were 310.2 parts per million (ppm) of CO2 in the atmosphere. When I was born in 1983, it was 342.7ppm. Today? 427.5ppm.

Nonetheless, a narrative is gathering since the Trump Administration’s return to the White House, that net zero is now doomed, and our planet is going to be unliveable for our children, and there’s almost no point in ‘fighting’. Another way to say this?

Climate has been framed as a physical, scientific problem where there are hard limits: If we do not fully solve the problem and get to net zero emissions by some deadline, or if we don’t keep to 1.5 degrees, then we’re in a Marvel hero film where the good guys have failed.

I wholly, utterly reject this mindset. It ties victory (or defeat) to political cycles (which none of us control). It uses panic as a call to action. It doesn’t consider economic realities. It sets this challenge in a guilt and responsibility lens, as though there is a virtuous ‘climate action’ segment of our economy (aka “the good guys”) who would sacrifice higher energy bills for a faster, cleaner transition. There is absolutely no data to support this. In fact, climate coalitions fracture very fast when the cost of living outpaces wages.

Every degree of warming matters. We do need to decarbonise as fast as possible. But the last few years warrant introspection.

THE ANALOGY: A THREE-WAY HANDSHAKE

The best analogy I can muster? This challenge is like attempting a three person handshake between technology, society and politics.

There’s no clear way to do it.

1. Technology is interested in a base load of energy to execute and experiment with, so everything runs on time. It needs generation, transmission and storage systems that can manage the disruption of a heatwave or cold snap, and accommodate a big new change like AI data center demand. It’s also important to have diversity of source, and to manage the integration of new energy technologies as they become safe and scalable.

2. Society is interested in stability. People really, really don’t like change. But paradoxically, they want things to be improving.

3. Politics is interested in managing change, which is happening all the time, in increments. Politics by definition is about contesting ideas and setting up disagreement.

None of these three domains welcomes a growing fragility in the way our planet functions. Each needs the others. All need as much as stability as possible. So we are looking for, or have been looking for, positive change in increments.

A BATTLE OF THE FEEDBACK LOOPS

We’re in a race — a race between the feedback loops in the climate system and the feedback loops that we’ve been trying to cultivate politically, where we drive down the cost of clean technologies and build political will for a world that for most people, day-to-day, doesn’t feel that different or disrupted, but still avoids ever-rising emissions.

The way we’ve been talking about this race hasn’t worked.

I will say more on this over ‘The Great Reset’ series. But it’s important to think of all the occasions in the last half-decade where you or I have been so certain of a perspective, and been unable to convince someone. In debating, and life, it’s incumbent on the advocate to reflect when persuasion in one method doesn’t work.

So let’s together look at five charts, or data points, and ask how we’d talk about this challenge in a new way? What is the story we want to try and tell ourselves first? I’ve leant on the wonderful Nat Bullard to stimulate that discussion.

CHART 1: THE BAD NEWS IS STILL BAD

It’s not pleasant to contemplate, but we do need to remind ourselves occasionally in a world with so many distractions.

A good way to frame the rate of overall warming would be like this —

Earth is 4.6 billion years old. Let's scale that to 46 years. We have been here for 4 hours. Our industrial revolution began one minute ago.

In the single minute we’ve been burning fossil fuels to build a modern, globally connected world, we’ve pushed through the 1.5C threshold scientists always hoped we would avoid.

This happened in 2024, and is obviously not good. For those who wish to totally abandon the path to decarbonisation and generate energy however we wish simply on lowest present day cost, this grim fact is worth remembering.

CHART 2: WIND AND SOLAR’S RISE IS REMARKABLE

Don’t be scared by the metrics. The world is so much easier to understand with a little literacy on this. Let’s do it together.

Power measurements like kW, MW, GW, and TW can be confusing. The best way to make them relatable is to connect them to everyday objects and scenarios. The key is that these are all measures of power, which is the rate at which energy is used or produced. They all have scales that once you remember, become intuitive.

(Kilowatt, kW): A typical household — The total power consumption of an average American home at any given moment is usually 1 to 2 kW. This would cover lights, a refrigerator, and a few small electronics running at the same time.

(Megawatt, MW): A large building — A large commercial building, like a hospital or a university campus, might have a peak power demand of 1 MW.

(Gigawatt, GW): A city's power — The city of San Francisco has a peak power demand of approximately 1 GW.

(Terawatt, TW): A large country — The total instantaneous power demand of a large industrialized country, like the United States, is in the range of 1 TW.

NOW, WE ADD THE TIME THE ENERGY IS BEING SUPPLIED. . .

The simplest way to explain kilowatt-hours (kWh), megawatt-hours (MWh), and gigawatt-hours (GWh) is to connect them to the power units (kW, MW, GW) you're already familiar with, but with the added dimension of time. The key to this is a simple formula:

Energy (kWh) = Power (kW) × Time (hours).

Kilowatt-hour (kWh)

A kilowatt-hour is a thousand watt-hours. This is the unit you'll see on your monthly electricity bill.

• Energy of an appliance: A 1 kW microwave running for one hour uses 1 kWh of energy. In the U.S., the average cost of electricity is about $0.17 per kWh. So, running that microwave for an hour costs you around 17 cents.

Megawatt-hour (MWh)

A megawatt-hour is a million watt-hours (or 1,000 kWh).

• Energy for a hospital: A very small town or a large corporate campus might use 1 MWh of energy in a single hour.

Gigawatt-hour (GWh)

A gigawatt-hour is a billion watt-hours (or 1,000 MWh).

• Energy for a city: The city of San Francisco consumes about 4.1 GWh of energy in a single day.

And as for terawatt hours (TWh)? The US consumes 4,000 TWh of electricity each year. So here’s the good news, now something like a TWh has context: we’re living in an age where new, clean generation sources are becoming competitive at a scale no other source in human history could’ve dreamt of.

Some numbers to stress this success story:

• Solar and wind comprised 17% of US electricity in 2024, surpassing coal (15%) for the first time (link)

• The U.S. added nearly 50 GW of solar capacity in 2024 (that’s fifty San Francisco’s of peak power demand) (link)

• Wind added 2.1 GW to the US grid in Q1 2025, despite the changing political winds (link)

Policy uncertainty matters in the short term, but clean tech has unit economics that will continue to chalk up large gains.

CHART 3: COAL OUT, GAS IN IS NOT A BAD DEAL

The below chart shows the holistic US energy in Btu since (roughly) the end of WWII.

Notice something about the shape of gas and coal’s movement on the chart since the beginning of the Obama Administration, circa 2008-2009? They’re practically inverted. Natural gas began rapidly displacing coal in the U.S. electricity mix. Why? A few reasons.

This was the gun going off on the fracking revolution. U.S. natural gas prices plunged from $8–10/MMBtu in 2008 to $2–3/MMBtu by 2012, undercutting coal on cost for power generation. BUT: that’s not the whole story. Combined-cycle gas turbine (CCGT) plants became cheaper, faster to build, and more efficient (thermal efficiency rose above 60%). Ageing coal fleets faced (timely) retirements. U.S. power sector emissions fell ~28% from 2005 to 2018, with ~50% of that reduction attributed to coal-to-gas switching, and the rest to renewables and efficiency.

There was, and is still is, a big caveat. Natural gas burns cleaner (about ~50–60% less CO₂ per Btu than coal), but methane leakage (2–3%+ of production) offsets part of the benefit. Methane is ~80× more potent than CO₂ over 20 years. It’s bad, bad, bad and why we can’t speak of natural gas as a long term solution for everything (more on this in future issues). Part of the mix, yes. But not at the expense of renewables with a credible storage plan. But in short, coal is on the way out.

CHART 4: THE DEVELOPING WORLD HAS EVERY CHANCE TO CHERRY-PICK THE BEST OPTIONS

What about the developing world? It has myriad challenges. But to reach the solar penetration levels seen in the chart below, it took wealthy nations many more years (often decades).

It depends on the stats you wish to pick. From the first commercial PV systems (late 1970s) to 10% grid share in leading OECD nations, this took ~40–50 years. It has taken the countries above barely 10 years. How? They jumped straight to off-grid and distributed systems.

CHART 5: THE BATTERIES ARE COMING

The great (and fair) criticism on renewables has always been their intermittent nature. Battery storage is necessary for renewable generation to credibly solve for a much larger part of base load power, and the electricity mix overall. Some other good news is batteries are coming, in a big way.

• U.S. battery storage capacity surged 66% in 2024 alone, with 10.3–12.3 GW added last year, pushing cumulative utility-scale capacity past 26 GW—up from just 0.059 GW in 2010. In effect, there was no battery capability fifteen years ago: now it’s 26 San Franciscos (link)

• The U.S. is on pace to add 18–19.6 GW of utility-scale battery storage in 2025—a potential new annual record (link)

• Outside the US, there is also positive news. Global grid-scale storage jumped from just 3 GW in 2018 to 56 GW (~200 GWhrs) by end-2023

SHOULD THIS ALL MAKE ME FEEL BETTER?

Honestly, it should.

The energy transformation is on the cusp of reaccelerating. Nuclear and renewable energy are likely to continue to expand rapidly in the years to come. Fossil fuels, however, will also expand — just more slowly — as natural gas replaces oil and coal fades. Climate concerns, however, will not be the main driver. We all need to adjust to this new landscape. Energy transformation will be driven by the quest for security, with nations creating a diversified energy mix to insulate themselves (and investment portfolios) from geopolitical, macro, and financial risks.

As I will explore in the ‘Great Reset’ series in the coming issues, there’s plenty of new considerations. But we shouldn’t lose sight of the good news in most of these charts. Sometimes to win at the battle of persuasion, we need to persuade ourselves that there is cause for hope in the first place.

Thanks for continuing to read this, and asking interesting questions that over time, are hopefully the right ones.

Optimistically,

Owen C. Woolcock

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The $369 billion climate and tax bill from Sen. Joe Manchin and Senate Majority Leader Chuck Schumer caught everyone by surprise. The fact many climate watchers expected a major piece of policy to be a pipe dream in this Presidential term now means the investment community is scrambling to pore over the bill and its implications. This issue dives into some of those questions.

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I DON’T FOLLOW U.S. POLITICS, WHAT JUST HAPPENED?

If you don’t follow American politics — either for health reasons or because you live far, far away — there’s been a big development in the world of climate policy.

In a late July surprise, Senate Majority leader Chuck Schumer (D-New York) and pivotal swing vote Joe Manchin (D-West Virginia) came together to announce the Inflation Reduction Act (IRA). It’s a big piece of work touching on many areas of American life from healthcare to tax, but we’re focusing on climate. Overall, the bill will make clean energy cheaper and build up the capacity of industries in the U.S. and its allies across multiple sectors of the economy — including power, transportation, heavy industry and buildings. But we’re talking about sectors that run into the billions and trillions, so the devil is in the detail.

IS THIS BILL A BIG DEAL?

I’ve been asked this a number of times already, especially when many wise and respected climate voices on cable news and social media are lamenting the paltry size of this bill, relative to say 5% of the annual U.S national security budget.

My answer: yes, the bill’s a big deal. We won’t likely know for a decade how much it stimulated. Firstly, the numbers from an emissions perspective. The excellent team led by Jesse Jenkins over at the REPEAT project have modelled the reduction in record time. If you squint and look at the purple and green lines below, you’ll see this isn’t far off what the Biden Administration wanted in the very beginning:

WHAT IS THE BILL DOING?

In a 700-page piece of legislation that many who even voted for it don’t read, it helps to distil the effects of this bill down to a single, coherent idea:

This legislation makes clean energy cheap.

What do I mean by this? It subsidises through grants, rebates, tax credits, loan programmes, loan guarantees, and most importantly a really robust package of tax incentives that touch every major emitting sector of the economy.

The IRA effectively reduces the excuses for any business leader, household or other private entity to consider the cleanest possible energy for their needs, because honestly, it’s going to be cheaper than fossil fuel alternatives and better economic sense.

What hasn’t been modelled in a lot of the recent report releases is the extent to which this bill is likely to spur regulatory agencies, and state and local governments to expand their ambitions and emissions reduction targets. Cities or companies who had a 35% emissions reduction by 2030 will now find a 50% or greater reduction achievable just through the amount of clean energy coming into the system. This is the big unknown, in a good way.

TAX SECTION: PLEASE BE PATIENT...

Many of the tax code provisions also provide two credit values: a lower base credit and a bonus rate. The bonus rate is equal to five times the base amount, and is available only when requirements related to prevailing wage and apprenticeship are met.

What is this legal-speak for? Good paying American jobs, onshore and in clean energy. There is now a big tax incentive to generate a clean energy economy domestically.

The other key area is in the tax treatment of energy generation. Until now, two schemes did the bulk of the heavy lifting for anyone wanting to invest in a solar or wind farm: the Production Tax Credit (PTC), and Investment Tax Credit (ITC).

The PTC and ITC will transition to technology-neutral in 2025.

Why is this a big deal?

The tax regime is no longer interested in (indirectly) picking technology winners. Whatever the energy generation, transmission or storage method, there’ll be tax relief on offer.

Even if you’re still in the solar or wind business, there’s tax credits falling out of Santa’s red sack. There’s credits if you build in a low-income community. There’s credits if you build in a region coming out of redundant fossil-fuel economies (i.e. coal or oil towns). There’s credits if materials for the wind turbines or solar arrays are made on American soil. AND if you build in a low income, legacy coal community with U.S. made steel, concrete and aluminium, and a majority of the manufactured parts are domestic, and you pay solid middle class wages to the workforce, the credits pile up in the double digits to create a highly lucrative project.

OK, THIS MAKING STUFF IN AMERICA THING IS INTERESTING..

It really is, and will add up fast. The IRA will also create a new production credit through to 2032 for the production of components related to clean energy such as solar photovoltaic (PV) cells, wind energy components and battery cells.

You’re going to hear a lot more about America making stuff again. Similar credit tables exist for carbon sequestration, clean hydrogen, sustainable aviation fuel, biodiesel, buildings, new vehicles, the list goes on. Each of these categories could be a newsletter in its own right (some are in the works), but for now a helpful explainer can be found here if you are interested in each provision.

I’M THINKING OF BUYING AN EV (OR OWN EV STOCKS), WHAT DOES THIS BILL DO?

Until now, a $7,500 tax credit for the purchase of a new electric vehicle (or plug-in hybrid with a large enough battery) was on offer, if you were in the first 200,000 vehicles the manufacturer made. Tesla had blown through the cap. Ford had as well. Nissan, Hyundai and GM were getting close. The current policy was that’s it. This bill now introduces two credits for new EVs, totalling up to $7,500 per car. A new electric vehicle can qualify for a credit of $3,750, provided it meets certain conditions: its final assembly must take place in North America; it must cost under $55,000 ($80,000 for pickups or SUVs); and buyers must have annual income of less than $150,000 (more if they are married or heads of household). The market will move to accommodate these changes in quick time, no doubt.

But let’s consider business vehicles. A purchase of an electric or fuel cell vehicle creates a 30% investment tax credit by any business. If you are Amazon, and thinking about electrifying your delivery fleet, or if you’re Enterprise or Avis and buying your hire car fleet, electric just got a whole lot cheaper. For all of us that means driving a lot more EVs in rental contexts, and that means us all getting much more comfortable with the experience as we go to buy them ourselves in future purchase cycles.

COULD THIS BILL BE DERAILED?

Because the IRA has a decade-long timespan, the risk remains that changes in administration could slow climate investment. Still, since this is a congressional act—not an executive order—it will require legislative or judicial action to undo, thus making it harder to reverse. In addition, courts will likely be less sympathetic to any claims that federal rule-making pursuant to the bill violates the major questions doctrine recently articulated by the Supreme Court in West Virginia v. Environmental Protection Agency (EPA), and covered in a recent newsletter.

In short: it’s possible but undoing initiatives like a $27 billion green bank is difficult when the business community will want the certainty of its continuation. I suspect a lot of the package is here for good.

OK BUT I’M AN INVESTOR, WHAT DOES ALL MEAN FOR ME?

A retail or even sophisticated investor should start with a question for every firm, every stock, every supply chain and business model going around —

To what extent does the firm need to decarbonise (relative to the rest of the economy), and what will they need to spend to do this?

Then they should be asking the following questions:

• The IRA drives a lot of investment in supply chains. If I pull out a map of the country, where is this likely to benefit?

• Where have coal mines and coal plants closed in the last ten years? Does any legacy infrastructure exist for a natural transition to new types of technologies?

• What is the topography of each market? Solar, wind, next generation nuclear isn’t always easy to build on a mountain side. Transmission routing also isn’t easy over hard to access terrain.

• What states is it easy to build? What are the permitting timelines?

• If the best projects will be developed close to the existing energy grid, where does that favour?

• Which firms had energy transition plans already in place that could now see unforeseen returns?

• Which firms make big announcements in the coming months on a large carbon capture initiative or plant refurbishment? Hint: they likely had a borderline investment case that has now been pushed over the edge with the credits on offer.

• Which firms have a transport component that can benefit from cheaper EVs? Which firms can’t benefit because of immovable constraints?

Bottom line: if you’re in a bar tonight trying to explain to someone what the IRA is going to achieve in climate policy, I would say this:

The IRA establishes financial incentives across the economy, so that it now makes good business sense for firms to invest at the pace and scale of clean energy deployment needed. In other words, there’s a lot of money to be made by hitting the 2030 and 2050 emissions reduction targets.

There’s other work than needs to be done, and Biden’s 50% emission reduction by 2030 pledge has not been met, but in light of world events, and the politics of the day, it’s a big step forward and grounds for plenty of.. optimism.

Optimistically,

Owen C. Woolcock

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3 Questions I Am Asking Myself This Week

1. 40cm..!

2. Though not covered in this issue, methane is worth watching:

3. Deciding on an old ICE car or EV for your next family vehicle purchase? Consider the facts in this excellent graphic from the team at Yale Climate Connections:

If You Read Or Listen To One Thing This Week

The REPEAT Project’s excellent overview of the bill modelling is well worth a look.

In a world with plenty other news stories, it might’ve been missed that Italy’s northern agricultural bedrock is experiencing its worst drought conditions in two decades, and the lowest river flows in 70 years. If you like prosciutto, it’s an important story. If the connection between weather, debt, inflation and creditworthiness interests you, it’s an important story.

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IT ALL STARTS (AND ENDS) WITH WATER

It’s no surprise that water is pivotal to just about everything we do. If you live in the Western United States, you are likely showering in and drinking water that originated from snow, as snowmelt makes up around 75% of the region’s water supply. In many parts of Europe, the story is no different.

What we’ve known for some time is this: as rainfall patterns, evaporation, snowmelt timing, and other factors change, renewable freshwater supply is affected. Some parts of the world like South Africa and Australia are expected to see a decrease in water supply, while other areas, including Ethiopia and parts of South America, are projected to experience an increase. Certain regions, for example, parts of the Mediterranean and parts of the United States and Mexico, are projected to see a decrease in mean annual surface water supply of more than 70% by 2050. Such a large decline in water supply does two things: (i) it exacerbates chronic water stress; and (ii) it increases competition for resources across sectors.

A Plain English way of saying the above is every person, company and industry thinks their case for water use in a time of shortage is greater than many others.

An illustration of this competition is the grim season facing northern Italy — one of the most concentrated regions of culinary wonder in the world, and home to the origins of pesto, risotto, focaccia, parmesan cheese, prosciutto, bologna (known as mortadella in Italy), Lambrusco and balsamic vinegar, to name just a few. Meagre winter snowfall in the Alps, which has affected the flow of water from the mountains into northern Italy, and more than six months with almost no rain since, has left many producers on the brink of failure.

The crisis is the latest setback for Italy’s struggling economy and exacerbates already mounting inflationary pressure as the country deals with the impact of Russia’s war in Ukraine. Italy is Europe’s largest rice producer, growing specialised varieties, mainly in Piedmont and Lombardy at the foot of the Alps using a system of irrigation channels that funnel water down from the mountains. Northern Italy’s Po river valley generates about 14% of Italy’s agricultural output, much of it from the livestock that produces the country’s famed hams and cheeses. Yet the shortage of rain means parts of the river have dried up completely.

According to a warning issued in March by the EU Global Drought Observatory, Italy’s reservoir levels were the lowest since 1970. Water in the picturesque northern lakes Como and Maggiore, which are typically fed by Alpine snowmelt, is also a fraction of normal levels, at 26% and 12.4% respectively. The level in Maggiore is the lowest since the 1940s. 

Italian farmers are counting the costs. Coldiretti, Italy’s national farmers’ confederation, estimates that the shortage of water has already caused €3 billion worth of damage, with cereals such as rice, maize and durum wheat, used in pasta, particularly hard hit (NB: don’t be shocked if the nice pasta in your local shop sees a price hike). Animals are suffering from heat stress, with dairy cattle in areas experiencing unusual high temperatures producing significantly less milk. The growers’ association estimated that a third of the country’s agriculture output is at risk.

“We have about 30% less production of milk and about 30-40% per cent less of cereals and maize,” said Fabio Bonaccorso, a Coldiretti spokesman. He warned that Italian farmers would be forced to import the maize to feed livestock, adding to pressure on an already tight global market that is struggling to cope with the disruption to Ukraine’s grain and cereal exports caused by the war. “If you haven’t got enough maize, you have to pay to buy crops from abroad, because you have to feed the livestock,” he said. “Without feed, you cannot produce milk. It’s a chain.”

In the farmer’s own words, the supply chains from water disruption tally up fast.

Why does this matter for us? Because we as the consumer wear it. Inflation in the retail price of the goods that do reach our shelves is the natural result of fewer quality Italian goods reaching the market.

THEN THERE’S THE HYDRO…

The drought also threatens the country’s hydropower generating capacity as well as its agricultural output. Hydropower facilities, mostly located in the mountains in the country's north, provide almost one fifth of Italy's energy demands. An industry source told the AFP that while the situation was constantly changing, estimates for the first six months of 2022 suggest nationwide hydroelectric generation will be almost half the equivalent period of 2021. When each European nation is trying to wean itself off Russian gas reliance, this drought couldn’t be less timely.

WHAT IS IT LIKE TO LIVE WITH LESS WATER?

The funny thing about a generation exposed to water restrictions in childhood is you come to know no different. In Western Australia and my home town of Perth, water restrictions were as common as sunrise and sunset. Dwindling rains have decreased runoff into Perth’s reservoirs by 91% since the 1970s, forcing an increased reliance on groundwater. Australia’s aquifers have been drained at unsustainable rates for decades, but Perth is now actively replenishing them by pumping a portion of its treated wastewater into shallow aquifers that naturally filter and store the water until it is needed again. This process of augmenting freshwater supplies with treated wastewater, called Indirect Potable Reuse, is about the only chance urban water supplies have to manage ongoing needs in fickle rainfall years.

For all our wastefulness in many parts of the environment, Australia is pretty good by global standards at using less water. Many products are rated and labelled for water efficiency, with homes increasingly adopting water-saving features from shower heads that regulate flow to dishwashers that use just 12 litres of water per load, a mere 10% of traditional rinsing and washing. The power of water-conscious regulators shows that if a product isn’t conservative enough, it doesn’t get into the country to be sold. More than a quarter of Australian homes collect and store rainwater for domestic use, contributing around 177 billion litres to residential water supplies.

Why did all this happen? Because the problem became real. Adaptation was necessary.

In Italy, it’s a different story — with an abundant snowmelt system from the Alps that farmers and politicians never thought would run dry. Last Friday, the northern region of Lombardy called a state of emergency due to the drought, and recommended, among other measures, a halt to non-essential water use, such as street washing, watering parks, playing fields and playgrounds. Barbers have even been prevented from washing a client’s hair twice in parts of Bologna.

Prime minister Mario Draghi’s government has declared a state of emergency across five regions including Lombardy, with an initial allocation of a total of €36.5m in aid for the most affected areas.

What does every drought or climate change aid package do to a national balance deficit? It adds to the amount needed to borrow, and that affects the cost of debt in the long run. €36.5m is a small number for now but this is probably something we don’t discuss enough.

Sadly this isn’t a story unique to Italy. Climate modelling shows the share of irrigation water supply from snowmelt decreases in almost all snowmelt-dependent areas:

• 33% down to 18% in the San Joaquin Basin in California, USA;

• 29% down to 9% in the Po Basin in northern Italy.

Other areas strongly affected by such changes are the Rhône Valley basin in Switzerland and France, and the Ebro basin in Spain. In other words, each of Europe’s traditional food basins will be adjusting to a new reality. If water systems that cross regional and national borders feels too esoteric, consider this:

By 2050, the climate in the French port city of Marseille could more closely resemble that of Algiers today.

In other words, much of the southern Mediterranean will soon feel like North Africa. It is hard to imagine the food produced in these areas continuing to be so abundant without serious agricultural innovation.

WHAT ARE THE LESSONS FROM ITALY?

If the news of Italy’s drought has made you feel a little despondent, and the thought of even more expensive prosciutto and parmesan cheese doesn’t fill you with joy, let’s take the opportunity of Italy’s woes to practice a different type of mental modelling. What do I mean by this? It’s worth investors and consumers reflecting on the following:

• The mind wants to hear disruptive news on something like a drought and place it in a sequence of events, almost like a Newton’s Cradle.

• We desperately want to link action and response sequentially because it’s the simplest way for our brain to absorb detail and think analytically.

• Climate change doesn’t really allow for this.

• We’ve seen from this example alone that reduced snowmelt and drought conditions are almost symbiotic, and affect irrigation infrastructure, and hydroelectric power, and livestock milk production, and produce ingredients, and water consumption allowances in non-correlated industries, and inflation in the broader economy — both inside Italy and overseas in the markets where Italian made food carries such a premium (and is difficult to substitute).

• What’s a better visual analogy?

• Even this doesn’t encompass the circuitous, multi-time scale nature of the challenge.

In other words, thinking about climate disruption asks us to think differently, almost like a game of chess with implications in every direction.

ONE LAST THOUGHT EXPERIMENT…

Suppose you are the owner of a rare bottle of Piedmont or Lombardy wine.

Then consider that areas known for the quality of their wine grapes risk losing their prominence on the viticulture map, while nontraditional growing regions may gain advantage.

What happens to the value of a famous wine from a changing region? Does it develop greater scarcity, or does it come to be seen as part of a dying history? How would you frame the investment if you owned one bottle? How would you frame it if you owned a hundred bottles?

It’s these types of questions that we benefit from asking earlier, and often. We should have some faith in the capacity of historic food regions of the world to get creative when faced with an existential crisis; but we also can’t be naive to the scale of disruption coming. One drought is difficult enough for northern Italy’s farmers, but by 2050, drought conditions are expected to prevail for at least six months of every year in many parts of the Mediterranean. Asking how that transition unfolds, for whom and on what timescale, is just as important as the adapting.

Optimistically,

Owen C. Woolcock

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3 Questions I Am Asking Myself This Week

1. How do European cities find a way to stay cool when heat waves will be increasingly normal?

2. No sooner had I finished this draft, did the New York Times publish a digital story on the very same topic:

3. Did you suffer damage from a hurricane or flood in the past few years? The NYT is trying to tally up the real experience of repairs and costs. Take the chance to participate if you’re eligible:

If You Read Or Listen To One Thing This Week

Shamelessly, a webinar involving yours truly! And a deep dive on the mental model employed in our day job at Climate Core Capital.

In an enormous two weeks of judgments in the U.S Supreme Court, a 6-3 conservative majority ruled the EPA did not have the authority to regulate power plant emissions in the way they hoped. It’s both a very big deal and not all bad because the judgment stopped short of more sweeping action, and so much action on air quality and emissions reductions are actually taken at the local/city level. Understanding this decision is important for thinking about how hard it will be to see coordinated action in the U.S. for the foreseeable future, but also why this leaves investors and consumers with windows of opportunity if they understand existing trends.

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WHAT IS THE KEY HISTORY LEADING UP TO THIS CASE?

The Clean Air Act, which some legal experts call the most powerful environmental law in the world, was enacted in 1970, at the birth of the environmental movement. Since then it has been the source of scores of landmark regulations on air pollution, including soot, smog, mercury and the toxic chemicals that cause acid rain.

The Clean Air Act does not explicitly direct the EPA to regulate carbon dioxide — rather, it more broadly asks the agency to regulate pollutants that “endanger human health.” In 2007, the Supreme Court ordered the EPA to determine whether carbon dioxide fit that description, and in 2009, the agency concluded that it did.

As recently as 2009, the Clean Air Act was generally not viewed by climate policy advocates as a great tool for greenhouse gas regulation; it was a fallback and politically tradable for getting bipartisan Congressional action on climate. The late 2000s feels like a foreign country in many ways, but to refresh: actors such as Sens. John Kerry (D-MA) and Lindsey Graham (R-SC) worked on bipartisan cap and trade bills that never succeeded.

Other 2000s-era proposals included Sen. John McCain (R-AZ), who sponsored multiple global warming pollution reduction bills and advocated significant reductions during his 2008 presidential campaign. Sen. Olympia Snowe (R-ME) also co-sponsored global warming bills in previous Congresses. And in 2006, Sen. Sam Brownback (R-KS) said: “It seems to me just prudent that we recognise we have climate increase and temperature change. We have CO2 loading and we need to reduce the amount of CO2 in the atmosphere.” None of these senators publicly supported action or engaged in serious negotiations with key climate legislation crafters Sens. Kerry, Lieberman, or Graham in 2010. (NB: This history will be important to understand when we reach one of the judgment’s main points).

Unfortunately, there was not a 60-vote supermajority for climate action in the Senate in 2010, a time when the Democratic majority including a substantial number of members from fossil fuel extraction states. In 2010, House Democrats from states like Louisiana, North Dakota, Nebraska approached the Obama White House and recommended they shelve their signature climate change legislation plans. Where are many of those House members today? Defeated anyway, or gerrymandered out of contention as America’s red and blue states have become ever more polarised at the local level.

Obviously, as far as legislative numbers go, we are in no better situation today.

For context, the first Clean Air Act, Clean Water Act, Endangered Species Act, and Resource Conservation and Recovery Act (hazardous waste disposal) were all enacted when unemployment was 6 percent or lower. Another way to say this: it’s historically been hard to pass environmental legislation when the economy is a greater priority for legislators and voters.

President Obama, after unsuccessfully trying to enact a climate change law through Congress, turned to the Clean Air Act, using it to release major regulations on vehicle and power plant pollution. The controversial rules were intended to transform the nation’s economy — shifting Americans from gasoline-powered cars to electric vehicles and from coal and gas-fired power plants to wind and solar-powered electricity.

The Clean Power Plan, announced by Obama in August 2015, set the first-ever limits on carbon pollution from U.S. power plants. The Supreme Court then stayed the implementation of the Clean Power Plan in 2016 (NB: This was a radical decision by almost any measurement, it simply didn’t let the law proceed and there was no precedent for doing this when it was under review in lower courts). The Trump Administration then rolled back the Clean Power Plan, which meant the Supreme Court really had to backflip in a few different ways to even hear a case for a programme that wasn’t even in existence.

WHAT IS THE DECISION FOR A NON-LAWYER?

On Thursday morning, Chief Justice Roberts led the conservative judges in a 6-3 ruling, which effectively focused on Section. 111 of the Clean Air Act, and stated the following:

• The EPA does not have the authority to adopt what are called ‘generation shifting’ rules under this Section. 111 provision, which are rules that would require power plants to use methods of producing energy other than coal, in order to reduce its emissions below the level set by the EPA

• The EPA is not prohibited from regulating other kinds of greenhouse gases

• Broader problems with the Clean Air Act were not found

• Broader problems with the EPA were not found

• Broader problems with the regulatory process at large were not found

IN THE LAST 24 HOURS I’VE JUST LEARNED ABOUT THE “MAJOR DECISIONS DOCTRINE”, WHAT DOES THIS MEAN?

The Court based its decision largely on a relatively new idea, with next to no precedent in the history of the Court before this century. It began from a case known as FDA v. Brown & Williamson Tobacco Corp, where the Food and Drug Administration claimed that its authority over “drugs” and “devices” included the power to regulate, and even ban, tobacco products. The Court said on that occasion they felt the FDA didn’t have the authority to leap into a multi-billion industry, not directly connected to drugs and devices, and begin sweeping reforms (that would ultimately lead to its permanent hobbling). At the end of their opinion, the majority included a small section effectively saying they didn’t believe the statutory analysis gave the agency the right to do something so economically or politically significant. And this, in only the year 2000, is where the ‘major decisions doctrine’ had its first seed planted.

In plain English, it’s saying if a Federal agency wants to do something related to an area of major economic and political significance (i.e. something contentious), there’d better be clear direction from Congress this was intended.

Congress does not usually grant agencies the authority to decide significant issues on which they have no particular expertise. So when there is a mismatch between the agency’s usual portfolio and a given assertion of power, courts have reason to question whether Congress intended a delegation to go so far. This new doctrine argues that when power is given to a Federal agency, Congress must be very specific if it relates to a “major decision”.

Bluntly, it's a legal theory that conservative judges have used with increasing rigour to place special obstacles on important regulatory initiatives, and because it’s ambiguous what a ‘major decision’ might be, it hasn’t appeared in a clear decision until very recently. The Court has determined the EPA’s regulation of greenhouse gases fits this description, and so it expects Congress to be explicit in the future.

A counterargument is well put by Justice Kagan in her dissension:

“Over time, the administrative delegations Congress has made have helped to build a modern Nation. Congress wanted fewer workers killed in industrial accidents. It wanted to prevent plane crashes, and reduce the deadliness of car wrecks. It wanted to ensure that consumer products didn’t catch fire. It wanted to stop the routine adulteration of food and improve the safety and efficacy of medications. And it wanted cleaner air and water. If an American could go back in time, she might be astonished by how much progress has occurred in all those areas. It didn’t happen through legislation alone. It happened because Congress gave broad-ranging powers to administrative agencies, and those agencies then filled in—rule by rule by rule—Congress’s policy outlines.

This Court has historically known enough not to get in the way.”

IS THIS DECISION THE END OF THE WORLD?

Honestly, no. I have great respect for many observers who have given takes I simply wouldn’t agree with at all:

To restate, this decision was not the cataclysmic piece of judicial activism many feared. The EPA is free to keep regulating greenhouse emissions, and the rest of the Clean Air Act received no mention.

This newsletter enjoys an audience of both conservative and liberal readers on these shores, and in the spirit of hearing multiple perspectives —

A conservative worldview would be right to say any of the following:

• The conservative members of the Supreme Court are educated people, and likely no less concerned about climate change than the vast majority of the population. They simply approach this problem like many others with scepticism the administrative state is as efficient as the liberal parts of America would like to believe

• Chief Justice Roberts in his opinion writes, in response to Kagan’s dissent: “In reaching its judgment, the Court hardly professes to “appoin[t] itself” “the decision-maker on climate policy.” This is in part, true: if they truly wanted to be activist they could’ve ruled the Clean Air Act had no place in regulating carbon, and thrown down the gauntlet to Congress to pass new legislation dedicated to this issue.

• Chief Justice Roberts also wrote: “[T]he Court acknowledges only that, under our Constitution, the people’s elected representatives in Congress are the decision makers here—and they have not clearly granted the agency the authority it claims for itself.”

The first sentence of this last point is infuriatingly true. Congress simply doesn’t do enough. Democrats and moderate Republicans who see the value in clearer, more sweeping climate legislation fail to make the case in the public arena, and for this reason imperfect but worthwhile legislation has stalled for two decades. The frustration you see across social media at this decision is partly driven by the present cultural frustrations with the Court and its composition, but also (if we’re honest) government as a whole for not leading as it should.

A liberal worldview would also be right with the following rebuttals:

• The truth is we don’t know what a 6-3 majority court will say on greenhouse gases until another case is brought forward. Chief Justice Roberts writing a lead judgment has shielded the other conservatives from showing their colours, and so we are left to wonder what kind of (more hawkish, anti-regulation) 5-4 decisions might arise in the future. The majority decision does not have the intellectual rigour and textual commitment of the Kagan dissent (it would be hard for a legal scholar to say otherwise), and so concern on future decisions is not baseless.

• There is a large problem at the heart of a conservative court seeking to roll back regulations and limit the actions of the administrative state with something like the major decisions doctrine. Industry actually hates it when regulations are uncertain. The nature of energy infrastructure means firms need clarity in multi-year and multi-decade capex timelines. Want evidence of this? Virtually the entire power industry sided with the EPA in this case! When governments set 2030 and 2040 targets, even when industry is opposed to the aggressive nature of them, they appreciate the roadmap. If a judge now invokes a major decisions doctrine and a subsidy, grant scheme, transition directive or pollution cap is held up in the courts for years, it’s bad for consumers and investors.

WHERE TO FROM HERE?

As ever, Climate and Money sees positive news on a few fronts.

• Coal (and increasingly gas) power plants can’t compete with renewable energy and Supreme Court decisions won't change that. This Energy Innovation Report found 80% of U.S. coal plants are already more expensive to run than replacement with local renewables

• Utilities keep announcing coal retirements (or are being driven into bankruptcy by hanging onto coal) — GA Power, Duke, AES, to name a few. None of those decisions were driven by greenhouse gas regulations, there is a cost reality to the overall investment cycle of renewables that is proving increasingly compelling

• Whenever we burn fossil fuels in power plants (or anywhere else) it creates dangerous air & water pollution like mercury, lead, arsenic, smog. Breathing deadly air is politically unpopular everywhere. This decision leaves that squarely within the EPA's authority, and they'll keep tackling that pollution, much of which leads to ancillary steps that address/close down the fossil fuel supply chain

• States, counties and cities keep locking in renewable energy mandates — 1 in 3 Americans live in a place committed to 100% clean energy, and in just the past year states including MD, CT, and RI have joined the list of those with strong net-zero laws on the books.

The last point is especially instructive. Just like the world cannot fix climate change in one coordinated act, the U.S. is no different. American public policy’s role in decarbonisation is much like the rest of the federal experiment: laws, directives, targets and deadlines across different cities and states produce many results.

And what is the ultimate result? College educated talent and capital flows to cities with the best air quality, the cleanest rivers and lakes (or at least plans to keep cleaning them), the widest range of transport options, the biggest commitments to accessible green space, and the most liveable features of a sustainable place. Look at any liveable cities table and you’ll find the top places started building sustainability elements into their laws a long time ago. Were I an investor, I’d keep following that trend.

The Supreme Court’s decision this week placed a handbrake on the EPA’s effort in one domain, but the velocity of change, and the early mover advantage enjoyed by cities and jurisdictions that are pressing on regardless, is irrefutable. Given this is the free market and creative local government at work in countless urban experiments, the Court can do little to slow this.

Optimistically,

Owen C. Woolcock

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3 Questions I Am Asking Myself This Week

1. A caveat on my own writing above.

2. The Supreme Court judgment in full.

3. A different perspective on another topic? Interesting.

If You Read Or Listen To One Thing This Week

An excellent podcast with a man who it’s impossible not to learn from, Spencer Glendon and Probable Futures.

If you’re under 35, there’s a good chance you can make a career pivot to one of the many in-demand climate change occupations the world needs between now and 2050. If you’ve a child under 18, they’ll be entering a working world unrecognisable from the one we see today. Three jobs examined in this issue would’ve been barely imaginable when I left high school twenty years ago. The important features to focus on are: market sizing, hierarchy and skills.

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THE GOSPEL ACCORDING TO PETER (PART. 1)

Here’s a number that might surprise you.

In the United States alone there are almost one million charities, receiving a total of approximately $200 billion a year with an additional $100 billion donated to religious congregations. A very small number of the charities are outright frauds, but a much bigger problem is that very few of them are sufficiently transparent to allow donors to judge whether they are really doing good. There are also few charities that score job satisfaction numbers better than the average workforce pool.

Leading Princeton ethicist Peter Singer began his 2015 work The Most Good You Can Do with a powerful, contrarian idea: if you have the choice at the end of college to go take an entry analyst role at a hedge fund and earn $150,000, or a charity in a cause you love, the most charitable act might be to join the hedge fund, and simply donate most of it to the cause.

Take anti-malarial bed nets, which represent one of the best value charitable efforts at around $3,500 per life saved. Two billion insecticide-treated mosquito nets have been delivered across the world since 2004, preventing nearly 68% of all malaria cases in Africa and saving over 7 million lives. Two-thirds of avoided deaths are children under five. What was Singer’s point? The world has far fewer hedge fund analysts than charity workers: if you can live on $75,000 happily and donate $75,000 to bed nets, you — in metaphorical terms — dive into a frozen lake and save over 20 drowning people each and every year — 13 of them children.

SO YOU’RE YOUNG, SMART, AND CLIMATE-CONSCIOUS. NOW WHAT?

This analogy prompts some uncomfortable but important questions around purpose, salary and impact. What has been the most purposeful act of your life? Did it come through work? A purpose-oriented job is a way of giving meaning to our own lives and finding fulfilment in what we do. The Singer analogy is a philosophical question, but choosing a career path with climate change in mind is not that different to global health.

I had the privilege of studying under Professor John Holdren, former National Science Advisor to President Obama, and one of the most superb science communicators I’ve ever met. When asked what someone wanting to help the climate should do, he gave two important answers:

Holdren: “More than eating less meat, flying less, recycling plastic or many of the other common pieces of advice, there is no more important act in the climate crisis than voting — voting consistently, and voting for political parties in your country of origin that present credible climate policies to the electorate.”

His second response was just as salient:

Holdren: “If a bright high school senior came to me asking what I thought their highest allocation of effort in the climate crisis would be, I would give them two options: (i) commit to a life in research, move through academia, get a PhD, but ALSO get a degree in journalism, so the science you study can be communicated to the public; or (ii) find a career pathway following energy generation, transmission and storage, or carbon sequestration and removal. If we don’t make significant technological leaps in these areas, we don’t have a chance.”

I couldn’t agree more. But for many people, especially the young, the question even with this refined scope is the same: where does one begin? Even within the domains listed above, there is a need for scientists, engineers, legislators, educators, entrepreneurs, businesspeople, financiers, and.. technicians.

WE DON’T TALK ABOUT TECHNICIANS

On another day, we can delve deeply into what the top student in a great school should consider. The cold hard truth is many people will want to contribute to decarbonisation, and want to make a decent wage, and not have the grades to go to college and have the career choices discussed above. This issue is dedicated to three jobs that fall beneath the radar of a star university graduate, but the world will need many, many people to undertake.

VERTICAL FARMER

As we saw in a prior issue, vertical farming has arrived. It consists of growing crops on substantially sized shelves, stacked on top of one another in enormous warehouses, and usually built in or close to urban areas so money is saved on energy and transport. Because the crops are grown indoors without any natural light, LED lights are used to enable the process of photosynthesis to foster the growth of the plants. Growing cycles are faster, more frequent and are not dependent on the weather or the changing of seasons. Plants grow all day long, regardless of the time of day, because the lights are always on.

The image conjures the notion of a single scientist and lots of migrant workers picking on low wages, right? Wrong. Categorised under farmers, ranchers and other agricultural managers by the Bureau of Labor Statistics, the 2019 median pay for vertical farming staff was $71,160 annually or $34.21 per hour. What was the typical assembly line wage in a General Motors plant in the industrial heart of America prior to the financial crisis in 2008? You guessed it: $35.00 per hour.

GRID TECHNICIAN

We’re heading for a new energy system, but people will still be required to install, replace or configure smart grid components or renewable energy infrastructure into the new grid. Overall, median wages in clean energy are significantly higher than U.S. median wages in sectors such as retail, services, recreation and accommodations, especially when it comes to entry-level wages. Solar energy workers earn $24.48 an hour, while wind and grid modernisation jobs pay on average more than $25 an hour. Energy efficiency — the largest employer in the nation’s energy sector — supports a median hourly wage of $24.44, about 28% above the national median.

It’s important to address the elephant in the room: these jobs have now passed the median wage for coal mining. They are clean in more ways than one: chronic exposure to coal dust can lead to black lung disease, or pneumoconiosis, which took the lives of 10,000 miners worldwide over the last decade. The average worker in West Virginia is no longer a coal miner: they’re a home health aide. The world has changed even if the politics are slow to respond.

BROWNFIELD RESTORER

This one is a topic close to my heart. The EPA estimates that there are more than 450,000 brownfield sites in the U.S. The revitalisation of derelict industrial sites into public spaces represents a significant enhancement to the quality of life and land use, quite literally transforming neglected areas for the better. It doesn’t happen enough, and the economics around adaptive re-use are all wrong (a topic for another day).

Examples abound of success stories, but a personal favourite of mine is Freshkills Park on Staten Island, NY. Once the world’s largest sanitary waste landfill, dealing with nearly all of New York’s rubbish, Freshkills is one of the most ambitious and innovative public works projects in the world. At 2,200 acres — almost three times the size of Central Park — it is the first major park in New York City since the 19th Century, and was completed over two decades with painstaking rehabilitation that sealed many toxic remnants of the landfill well beneath the golf courses, wetlands, solar panels and event spaces throughout the park.

Brownfield Redevelopment Specialists plan and direct cleanup and redevelopment of contaminated properties for reuse. Their median salary in the U.S. is a very competitive $115,590 annually or $74.80 per hour — far better than many healthcare professionals. There is no guidance counsellor selling brownfield remediation as a hot career, but the redevelopment of disused sites constitutes a valuable opportunity for increasing green spaces in urban areas and changing the way nature is imaginatively built into our cities.

TIMES CHANGE, SO WILL OPPORTUNITY

When I graduated high school in Australia in 2000, a solar grid technician was a plausible job: but the scale and complexity of the smart grid we’ll see in the U.S. wouldn’t have been. The scene of a vertical farming warehouse would’ve seemed like science fiction, as would the imagination now regularly present in brownfield adaptation.

What is the golden thread tying each of these three opportunities together? Scale.

The clue is in 335m mouths to feed, and America’s annual energy usage of 100.2 quadrillion Btu, and 450,000 brownfield sites.

Feeding people more efficiently, increasing renewable energy’s share in the pie above, and reinventing industrial sites in major cities are all problems of scale. In fact, they’re problems of mega-scale. Watching for market sizing projections in different industries is one of the simplest, most intuitive ways to solve for salary and opportunity. In their own way, it’s clear each of these pathways also possess purpose.

Next: consider hierarchy. Is the industry defined? Does promotion take forever? In new sectors, this is almost never the case. Go towards an absence of hierarchy.

Sectors with good salaries and continual expansion give enterprising workers the chance to rise fast.

Finally, select for breadth of skill. A firm that installs multiple renewable sources will give a young technician exposure to solar, wind and even geothermal or nuclear. The more you’re exposed to earlier, the faster the mind sees the best avenues to specialise for in the long run.

PURPOSE..

If you’re mid-career, it’s worth asking a lot of the same questions: especially if companies are hiring in these fields near you.

If you’ve a child under 18, it’s a different lens. You won’t graduate from college/university for several years. By then, the world will be very different — different governments, new technologies, new laws and international agreements. The average person can’t do a great deal about these tectonic forces: the best thing to do is wait, build a growth mindset and develop as many skills that speak to left-brain and right-brain solutions as possible.

THE GOSPEL ACCORDING TO PETER (PART. 2)

This issue might have provoked some obvious questions on purpose and mission, and in that regard, returning to Peter Singer for a moment is instructive:

Singer: “We’re not here for anything as such, except for the ends we ourselves choose to have…If you're lucky enough to live without want, it's a natural impulse to help others in need.”

Without resorting to hyperbole, if one accepts the release of greenhouse gases makes for a hotter, more extreme and more hazardous world, then that impacts those alive today, those too young to play a role in addressing it, and those yet to be born. The decarbonisation challenge is an incredibly unique challenge of scale, and throughout history, challenges of scale have been difficult for individuals to pinpoint their net impact. We are entitled to pursue wealth, good salaries and a better quality of life for ourselves and our family, but that natural impulse to help others is so deep, we ignore it at our peril.

One truism remains, whether it’s your own career or a target of your charity: you’re dead far longer than you’re alive. Choose wisely what you do with your time and money, and without regret. If you or someone you know want a career of purpose that doesn’t require a college degree, there’s more than one often realises.

Optimistically,

Owen C. Woolcock

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3 Questions I Am Asking Myself This Week

1. A stat that speaks for itself:

2. An excellent thread on why the climate science is ‘settled’, how it’s not settled in certain areas, what the difference means, and why people who twist the science can do so easily:

3. How much do you actually use your car?

If You Read Or Listen To One Thing This Week

NYT’s Wirecutter section pulls no punches in the enormous value of considering heat pumps in any climate.

A new, shiny 224-page McKinsey report (summarised for readers this week) shows there is potentially a $3.5tr annual shortfall in the commitments made worldwide already to get to net-zero by 2050 (and a 1.5C world), and what is actually needed. The economic exposure to the transition will not be uniform across sectors, geographies, communities and individuals. This matters for investors because the roadmap of where economic pain and opportunity might occur can be found in the findings.

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WHY IS MCKINSEY WORTH LISTENING TO?

It won’t shock anyone reading this that the management consulting firm McKinsey & Company hires smart people. Their near-century of success comes from breaking down big problems into manageable initiatives and outcomes. We can tend to read big white papers or research, and glaze over: but the firm has made two of the most important contributions to climate change in my working life:

The Cost Abatement Curve (2007)

In 2007, environmentalists, corporate executives, academics, campaigners, and policy makers were often talking at cross-purposes and needed a shared vocabulary—the McKinsey Stockholm office took a small project for a Swedish utility company, and produced a globally crucial tool, all on a single page.

The abatement curve presented the relative cost-benefit of each option, and opened the way to a more dispassionate, fact-based conversation about what to do. Truly, it has changed the world. In the bottom-left corner were the simplest, cheapest actions, and in the top right were the hardest and most expensive, but also the most impactful based on gigatons of CO2 abated per year. It has been recreated for countries and industries, and remains a guiding roadmap for the world’s efforts as it is revised and updated over time.

Climate Risk and Response (2020)

In one of the last in-person events I attended before the pandemic (Jan ‘20), McKinsey and the globally influential Woods Hole Research Center hosted a launch in New York of their joint paper examining the economic costs of physical climate risk. It remains the document I send every interested party and potential investor who’s interested in understanding the scale of the challenge.

It is impossible to finish reading this paper and not come to realisation that climate change is about wealth disruption, and wealth destruction. It has many profound conclusions, but one of the most unforgettable and disturbing is their forecasts for lethal heat stress. Lethal heat waves are defined as three-day events during which average daily maximum wet-bulb temperature could exceed the survivability threshold for a healthy human being resting in the shade (in short, without very generous air conditioning assistance, there’s no escape).

Under an RCP 8.5 scenario (i.e. business as usual), urban areas in parts of India and Pakistan could be the first places in the world to experience heat waves that exceed the survivability threshold for a healthy human being, with small regions projected to experience a more than 60 percent annual chance of such a heat wave by 2050.

The regions of the subcontinent examined are populated by 160-200 million people. There is no pleasure in typing this, but McKinsey’s findings effectively amount to a better than even chance people will turn on the news in the middle of this century to watch leading news stories of low single digit millions (yes, millions) of people dying in single heat wave events. Truly, Kim Stanley Robinson’s terrifying opening chapter of Ministry of the Future, coming to fruition.

WHAT DOES THIS NEW MCKINSEY REPORT SEEK TO UNDERSTAND?

If anyone needed reminding, the mission of getting to net-zero by 2050 is not a passing political vanity project, but a collective effort to avoid things we all struggle to imagine — a different and more unstable world, with irreversible consequences.

McKinsey knows significant challenges stand in the way, not least the scale of economic transformation that a net-zero transition would entail and the difficulty of balancing the substantial short-term risks of poorly prepared or uncoordinated action with the longer-term risks of insufficient or delayed action.

The work for this paper started with two big questions:

• What will it cost the global economy to reach net-zero emissions by 2050?

• When does the money need to be spent? Earlier, smoothly, or toward the end?

The project looked at the economic shifts needed to reach net-zero by 2050

• Demand

• Capital allocation

• Costs

• Jobs

…in sectors that produce 85% of overall emissions.

Each of the seven major energy and land-use systems contributes substantially to emissions, and every one of these systems will thus need to undergo transformation if the net-zero goal is to be achieved. Transformation is a euphemism in this setting for political pushback, protests and asset write-off pain—all of which can’t be orderly.

They also looked in-depth at 69 countries. What did they find?

The key goal from this graphic is to understand how great each country’s exposure to the transition will be, through a transition exposure score. Intuitively the countries who will find net-zero the most painful for their economy are those who produce a lot of fossil fuels, or those who are still developing and can’t create a renewable energy infrastructure overnight.

Another important point? No country has a transition exposure score of zero. But some will feel more pain than others.

WHAT’S THE BIG HEADLINE?

What garnered a lot of news when this report was released? There’s a $3.5tr shortfall.

About a third of that number is needed for developing countries, whose wafer-thin budgets and policies are focused on bringing their populations out of poverty—and typically with the assistance of cheap (dirty) energy.

Another key point is the money needs to be spent sooner, and then taper.

Energy costs are crucial in this. McKinsey found that in the long run, it is conceivable that the delivered cost of electricity could be on par or potentially less than 2020 levels, because renewables have a lower operating cost—provided that the power system can find ways to overcome the intermittency of renewable power and build flexible, reliable, low-cost grids. The key message there? Delivered cost of electricity could increase in the near term.

WHY IS THE MCKINSEY REPORT IMPORTANT?

These numbers are larger than some past estimates have assumed, which points to the scope of the challenge. McKinsey is not a climate skeptic think tank chirping negativity from the sidelines; they are one of the most proactive entities in the world on sustainability, so their dispassionate announcement of the price tag is a reality check for everyone. Relative to the size of the global economy, the numbers might look larger still—equaling between 6% and almost 9% of global economic output. 

THESE ARE ALL BIG NUMBERS, WHAT DOES IT ALL REALLY MEAN?

If you add up all the commitments, we don’t get to 1.5C.

Also commitments on paper have complexity and challenge. We shouldn’t be surprised by this complexity, energy and land use patterns that took two centuries to develop are being reordered in a generation. At least that’s what we’re attempting.

Is it worth trying to find the extra commitments? Absolutely.

Another just-published report, by Aon Plc, found around $330 billion in weather and climate-related economic losses in 2021 alone, the third-costliest year on record after adjusting for inflation. The European Central Bank is looking to a climate stress test that factors in single-year losses of up to 45% in homes exposed to flooding, wildfires and other climate risks. Overall global climate damages easily exceed the cost of action, justifying limiting temperatures to 1.5°C through pure economic reasoning.  

Comparing costs now with benefits later is precisely the virtue and the political stumbling block of the low-carbon, high-efficiency transition. As NYU economist Gernot Wagner put it in a Bloomberg column:

Someone does indeed need to spend the money now.

It’s important to mention the McKinsey analysis is not a projection or a prediction and does not claim to be exhaustive; it is the simulation of one hypothetical, orderly path toward 1.5°C using the Net Zero 2050 scenario from the Network for Greening the Financial System (NGFS), to provide an order-of-magnitude estimate of the economic costs and societal adjustments associated with net-zero transition. It’s one road the world could take—probably close to the ideal road.

The findings are a call to greater action, and greater urgency. The McKinsey report makes it clear that the political headaches are well worth the fight. After all, on net, the transition implies more investment, more economic growth, and also more jobs—to say nothing about a more liveable planet and newer, better technologies, from well-insulated homes to better and more efficient modes of transport.

HOW SHOULD INVESTORS THINK ABOUT THESE FINDINGS?

If you invest in the world around you (and let’s face it, we all do even indirectly), it’s worth asking the following, based on what we’ve just learned:

• For each company I invest in, what will be the asset base left when this transformation has taken place?

• If oil, coal and natural gas needed to be phased down, and it’s plausible internal combustion engines aren’t made for private vehicles anywhere in the world by 2040, what would this mean for in the country I live in?

• What are the places in the world that will be the most liveable, the best adjusted, the most flexible as this transformation unfolds?

• Where might extreme strips of transition risk develop? That is to say, where are places and geographies likely to experience physical extremes, stranded assets, economic dislocation and a weak case for further investment?

Net zero transition is just that, a transition. It’s not a switch. It’ll be easy to play a cynical route, divest fast and wait for trend movements to invest again. Unfortunately what’s required is a systems lift, with public and private finance acting in constant coordination. Another question to ask is: what will this mean for competition as we understand it?

As a final thought, it’s worth returning to a statement made earlier: energy and land use patterns that took two centuries to develop will need to be reordered in just three decades. It’s impossible to imagine this being orderly.

But what is the counterfactual of a disorderly transition? What is the counterfactual of doing nothing?

McKinsey has made another valuable contribution — our collective effort to parse out what it all means continues.

Optimistically,

Owen C. Woolcock

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3 Questions I Am Asking Myself This Week

1. What does this Bloomberg graphic say about the politics of buying an electric vehicle?

2. As many electric cars are now sold in the space of a week as in the whole year of 2012. To put it another way: the passenger electric vehicle market grew 50x in a decade.

3. A great initiative that begs the question: why doesn’t the city I live in do this?

If You Read Or Listen To One Thing This Week

A great podcast from Harvard Business School with a public actor thinking about the implications of climate change more than most — the U.S. Navy.

2021 has been a big year in climate investing: initiatives (and disappointments) connected to Glasgow and COP26, Tesla and Rivian’s continued meteoric rises, and activism on the part of central banks to improve corporate disclosure and reporting. But the year also proves a few deeper lessons for the coming decade — money will move in ways we won’t anticipate, ideas will take time to prove, and leadership will undergo a major renewal.

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WHAT HAS HAPPENED THIS YEAR?

If you follow the financial markets, it’s been hard to miss the movement of money into anything ‘green’. Issuance of sustainable loans and bonds, where proceeds are supposedly earmarked for environmental projects or to further a company’s social goals, exceeded $1.5 trillion, including about $505 billion of green bond sales; ESG-focused exchange-traded funds attracted almost $130 billion in 2021, up from $75 billion a year ago; and investment in early-stage climate tech companies approached $50 billion.

These are big numbers. On the $50 billion climate tech investment number, it’s worth remembering the average VC investment in America is around $2.4 million, which goes into a number like $50 billion over 20,000 times. That’s not especially scientific math (hardware-heavy startups often seen in the climate space usually require higher initial investment levels), but the point still stands that a lot of new firms and ideas are getting their chance. If just one of them finds an industrial scale way for algae to absorb carbon dioxide into the ocean (which it does naturally, and more efficiently than trees), or green steel, or a safe next-generation nuclear deployable through the suburbs by 2040, then the return on investment is huge. The attitude of Climate and Money has always been there’s always room for optimism if one is so disposed.

But the numbers are the numbers, and not everything went one way in 2021. The S&P Global Clean Energy Index, which includes companies like wind-energy giant Orsted AS, Spanish utility Iberdrola SA and Sunrun Inc., the largest U.S. residential-solar company, has declined 27% so far in 2021, after more than doubling in value last year.

Adeline Diab, head of ESG research for EMEA and the Asia-Pacific region at Bloomberg Intelligence, put the outlook well in a letter on 21st Dec: “Despite mounting catalysts with the U.S. infrastructure plan and EU taxonomy requirements, the clean-energy sector may remain exposed to uncertainty linked to government support such as stimulus delays or incentives-cuts announcements, the most recent being in California [where subsidies have been rolled back for solar].” 

Shares of renewable energy stocks hit another speed bump in December when U.S. Senator Joe Manchin, a conservative Democrat from coal state West Virginia, shocked his own party by announcing his opposition to President Joe Biden’s economic plan, which includes a landmark investment in the climate fight. Manchin, whose vote in an evenly-split Senate was needed in the face of universal Republican opposition to significant efforts to fight global warming, has undermined Biden’s bid to address the climate crisis. Biden’s approval rating is low (-5 on current ratings), and with the GOP likely to take the House and Senate in 2022, this legislative window might be the best hope for much of the decade if government stimulus is to play a large role in decarbonisation.

WHAT ARE THE HORSES TO BACK?

Let’s assume Manchin holds his ground and major climate investment doesn’t come from the U.S. government. What or who are the most likely actors in the private sector, and where is alpha likely?

The place the market usually starts is the electric car (or EV). It’s with good reason: EVs have far fewer moving parts than their internal combustion engine counterparts, and require less servicing over their lifetime — the sort of servicing on which dealers and parts suppliers make a good deal of their revenue. How cars are built, used and refueled become completely different in a majority-electric fleet.

The simple truth is for all the hype, a lot does change when many more of us are driving electric.

The market capitalisation of Tesla, Rivian and Lucid Motors now make them worth a number almost equivalent to the entire automobile market. Each of them is worth more at the time of writing than Ford or GM. An astute stock analyst will ask: ‘this assumes these three new entrant auto companies will sell close to every car produced on the planet. That can’t be possible.’ And they’re right. These new entrants have overcome this valid criticism of their valuation by saying their total addressable market is climate change itself.

Tesla wants to eventually sell you a slick touchscreen switchboard in your garage where they manage household energy and sell unused power back to the grid for you. Each of them wants to help power your needs off-grid. So far the market likes the story. Since going public in July through a SPAC deal, Lucid has watched stock prices almost double. Its market cap still pales compared to Tesla’s, which has shot into the stratosphere over the past year to beyond $1 trillion. But the implication is that electrical vehicle fever is only just beginning. Fellow electric carmaker Rivian went public in November, and one week into its life on NASDAQ, it had a $140 billion market cap, making it more valuable than General Motors. Rivian’s IPO actually ranked as the world’s biggest of 2021, helping to catapult it into the largest U.S. company with no sales.

Did anyone believe in 2003 that Apple would move from computers into phones, an app store, watches and a subscription TV channel with native content? An investor’s bullishness in electric automakers is entirely dependent on one’s confidence in their ability to ‘ring-fence’ advantage, and then expand heavily into areas we can’t imagine.

Other climate startups with high velocity, but not yet at the public IPO stage include:

• AMP Robotics, a Louisville, CO startup that’s taken $74.5 million of investment and created an AI-powered robotic system that can recycle waste. The technology they’re using can reportedly identify recyclable materials with an accuracy rate of 99%. If correct, this technology has a chance to completely reorder and optimise the 2.01 billion metric tons of municipal solid waste (MSW) produced annually worldwide.

• Redwood Materials is another ‘unsexy’ service provider (but with $795 million in corporate and other investments), helping recycle batteries, electronics, and end-of-life products with processing and refining technologies that produce key elements for circular supply chains. A simpler way to say that is they make hard, chemically impacted items useable again. The genius of the business lies in getting into upfront contracts for Amazon, Panasonic and others, determining end-of-life recycling needs, and planning for them at the outset.

• Form Energy, based in Somerville MA, have received over $368m in investment and generate $25m annually already from a challenge that can and must be solved: making batteries specific to solar and wind energy, so they can store their energy for extended periods of time. The wind doesn’t always blow and the sun doesn’t always shine, providing the major drawback of renewable energy. Form has developed a battery it says can discharge electricity for 150 hours straight.

Deep-pocketed investment firms such as TPG, Apollo Global Management and Paulson & Co. in recent months have plowed hundreds of millions of dollars into companies like Form, which make what are called long-duration batteries. Unlike mobile-phone or electric-car batteries that can deliver electricity for about four hours straight, long-duration batteries can discharge for longer periods, ranging from six hours to several days, and store far more power.

The workhorse of Form Energy’s battery is a cheap, abundant element: iron. A collection of the batteries can fill entire warehouses and discharge electricity for nearly a week.

A question ordinary retail investors would be fair to ask is: when these companies eventually IPO, do I still get to access a meaningful part of the growth story?

In some ways, no. But the large investors mentioned above have bet on many horses who didn’t make it by the time AMP, Redwood or Form prove to be viable, and so investors like you and I don’t take on those losses either.

COMMON CHARACTERISTICS OF THE WINNERS

Some commonalities stand out from the list of companies above, all who’ve been big parts of the climate investment story in 2021, in either public or private equities:

• The winners often start with a major technological breakthrough, and use it to land and expand into a larger product suite. Was home energy use an intuitive connector from car batteries like Tesla saw? Was it readily obvious that an end-of-life recycler could work with solar farms at installation on their long-term panel recycling timelines as Redwood is doing? It looks clear in hindsight, but takes imagination in the moment.

• The winners built something America needs first, and the rest of the world will need thereafter. The United States needs electric vehicles and charging station infrastructure to be expanded. It needs to extract the valuable parts of phones, computers and power tools. It needs to identify waste without hands sorting through sharp and decaying objects. It needs to store solar and wind energy. It makes sense to solve these problems first in one of the richest countries in the world with a well developed investment ecosystem.

• The winners start as (relatively) small teams, offering options to college-educated talent (science materials, engineering, sales and IT grads mostly), and a mission-driven career with a potentially lucrative pathway. For many the idea that some will profit handsomely from the climate crisis is jarring. The reality is hard problems need many great minds, and many people are motivated by different things.

• With the rare exception of the EV makers, the winners are unsexy. Energy grid compatibility, temperature intensity in manufacturing, or the chemistry of plastics composition is pretty detailed stuff — and hard to make exciting in a pitch deck for those without engineering backgrounds. It’s crucially in these domains where so many of the gains need to be made.

EXCITING IDEAS, BUT WHO WILL LEAD?

Another important part of the 2021 story is in leadership. A culture shift for the world’s corporate giants is underway, and one best illustrated in a study done by NYU’s Tensie Whelan. As of April 2018, 5% of the nearly 1,200 board members of Fortune 100 companies had experience with workplace diversity, and 2.6% had experience with accounting oversight. Barely 1% had any experience with energy or conservation, the two highest-ranked categories in Whelan’s study. Three-tenths of a percent of the Fortune 100’s board members had experience with ESG investing; 0.2% had experience with climate.

The data is three years old and there will have been marginal improvement. But this is symptomatic of the broader societal story around Boomers transitioning out of power roles, and younger generations (with far longer timescales of exposure to the risks) having a larger say.

Boards who don’t regenerate will see their credibility in the market suffer.

When people ask who is decarbonising with purpose, the best hint of commitment to action lies in the profiles of the board and management team.

2021 IN SUMMARY

If you’re a skim to the bottom kind of person (and that’s OK, it’s New Year’s Eve!), the above could be summarised in the following way:

• The money is moving, but that movement of capital will still be volatile

• The winners will be underpinned by engineering fundamentals, and an ability to expand beyond their original breakthrough

• The big gains from climate breakthroughs will be largely made before retail investors access the security, but that’s OK because the companies that do reach the public markets will have opportunities for multi-decade dominance

• The corporate boards of America probably don’t appreciate how underqualified they are for the issues that really matter to the next investment demography

If asked to summarise the last year of Climate and Money newsletters, it would be with the following: the problem of decarbonisation is never fully solved, nor a cause worth giving up on. In any given hour of the day, these could both be understandable conclusions. But it’s a story of fragments and increments. There will be pain and suffering and unequal resources to adapt. There will also be magic and ingenuity and profit and many ways to be part of big mission-driven outcomes.

I wish everyone who’s been part of this journey over 2021 the very best for the coming year, and look forward to seeing what 2022 brings for Climate and Money.

Optimistically,

Owen C. Woolcock

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3 Questions I Am Asking Myself This Week

1. Here’s the breakdown of that $50b climate investment number by industry category. What do you see, and what makes you excited?

2. Big news came out for the mortgage markets. What characteristics of the ‘Big Short’ might we see in localised ‘Big Climate Short’ events?

3. Harrowing footage taken from a passenger aircraft of the Colorado fires in the last 48 hours; so rare because we seldom fire from the sky:

If You Read Or Listen To One Thing This Week

A great article from earlier this year on the ways those of us who own a home and want to make a difference can do so:

Ecological Leninism is the idea that we’re beginning an age of crisis, and that era of crisis will prompt some new confronting ideas like the destruction of fossil fuel property. Much of this stems from Lenin’s approach and thinking during the Russian Civil War (1917-1922), where he proved himself quite adept at fighting fossil fuel interests. Even if one doesn’t agree with these ideas, is likely to be copied by some on the Left in the coming decades. Financial markets and investors would do well to think outside the box and understand this movement’s logic.

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IMPORTANT: This issue contains the evaluation of a new political idea that the Climate and Money audience might find inconsistent with their own politics and worldview. As our parents taught us, we learn by delving deep into new perspectives, and in this spirit, I recommend taking Andreas Malm’s arguments seriously for the length of this newsletter, even if you don’t consider yourself a Marxist or come away in agreement with any of it.

WHAT IS TOO MUCH ESCALATION?

In the summer of 2013, while on assignment for The Nation, journalist Wen Stephenson stood interviewing the young organisers of Tar Sands Blockade, the radical climate justice group that had been engaged for more than a year in a nonviolent grassroots direct-action campaign against the Keystone XL pipeline. At one point in the interview, an organiser said to Stephenson:

“The industry has shown every intention of escalating the climate crisis beyond certain tipping points… We need to ask ourselves, what does escalation look like? What could possibly be too escalated?”

WHO IS ANDREAS MALM?

This question on escalation has been on the mind of a Swedish Marxist thinker the last eighteen months, and arguably much of his adult life. Andreas Malm, an economic historian at Lund University in Sweden, has written a compact new book, a manifesto of sorts, that takes up this very question from the standpoint of the European climate movement in which he has been deeply involved. The title, How to Blow Up a Pipeline: Learning to Fight in a World on Fire, is designed to provoke. It does not literally explain how to blow up a pipeline, but it examines why asking that question shouldn’t so crazy.

Malm is a proponent of the following interconnected ideas:

• The science on climate change has been clear for a very long time. Yet despite decades of committee appearances by scientists, mass street protests, petition campaigns, and peaceful demonstrations, the world is still facing a profitable fossil fuel industry, rising emission levels, and a rising temperature. With the stakes so high and 2C of warming effectively a point of no return, why haven’t more people considered non-peaceful protest?

• If one accepts climate change is a genuine crisis (and more than enough people in the world have this view), then a form of revolution is necessary. Every route to revolutionary change in history has involved some level of property destruction as a means of rebalancing power.

• Any kind of violence directed against people is wrong and completely disavowed. In saying this, the doctrine of ‘strategic nonviolence’ — associated with Mahatma Gandhi’s path to Indian independence, and Nelson Mandela’s work in 1980s South Africa, among other movements — has long prohibited vandalism or sabotage of property, and for the time and context of the climate crisis, Malm believes that’s not enough. Also the history taught to most of us in school of the most famous nonviolence moments in history (Gandhi, Mandela, Luther King) is deeply dishonest and inaccurate if it doesn’t acknowledge very significant components of physical confrontation with the prevailing order.

• Movement orthodoxy is a common problem, especially on the Left. This means people usually become activists by turning up at meetings and hearing the methods and successes of others, which implicitly leads to many copied ideas. For the size of the climate danger, the climate movement is paltry in size, coordination, effort and imagination.

• Activism if too polite is strategic pacifism. When unrestrained disorder is even threatened, such as in des gilets jaunes (Yellow Vest protests) in France through 2018-2019, then results follow. Climate activists should not abandon mass nonviolent mobilizations, but more escalated tactics should be part of the strategic mix.

• The Left has been caught off guard by the scale of state intervention carried out to tackle the pandemic. The pandemic required enormous courage in government, to.. [effectively] “sacrifice the well-being of their capitalist economies for the lives of their elderly and potentially younger cohorts too.” Respect for private property and business continuity came second to the common good of ordinary lives, which should music to the ears of the Left, and show that more state action is possible.

SO IN A NUTSHELL, WHAT IS MALM ARGUING?

Malm is arguing there must an exception to the sanctity of private property if it relates to fossil fuels. An end to fossil fuels by definition means an end to private property in fossil fuels, because the firms won’t stop of their own volition. The most ideal scenario would be for the state to intervene, acquire and manage the transition in the public interest, but as they have shown no willingness to do so, ordinary citizens should demonstrate that private property is not sacred.

DON’T BE FOOLED…

The biggest mistake a reader of the above could make is to dismiss it outright. Malm’s writings are morally serious, and grounded in some compelling ideas that should make people who dislike its final message at least consider how he reached them.

BUT WAIT, WHY IS IT CALLED ECOLOGICAL LENINISM?

As far as branding goes, anything Leninist will land like a lead balloon in the United States from now until the end of time: but Malm’s use is strictly speaking, correct.

Lenin after 1914 was convinced the most significant event in world history was taking place around him, and it was his responsibility to shuffle the cards and turn World War I into a fatal blow against capitalism. He believed that in the fog of war, and with little to lose, people could be turned against money, inequality and a ruling class for good.

Unless you were a straight As high school student in Russian history, you’ll need reminding there was actually a civil war that followed the Russian Revolution of 1917. This pitted the Whites (who controlled much of the coal and oil areas of the country) against Lenin’s Red Army. The Bolshevik zone, confined to a modest stretch of the Russian empire, was desperately short of food, coal and oil. A harsh requisitioning system made it possible to feed the army, but a more innovative solution was needed to address the desperate shortage of coal. Cut off from fossil fuels, Lenin and Trotsky turned to wood. The Red Army’s armoured trains were fired with logs and against all odds, they succeeded against an opponent with all the fossil fuels at their disposal.

When Malm and others in his philosophical tree use the phrase ‘ecological Leninism’, they are effectively saying:

• Revolutions will likely involve a destruction of private property, a fight for energy, and a seizure of state power if the state doesn’t do what you wish.

• These ideas are often hard for activists (especially environmental activists) to embrace because they’re perennial outsiders, and often have a ‘state-phobia’.

• Lenin asked his supporters, who’d also been lifelong outsiders, to seriously engage with the possibility of a ‘state-led, centrally planned, and global response’ to ending capitalism. Malm just wants the words climate crisis used in the end of that sentence instead.

In essence: there are industries necessary for large-scale decarbonisation, and they need to be nationalised. Malm is arguing for this as a strategic orientation, but in a new context: he wants the Left to find a way of turning the environmental crisis into a crisis for fossil capital itself, just as Lenin used WWI for the Bolshevik Revolution.

WHAT ARE SOME COMMON CRITICISMS OF MALM’S WORLDVIEW?

Critics argue one or any of the following:

• Many utilities companies are already state-owned, yet they continue to be major sources of emissions. Doesn’t this show sector-wide state involvement is not a panacea?

Malm’s reply is public ownership is not a panacea in and of itself, but it makes the task of decarbonisation significantly easier. The advantage of having utilities under state ownership is that it allows governments to very quickly reorganize them. You do not need to first expropriate them or undertake the task of forcing privately owned companies to overhaul their current practices and leave fossil fuels in the ground. If the French government owned TOTAL or the British government owned BP, the transition could be more direct and consistent.

• Doesn’t such increases in state power bring with it the danger of bureaucratisation and authoritarianism?

Absolutely, Malm is in no disagreement. But what is the alternative? Fossil fuel companies have so far done everything in their power to postpone and obstruct climate change mitigation, if their model of profiting from a ticking time bomb isn’t confronted, responses only become more drastic and extreme.

• Doesn’t more radical action like destruction of private property risk alienating a moderate centre who are worried about climate change but don’t want to be associated with these tactics?

Malm counters that in his view there is no way forward from this present moment that doesn’t come with risks. He does concede in his book that it is probably worth giving the Green New Deal a chance first to be legislated over the next half-decade, and embedded in American politics like the Affordable Care Act in 2010, before moving to the next level of action.

• Could a project with Leninist principles lead to a similar level of anarchy?

Malm rejects the Leninist doctrine of demolishing and replacing the state altogether. In his words: ‘all we have to work with is the dreary bourgeois state, tethered to the circuits of capital as always.’ That might be little comfort to most, but he is not arguing for the overthrow of capitalism (thankfully).

One thing to be said for Malm’s view: if it does represent the Far Left, it is blindingly simple. In this mindset, the problem with social democracy on the centre-left, or a liberal capitalist order on the centre-right, is that it has no concept of catastrophe — rather, it is premised on the opposite, namely the notion that we have time at our disposal and history on our side, meaning that we can move by incremental steps, have the centre-left and centre-right contest the middle ground, ride each boom and bust, alternate power, but in the long run always improve society. Malm argues this is a chronic emergency, and challenges his opponents to disagree.

If it’s accepted that this is an emergency, the political spectrum only offers two solutions—anarchism on the right, and his ideas on the left. Anarchism can’t coordinate a response to the climate crisis because it’s hostile to the state (by definition). Only large, coordinated state power can manage the transition required. And the Left should be accepting of this role, initially with targeted destructive action against fossil fuel property, and then involvement with the state in the seizure of assets so they can be transitioned out of production.

SO WHY ARE THESE IDEAS IMPORTANT?

Even if you or I don’t agree with Malm’s worldview (and some of you might, which is perfectly fine), we’re fast approaching a time where these ideas will have a lot of currency — especially for young people.

The difference between a 1.5C and 2C world is stark, and people under 25 years of age will increasingly view this step-change in global conditions as a point of no return (which let’s face it, it is). The WRI chart (below) released for COP26 in Glasgow is another sobering reminder.

Malm is aware that such tactics risk alienating support, inviting media denunciation and provoking massive repression. He is certainly hedging his bets, like all would-be revolutionaries: destroy property first which might be enough, but if it isn’t consider nearly everything after.

Lenin’s lesson to his supporters was that division and in-fighting were to be embraced, and never regretted. The prize of real change is too great. ‘Better to die blowing up a pipeline,’ Malm concludes, ‘than to burn impassively.’

What’s chilling is less the idea on its own, and more the reality that we can all visualise this being taken literally by someone in the not too distant future.

These ideas are important for a Climate and Money audience to be aware of, because more radical options like this will become palatable for enough people if financial markets fail to come good on their bargain of managing the transition through capital transfer, shareholder activism and new regulations alone.

A time will likely come where school strikes and UN conferences have not achieved their intended aim, and there are only big risks and revolutionary options. Hopefully it doesn’t come to that.

Optimistically,

Owen C. Woolcock

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3 Questions I Am Asking Myself This Week

1. Some cause for hope!

2. This was the front page of the Australian Financial Review two days ago, and what fossil fuel executives woke to. What did the public make of it, and what were Google’s search results for green hydrogen that day?

3. Polymath Tyler Cowen’s question in his excellent Bloomberg article this week is a thought-provoking one..

If You Read Or Listen To One Thing This Week

A fascinating podcast discussion from Energy vs. Climate on how what it will take to decarbonise aviation.

It is right to say COP26, and the meeting of the world’s governments in Glasgow next week represents the last good chance to avert the most catastrophic effects of climate change. But it’s helpful for you to understand the bones of how the conference will actually work: specifically what is the difference between a hollow announcement and a big result, and how companies and markets are already responding.

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HOW DID WE GET TO COP26?

In 1992, a meeting took place in Rio De Janeiro to establish the COP process, or the Conference of the Parties. The parties are the parties to the United Nations Framework on Climate Change (UNFCC) treaty signed in Rio. The IPCC reports we’ve covered on Climate and Money in the past feed into this process. Since that time the world has been unanimously participating in a series of meetings and negotiations known as the UN Convention on Climate Change, all with the intended goal of keeping global warming to 1.5C above pre-industrial levels.

It’s important to stress this: some foreign leaders might’ve not attended for domestic reasons or for politics (like President Xi and President Putin this year), but every country has sent a delegation. Since the science became clear, the world has been focused on this problem, even if it wasn’t reported a great deal in our media cycles.

COP1 took place in Berlin in 1995, and laid out the idea of differentiated responsibilities. What does this mean? The burden of the transition should disproportionately fall on rich countries, who’d set up this large global industrial energy complex and benefited from cheap fossil fuels in their growth trajectory. The Chair of that conference? The German Environment Minister, a mid-career female PhD by the name of.. Angela Merkel.

I played a very, very small part in my 20s with the Australian Government in the lead-up to the COP15 meetings in Copenhagen, in December 2009. Now seen as an historic failure, US president Barack Obama said: "While the reality of climate change is not in doubt … I think our ability to take collective action is." The Paris Agreement in 2015 was a slight act of redemption for Copenhagen (though years and momentum were lost), and the treaty agreed there gives rise to something you hear now and then in the media: NDCs, or national determined contributions. These are the targets each country sets for itself with regards to emissions reductions by 2030 and 2050 (NB: this is why you always hear those dates in discussion). No one can force a country to decarbonise, it’s all voluntary commitments. Hence Obama’s valid doubt on collective action against a common threat.

Current climate pledges aren’t anywhere near close enough to achieving the 1.5C target. Unanimity on the problems and unanimity on the goals are one thing. Agreeing to the hard choices is another. In the best case scenario, the world is on pace to record a 2.7C warming. As you’ve probably heard many times by now, this 1.2C difference is NOT a temperature difference on a warm day, it’s an exponential unbuckling of the fragile ecosystems around the world that enable plants (and food) to grow, water to convert into rain, oceans to allow certain fish life, and many many other byproducts we can’t be assured of if that level of warming is achieved. Everything we’ve known as humans has operated on a very delicate balance, and fossil fuel emissions have tinkered with that formula and changed our climate globally in a permanent way.

The point of next week’s meeting is to try and get back on track.

SO WHAT HAPPENS AT THESE CONFERENCES?

How should we picture a COP? They’re staggering events. Over 30,000 credentialled, official delegates and hoards of NGOs gather to meet. The first week is a technical week with expert negotiations, and the second week is where Ministers and heads of governments convene to thrash out simple, short communiques and summaries of each commitment.

It’s the epitome of multilateralism. Uganda has theoretically the same voice as the United States. How is any agreement struck? It’s basically peer pressure. There is no centralised body that can punish or threaten those who don’t cooperate (there’s a little bit of enforcement from prior treaties, but that’s a little too technical for this forum). The hope is that the COP process is driven by shifting global opinion, and governments through domestic political pressure revisit the COP process every few years with greater commitments.

WHAT ARE THE ECONOMICS OF ALL OF THIS?

Let’s focus on the money side of COP26.

It boils down to a simple question: can the economies of the world shift to a reliance on non-fossil fuel energy sources, without sacrificing growth and living standards?

Economics and market watchers focus on two mechanisms for how this could occur. One is carbon pricing. The idea would be to establish a global minimum carbon price. That requires a lot of design and modelling, as well as offsets to poorer countries that would likely be exploited and undermine confidence. That doesn’t mean we shouldn’t be striving for it, it’s just the reality of such a big reform to global trade.

The second (and in my view, somewhat positive) path is to break down the problem into five buckets, and tackle each with dedicated plans. The five buckets are broadly defined as:

• electricity generation

• transportation

• industry

• agriculture

• housing

At a first approximation, they’re roughly the same size. Depending on the country you live in, each of these emission areas is roughly 15-30% of total emissions.

Electricity generation is fairly simple: go for renewables, store more energy, make some big strides on hydrogen, and depending on the country, incorporate nuclear energy as a backup option with high reliability for baseload needs. Transport likewise has a roadmap well understood in the industry. Vehicles can be electrified, we’ve known that for a hundred years. Shipping companies are making big strides, and though technical challenges exist with air travel, it’s a relatively small portion of global transport in energy terms compared to cars and ships.

Industry could be depressing if you’re a glass half empty kind of person, because concrete, steel and petrochemicals are so energy-intensive and require temperatures (i.e. aluminium at 1200 degrees Celsius) for which solar and wind energy can seldom be relied upon. But: it is a concentrated sector, with large corporations, incredible incentives and R&D value chains that have been proven to deliver in many other recent breakthroughs. If you think about the pot of revenue gold at the end of the rainbow for the firms that perfected non-stick frying pans, microwave ovens, stain-free kitchen tops or LED lights in the last fifty years, then we’ve no reason to think the profit motive won’t be as powerful for the first designer of room-temperature cement production.

Agriculture is pretty simple, just something we don’t want to hear. We need to massively reduce the amount of meat we eat, and then as a secondary solution, reduce dairy. Housing is not complicated, it’s just fragmented. Millions and millions of buildings with different owners and local codes needs insulation and old systems replaced, along with a host of other small iterations.

Two stats that regularly shock people in my world of real estate and design: construction equivalent to a whole new New York City is built around the world every 28 days, and 80% of the built environment assets in the world are already built. How can both be possible? They just are, remarkably. In the very near-future, it’s going to be problematic to own old buildings that haven’t been retrofitted to new standards. Again, internal industry momentum is strong, not least because the cost and availability of debt is forcing developers and investors to go green.

SHOULD WE BE GLASS HALF FULL OR EMPTY?

So should you click on the news over the next week and feel optimistic or pessimistic? That is for you to decide, but I’ll editorialise for a rare occasion and give you my answer.

I am optimistic. We live in cynical times, and there is plenty to be cynical and despondent about, whatever your politics.

We shouldn’t see the challenge of decarbonisation as a cost. It’s going to make the world a lot better, and more liveable.

The scale of the price tag is big, but if you put on a macroeconomics hat, it’s actually well below wartime levels. The cost to do all this is in the low-single digit trillions, which needs to be seen in the context of a global GDP of $80 trillion annually. Does it start to feel a little more manageable when put like that?

Moreover most of this is growth, lifestyle and economically enhancing. Our cities will have better air quality as we get rid of combustion engines. Air quality might feel a ‘nice to have’ in Boston, Brisbane or Berlin, but it’s going save thousands of lives in Bombay or Baghdad. Our food will be better when grown differently. Our diets and life expectancy will improve. Our buildings will have a more consistent thermal feel, and need to be invested in less frequently. Our oceans will be inundated with less plastic.

COP26 is about politics. It’s about managing interest groups, and constraining those who are resistant. It’s about selling a hopeful message to the world’s media at the end. Whether the message is positive or negative coming out of Glasgow, remember the money is already moving. The biggest winners are tackling huge top line growth challenges in these five buckets, and nearly all of the falling stocks in the Dow Jones Industrial Average are resisting change.

We’re on the right path, we just need to move faster. Enjoy your two weeks of Glasgow coverage with at least a little peace of mind.

Optimistically,

Owen C. Woolcock

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3 Questions I Am Asking Myself This Week

1. Are you a Biden legislation watcher without the time to dive deep? This Google Doc has been kindly put together to give a simple list of all the measures related to climate.

2. In an incredible graphic this week, I learned the population of EIGHT U.S. states would fit inside New York City:

Consider something like Local Law 97, which mandates large commercial buildings in NYC must meet carbon emissions limits by 2024 or pay fines, and it’s a measure equivalent to a new law in eight entire states. Cause for hope when dense urban markets act first with new types of decarbonisation reform.

3. Who really benefits from delayed climate action, and how much of those profits are eaten away in reputational damage and delays to transferring capital into more lucrative industries?

If You Read Or Listen To One Thing This Week

An excellent NYT story on the climate impacts in small town bankruptcies.

A small town running out of water in Northern California takes us to a deeper question: what’s the value of water when it’s abundant, and what’s the value when it’s disappearing? This issue sheds light on three important questions around water risk, and leaves us with the sober reality that market forces and individual scarcity are likely to lead to less of what we’re used to, and more of what we need.

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A TOWN FROM A BYGONE ERA

On the California coastline, there’s a small town you’ve likely never heard of, called Mendocino. A misty, forested beachside town, Mendocino is a timeless Northern Californian enclave, with a surprising detail in plain sight.

Despite being nestled along a number of major rivers, creeks and springs, the town of just 1,000 residents—but double that number of tourists each day in the summer—relies on a network of 420 wells rather than a centralised water system.

WAIT: they literally lower buckets into wells like medieval times? Not exactly.

Well water is untreated groundwater stored in aquifers (underground layers of porous rock). Wells get drilled as far down as 1,000 feet into the rock to access the water. Pipe casing gets installed into the hole, and a concrete or clay sealant surrounds it to protect against contaminants. Water travels through this casing via a well pump. The well system gets capped off above ground. The water then enters the home from a pipe connected between the casing and a pressure tank (generally located in your home’s basement). From there, it gets distributed to faucets throughout your home.

Well water is more likely to be hard water, meaning that it contains minerals like calcium and magnesium. Water containing minerals can be a good thing. Still, too many minerals can create build-up in pipes and heating systems, leading to costly repairs. Hard water also performs poorly with soaps and detergents, leaving spots on dishes, shower doors, and generally not cleaning things as well as soft water.

Water coming from your well is also more likely to encounter other contaminants. Depending on where you live, iron, sulfur gas, arsenic, nitrates, tannins, and various other items found in nature could be present. Some parts of the United States do not have iron issues. In contrast, other areas might have entire neighborhoods with whole-home iron filters to prevent rust stains from forming on everything their water touches.

So wells have some challenges, but with the right technology still can represent a functioning water system in a 21st Century community.

As you can imagine given California’s second full year of drought, there’s a problem. Over 100 of the wells in Mendocino are dry, or close to dry.

Would this worry you if you were a local citizen? It depends on your viewpoint. Some might think 100 dry wells out of 420 as no different to a dam at 75% capacity. Others would be concerned that aquifers have long-term water-level declines caused by sustained groundwater pumping, and know this is a resource that’s expensive to recharge.

Another concern for Mendocino is help is not on the way. Fort Bragg, a nearby city that has served as a backup source of water in the past, can no longer send water because it’s worried about its own supply. Willits, another nearby town, has said the same thing. Why has Fort Bragg been less generous? High tides have pushed brackish water up the dwindling Noyo River, which Fort Bragg relies on for its water, and local officials decided to stop outside sales to protect residents’ supply. As we see so often on Climate and Money, climate risk is typically actors managing and prioritising overlapping threats.

With neighbouring towns unable to help, the cost of deliveries continues to increase as trucks have to travel further. Because these surrounding areas are also facing shortages, the costs of getting tanker trucks full of potable water has nearly doubled over the past few months—from about $350.00 per 3,500-gallon load to $600.00.

What does this mean on the ground? Two of the best restaurants in town and the local grocery market have closed restrooms, and brought in portable toilets. Elderly residents take ‘navy showers’ with the tap turned off during shampoo and soap lathering.

TRENDS REFLECTING A BROADER WORRY

These problems aren’t confined to Mendocino. Lake Tahoe water levels have hit a four year low, as the drought continues to ravage California. Governor Gavin Newsom asked the population to cut water usage by 15%. And in August, California water regulators voted unanimously to stop diversions from the Sacramento-San Joaquin Delta, a vast watershed sprawling from Fresno to the Oregon border. What are farmers expected to rely on after this unprecedented action? You guessed it: groundwater wells.

From the snow-capped Rockies to the flat expanses of the prairies, and from the wetlands of Florida to the deserts of Arizona, the U.S. is a country of geographical extremes with rainfall patterns to match. Louisiana gets over 60 inches of rainfall a year, while in Nevada, less than 10 inches of rain falls annually in valleys and deserts.

WATER 101

But you’d be right to ask a few basic questions, given the vastness of the topic beyond California’s present situation:

• How important is water to a human being?

• What is the price of water in the different forms we consume it?

• What is good, bad and unusable water?

• How are financial markets trying to address this challenge?

First, the basics. Humans survive approx. 3 days (or 72 hours) without water: it’s basic physiology—your wealth, power and financial influence matter little in this simple arithmetic. Most water we use goes to agriculture. It is the sector that places significant pressure on the world's fresh water, accounting for nearly 70% of all water withdrawals. That number can rise to more than 90% in countries like Pakistan where farming is most intensive, and has little mechanisation or innovation.

Secondly, the unpleasant reality of the human lottery. Some 2.1 billion people do not have safe, affordable, and accessible drinking water, and more than 4.5 billion lack sanitary toilet facilities, according to the UN. Given the global population is 7.9 billion, another way to think of this is if you flipped a coin just four times, there’s a 25% you would end up one of those people drinking dirty (or toxic) water.

The funny thing is water can be incredibly cheap in wealthy nations too. The average cost for monthly water usage in Florida is just $6.00, but the average monthly cost in West Virginia is $72.00. Does this surprise you? Water definitely has what’s known as a pricing paradox: it almost never equals its value and rarely covers its cost.

Thirdly, there’s the science. Climate change influences the availability and quality of water resources. On a hotter planet, extreme and irregular weather events such as floods and droughts are becoming more frequent. One reason why is that a warmer atmosphere holds more moisture. Existing precipitation patterns are expected to become entrenched. Dry areas will become drier, and wet areas wetter.

Water quality is changing, too. Warmer river and lake temperatures reduce dissolved oxygen and make habitats more lethal to fish. Warming waters are also more prolific incubators of harmful algae, which are toxic to aquatic life and humans (NB: this is a big risk in places like Lake Tahoe).

We could summarise this dilemma in the following way: bad and unusable water is going to increase, and good water is going to demand a higher price.

HOW IS THE MARKET RESPONDING?

One hardware response being used in Mendocino is GoSun, a company that sells off-grid tech and now distributes machines from Tsunami, one of a handful of manufacturers that make air-to-water units. ‘The machine draws in fresh ambient air through a filter, and that filtered air passes through another compartment where we have a condenser coil to chill the air,’ says Ted Bowman, a product developer at Tsunami.

In the same way that an air conditioner creates condensation, the system pulls drips of water out of the air, and then collects it in a basin to filter and purify it. “We’re basically doing the same thing in nature as a cloud does, but we’re trying to do it mechanically,’ Bowman told Fast Company in a recent story.

A small machine can produce around 180 gallons of water a day—more than an average home needs—under optimal conditions of 80% humidity and 80 degree weather. Mendocino isn’t typically hot, but it is foggy, which can help the system work well. It’s not cheap however, with a unit running around $30,000.

HOW ARE THE MARKETS RESPONDING?

In the financial markets, innovation is occuring. A firm named Thomas Schumann Capital has created, sponsored and launched the TSC Water Security Index, the world’s first benchmark index quantifying water risk in equities and the first-ever water footprint for global capital markets.

What is TSC really seeking to price? The extent to which the companies around us each and every day are thinking about water risk, and managing their responsibility to use and conserve wisely.

• How well does a company use water?

• What is their total water withdrawal?

• What is their fresh water withdrawal?

• What is the amount of water discharged or recycled, and what pollutants associated?

• Do they have water policies arcing toward greater efficiency over time?

These are not simple questions to answer: consider any half-dozen listed companies in the S&P 500 and imagine the challenges of retrieving accurate data? 594 of the 600 largest US companies report some or all water measures, but harmonising and comparing apples to apples is not easy.

Most existing Water Funds are focused on water purification manufacturing and water utilities. Existing water indices are also highly concentrated (typically 30-50 companies) and invest solely in equities that are in the water industry (manufacture water purification/recycling products and water utilities.) Their scope provides less diversification, scalability and no measurement of water risk. TSC’s Water Security Fund (and a looming ETF series) provides a very interesting and important entry point for those thinking about the ways markets can force water stewardship at the economy-wide level.

CAN WATER INTERESTS EVER ALIGN?

This issue has touched on three different perspectives of an enormous topic:

• What is the risk water runs out where I live?

• What are the technologies needed to find water where it’s getting worse, unusable or needing to be retrieved in new ways?

• How can ordinary retail investors push for better water stewardship from the largest companies in the world?

No question can be answered simply, and nothing overcomes the reality of the science. As temperatures warm, evaporation increases, further decreasing water in lakes, reservoirs, and rivers. As one example, every degree of warming in the Salt Lake City region could drop the annual water flow of surrounding streams by as much as 6.5 percent—for cities in the western U.S. that rely on cool temperatures to generate snow and rain, warmer weather is bad news.

As the U.S. water supply decreases, demand is set to increase. On average, each American uses 80 to 100 gallons of water every day, with the nation’s estimated total daily usage topping 345 billion gallons—enough to sink the state of Rhode Island under a foot of water. By 2100 the U.S. population will have increased by nearly 200 million, with a total population of some 514 million people. Given that we use water for everything, the simple math is that more people mean more water stress across the country.

That means more people waking to less of what they had, more technology proving popular to try solving this issue, and more investment vehicles needed to separate early-mover public market actors from those continuing to use water like it’s abundant and nearly free.

In different ways, all three are probably a good and necessary thing.

Optimistically,

Owen C. Woolcock

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3 Questions I Am Asking Myself This Week

1. When will FEMA Risk Rating 2.0 drop, and how big might the fallout be?

2. If anyone ever wants to see an example of ecological systems with multiple equilibria, look no further than the Canadian cod fishery system.

3. On a brighter note to finish! If anyone wanted to feel relieved by the importance and momentum of the Paris Agreement in 2015, consider the International Energy Agency's annual CO2 emissions projection for that year (top) and the same figures in 2021 (bottom). Staggering progress in a short time, IF the pledges are kept.

If You Read Or Listen To One Thing This Week

A powerful VICE News video on the disappearing bark beetle and an ecologist who finds herself documenting species death as much as life.

Hurricane Ida's damage bill could top $95 billion, making it the seventh costliest hurricane in the U.S. since 2000. But a worrying new trend is emerging with climate change, namely the speed that high-severity storms outpace the speed large metro areas can mobilise a full evacuation. This issue puts you at the centre of a major storm warning, and asks: when would you stay, when would you go, and what is the cost involved in the tradeoffs?

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For a slightly different format this issue we’re going to put you, the reader, on the ground in New Orleans, Louisiana (NOLA) on Thursday, 26th August 2021, and lay out information that came to local residents. If you’ve never been to New Orleans, it’s just as instructive to imagine for a few minutes that you live in any coastal city with a meaningful storm risk. Transplant your own real-life situation to that moment: imagine you’re a renter or homeowner, with a job, employment commitments, get-togethers planned, and perhaps a young family.

And then a neighbour or news flash tells you there’s a storm coming.

THURSDAY 26TH AUGUST: 0900hrs CT

From the first advisory of Tropical Depression 9, or TD9 (pre-Ida) on Thursday morning, it was abundantly clear this storm presented a huge threat to the northern Gulf coast on Sunday. As the image below shows, it is rare for projections to be this tight, as hurricane modellers like to say.

A direct hit from a major hurricane stirs deep and difficult memories for NOLA, given the events of August 2005 when Hurricane Katrina forced levee failures that flooded 80% of the city and left over 1,800 dead along with $125 billion in damages.

On the Thursday morning, with the tight projections, what should NOLA officials do? Any decision to evacuate must ensure the full evacuation has taken place before the first arrival of tropical-storm winds in Louisiana — that’s when drivers need to start getting off the roads, and when local services are shut down until the storm passes.

Calling for widespread evacuation is no light decision. Many storms have called for evacuations, and the storm missed the city. This occurred with Hurricane Ivan in September 2004, a now largely forgotten storm that many predicted would hit NOLA and swerved right — in fact, many believe the recency bias of Ivan played a role in the decisions of some NOLA residents in the lead-up to Hurricane Katrina the following summer, in 2005.

NOLA planning timelines, at least as of 2020, required 84 hours (or 3.5 days) before landfall to evacuate the city. Unfortunately Hurricane Ida didn’t give that amount of time. While it was a well-predicted storm, 60 hours of warning was too short for NOLA officials to issue a mandatory evacuation order in the days before it landed.

Here we run into a fundamental problem of math. Most major hurricanes get to be major via rapid intensification, and so a weather agency is unlikely to ever get 3.5 days warning to pass onto the public.

WHAT ARE WE SOLVING FOR?

We also need to ask what officials are solving for? Is it the big one, and averting as much death and destruction as possible? Typically the more serious a hurricane, the more damage and risk of fatality. Over the past few decades, meteorologists have gotten significantly better at predicting where a storm might go, but they still don’t always know how strong it will be when it gets there. That’s a problem, because decision makers need to know both track and intensity to make good calls. Knowing a storm will pass overhead in three days is meaningless if you don’t know whether it will be Category 1 or Category 5 when it arrives.

For those not well versed in hurricane modelling, it’s worth mentioning that ALL FOUR Category 5 hurricane landfalls on the continental U.S. — yes, just four — were just tropical storms three days prior. So the evacuation warning of 72 hours gives little protection from the very worst.

So shouldn’t the default position be to evacuate? It might shock you to learn more people died in Hurricane Rita's (2005) evacuation in Texas than from the storm itself.

SO WHAT DO YOU DO?

Let’s return to that Thursday morning, and your decision with a house full of possessions, a job, partner and (perhaps) children. No mandatory evacuation has been issued, it is up to residents to make their own decisions. There’s still two days of the working week, so why not stay, keep monitoring the storm, and leave Saturday morning if it continues to look ominous. It turns out this was the logic of many in NOLA, who left it to Saturday to leave for a Sunday storm.

Imagine the worst traffic you’ve seen around your neighbourhood. Then imagine the entire city you live in trying to leave over a 24 hour window.

You’ll see a word in the above graphic that you might not have seen before: contraflow. This is a phrase to describe when all roads (highway and non-highway) face in one direction, to enable a rapid exodus. The below is a photo from FOX8 NOLA news coverage, showing the bottlenecks that existed Saturday, largely because contraflow was not implemented. What was the city’s reason for not enacting it? From their perspective, Ida intensified too fast to allow a mandatory evacuation, and all the detailed planning that contraflow required.

The chances are you’ve likely read this, and made a natural assumption from the above information: you have a car to evacuate. Many don’t.

When Hurricane Ida approached, seven retirement homes in the NOLA area were evacuated, and 843 residents were brought to a warehouse facility on the Friday. After landfall Sunday, backup generators failed, trash piled up and care declined to shockingly poor standards, with residents complaining of having to lie in their own faeces and urine. By the Thursday after Ida had passed, four residents had died.

Then there’s the poor and immobilised. As the NYT Daily illustrated with the story of the largely black complex in New Orleans East called the Willows, stories ranged from unemployed black men who had their cars in the parts shop for new tyres, and no cash flow to get the repairs done so they could leave, to matriarchs of large black families with multiple children and grandchildren with disabilities, making it impossible to leave without taking everyone.

And if they left, where do they go? Hostels in Baton Rouge or other refuge towns cost money, which often come off the next month’s rent for someone close to the poverty line. But by staying, there was no guarantee of groceries being open, trash or water services staying on, or life coming back to normal for weeks. NOLA officials try to bus out many people at ‘evacu-spots’ but for the reasons above, many don’t want to go.

So when you reflect on the original news, would you have left Thursday, Friday, Saturday or not at all?

SUNDAY, 29TH AUGUST: 1800hrs CT

With wind speeds of 150 miles an hour at the moment of landfall, Ida—which eventually weakened to a Category 3 storm—was both a better outcome than dreaded, and a terrible storm regardless. While the extent of damage in the most affected areas is still unclear a week or so on, the storm caused catastrophic power loss in New Orleans and forced doctors and nurses in at least one hospital to pump air into COVID-19 patients’ lungs by hand. It also knocked out 95 percent of U.S. oil production in the Gulf of Mexico. So in your own personal decision tree, where were you — a few hundred miles away, or stuck back in town?

THE AFTERMATH

The weeks after provided very little sense of celebration, even if the $14 billion levee system averted any Katrina-like repeat of NOLA being flooded. There’s been no electricity and no air conditioning in much of the city, and in late August in south Louisiana, it’s sweltering — with the heat index regularly above 100F. Lines for gasoline can stretch for four hours. People don’t have jobs to go back to, the schools are closed, and so the entire city sits in an odd stasis, while excess heat deaths rise (89 deaths in Louisiana since Ida from heat stress at the time of publication).

Some levees still failed in neighbouring areas (or parishes as they are known in Louisiana). The most notable failure was in the town of Lafitte, just south of the city. As Ida rolled north, a massive storm surge of 12 feet overtopped the ring of seven-foot-tall levees that surround the town of around 2,000 residents, inundating almost every home and business. The town’s locally maintained levee ring, which was the product of a sustained lobbying campaign by local leadership, had been completed only last year and had been intended to attract long-term investment to the small shrimping town. Ida revealed in the space of hours that the town was much more vulnerable than engineers had assumed. At its peak, the storm surge was almost twice as high as the levees that were supposed to contain it. So here was a town that tried in good faith to stem the retreat of investment we so often talk about on Climate and Money, and nature still had the final say.

Knowing all of this, would you have stayed? And if you’d have left, when would you decide to return?

HOW IS CLIMATE CHANGE AFFECTING HURRICANES?

So how much of this is climate change, and how much the challenges of time-honoured hurricanes? Climate change has a subtle influence on hurricanes. They seem to be getting wetter and more intense, but not necessarily more frequent. Scientists are confident that global warming is increasing rainfall from major tropical cyclones, just as it is increasing precipitation amounts from all types of storms. Some researchers also believe that more hurricanes are following the pattern taken by Ida and getting significantly stronger in the hours before landfall.

Ultimately, we keep coming back to the same conundrum: it’s not going to be the past, and our cities, planning conditions and real estate markets are designed for a car-oriented century and a kinder, more stable climate.

CONCLUSION

If rapid intensification becomes more common, then officials will find it harder to make good judgments about hurricanes. It now takes longer to evacuate a city than it does to build a destructive hurricane. And that leaves anyone in a hurricane path with limited information to make some of the most pivotal decisions imaginable. Even when the storm hits, there are points of failure for which no one can be certain about the recovery timeline. Finally there are those without the means to evacuate.

As the pandemic and Hurricane Ida have shown, one of the hardest things to price is the cost of a non-zero probability. What if Ida had petered out to a regular storm? What if had been the fifth Category-5 Big One? Asking what level of caution or confidence you might’ve taken in the shoes of a New Orleans local three weekends ago is an important, if uncomfortable, question.

Optimistically,

Owen C. Woolcock.

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3 Questions I Am Asking Myself This Week

1. Local energy provider Entergy recorded the number of poles broken during Ida compared to hurricanes in the past. It’s captured in this graphic below. Who really pays for this, and what is the long run cost?

2. Around 30 billion gallons of water fell across the five boroughs of New York during the storm remnants of Ida. If someone could drop that much water on the California fires it would take 1.5 million separate water drop flights from a 747 Supertanker.

3. Ida has stolen most of the headlines, but the wildfire situation in California continues to be quite serious. Here's an updated Top 20 list for the state, courtesy of catastrophe modeller Steve Bowen. Three 2021 fires (Dixie, Caldor, Monument) sit in the Top 20 largest fires since 1932:

If You Read Or Listen To One Thing This Week

We will likely cover Ida’s impact on New York and New Jersey in a future issue, but if you missed the dramatic scenes around Manhattan, this is a nice collage of videos from the New York Times.

The Surfside building collapse on June 24th, 2021 killed 97 people, and will take years for forensics to understand the cause to the detail victims and their families deserve. Two questions are worth asking, even with all the sensitivities of the tragedy: (i) do we make too many assumptions about the safety of buildings in many climate-vulnerable coastlines; and (ii) what are the benefits and tradeoffs when residents sit on boards and make decisions on the life cycle investing of their building? The answer to both is complex, but important.

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WARNING: This newsletter discusses a fatal event, and includes an optional link for the surveillance video of the collapse. Readers can view at their discretion. Real people were affected, and to respect their grief and search for answers, this issue draws only on engineering findings and legal commentary current as of August 2021, and/or information already reported in respected national media outlets.

WHAT HAPPENED?

At around 1:30am on June 24th, 2021 a portion of Champlain Towers South, a 12-story condominium in Surfside, Florida, near Miami Beach, collapsed. If you have not seen surveillance footage of the the moment the building fell and believe it would help in your understanding of the event, a link is here. Champlain Towers South was built in 1981, along with a near-identical structure, Champlain Towers North.

The oceanfront tower was constructed of steel-reinforced concrete, and sat atop an underground parking area that extended below the adjacent common area that residents called the pool deck.

In the minutes leading up to the collapse, residents from nearby buildings heard a loud sound and a section of the pool deck fall away into the parking area below; for this reason, the leading theories all suggest the final collapse was part of a series of structural events that started small and led to large failures.

Inspection reports from 2018 noted major structural damage to the concrete slab around the pool deck. The issue was that rainwater on the pool deck could pool on the concrete slab, and with nowhere to go on properly sloped drains, it lingered and moved into the pores of the slab itself. The rain kept moving down into the parking area, and also slowly began deteriorating the reinforced concrete structure itself.

It’s important for an international audience to understand that the 136-apartment building was collectively managed by a condo board association with many residents as its members. Over many years, there were meetings where residents raised issue with different parts of the building, and experts presented reports with insights and recommendations.

Problems with the building were not news to the people who lived there.

A contractor told the Miami Herald that he’d come to look at the area under the pool just two days earlier, and had seen corroded rebar and cracks in the concrete, as well as standing water. A building employee had told him that the building pumped out so much water that the pump motors had to be replaced every two years.

A 2018 engineering report, commissioned ahead of the building’s required forty-year recertification process, found ‘major structural damage’ under the pool-deck area. This April, the condominium-association president sent a letter to residents noting that, in the two and a half years since the report was issued, the situation had become ‘significantly worse.’

What is most striking about the letter, though, is the association president’s insistence that none of it should have been news to the residents—the issues, she wrote, had been ‘discussed, debated, and argued for years’ (That claim will likely be contested in court; several surviving residents have already filed lawsuits).

All that was left to address was a $15m assessment to pay for the needed repairs, with owners being asked to pay between roughly $80,000 for one-bedroom units to $336,000 for the penthouse. Yes, that’s a lot of money. In words that could echo through every climate-vulnerable community in the world, the president wrote near the end of her letter: ‘A lot of this work could have been done or planned for in years gone by […] But this is where we are now.’

WHAT HAVE WE LEARNED, AND COULD IT HAPPEN AGAIN?

It does appear that the sister building Champlain Towers North, did have some of the same issues identified and sought to remedy them with greater speed. With such a focus now on building standards after such a tragic event, hopefully it is not repeated.

The problem is all the ingredients are there for this to happen again. The Saturday after the collapse, Daniella Levine Cava, the mayor of Miami-Dade County, announced an ‘emergency audit’ of residential buildings that are forty or more years old in her jurisdiction. The audit identified 469 multifamily buildings that are of particular safety concern. Twenty-four of those buildings are at least four stories high; two are eighteen stories high. 

Tragedies are usually part of many separate factors coinciding. Subsidence has occurred in a lot of coastal Florida. It’s possible from early photos that not as much reinforcing steel was used as there should’ve been from the original drawings, particularly in the column to slab connections around the pool. Construction was happening in a nearby site. There will be discussions around inspection standards, and corruption, and liability, but what is one of the main underlying causes? Saltwater and concrete.

WATER AND CONCRETE IS BAD?

For better or worse, concrete is one of the most ubiquitous building materials of the modern world. But it has vulnerabilities.

Have you been on holiday and walked past an ageing part of a harbour, similar to the image above? Salt-laden air from the sea can carry chloride ions toward inland structures. When these chloride ions saturate the concrete, they accelerate degradation.

That first stage is like a concrete-eating exercise that reaches the steel and does the same, but worse. Corrosion doesn’t merely weaken the steel, it causes it to expand in volume, creating pressure inside a reinforced concrete structure. Eventually the corrosion can reach a point where the pressure is too much. In the civil engineering world, this is referred to as delamination.

Shouldn’t we just look for these images in our buildings, and raise alarm when we see them? The problem is it’s not as simple as knowing rainfall is rising, and concluding older buildings are at risk. The damage to the pool deck found in the 2018 inspection report is severe, but not an indication of an imminent collapse of the adjacent building by itself. We don’t know how much deterioration occurred between 2018 and 2021, but it would be a brave structural engineer to recommend evacuation of an entire building based on the 2018 photos alone.

Our built environment crumbles, and ages. That’s a part of investing in life cycles, and repairing and improving when needed. We walk past small sections of decay all the time in our cities: knowing when it’s part of a long, slow process and something of immediate danger is something our eye doesn’t train us to know.

Each forensic team is trying to answer different questions, but many pieces of concrete retrieved from the site will provide clues over time.

WHO DECIDES WHAT’S AT RISK?

The other major issue from this disaster is the question of what did the condo board association know, and when did they know it. Made up of residents, condo association boards take care of the mundane but also important and costly repairs.

The level of maintenance performed by a condo building varies from condo to condo and is typically dependent on the association. This is a major cause for concern: people don’t know what they’re living in, and new purchasers are never sure of the power dynamics of a condo board before they buy. Everything about maintenance is a struggle, and typically ordinary people in a building have little expertise in evaluating contractors and managing timelines.

Do ordinary residents know the gravity of their responsibility? Even while doing work such as concrete restoration and repair, there will likely be issues that engineers can’t visually see or access without the use of x-ray technology. What condo board argues for an x-ray inspection out of their own pocket, and how happy are other residents to pay for this detail in ordinary times?

And what about the size of the Champlain Towers South sinking (or reserve) fund, and the conversation that might’ve taken place in the building when $88,000-$366,000 assessments were required to repair the works?

Something we don’t discuss enough is that apartment living is effectively a capital ‘lock-in’ event: you buy, and have enormous wealth stored in the asset, but your ability to influence ongoing expenses is limited.

If slow onset building erosion makes living in the property more expensive, and potential buyers learn this, they have the opportunity to self-select out of the investment in a way you don’t. The looming reality for many building resident groups is to either have the hard conversation and begin putting aside a lot more funds for the inevitable problems, or at least be straight with people about the capital involved.

At Champlain Towers South, the volunteer condo board was doing the right thing by following the priority list for work generated by external experts. The roof was prioritised due to the start of the hurricane season on June 1, and was underway when the collapse occurred.

WHY DOES IT HAVE IMPLICATIONS FOR A CLIMATE AND MONEY AUDIENCE?

There are several reasons why an event like the Surfside collapse should be in our mental models:

• What’s the price of moving fast? Decades into a statewide population boom, Florida standards are uneven and poorly enforced, with gaps for older construction. If you live in Surfside, Florida or Surfer’s Paradise, Australia or even Southbank, London, it’s always worth asking what the long-run implications are of a construction boom period where developers have high financial incentive to complete a building and move onto the next.

• Value dilution can occur by proximity. Research shows non-floodplain properties see insurance costs rise after a nearby flood, showing that damage to infrastructure and loss of myriad services are a factor for properties in proximity. For this context, there’s every reason to suggest it will be harder to sell condo apartments in and around the Surfside collapse site for the next few months, and certainly the case if the property is of a similar construction vintage.

• You can’t ‘time the market’ on climate change. More buyers look reluctant to buy condos in older buildings located on the ocean’s edge out of concern that a building may have some of the same issues as the one in Surfside, leaving owners to sell at a steep discount or take their property off the market. In the medium term, insurance companies may decide to reprice their policies for oceanside condominiums, raising the cost of living there and likely decreasing their value. A Surfside seller can’t take a time machine back and sell their condo in early 2021 before the disaster, this is the new and ongoing reality when a new risk is better understood and priced in.  

• The standard is never fixed. Just because a building passes a regulatory inspection doesn’t mean everything’s OK. Building codes were designed for buildings that were designed prior to many of our current weather conditions. It’s a generation-to-generation upgrade process. Climate change in Florida will approach a point at which even the best-constructed buildings are under threat. 

A FINAL THOUGHT: WHY NOT US?

When the rescue operation was just starting, Charles Burkett, the mayor of Surfside told CBS News: ‘Buildings like this don’t fall down in America.’ His words, with their implicit appeal to the nation’s exceptionalism, sounded almost plaintive.

We’ve mentioned in prior issues that one of the most basic ideas, and challenges of climate change is that research repeatedly shows people can believe climate change is real, will affect wealth and livelihoods, but don’t draw the correlation it will affect them.

If water isn’t diverted, it erodes and destroys things we take for granted, like sturdy buildings. That’s nature. Ultimately, when we live in a fixed world, we can easily forget people and firms can adapt with a speed buildings can’t. We don’t know why this building fell down, but we know that others will. And giving thought to the capital implications of even the unlikeliest scenarios isn’t a bad idea.

(Not so) Optimistically (this time),

Owen C. Woolcock

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3 Questions I Am Asking Myself This Week

1.  The state of Arizona has apparently been in drought since 1994. With the latest droughts unfolding in much of the western United States, how many are beginning drought stretches likely to persist for years or even decades?

2. Mathematician Andrew Wiles reflecting on the patience involved in solving puzzles, this quote could easily apply to climate science and decarbonisation too:

3. Hurricane Ida, which is slowly approaching the U.S. coast, discharged 2,345 lightning events between 8:45 and 9:30 ET this morning, or just about 1 lightning discharge every second.

If You Read Or Listen To One Thing This Week

Twitter Link: Large storms washed away sand on a well-known Australian beach, and revealed stone carvings etched from prior storms that people hadn’t seen in decades.

The climate science and policy world is timestamped by the release of each IPCC report — a major piece of scholarship review that allows the world to take stock of its progress (or lack thereof) in the battle to decarbonise and prevent dramatic climate change. It’s big, good work and deserves attention. The common focus is on the scary prognosis for this century, but this issue will examine what it means for financial markets and investment runways.

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WHAT IS THE IPCC REPORT, AND WHY DOES IT MATTER?

When the scientific community realised the scale of the greenhouse effect in the 1980s, there needed to be a way to monitor and report back on new information as it arose. The IPCC is the body of the world’s leading climate experts, formed in 1988 and charged with preparing comprehensive reports on the state of our knowledge of the climate.

Its first report in 1990 warned of the potential consequences of rising greenhouse gas emissions, and was key to the forging two years later of the UN Framework Convention on Climate Change, the parent treaty to the 2015 Paris agreement.

Since then, reports have been produced roughly every seven years. The IPCC is now in its sixth assessment cycle, which is why you see the acronym AR6 for the Sixth Assessment Report. Only the first part, dealing with our knowledge of the physical basis of climate change – the core underlying science – was published on Monday. Two further instalments, on the impacts of the climate crisis and on ways of reducing those impacts, will follow next year.

Exactly 234 scientists from 66 countries have put in five years of effort to understand and report on climate change and its global impacts. I’ve had the privilege here at Harvard to work with, or study some of those who’ve been involved either in submitting papers, or reviewing the science. For those who spend a lot of time away from the peer-reviewed research method, I say with what integrity I have that it’s an incredibly demanding process. That’s why it deserves our attention, even if only for a one week media cycle.

HOW BAD IS IT?

Catastrophic is not a light word to use. If you feel like going deep on the conclusions, and/or getting depressed, check out excellent summaries here, here and here.

Alternatively, you could look at this photo taken from Greece last week during their extraordinary fires, and remind yourself that in many ways, we’ve already entered something verging on the surreal. How poignant, and unsettling that the only person looking at the camera is a young child.

WHAT DOES IT MEAN FOR MONEY?

At Climate and Money, we’ve always been focused on bringing two worlds together: two audiences — climate science, and ordinary people with relationships to the markets — who need to understand the other’s language, outlook and incentives. The internet is filled with responses from the IPCC’s update that are rightly despondent about our ability to avert the worst of our possible futures.

As a refresher, this excellent bit of data visualisation from the report itself shows the pathway of global average surface temperatures we’ve been on, and our five options (and they are options in that choices are involved). The cheat sheet notes are this: we have to be in the bottom three boxes, and have the ‘peaking’ arrow as close to today as possible, which brings the ‘1/2’ and ‘0’ lines closer, thereby keeping global temperatures to a tolerable level. Only the bottom box gives us a chance at having a planet anything like what we know, and even that’s technically a stretch to say.

How can our actions in one lifetime have so much significance, you might ask? Surely we’ve been emitting fossil fuels since the 1850s? Well partly it’s the carbon budget, covered in a recent issue, which shows we’ve exhausted the allotment before the impacts started to be severe. But the other critical part is unlike conventional air pollution, which eventually ‘goes away’, most of the CO2 we emit stays in the atmosphere for hundreds to thousands of years. Its impacts are cumulative, which is why every tonne of greenhouse gas matters.

This is why there is a time-value to emissions reductions.

Breakthrough technologies to greatly accelerate emissions reductions are important. But also, every year we don’t implement available solutions is another year of carbon budget lost. With no time left, we now need to do the available solutions AND invest in breakthroughs. The change in our economy will be significant. This excellent timeline released by the International Energy Agency (IEA) shows what needs to happen and when.

If you take nothing else from this issue, look closely at the timeline above and ask: am I investing in firms that will take advantage of this multi-phased industrial transfer?

A lot of this is around revisiting assumptions. So let’s look at two domains where we might see a need for new dollars, and outsized returns for those who understand the enormity of the opportunity:

1. THE SPATIAL PATTERNS OF REFUELLING

A WSJ article this week on gas stations pointed to an interesting reality of owner/operators in the built environment, given the spatial patterns of how we refuel vehicles: gas stations will become a stranded asset — people will stop building them, even before they become completely unviable — because they anticipate declining future profits.

As the story shows, some gas stations, convenience stores and truck stops in America are adding chargers to test the technology and protect their market share for the long run. This is intuitive. Others say they crunched the numbers and decided they can’t justify the cost, given the small share of electric-vehicle (EV) drivers. Charging units and installation typically cost upward of $100,000 each, and might entail the expense of tearing up pavement to lay conduit.

This begs the question: have you ever wondered how your nearby gas station works? The normal range of capacity in the U.S. is 10,000-12,000 gallons per pump, stored in underground tanks. The metal tanks used in days gone by failed in short order, anywhere from four or five years to twenty or thirty years as a rule. Today’s modern tanks use synthetics that don’t rust or don’t break down when in contact with gasoline, and can last a century. This is a long investment cycle.

So what is a husband and wife franchise owner of a gas station seeking to achieve with a few GM EV charging stations? This is a perfect example of the uncertain middle zone: are hard capex investments worth it?

Then there’s the reality of how EV manufacturers are planning to enter the market: they want to control the experience. Examples like this Tesla supercharger facility show the totality of throughput, the focus on aesthetic, the solar panels a standard of site base load generation. Also one needs to factor in that EVs will be adopted in wealthier areas at a faster rate: what does that do to the balance of standard fuel vs. EV charging options in some parts of cities?

But let’s not forget the IEA’s explicit goal in the their timeline above: 60% of all global car sales being electric by 2030. As the IPCC Report showed, that’s non-negotiable. The next time you drive past your local gas station, take a look at the lot size, the entry and exit points, the retail parking, the socio-economic level of the area, and ask: how will that site manage this transition? What products and services will address new market needs, and what will happen to the real estate on or around that site as these needs change? There are more than 150,000 fuelling stations across the United States, with 127,588 of these stations convenience stores selling fuel. In a small domain of modern life, we’re about to see a huge opportunity for growth if the right firms are identified.

2. THE CLEANING INPUTS NEEDED IN EVERYTHING

A Boston angel investor and early stage climate fund this week announced funding for Remora, a startup looking to make a big impact in long haul trucking.

Of the 6.6 billion metric tons of CO2 emissions generated each year in the U.S., nearly a third comes from transportation and, within that segment, 23% comes from medium and heavy-duty trucks. That’s 6.8% of total emissions in America.

Trucking requires custom solutions in order to reduce its carbon footprint. Even with big battery breakthroughs, electric vehicles will probably never be a practical solution for things like 18-wheelers.

At the company’s Detroit, MI facility, Remora has been retrofitting semi-trucks with their proprietary carbon capture technology. The hardware is installed between the truck and its trailer, where it attaches to the tailpipes of the vehicle and captures its carbon emissions.

Remora plans to establish CO2 offloading sites at distribution centers and truck stops, where captured emissions are pumped and stored in tanks. From there, Remora picks up the CO2 in a tanker truck and permanently stores the CO2 underground, which it can then monetise through tax credits and the sale of carbon offsets. In the short term, Remora plans to sell CO2 to concrete producers and other businesses that use it as input.

This video summarises their efforts well:

This is the image I think is worth reflecting on:

In the space of a 53-feet long structure, weighing up to 33,000 lbs, someone realised the space for an input that no one else had (black inset). This is likely to be the story of reaching net-zero, seeing the imaginative that looks obvious in hindsight.

It’s worth each investor asking: where else is this likely to occur?

A FINAL THOUGHT, WITH A DIFFERENCE

It would be flippant to not return one last time to the scale of the IPCC’s forecast. Being a parent brings into sharp focus the implications of the change we need to see. In that vein, I wanted to share a slightly unconventional final thought —

A few years ago I read a short novella called The Last Children of Tokyo, by Yoko Tawada. Set in a dystopian future where an unspecified global catastrophe has plunged the world into chaos, cities become unsafe due to air and water pollution. Over the preceding century, successive generations of children have been born increasingly feeble and prone to illness, so that while the elderly continued to live with undiminished vitality, children in each generation were increasingly intolerant to most foods, with malformed teeth due to lack of calcium, and severely deformed bones.

The book has just two main characters: Yoshiro, fit and spritely at over 100 years old, and his great-great grandson Mumei, who is in second grade. All the generations between are no longer alive, with life expectancy collapsing for descendants in Yoshiro’s family line. Mumei, and a handful of others around his age attend school but are unlikely to live beyond their teens: for that reason, they are the last children of Tokyo.

The most painful, and evocative analogy from the book was of Yoshiro running four-minute miles beyond 100, and pushing his great-grandson Mumei in a stroller along the polluted waterways on the outskirts of the city. The power of the author’s vision was to construct a world where an old generation had all the bounty of nature, but were condemned to watch every generation after them lead poorer lives in every way. Their fitness and recollections of the world before the catastrophe worked together to make their lives long and regretful, never able to restore what they took for granted, and never able to see their descendants flourish.

If one is inclined, there’s plenty of dystopian climate fiction to read. If you do, it’s easy to get despondent. But if you take one central idea from the IPCC Report this week, as someone coming in and out of the topic, it’s this: we can’t take for granted it’s going to be better for our children and grandchildren.

A 2C warmer world is a far cry from what we’ve lived in. A 3C or 4C warmer world is truly unimaginable. Too often we can believe politics is the only domain where this battle will be won: how you invest your disposable income, and what you choose to invest in makes a difference — depending on how much you earn, arguably far more than your vote.

Let’s all keep looking for the gap between the truck and the trailer.

Optimistically,

Owen C. Woolcock

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3 Questions I Am Asking Myself This Week

1.  The report’s authors estimate that the future of a liveable planet now relies, at least in part, on our removing anywhere from 100 billion to a trillion tons of carbon already in our atmosphere by end of century, depending on how much more we keep on putting into it. To put that in perspective, estimates show that we currently have the capability to take out about 5,000 tons a year through direct air capture.

2. The Prime Minister of Bangladesh is calling for developing countries to stop paying debts in order to fund essential adaptation now that the IPCC Report has definitively linked extreme weather loss & damage impacts to climate change. Not the last time an idea like this will be proposed.

3. Women almost everywhere in the U.S. are delaying having children, resulting in profound changes to American motherhood. The birthrate is falling fastest in places with the greatest job growth as women prioritise education and careers. What does this profound change mean for the carbon footprints of Mums, their children and the firms they work with?

If You Read Or Listen To One Thing This Week

A powerful chart:

This is the third of three issues talking about fire. It’s time to confront the grim reality: communities hit by large fire don’t really recover. It’s hard to recruit teachers, police and nurses back into these communities, it’s hard to keep school class sizes at optimal levels, and it’s hard to attract investment. This matters — if large areas become too dangerous to live, those people need to live somewhere. And that migration is unlikely to be planned or seamless.

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Welcome to the third in a three-part series on fire.

• In the first issue we examined the science and technology involved in understanding what happens after the fire has burned. How do forests regenerate, and why does this matter so much in how we respond and innovate?

• The second issue explored the $260 billion global carbon offsets market, why companies like Amazon and Microsoft are buying up carbon credits from forestry entities, and how well those markets are currently functioning.

• In the third and final issue, we’ll look at the uncomfortable future ahead for people who live in what’s known as the wildland-urban interface (WUI). How will they get insurance, how do they flee fires and rebuild, and what will their homes be worth if no one wants to live in these locations afterwards?

THE TRUTH IS WE’VE NEVER CONTROLLED FIRE.

This extraordinary photo taken during the current unprecedented fire season in the western United States is a nice analogy to start this week’s issue. The truth is we’re seduced and bewildered by the forces within a fire. Humans always have been.

For the most part, our towns and suburbs have a serene, idyllic feel to them. It’s hard for us to conceptualise anything different.

For several generations, fires were seen as a dangerous phenomenon to be kept away, and society at large probably didn’t appreciate the numerous ecological benefits of fire (see the first issue). In the last century, we’ve had three new elements complicate our capacity to live with fire:

• Some aspects of forestry management allowed a large buildup of fuel

• Logging led to homogenous tree species clustered in density

• People moved further into nature (or the wildland-urban interface), assuming amenities, quality of life and emergency response times would be no different to the city. In these locations there is vegetation and human development

Fire can’t be excluded from the landscape. It’s that simple.

Hanging over the spectre of these factors is of course, climate change: in this context a changing climate means shorter winters, longer fire seasons, higher temperatures and weather that generally leaves less moisture in the ground for longer, meaning dryer fuel to burn. Each fire you hear about in the news is part of a 30-40 year story. As ever, the numbers paint a sobering picture:

• In that time the area burned by large wildfires in the western United States has increased by over 1200%

• The number of large wildfires have increased by roughly 500%

• Between 1990-2010, there’s been a 40% increase in homes built in the wildland-urban interface. Despite that growth, only 14% of the overall wildland-urban interface has been built in. Another way to think of this: if you’re a developer or planner who has an incentive to build, and doesn’t view fire as a risk, there’s plenty of space left to build new homes in the secluded wilderness

BRINGING IT BACK TO THE HUMAN SCALE…

But to see the true scale of how a fire can unfold, and change the lives of thousands of people in a single morning, it’s worth retelling the key moments of the Camp Fire that hit the town of Paradise, CA on the morning of 8th November, 2018.

PARADISE BURNS

Paradise is 150 miles northeast of San Francisco, in the foothills of the Sierra Nevada: a world away from beaches and bikinis, Hollywood and Silicon Valley, it is still Californian to the core. On the morning of the Camp Fire, 27,000 people lived in Paradise, with another 15,000 or so in unincorporated communities up and down the hills and valleys around it.

Many things went wrong on the day of the Camp Fire, but it’s still important to understand at the outset: this is not the story of a town that neglected the reality of its place in a dry forested wilderness.

It had a formal emergency plan, updated every few years. The latest evacuation plan, completed only a year prior to the Camp Fire, split the city into fourteen distinct zones, and sent out ‘know your zone’ mailers to residents. It also established a reverse-911 alert system, which would call residents with an automated message in the event of a disaster (sadly local politics meant it was an ‘opt-in’ system). Drills were conducted, and high-risk brush areas cleared near the hospital. But on the morning of the Camp Fire, fire chief Matt McKenzie woke at 5:00am, confused to hear what sounded like rain hitting his metal roof when none had been forecast. After a moment, he realised it was pine needles being flung from a strange, unseasonably strong wind.

Sometime an hour later, a high hook up on the arm of a transmission tower broke, releasing an electric wire that threw sparks into the brush below near a dirt track called Camp Creek Road — forever giving such a playful name to a deadly day.

Captain McKenzie, the first unit on scene, observed rapid fire growth and extreme fire behaviour. Possibly saving many more lives than the 85 fatalities lost later in the day, he radioed in a request for resources and evacuations with a note, "this has got potential for a major incident," and that he was "still working on [finding a way to] access [the fire]." Access to the fire was by a narrow mountain road, which the fire engines were too large to navigate. Air resources had to wait until 30 minutes after sunrise, but due to winds, aircraft were not on the fire until the afternoon.

Calls from the small nearby town of Concow and Paradise continued for an hour at nearly one call per minute to report a fire — all were told there was no danger, that the fire was north of Concow off Highway 70, that there was no evacuation, and that authorities would contact residents if there were danger. The problem was the dispatch team was advising from information received nearly an hour earlier from Cal Fire, typically not a calamitous information delay for a normal fire.

In the eastern neighbourhoods first hit, more than half of the 4,272 alert calls failed, because phones had been disconnected, numbers had changed, or cell towers didn’t work (later investigations concluded this could’ve been burned infrastructure or the system being overloaded by a flood of alerts).

The best laid plans for the Emergency Operations Center (EOC) in the centre of Paradise fell apart when officials went out to reconnoiter the streets, and did not return because they were pulled into assisting with evacuations and saving lives as the fire hit the eastern edge of the town with ferocious speed. Some gusts from satellite imagery had fire speeds of 40 metres per second.

Did any of the planning matter? Yes and no. The fire was too big and too fast to get a whole town evacuated and out of the way.

WHAT HAPPENS WHEN A FIRE HITS WHERE YOU LIVE?

To be honest: everything. Life is going on. Children had been dropped at school. Elderly men were in ICU for gallbladder surgery. One women was on the operating table for a Caesarean section when the code black came through the hospital — get everyone out. Those departing hospital — IV bags carried in their own arms — soon ran into trouble, the same trouble affecting the rest of the town.

A reason the town had been divided into fourteen evacuation zones is it wasn’t feasible to evacuate the whole of Paradise in one exercise. Some two lane roads had been widened on recommendations from a smaller 2008 fire, but if you think about it: how well would your neighbourhood do if every car went onto the streets in the space of half an hour?

By mid-morning, the town had been completely engulfed. The major problem became visibility, as the sky turned black in every direction, and the town became surrounded. Dozens abandoned their cars on the evacuation roads in terror of the approaching flames, meaning thousands grew desperate in backed-up traffic inside the town, confused why things weren’t moving. Tragically entire families were found perished in their cars after, simply trying to use back roads and getting stuck as the fire advanced.

The fire had become different to the blaze that roared through the valley four hours earlier; now it was an urban fire, spreading from building to building, with the heat of burning structures igniting vegetation rather than the other way around. Ashes and embers found their way into ventilation ducts, clogged gutters and cracks. By the time the fire had been controlled, 18,800 structures had burned, or 85% of all the town’s buildings. Around 30,000 people in the area had their homes destroyed.

HOW BAD WAS PARADISE?

It was the deadliest U.S. fire in a century, and the most destructive in American history. By January 2019, the total damage was estimated at $16.5 billion; one-quarter of the damage, $4 billion, was not insured (NB: in a future issue on climate liability, we will delve into PG&E’s blame and the bankruptcy that followed).

How much of a job is the cleanup in a small town? Crews had to remove twice as much debris from Paradise as what was left from the Twin Towers after Sept. 11.

A full twelve months on, just 11 homes had been rebuilt. Students who tried to finish the school year weren’t in an ordinary school but a building at the nearby Chico Municipal Airport that had been transformed into an ad-hoc substitute, with cubicle walls and tapestries serving as classroom dividers.

And this is where the reality of the post-disaster meets the choices many of our communities will need to face in the years ahead. Just removing the toxic debris cost almost $2 billion. In search of cheaper housing, survivors moved to states like Oregon, Idaho and Texas. The population of the town on the morning of the Camp Fire was 27,000, today it’s just 3,000. There’s been no inbound migration, especially in core posts like nurses, teachers, police and fire.

The other reality of fire-ravaged towns is a lot of people get trapped financially. The elderly and low-income citizenry lack the means to up sticks and move; moreover they find themselves in completely altered communities, often without a tax base or economic foundation to support the citizens left. The data shows two large groups are squeezed fairly quickly in a post-disaster setting:

• the poor, who move into homeless or temporary housing settings; and

• the middle class, who owned their homes and now rent, or fight to rebuild with high costs and ever-larger insurance burdens

Then there’s insurance. Even though a 2019 California law requires insurers to renew homeowner's coverage on properties that survived wildfires for at least one year, it’s easy to see what happens the moment this expires: coverage is withdrawn. All the while, insurers see higher costs and more frequent events, and ask: at what point does it make sense to withdraw from a market altogether? All this begs the obvious question..

Should towns like Paradise, built into dense overgrown dry forests where the homes themselves become ignition sources, be rebuilt in an era of climate change?

THE EFFECT LINGERS

Lastly, there’s the smoke. What exactly is in a wildfire’s smoke depends on a few key things: what’s burning — grass, brush or trees; the temperature — is it flaming or just smouldering; and the distance between the person breathing the smoke and the fire producing it.

This map shows the concentration of black carbon particulates (soot) on July 21st, 2021 with data from satellite, aircraft, and ground-based observing systems (via @NASAEarth)

The distance affects the ability of smoke to “age,” meaning to be acted upon by the Sun and other chemicals in the air as it travels. Ageing can make it more toxic. Importantly, large particles like what most people think of as ash do not typically travel that far from the fire, but small particles, or aerosols, can travel across continents. The new study on smoke from the 2018 Camp Fire found dangerous levels of lead in smoke blowing downwind as the fire burned through Paradise, California. The metals, which have been linked to health harms including high blood pressure and developmental effects in children with long-term exposure, travelled more than 150 miles on the wind, with concentrations 50 times above average in some areas.

As you can see, and as people in New York City, D.C. and Boston experienced this last week, the fires you see on the news can affect everyone, nearly everywhere.

CONCLUSION

Paradise was an extreme fire; but one more people will experience with climate change. Paradise was a town ready for manageable risks, but the conditions on the morning of the Camp Fire threw plans out the window. Paradise had amenities and technology befitting a 21st Century community, and little of it mattered or worked as planned.

Ultimately, anyone caught in the wrong place at the wrong time is just like those firemen in the first photo — a little bewildered, a little in awe, and a little powerless waiting to see how nature takes its course.

Optimistically,

Owen C. Woolcock

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3 Questions I Am Asking Myself This Week

1.  Cal Fire is responsible for 30,000,000 acres of California wilderness, excluding cities and areas with their own fire departments. The century-old organisation acquired its first fire truck in 1929, and today boasts more than 800 fire stations and more than 5,000 full-time workers, responding to more than 5,000 fires per year.

Costs for firefighting in California rose from $90m in 2010, to $947m in fiscal year 2018. That summer, Cal Fire needed additional funding after it spent $432m in just two months while fighting the Mendocino Complex Fire. A question worth asking, which I don’t have the answer to, is: what price should society be paying for fire protection?

2. The Camp Fire had a total burn area of 154,000 acres (62,000 ha). That’s equivalent to 14,000 Vatican Cities.

3. If Cal Fire manages public lands, and local towns are managed by their own fire department, what coordination gaps exist in disasters? If both parties could wave a magic wand, how would they work differently? Would both sides agree on the points of change?

If You Read Or Listen To One Thing This Week

(Youtube): A powerful PBS Frontline documentary tells the story of Nov. 8, 2018 in a balanced and thought-provoking way. For those interested to understand the day in more detail.

This is the second of three issues talking about fire. What is a carbon offset, how does it work and why are forests and nature so regularly talked about in this equation? We explain these ideas and lead to an obvious, important question: can there be a functioning market when it’s constrained by, and beholden to nature?

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Welcome to the second in a three-part series on fire.

• In the first issue we examined what happens after the fire has burned. How do forests regenerate, and why does this matter so much in how we respond and innovate?

• This second issue explores the $260 billion global carbon offsets market, why companies like Amazon and Microsoft are buying up carbon credits from forestry entities, and what this means for fire.

• In the third and final issue, we’ll look at the uncomfortable future ahead for people who live in what’s known as the wildlife-urban interface. How will they get insurance, how do they flee fires and rebuild, and what will their homes be worth if no one wants to live in these locations afterwards?

THE CARBON BUDGET, EXPLAINED…

A recent ABC (Australia) story helped to illustrate the basics of our carbon dilemma in a simple, effective way:

• Every time we burn coal or gas or petrol, we release CO2, which is a molecule that keeps our atmosphere warm

• Roughly half is absorbed by what are called carbon sinks (i.e. oceans and forests)

• But here’s the important bit: the other half doesn’t disappear — it stays in the atmosphere

• If we want to stop temperatures rising, we have to stop emitting CO2. No amount of political slogans or spin can change that

The below image shows a blob, and an orange line: the blob represented the world’s emissions in 1940, since the start of the industrial revolution, and the orange is a metaphorical budget line that the world can’t go over, lest we push beyond a 1.5C rise in global average temperatures, and kick off a chain reaction in our fragile ecosystems that will be difficult to ever correct. Essentially we need to stop emitting CO2 before the blob goes beyond the circle.

The blob in the next image represents total emissions in 1980.

And.. you guessed it. This is the present day: 2021.

Every bit of CO2 we don’t emit each year means more space left in the budget for future years. But we’ve nearly run out of space.

You hear politicians speak of ‘net zero’ and ‘2050’ so much because we’ve now run out of time: the time to decarbonise slowly was in the 1980s and 1990s, but the politics and the technology simply wasn’t there.

And if we continued to emit at current rates, even for five years, it simply brings the 1.5C threshold in closer and closer.

So the world has a problem. We have to drastically reduce our carbon intensity in all forms of energy production, while finding ways to withdraw or ‘offset’ the carbon we’ll still need to produce for parts of life where there is no fossil fuel substitute (e.g. commercial aviation, steel production, etc).

This second issue looks at the fact that the US is about to go all-in on carbon removal: we’ll leave industrial carbon removal for future issues, and focus for now on ecological carbon removal — i.e. paying farmers and foresters to trap carbon back in the soil we once took it from. But what does this mean, and crucially, do we know if it will work?

WHAT IS AN OFFSET, AND HOW DOES IT WORK?

Stories are easiest to tell when we follow people. So let’s look out through the eyes of Kelly Garrett (below), the manager of a 7,000 acre farm in western Iowa. His story was recently featured in a Grist piece examining this very question: how much of the carbon removal effort is new, versus a market being created in processes that were already underway?

Garrett is the seventh generation of his family to live and work on the rolling hills of Garrett Land and Cattle in Arion, Iowa, tending to lush fields of corn and soybean crops and raising cattle for beef. He’s also a believer in innovation, and founded XtremeAg.farm, a website where Garrett and six other farmers review agricultural tools and practices so other farmers don’t get caught using new equipment that doesn’t serve its purpose.

It was through this side gig that Garrett first seriously considered carbon capture. Large companies like Amazon, Microsoft, Delta Air Lines or Shell are under pressure to curb their emissions, but this can only happen so fast. The alternative is to ‘offset’ their necessary carbon footprint, given it’s often cheaper to pay somebody like Garrett to trap more carbon than it is for them to fundamentally change their business model.

How exactly does Garrett store carbon for an S&P 500 firm? Avoiding the plow. He hasn’t plowed or otherwise tilled his fields since 2012, and had already sowed many of his fields with cover crops — not for harvest but to improve soil health and capture carbon dioxide through photosynthesis. After discussions with a carbon market broker named Nori, Garrett realised any field not plowed since 2010 was eligible for carbon-sequestering value under the terms of the market.

Since signing up with Nori, Garrett has raked in nearly $150,000 for capturing carbon in his soil, though it’s hard to know exactly how much carbon Garrett is actually storing. And because of that, it’s impossible to know if he’s storing more carbon than he would have put into his fields if he hadn’t gotten paid.

This is a major accounting problem. Businesses — and even governments — will think they’ve zeroed out each additional ton of pollution they put into the atmosphere, but in fact it might’ve gone to improved farming practices that were underway regardless.

HOW LONG HAVE THESE OFFSETS BEEN OPERATING?

Good question. The first carbon offset scheme started in 1989, when the Virginia-based utility, AES Corporation, sought to build a coal-fired power plant north of New London, Connecticut. This particular power station was supposed to be special — a carbon-neutral facility. The company paid $2 million to small farmers in Guatemala to plant some 50 million trees, expected to be enough to suck up all the power plant’s carbon dioxide emissions over 40 years. 

But nothing quite worked as planned. The Guatemalan farmers planted trees over an area the size of Chicago, much of which they then harvested for fuel and lumber well before the 40 years was out. On the bright side, it perhaps kept farmers from chopping down nearby forests. “Did it work? I have no idea. It’s almost impossible to tell,” said Mark Trexler, who helped design and analyse the project while working at the World Resources Institute. A study published in 2009 found that it had sequestered less than one-tenth the carbon expected.

How would we summarise the ecological carbon offsets market for now? A work in progress. The majority of payments to land managers — the people responsible for plowing up soil and cutting down trees — don’t actually change behaviour. Offsets only work to stop climate change when they reduce the amount of carbon in the air, and that means behavioural shifts well above existing patterns.

AND NOW, WE SEE THE PROBLEM WITH FIRES AND OFFSETS…

Even if land managers aren’t storing carbon in farming soil like Garett, they can be storing it in forests and trees like the Guatemalan example. How much confidence can we have in forests staying untouched? Not much.

In September 2020, a blaze known as the Lionshead Fire tore through 190,000 acres of forest in Central Oregon and forced a terrifying evacuation of the nearby town of Detroit. It also did something else: it almost completely engulfed ACR260, the largest forest dedicated to sequestering carbon dioxide in the state.  

The project, owned by the Confederated Tribes of Warm Springs, spans 24,000 acres. Before the fires, the state of California had issued more than 2.6 million offset credits based on the carbon stored in its trees. That translates to 2.6 million metric tons of carbon dioxide — or the equivalent of driving 560,000 cars around for one year.

Suppose an oil refinery purchased offsets premised on the existence of those trees: if they burn down, there’s a problem. Luckily, California anticipated this problem when designing their cap and trade laws. The California Air Resources Board, or CARB, which oversees the offset program, built in a type of insurance that accounts for risks like fire, disease, and drought.

This is how it works. Land owners that manage forests under California’s program only get paid for between 80-90% of the carbon they store. This means all of the forests in the program are storing an extra 10-20% more carbon than California actually sells as credits on the offset market. CARB keeps track of this ‘buffer pool’ of extra carbon, and can tap into it if any of the forests with existing credits get destroyed.

For example, back in 2015, a fire wiped out Trinity Timberlands, a forest management project in Northern California worth about 850,000 credits. In response, CARB pulled 850,000 credits out of the buffer pool to compensate for all that lost carbon storage. The system worked.

But right now, the buffer pool has about 25 million credits — and many scientists are worried that won’t be enough. In the context of the Lionshead Fire, if the fire burns all 24,000 acres of the Confederated Tribes of Warm Springs’ forest offset project, then CARB would need to withdraw 2.6 million credits from the buffer account. That consists of approximately 10% of the current Forest Buffer Account expended — for a single fire and a single project. 

THEN THERE’S THE FRAUD

There’s another problem. The offset program allows forest owners across the country to earn credits for taking care of their land in ways that store or absorb more carbon. But an investigation by ProPublica and CarbonPlan found California’s program has generated between 20 million and 39 million credits that don’t achieve real climate benefits. They are, in effect, ghost credits that didn’t preserve additional carbon in forests but did allow polluters to emit far more CO2. Those ghost credits represent nearly one in three credits issued through California’s primary forest offset program.

This wasn’t fraud with deliberate intent, but instead a system poorly designed by regulators, enabling the sale of credits with fraudulent value.

Companies are currently paying between $3.00 - 15.00 for every ton of carbon pollution, which translates to some $20 per acre for farmers — a fee experts say is too low to trigger transformative changes. ‘The $20 price point is enough to get growers already interested in credits, but it’s not enough to get the grower who doesn’t know about it at all,’ said Kari Hernandez, vice president for carbon operations at Indigo, another carbon offsets startup. ‘Growers say, at $40, $50, $80 an acre, ‘I’m willing to try some things.’ 

CONCLUDING THOUGHTS

Forest offsets have been criticised for a variety of problems, including the risks that the carbon reductions will be short-lived, that carbon savings will be wiped out by increased logging elsewhere, and that the projects are preserving forests never in jeopardy of being chopped down, producing credits that don’t reflect real-world changes in carbon levels.

All of this might be true, and it still might be right that immature markets take time and are worthwhile proceeding with regardless. Forest offsets are likely to work and add value in the long run. But far from addressing climate change, California’s forest offsets appear to be adding tens of millions of tons of CO2 into the atmosphere on balance, undermining progress on the state’s long-term emissions goals, and letting justified cynicism swirl in a decarbonisation effort that needs all the credibility it can find. Persistent fires adds to the complexity by undermining the perception of a market supposedly in a state of conservation.

And with the fire risk continually rising, it begs the question whether any land manager can sell offset credits confident in the belief they will be able to keep the forest intact for 40 years.

Knowing all of the above, we return to our regular question: would you invest?

In the first issue we saw there is going to be a lot of money to be made in the recovery of forests. In this second issue we have seen there is money to be made in offsets, but it is a very unstable market, and debatable as to its overall impact in reducing emissions. Next issue we will see the biggest problem of all: whether it makes to live in areas likely to burn.

Optimistically,

Owen C. Woolcock

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3 Questions I Am Asking Myself This Week

1. 2,000 firefighters on the ground are battling wildfires raging across almost 800,000 hectares (roughly 2 million acres) in Siberia. Many high schools are larger than 2,000 people.

2. This excellent MIT Technology Review piece asks the question: are plummeting sunny day solar prices undermining the case to build more solar farms?

3. About 1,300 people are ‘assumed’ missing from flooding in Rhineland-Palatinate state in Germany this week. I worked in Hamburg for 18 months in the built environment, and reflect on the fact that if Germany, with its strict building codes, and supposedly well-built infrastructure isn’t ready, then no country can be.

If You Read Or Listen To One Thing This Week

(Non-Climate): A short but incredibly powerful video on the story of mental asylum closures across the US in the 20th Century: in effect, the closing of mental hospitals on supposedly humanitarian grounds ended up transferring the challenge to everywhere else — private homes, the streets, traditional healthcare systems.

This video made me think deeply on the ways we can transfer rather than address systemic problems. It is a lesson pertinent for everything from welfare to the climate.

Over the next three issues, we’re going to talk about fire. Fire has taunted and terrified the human experience since our days in the cave, but the problem now is we have more assets to protect, our vulnerabilities are spread out, and we have less time to act. We’re never really taught in school how a forest cycle works, but even the basics helps us to understand why climate change is a paradigm shifter, and why living in any tranquil wilderness is going to have new risks for the foreseeable future.

Oh, and even if you live in a city, this still affects you because of the way the market has to cross-subsidise risk.

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Welcome to the first in a three-part series on fire. A little counterintuitively, we’re going to do things in reverse:

• The first issue will start at the end, and examine what happens after the fire has burned. How do forests regenerate, and why does this matter so much in how we respond and innovate?

• The second issue will look at the $260 billion global carbon offsets market, and why companies like Amazon and Microsoft are buying up carbon credits from forestry entities. Can money be made by ordinary investors like you and I? Is this a functioning market, and what potential exists for fraud and greenwashing?

• In the third and final issue, we’ll look at the uncomfortable future ahead for people who live in what’s known as the urban-wildlife interface (UWI). How will they get insurance, how do they flee fires and rebuild, and what will their homes be worth if no one wants to live in these locations afterwards?

BUT LET’S START WITH DESSERT.

As we’re working backwards, let’s start with a dessert metaphor.

Imagine a creme brûlée.

Notice how a perfect creme brûlée has that light burned crust on the top? That is basically the equivalent of nature’s ideal fire. We’ll return to this analogy shortly.

Fires need three ingredients: fuel, heat and oxygen. In a forest fire, the heat typically comes from lightning, an out of control camp fire, arson, or a falling transmission line. The oxygen is available everywhere as outdoor fires have an abundance of wind. And the fuel is the brushes and shrubs along the forest floor, that eventually reach midsized trees and jump to treetops.

Here’s four facts with no political leaning, which you might not know or are helpful to restate:

• Lightning strikes the Earth over 100,000 times a day. Of these, 10-20% cause a fire

• Man-made causes such as arson or plain carelessness (like smoking in forested areas or improperly extinguishing campfires) by individuals is the biggest cause of wildfires in the U.S. More than four out of every five wildfires are caused by people.

• Forest management practices have definitely played a role in letting fuel build up in some areas, BUT:

• Climate change and the increasing warming of air temperatures is a major and undeniable contributor to a new terrifying scale of fire

Many ecosystems benefit from periodic fires, because they clear out dead organic material—and some plant and animal populations require the benefits fire brings to survive and reproduce.

NATURE IS VERY COOL.

Here’s what else happens in good fires: nature goes to work in very cool ways. In the conifer-rich forests of western North America, large pines stretch up for sunlight while their pine cones fall to the ground, pitting saplings against one another as they fight for more light on the forest floor. As tall pines act like an umbrella over time, annual cones (below) have a problem: they don’t have any more light to grow.

These trees have adapted to this problem by growing two types of cones. A second cone, known as a serotinous cone, needs an environmental trigger to free their seeds. These serotinous cones are like time capsules, produced in their thousands by the conifers, and stay undamaged on the tree for decades. What causes the cones to pop open? Fire-like temperatures. Once the temperature passes 46.1C (115 F), serotinous cones open and carry mi

After the fire, carbon-rich soils and an open, sunlit landscape help the same pine seeds germinate quickly and sprout in abundance. Now let’s return to the creme brûlée analogy.

But what’s the key part of a good fire? The majority of the creme brûlée remains gooey. Seeds are stored, and the soil sustains its capacity to regenerate.

A bad (or high severity) fire is where the creme brûlée is burned right through. And this is becoming a more common event.

GO WEST..

There are many places we could examine to illustrate this, but California (CA) is easiest because it’s fire season, and it has a $3.2 trillion economy larger than India. What happens in the coming years and decades in CA has the potential to affect the global economy in many ‘butterfly effect’ ways.

The above map shows the perimeters of all fires recorded by Cal Fire in the last hundred years. On October 4th, 2020, Tom Porter, the California State Fire Chief told 60 Minutes here in the US: ‘every acre in California can and will burn some day.’ And the below chart shows cumulative fire detections across California, Oregon and Washington.

2020 was bad for California, and 2021 is shaping up to be worse. Why? The months of the year when a fire can burn are expanding. An early, warm spring can jump-start a summer drought by extending the season of heat and growth, increasing the amount of water vapour that is shed by plant leaves or that evaporates directly from soil. Lower soil moisture, in turn, can feed back into the local warming cycle and intensify it, since evaporating moisture usually takes up a lot of the energy the sun beams down. When there’s no moisture left to evaporate, the soil or vegetation, dead and alive, absorbs that heat instead—feeding back into the drying-out process that increases fire risk.

HOW BAD IS A MODERN DAY FIRE? LOOK AT THE NUMBERS…

To give a broad recap of how bad things have been, here’s just a few statistics for context:

• The 2018 Camp Fire consumed 10,000 acres in about 90 minutes – burning the equivalent of more than one football field every second during that time. It charred more than 70,000 acres in 24 hours, a space equivalent to the size of the nation of Malta.

• The number of square miles burned annually from 2000-2020 across California, Oregon and Washington has increased sixfold compared with the average between 1950 and 2000.

• Nearly 20 percent of fires in 2020 were burning in areas that were scarred by fires as recently as 2000, data from the National Interagency Fire Center shows.

• The largest wildfire in recorded California history in 2018 was officially extinguished six months after it ignited. You read that right, a fire burned for half a year.

WAIT, AREN’T WE LOOKING AT POST-FIRE?

Yes. With the above established, let’s transport ourselves to the scene of a recent California wildfire —

Now comes the question of this issue: how does a community reforest?

The reforestation challenge matters because the U.S. and the world can’t keep up with the rate we lose forests. Globally 7 million acres of trees are planted each year, but the U.S. lost 8 million acres alone in 2020. In short: the tree deficit rises all the time.

OK, SO WHY DON’T WE JUST GO TO THE TREE STORE AND BUY EVERYTHING?

This isn’t so silly a question. Trees can be grown, right? So let’s grow more trees to manage the need for higher reforestation levels!

Here are two big problems:

• Reforestation is manual labour. An individual reforesting will carry 21kg (48 lbs) of 1-2 year old trees on his hips in special sacks, walking through forests and with just his or her best guess, plants trees based the best spots of soil. The peak output for a physical planter is 2 acres per day, and they will burn the caloric equivalent of two marathons.

• The trees can’t be grown fast enough. If you experience a fire on your land, and don’t have the budget or seed, you apply to a government agency for support. Permitting might take a year. Then you receive seeds. Those seeds are then sent to a nursery who grows the seeds anywhere from three months to two years. A refrigerated truck is then hired to take the baby trees out to site, because the last thing you want is them dying in the heat en route. Then you hire a contractor who sources seasonal labour and fulfils the role of the planting man shown above. In that time, what has happened? The fires are burning faster, and in larger parts of the land.

What has Climate and Money or life experience taught us? Manual labour rarely scales. Bottlenecks are productivity killers. Climate change is broadly the story of new markets developing without scale, without correct incentives, and ultimately failing to keep up pace with the rate of change.

ENTER DRONESEED.

One firm — and a founder named Grant Canary — had the vision to consider whether drone technologies could accelerate this process.

Droneseed is paid per acre as a service, to reforest utilising heavy lift drone swarms. They use drone swarms that have a 57-lb payload that utilises seeds in vessels bringing the supply chain bottleneck time from 3 years to 3 months.

Their focus is post-wildfire, because of all the competitive vegetation that’s been removed. Drones need to be charged, and due to battery constraints, do single runs of 8-20 minute flights before returning to the truck to be recharged. Up to five drones can fly in a swarm at once with one pilot, and are completely autonomous.

They charge $300-500 per acre, and hit some of the toughest terrain that only drones can reach. Their clients include nature conservancies, tribal groups, but also timber companies purely interested in forestation acceleration and returns.

CONCLUDING QUESTIONS

Right now Droneseed is a venture capital backed firm, unavailable for direct investment. But that shouldn’t stop us at Climate and Money by asking some basic questions that flex our mental models, and get us all ready for the time when firms like Droneseed will be open to retail investors:

• Two trucks, two trailers and several drones in one Droneseed team can cover several thousand acres in a year, but based on what we know, isn’t the need for their services going to continue rising? Like a barber shop, and a gardening business maintaining the front lawn of a mansion, isn’t the value proposition perpetual?

• What are Droneseed’s own bottlenecks?

• How simple will it be to compete once FAA approval is given to more drone providers? Is there a logistic incumbent who could enter the space at greater scale?

• Would you invest? If so, why?

• Lastly: what if carbon offsets pushed the price Droneseed needed to charge down below $300 per acre? Would that make you more or less optimistic in the venture?

And this is where we’ll pick up next issue: untangling the world of carbon offsets, how they relate to nature and forestry, and what opportunities and pitfalls await investors in the coming years.

Optimistically,

Owen C. Woolcock

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3 Questions I Am Asking Myself This Week

1. Did you know in California prison inmates are regularly released to help fight wildfires? In Oregon, Gov. Kate Brown is commuting the sentences of 41 inmates who helped battle the historic wildfires that burned in that state in 2020. Welcome to the new normal of climate change.

2. One of the reasons parts of the West might not set new all-time high temperature records this week during its well-reported heatwave is because smoke from wildfires might block just enough of the sun.

3. If you live in a high-risk wildfire zone, at what point does the risk and stress outweigh the benefits? Where do you move and what is the trigger?

If You Read Or Listen To One Thing This Week

A powerful story from VICE (video) on one of the 2300 elite firefighters sent to the country’s most dangerous wildfires, and what the toll of such dangerous work is like on their families.

No one knows how decarbonisation is going to unfold. Investing in it requires a mental model that is a little like a velodrome track cyclist choosing which line to take into a bend: there needs to be allowance for new information, which improves reaction time. This is less about muscle strength and training, and more about mindset. The more we train on this, the better equipped we are to time our investments in the right moment of bigger technology stories that are very hard to predict.

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ARE YOU A SOLDIER OR A SCOUT?

It can often feel like the smart thinking non-fiction genre has been done to death. Last week however, I read The Scout Mindset: Why Some People See Things Clearly and Others Don't, by Julia Galef. It brought to light many important points, by dividing the world into two very intuitive groups:

SOLDIER MINDSET: Imagine a soldier ready for battle. Adrenalin is elevated. Their actions stem from deeply ingrained reflexes, to fight and defend every blade of grass. Their motivation is to defend beliefs against any argument. They have no time for nuance: the world is black and white, and best understood when repeatable decisions are made without hesitation.

SCOUT MINDSET: A scout is atop a tree, looking out into the distance. Their job is not to attack or defend, but to understand. Their instincts are to go out, see the landscape, make as accurate a map as possible based on what’s really there, not what they wish was there. They are encouraged to erase a section of the map when new information comes, and draw it again.

In a real army, soldiers and scouts both play critical roles. But the soldier mindset is around us all the time. Reasoning can be very militaristic, you typically need to build a fort around your argument: in fact it’s how most of us are taught to debate. A lot of this stems from a pattern scientists call motivated reasoning. This theory argues some ideas feel like our allies, and we need to defend them at all costs. Other ideas are enemies. Without the ideas we fall back on, our framework for viewing the world crumbles. Our judgment is strongly influenced by whichever side we want to see win.

The scout mindset is not interested in seeing one idea win or lose, but instead simply understanding what’s really there — even when it’s unpleasant or inconvenient.

SO WHAT DO SCOUTS DO THAT’S DIFFERENT?

• Scouts are curious. They’re more likely to say they feel pleasure when learning new information.

• Scouts are open. They believe it’s virtuous to test one’s beliefs.

• Scouts are grounded. Their self-worth as a person isn’t tied to how right or wrong they are about any particular topic.

These traits don’t correlate with IQ. They correlate with emotion.

There are people who are not interested in being more scout-like: they like being soldiers, there’s a clear plan and they don’t need to think too much. The questions of whether a God exists, or there’s a ‘right’ minimum wage level, are difficult. An explanation by someone else is reassuring.

Some people are attracted to the idea of a scout mindset, but when it comes time to improve judgment at the expense of challenging long held priors, they opt for the world they already see.

The scout mindset is a learned habit of mind, and like all habits, it takes effort until it is unconscious.

It’s a learned skill to ask possibly the hardest question of all: could I be wrong when I really want to be right?

THIS FEELS HARD — IS IT?

If we’re practising this in domains when it doesn’t immediately benefit us (i.e. politics), it can be difficult to develop more of a scout mindset. Galef says politics is a category of ideological issue where we have a strong incentive to deceive ourselves because it feels good, or because it helps us fit in with our tribe and peer group. If we don’t know many people who think differently to us on a given topic, we have little incentive to probe deeper and be accurate.

There are a lot of cases in which people do, at least in theory, recognise: 'I think I would be better if I could be more of a scout and faced my problems head-on — either by inviting criticism, or thinking about risks.' But that's just hard to do.

THIS SOLDIER/SCOUT DIVIDE CREATES PROBLEMS…

..especially in our mental models around nascent technology.

In this issue of Climate and Money, we’re going to briefly touch on a piece of technology that almost everyone has an opinion on, and leave you to examine how a soldier or a scout might frame the investment opportunity. It’s a fascinating area and we’ll return to it in more detail in the coming months. For now, accept the limitations of a brief summary and take this as an opportunity to watch for how your mind processes information on the topic —

CAN NEXT GENERATION NUCLEAR POWER WORK?

Major nuclear accidents are fairly uncommon and account for far fewer deaths than accidents in other energy sectors. But the ones that have occurred — Chernobyl, Three Mile Island and Fukushima — have led to horrific intergenerational legacies on nearby populations and the environment, and for good reason, there is widespread concern about the safety of nuclear energy production.

The playbook for nuclear power hasn’t changed in decades. The fuel source is enriched uranium, pressed into pellets that form a highly dense form of energy. They generate neutrons that cause the uranium to split apart, creating tremendous energy that is run through a pressurised water and steam process that powers a turbine. At its core the reactor is really a water-boiling machine.

HOW DO WE KEEP IT COOL?

Nuclear reactors can’t overheat. Existing reactors use pumps to maintain a constant flow of water to cool their cores and are equipped with backup diesel generators to keep that process going in the event of a power outage. The core overheated in Fukushima and led to catastrophic failure. So a lot of attempts at new designs have tried to remove this risk altogether, sometimes referred to as ‘walkaway safe’, where the core is incapable of melting down.

Next Generation Nuclear Power is an attempt to break with the old reactor designs and imagine a completely new way of doing this.

The six design concepts are:

• The Gas-Cooled Fast Reactor (GFR)

• Very-High-Temperature Reactor (VHTR)

• Supercritical-Water-Cooled Reactor (SCWR)

• Sodium-Cooled Fast Reactor (SFR)

• Lead-Cooled Fast Reactor (LFR)

• Molten Salt Reactor (MSR)

These reactor concepts have been on the table since the early 2000s, and are designed to address the energy needs of the world well into the future (i.e. 2100 and beyond). To be considered viable, they have to overcome the following ‘high jump’ bars:

• Be inherently safe and easy to operate

• Utilise uranium efficiently. Many can employ depleted uranium or “spent” fuel from current reactors

• Destroy a large fraction of nuclear waste from current reactors via transmutation

• Generate hydrogen for transportation and other non-electric energy needs

• Provide built-in resistance to nuclear weapons proliferation

• Provide a clear cost advantage over other forms of energy generation

• Carry a financial risk no greater than other forms of energy generation

SO WHO ARE THE CONTENDERS?

One company, NuScale, uses light-water technology, which relies on natural forces of heating and cooling that combine with gravity to circulate water through its system, eliminating the need for pumps.

TerraPower, a company founded by Bill Gates, has designed two models that use liquid sodium and molten salt rather than water as a coolant. The boiling point of liquid sodium is higher than the temperature produced by the nuclear reaction itself, so the company says the reactor will not overheat. Many observers regard these new concepts — known as small modular reactors, or SMRs — as a big step forward.

The logic of this is intuitive: if you make something simpler, and smaller, it eliminates backup equipment and remove the needs for outside forces to keep the system going.

Others say the designers are putting too much stock in what they claim to be inherent safety features, and there are those who believe any energy source that can wreak the havoc of a Chernobyl shouldn’t be used anywhere, no matter how different the design of the system.

Finally, the following might surprise you: 10% of the world’s energy already comes from nuclear power plants. At present, that’s more than solar and wind.  

HOW DID YOU FARE?

So with the simplified summary above, it’s worth asking:

• What were your priors the moment you learned we’d be examining nuclear power?

• What did you learn that you didn’t know?

• Did new information shift your thinking?

• Crucially, what new information would you need to be satisfied of a clear decision to invest, not invest, or invest and divest at a particular stage of development?

• How would you be received in a circle of your closest friends if you argued passionately for, or passionately against next generation nuclear power? Does it matter what your friends would believe?

This issue might seem like a Trojan Horse for nuclear power support. The honest truth is there’s more I still want and need to know. But I want to keep an open mind.

What makes NuScale and TerraPower’s SMRs such a curiosity is none of us know how viable they will prove to be. We all have questions. We all want to be right. But are we able to admit all of us could be wrong, depending on how the future unfolds?

CONCLUSION: WHAT DID YOU LEARN ABOUT YOURSELF?

In the context of my mental model around decarbonisation, I learned the following from Galef’s book on the scout mindset:

• An investor looking to better understand decarbonisation should feel proud, not ashamed, when they learn they are wrong. They should be intrigued, not defensive, when good information challenges their priors.

• It’s not that a soldier mindset is always bad. But in a scout mindset, over a longer period of time, you actually develop more of a community of people who don't take advantage of your lack of armour. That leads to more perspectives, and better investing.

• The best investors, and often the most successful people, learn to develop pleasure from saying: ‘I don’t know.’ It’s really hard, but so valuable.

A FINAL THOUGHT FROM THE SCHOOL YARD BULLY...

I will leave you with one anecdote from the book. Galef uses the example of someone being at school, threatened by a bully who tells you: 'Hand over your lunch money or I'm going to beat you up.' So, it might seem locally that the best choice is just handing over the lunch money because it's better to lose a few dollars than be physically harmed.

Maybe that's true locally. But, if you zoom out and just think in the longer term: 'Is this really my best choice?' It's not as clear. You can learn to fight. You can maybe set it up so that the bully gets caught and gets sent away for punishment. You could change schools or change classes. You have a lot of options, ways to change the game board you're playing on so that you don't have to just accept the trade-off that's right in front of you.

Most of us look at the puzzle of decarbonisation and forget we have opportunities — in nuclear power, or anything else — to ask better questions, revisit our priors, and make new maps outside of the present moment.

The world should be drawn in pencil, not with a pen — just like how the scouts are taught to do it. Investing in decarbonisation shouldn’t be that different.

Optimistically,

Owen C. Woolcock

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3 Questions I Am Asking Myself This Week

1. The soldier/scout mindset analogy is similar, but tangential to the ideas raised in Adam Grant’s new book, Think Again. Both books seek to find a way to humble open-mindedness, through different mental models. This is well worth exploring too.

2. The Ford F-150 truck has been America’s best selling vehicle for forty years! Incredibly one in every sixteen vehicles on the road in America is an F-150. The new version, the F-150 Lightning, goes into production in 2022: it’s electric, and a better truck. News of this announcement ties into a lot of the ideas I explored on GM in a prior issue.

3. How do you give birth to a $100b market, without incentivising the wrong dynamics? A strong story by Bloomberg Green on carbon offsets.

If You Read Or Listen To One Thing This Week

An excellent NBC story (video) on the complex water rights picture for farmers in Arizona. Certainly a portend of things to come elsewhere in America.

Everyone knows Venice floods and in the long run, is sinking. But what does this do to the value of a built structure? Who invests when tomorrow has so much uncertainty? Venice teaches us about the profile and conservatism of capital in certain settings. Every city that follows Venice’s course will have winners and losers, they just might not be the ones you think.

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WHO THOUGHT A CITY ON WATER WAS A GOOD IDEA?

It’s a fair question, that doesn’t get asked enough: why does Venice exist?

For much of the Dark Ages, Italy dealt with armies advancing back and forth across the region around Venice, largely because it was the one land route to Rome that didn’t involve crossing the Italian/Swiss Alps. Armies typically come with resources to cover land, not water. The safest place for many locals? The lagoon. Twice every day the water in the lagoon drains away and fills up again with fresh seawater: this created a perfect environment for fishing and salt production. There is evidence for a settlement in 600 C.E., and over the centuries it developed as a trading centre, happy to do business with both the Islamic world as well as the Byzantine Empire, with whom they remained close.

Keeping many friends gave the Venetians many trading partners, and at its peak, the Venetian empire covered the red shaded region below — right across the Mediterranean. Venice’s impact beyond the Renaissance, and to the present day is significant: Venetians gave us sunglasses, modern accounting and the introduction of coffee to Europeans, which the Arabs brought from Egypt. In our language, we also wouldn’t possess ghetto or quarantine without a few chapters from the city’s history.

WAIT, BUT HOW DID THEY BUILD ON THE WATER ITSELF?

Would you believe: all those majestic palazzos are supported by lots of 60 foot wooden piles hammered in close together.

These piles go deep down into the soil, reaching past the weak silt and dirt to a portion of the ground that was hard clay and could hold the weight of the buildings.  Normally this would have been a disaster as wood rots, but only when both air and water are present, so in the oxygen starved environment of the water underneath the buildings, the wood was protected (there is a similar foundation effect for places like Boston’s Back Bay and much of historic Amsterdam).  The waters of the lagoon then carried an extremely large amount of silt and soil and the wood was blasted by this sediment for years. The wood absorbed the sediment and quickly petrified at an accelerated pace with a resilience akin to stone. 

What about the waterways? Periodically, a section of a canal is blocked off and drained so that necessary repairs can take place. If this work is not carried out, the canals will fill with sediment brought in by the tide and materials eroded from the buildings.

The pile system has had drawbacks. Drinking water has always been a problem: during the 1960’s artisan wells were opened across the city which were drilled deep underground for potable water. However, as the water was drained from underneath the hard clay in which the foundations were piled into, the city began to sink at a faster rate. This is compounded by a problem Venice is known for, and many more cities deal with: sea level rise.

In November 2019, a 6-foot-high tide — the second highest ever recorded — pushed by 35 mph winds submerged 80 percent of Venice. The seawater flooded shops, restaurants, residential ground floors and even the Basilica in St. Mark's Square, causing damage in excess of $1 billion.

Venice’s rather celebrated response to this problem of city-wide subsidence and sea level rise was the flagship engineering project known as MOSE.

The project's name is a nod to the prophet who parted the Red Sea. Its construction time frame is also of biblical proportion: the floodgate system has been under construction for the past 17 years and was initially meant to be completed by 2012. But a series of corruption scandals, rising costs and political controversies has delayed the project, which is yet to become fully operational. The project is now estimated to cost €5.5 billion, up €1.3 billion from initial cost projections. And many experts say it might not be enough to protect the city.

Venice is the world’s largest museum, but also our first human settlement on constant life support. It costs money and has unknown timelines for success.

SO HOW DOES VENICE FUNCTION AS A 21ST CENTURY CITY?

Even with the spectre of catastrophe and creeping water levels, the ingenuity is hard not to admire. How does the electrical current pass safely around a city of water? Under the stones of the city’s walkways, cables run from house to house, carefully hidden from view.

In order to criss-cross rivers, the cables run within bridges, passing between islands unnoticed. The same is true of phone lines, as well as water and gas pipelines. How is trashed collected? Garbage men collect waste on foot, with handcarts to wheel the refuse to the edge of larger canals. The trash is then transferred to large boats that ferry it out of the city. Emergency services are also served by boat. Ambulances, police vehicles, and the fire brigade are all stationed strategically around the city’s 124 modern day islands to be of service.

What about mail? Postal services have liveried boats that deliver packages around the city, nipping through the canals like any other postal van on terra firma. A whole host of other goods are also transported by boat. You’ll see small barges stacked high with food, wine, merchandise — any daily necessity that a Venetian might need. If you’ve ever visited Venice for a holiday, your luggage likely travelled this way too.

But all of this has a cost. Venice is the land of the price premium.

IS LIVING IN VENICE EXPENSIVE?

…yes.

Waste collection is three times the same service in the rest of the province of Veneto. On average, food items in Venice cost 18% more than the mainland.

And then there’s housing. Venice is the most expensive city in Italy, with an average house price of €4,467 (US $5,340) per sqm. Renovations are costly, with all materials needing to come in by boat: and all construction schedules are dictated by the weather. Of the entire real estate inventory in Venice, only 61.7% of the houses are occupied by residents. A total of 29.3% of the houses are associated with non-resident use (such as vacationers) and then 9% of the houses are unoccupied (NB: it is possible the non-resident use figure is far higher with 7,000 Airbnbs around the city, many of them undeclared).

So who pays for it all? Venice is not a normal society, with a natural distribution of ages. The birth rate is 1.23, when 2.1 or 2.2 is typical considered the necessary replacement rate. Due to the decreasing number of youth in Venice, many social programs and activities for children have been cut and daycare centers have closed.

With a staggering 20 million tourists visiting Venice in a normal calendar year, the service industry takes up approximately 80% of the job market. Construction, manufacturing and agriculture make up the other 20%. It’s a binary career pathway for a young Venetian, with a small number of options given the economic homogeneity.

By 2030, some demographers predicted there would be no more full-time residents: thankfully the pandemic has halted or reversed many of these trends. It’s predicted that tourism won’t recover to its previous levels until 2023, giving the city time to ban cruise ships and reset.

But the reality is everything in Venice is driven by hierarchy.

Rising waters don’t force Venice to be a different kind of tourism destination. It warps it into a different type of society. Few people are attracted to high premium, high risk locations: they’re usually wealthy, with an ability to write off their Venetian residence in the worst case.

If we need to think in the mental model of hierarchy, then it’s worth asking some questions —

THREE QUESTIONS…

1. Everyone can justify a high price in Venice:

• the engineers are designing a flood system that’s never been done

• the contractors are lugging in marble tiles for a new palazzo restoration on boats between rain storms

• the landlord will make more from renting to a tourist shop than a laundromat or grocery

• the restaurant needs to pay its waiters who commute in from the mainland

If everything has an ever-rising price, but only a select few can pay, what’s the end state for those who aren’t wealthy? Are societies with artificial bottlenecks inherently inflationary? And if so, what does that mean if other cities begin to develop a type of climate-proofed preservation district, and are affected by the same forces?

2. Suppose you’re worth €5m: would you buy a palazzo for €3m? Let’s say you would be guaranteed a minimum of ten years of enjoyment before the foundations made it unliveable, and major repairs are needed: would that be a worthwhile tradeoff? To many it would seem reckless to spent close to two-thirds of your net worth on an asset with a looming impairment event, but this is precisely what homeowners in floodplains do around America each and every day.

3. When Venice opens back up after the pandemic, should you visit? Do you contribute to the problems simply by participation? The relationship between city dwellers and tourist flows is not clear, nor their relationship with the resilience of destinations. Venice needs revenue to survive. Which dollar is more valuable to Venice, 10,000 daily visitors paying a €10 access fee, or a millionaire lovingly restoring a structure for ten times this figure, when the investment is emotional and the economic return is minimal? A hard aspect of the flow of capital is it’s very difficult to be morally selective.

Venice’s sea level rise and subsidence challenges will continue, and there will be winners and losers. Money retains its value, but will be pulled in new directions by changing human needs: those needs might seem misaligned to many of us, but they simply reflect supply and demand in a unique environmental setting.

Just because the rest of us don’t live on a lagoon doesn’t mean we might not see similar forces at work when climate pressures bear down on our own towns and cities.

Optimistically,

Owen C. Woolcock

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3 Questions I Am Asking Myself This Week

1. An interesting opinion from Noah Smith on Twitter:

“My unified theory of COVID denial is "fear management". People who weren't used to being afraid of things suddenly had something to fear, and didn't know how to deal with it, and felt ashamed, so they denied COVID in order to try to convince themselves they weren't really afraid.”

A corollary for those who feel similar on climate change?

2. Tickets for a nuclear-powered super yacht will cost $3 million for VIPs and be free to scientists and students selected to help study climate change. It launches in 2025. Vanity initiative or a Manhattan Project for the waves? (Article)

3. A sure fire way to feel old? We’re now closer to 2050 than 1990.

If You Read Or Listen To One Thing This Week

MIT Article: What 250 Years of Innovation History Reveals About Our Green Future. An excellent article to make you feel positive about the coming two decades.

What’s the largest climate risk, relative to the very little amount we discuss it? Hail.

Hailstorms form suddenly, as tight, dense wallops within larger thunderstorms. We struggle to predict their velocity and scale, and when they strike, insurers have to pay out on just about everything. Hail is a classic climate risk: something we think we understand, and can easily frame and manage — but in fact, it’s not going to occur how we’ve experienced it in the past. We don’t know enough to have confidence, and so the private markets are acting rationally and withdrawing from something they can’t quantify. Revisiting how we think about hail enables us to contemplate risk in different shapes and dimensions.

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Most people can be immediately taken back to the first time hailstones fell from the sky in their childhood — an event of shock, wonder and difference. It wasn’t rain. It wasn’t normal. Hail came when the air felt unusually warm. The look on the faces of people nearby immediately made you realise as a child that hailstorms are a rare and special thing.

REMIND ME AGAIN: WHAT IS HAIL?

Hail is not a frozen raindrop, which is probably how a well-intentioned parent explained it to you as a child.

Hailstones are formed by layers of water attaching and then freezing in a large cloud. A frozen droplet begins to fall from a cloud during a storm, but is pushed back up into the cloud by a strong updraft of wind. When the hailstone is lifted, it hits liquid water droplets. Those droplets then freeze to the hailstone, adding another layer to it. The hailstone eventually falls to Earth when it becomes too heavy to remain in the cloud, or when the updraft stops or slows down.

Hail is hard to model on a computer. This is because simulating the growth from an embryo to a large hailstone requires accurate readings on the concentration of droplets, the strength and duration of the up-draught, and realistic modelling of how the unfrozen cloud water melts and sheds in brief storms. It’s not easy and we don’t do it well — though some people might feel a brief moment of contentment learning this, that some things in the pageantry of nature are still beyond our understanding.

Certain parts of the world receive more hail than others. The Rocky Mountains of Colorado, the Andes in South America and the Himalayas all have conditions that make them hotspots. The approach of the summer monsoon season in India brings severe thunderstorms, often with tornadoes and hail. A particularly deadly hail storm in Moradabad, India, in 1888 killed more than 250 people.

WHAT MAKES HAIL UNIQUE AS A MENTAL MODEL IN THE WORLD OF RISK?

Hail has a few features that make it rather unique for us to think about. A fire, flood or hurricane touches every piece of Earth in a very indelible way: but hail melts and disappears. Why does this matter? If hail hits a city, there are hundreds of reports and data points. If hails hits where people don’t live, this isn’t the case. This creates quality control issues, where we learn a lot about hail events over urban areas, but don’t learn a great deal about hail as a phenomenon.

“Hail is a bit challenging for us to confidently quantify because it is all based on eyewitness reports,” says Robert Jeffrey Trapp, head of the Atmospheric Sciences department at the University of Illinois. “It only gets reported if someone reports it. People are [also] pretty bad at estimating size.”

We know hail is becoming more frequent compared to a few decades ago: the radar data tells us this much. But we don’t know much about its velocity, size, speed, duration: and that makes insurers nervous. Why? Because insurers don’t like offering coverage on things they can’t predict or price correctly.

SO WHY ARE HAIL DAMAGES ON THE RISE?

So we know hail is on the rise. But so are damages from hail. None of the below is rocket science, but it does point to the importance of intuition and joining correlated events together:

• There are more American homes: Half of all homes in America have been built since 1980, when hail frequency began to rise. More than one third of the homes listed today in the growth corridors of Austin, Raleigh, Houston, and Dallas (all hailstorm markets) were built after 2010.

• American homes are getting bigger: from about 1,700 square feet (139 square meters) in the early 1980s to 2,500 square feet (232 square meters) in 2015.

• Bigger homes are getting built closer together: modern development trends place buildings closely together on small lots, so when a hailstorm hits a confined area, it hits many more homes.

• Hail is expanding the territory in which it lands: Insurance startup Understory has calculated that the rate of expansion in the Continental 48 (U.S.) is equivalent to an area the size of Delaware each and every year.

We can think about hail’s future risk with this simple logic:

The number of people is rising. The amount of developed land, buildings, cars, outdoor technology and equipment is rising. The frequency of hailstorms is rising. The territory where hailstorms land is expanding. The math is simple: there will be more hail damage than insurers have been accustomed to.

Texas was the top state in total hail loss claims from 2017 through 2019; with 637,977 hail loss claims. Colorado is another regular claim state, and Omaha, Nebraska is often the top city in total hail loss claims. It would be wrong however to think this is a Great Plains issue: Florida, Louisiana, Arkansas and New Mexico have areas that all experience in excess of 100 severe hail days each year, according to claim loss data. As we now know, this area of risk creeps out each year.

The global reinsurer Munich Re says there are indications that modern buildings are more susceptible to damage from hail. A particular focus is on solar installations, which are often unable to withstand larger hailstones, and have increasingly become a staple of residential and commercial building rooftops in recent decades. Modern building facades are especially prone to losses in severe hail events because hailstones frequently strike at an oblique angle due to wind action. Consider thin finishes with advanced insulation systems behind them — once hit with abrasive contact, the interior technology can be exposed to wetness and expensive repair needs. In short, the more complex and costly the façade, the higher the individual building loss.

Size matters too. A 0.5 - 2cm hailstone will cause light damage to plants in a crop field. 2 - 4cm hailstones will badly damage fruit and vegetables, and light to severe damage to greenhouses, cars and any paintwork. Events with hailstones larger than 5 cm in diameter are particularly relevant for claims: windows and glass roofs will be destroyed, cars are badly dented, aircraft can be unsafe to fly, and people and pets can be in danger of serious injury or even death if outside.

CONCLUSION: WHAT DOES HAIL TEACH US?

The real story is simply this: hail is an early example of a situation where, in the delicate balance of science, risk and price, there’s not always enough information to make a market. When you can’t make a market, it’s not safe to invest.

For now this is an off-Broadway story, simply affecting Texas and Great Plains policyholders who find the ‘comprehensive’ coverage option in their car insurance too expensive to continue. But a larger story is coming: not only because the hail risk will grow across the country, but also because it’s a portend of things to come in other climate risk domains — when insurers can’t price, there will be fewer ways to protect.

Optimistically,

Owen C. Woolcock

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3 Questions I Am Asking Myself This Week

1. A recent investigation found that almost 30% of the credits in a California forest offsets scheme don’t reflect real climate benefits, representing about 30 million tCO₂e and a value of more than $400 million at recent market prices. What makes such a figure so astounding? There was no fraud. The project developers appear to have followed all the rules, but the rules do not assure that offsets represent real emission reductions or removal enhancements. In short: good intention program still need still need rigorous review, and proponents having the courage to admit when mistakes happen so improvement occurs. This will be a long-running obstacle in the climate challenge.

2. White House officials have said the ambitious target to reduce US emissions of planet-heating gases by 50% by 2030 was built on a rigorous analysis that laid out pathways to success. As of today, no one has seen it. Is it a serious goal or a political one?

3. At $7.5 trillion, the combined market cap of Apple, Microsoft, Amazon, and Google is higher than the GDP of every country in the world with the exception of the US and China. Though not a climate question, it has me thinking about the future of concentration, talent, focus and competition: all of which are relevant to the way private market firms develop products and services in the pursuit of decarbonisation.

If You Read Or Listen To One Thing This Week

Discovery Channel footage (2:51 secs) of a hailstorm suddenly striking a beach in Siberia, Russia on a 41C day.

We think about solar power and tend to imagine a large footprint of photovoltaic panels through a lonely valley: but for the last five years, 15% of all of Australia’s tomato demand has been met by just one desert facility, with a different type of solar technology. To understand how this story happened, we need to reflect on the power of ideas, financing and existing technologies coming together in unconventional ways.

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SOLAR FARMS? NO, SOLAR TOWERS

Technology has a way of creeping up on us. We can develop a fixed image in our mind, and then to great surprise, learn the state of the art is something very different.

The below image is a typical solar farm. A solar farm is a large collection of photovoltaic (PV) solar panels that absorb energy from the sun, convert it into electricity and send that electricity to the power grid for distribution and consumption by customers like you.

Solar farms perform an increasingly critical role in our energy mix. Investment tax credits, rapidly dropping prices, and rising demand for renewable energy are expected to drive the solar energy market globally to $223.3 billion by 2026. In short, it’s here to stay.

The image below is showing something different: it’s a solar tower.

This setup includes an array of large, sun-tracking mirrors known as heliostats that focus sunlight on a receiver at the top of a tower. That’s right, the sunlight is being reflected back to a single spot.

In this receiver, a fluid is heated and used to generate steam. This steam then powers a conventional turbine generator to generate electricity. In this example, the intense heat is used to desalinate water from a nearby ocean source. The desalinated water is then used for agriculture, and the electricity is used to heat the greenhouse where the food grows.

Where did this happen? Port Augusta, South Australia: a former coal town 300km north of the capital city, Adelaide.

SUNDROP FARMS, AUSTRALIA

Through the early 2010s, a small firm called Sundrop Farms came to Australia and spent several years developing this idea at a pilot plant on the outskirts of Port Augusta, before building a commercial facility 100 times larger in 2016. The 20-hectare futuristic-looking facility includes a field of more than 23,000 mirrors that capture the sunlight and direct it to the central receiver (top right) at the top of a 127-metre "power" tower.

All the water used for irrigating the crops is piped from the Spencer Gulf (i.e. the Southern Ocean) and converted into fresh water using a thermal desalination unit. This integrated energy system was the first of its kind anywhere in the world in 2016 — an industry scale concentrated solar power technology used to deliver greenhouse food. The production output? 17,000 tons of truss tomatoes each year.

In 2019, and after a year-long negotiation process, Sundrop Farms was bought by trans-Tasman infrastructure investment firm, Morrison and Co. for an undisclosed amount. The Port Augusta facility now employs over 300 people, and is soon to be joined by Aurora, a much larger solar tower project based on a format in Nevada (below), where mirrors focus the heat of the sun on to the tower containing molten salt. That salt can store the heat for days, if necessary, with minimal loss. When electricity is needed, the salt is circulated through a system where it produces steam, which drives a turbine.

There are no greenhouses filled with tomatoes at the end of this system, simply thousands of homes with renewable power — the Aurora solar power plant will produce 500GWh of electricity a year. This molten salt method addresses the biggest criticism of renewable energy; that when the sun isn’t shining, or the wind isn’t blowing, it isn’t working. During the day, molten salt will flow through the receiver and be heated to temperatures as high as 566°C, then stored in tanks overnight. The energy will be dispatched as electricity when needed — after dark in the evening peaks, or in the morning, hours after it was generated. It will be enough energy to power 90,000 homes, or 5% of South Australia’s total power demand.

Sundrop Farms and its tomato greenhouses were the start of a revolution. Thirteen renewable energy projects are underway or under consideration in Port Augusta. But Sundrop Farms went first, and have hit on something special. But what did it cost, why did all this happen in such a remote location, and what can we learn for other climate investment domains?

RUNNING THE NUMBERS

The Sundrop project cost $200m, with private equity investor KKR providing $100m of the funds to see it through to development. The greenhouses also produce more than 450,000 cubic metres of excess freshwater per year — equivalent to 180 Olympic size swimming pools. At its peak the facility produces 39MW of thermal energy for use as electricity, heating and producing desalinated water, and only needs to draw from the conventional energy grid in rare periods of the year where cloudy and near-freezing conditions combine. In a 50-acre greenhouse project, at any given time the site is carrying about $50-$60 million worth of crop. That’s a lot of inventory at risk.

So how did the project become viable? Australia’s largest grocery retailer Coles (ASX: COL) agreed to exclusive purchase of the truss tomatoes produced via an off-take agreement.

WAIT, WHAT’S AN OFF-TAKE AGREEMENT?

An off-take agreement is an arrangement between a producer and a buyer to purchase or sell portions of the producer's yet-to-be-manufactured goods. It is typically negotiated far in advance, often before construction of the manufacturing facility and actual production has begun. In this case, the producer (Sundrop Farms) found it easier to obtain financing, and the buyer (the grocery mega-chain Coles) secured 17,000 tons of tomatoes annually in its supply chain, at a price that gives them a lot of security, and during windows of the year where tomato demand is stable but other suppliers can’t deliver as much. The overall winner? The Australian customer, who sees more stable tomato prices year-round.

Why is the off-take agreement so important? Because agreements like this are most common in natural resource development, where the capital costs to extract resources are significant and the company wants a guarantee some of its product will be sold.

When it comes to hybrid models that deliver renewable energy and/or food security, we’d be better off using a mental model that makes a tomato feel like silver or gold.

SO WHY PORT AUGUSTA?

Port Augusta is remote, even for Australian standards.

In a country drenched in sunlight, it is particularly abundant in the arid landscape around Port Augusta (320 sunshine days per year). Critically, there are also plenty of flat expanses on which to build the facilities needed to exploit it.

But it isn’t just topography on Port Augusta’s side. The head of the Spencer Gulf is where large thermal winds are generated by increasing temperature differences between land and sea throughout the day. Spanish solar giant Iberdrola recently invested $500m in a 320MW renewable energy park in Port Augusta as well, and put it well in their press release: ‘When combined with the mid-day solar generation, this [location] results in a generation output better matched to the South Australian electricity demand profile when compared to a weather system driven wind or solar only project.’

Plain English: it’s not just sun and flat land, it’s timing. It is sun, flat land, a nearby mountain range and a windy funnel from the ocean that enables renewable energy to be generated at the same times that people use it. What better place to cluster multiple renewable resources?

There is a lot to play out in the 2020s. Commercial financing stalled some projects, but as the demand for renewables rises, these will become increasingly viable. For now, it’s worth considering three key lessons from the Sundrop Farms and Port Augusta story:

THREE LESSONS

1. Sundrop is not pure play agriculture, or pure play renewables, or infrastructure, or water: it’s (sun + seawater) = (energy + greenhouse tomatoes). One of the difficulties the firm had during fundraising was finding partners adept at assessing good levels of risk across all those engineering challenges. When renewable energy projects couldn’t get funded anywhere in Australia in 2014, KKR stepped in. When the venture needed demand, Coles agreed to a decade’s worth of tomatoes (likely for their own carbon footprint goals, of course). Faith was key. It’s worth asking: how many investors would’ve turned them down, and how many similarly brave ideas are stonewalled for the same reason? This is an important question for those investing in climate technology in the next ten years. Can you protect yourselves from downside risk, and what can creative contracts from other sectors do to give confidence?

2. Port Augusta has year-round sunshine, strong winds from the mountain range and Southern Ocean, rail supply lines from old coal station networks, and a nearby disused car factory that can make heliostat mirrors instead of car windshields. It looks the end of the world on a map, but reimagine the world like a renewable energy Monopoly board, and it is Park Lane. This is a great test of our mental models: can we see places around us in a new light? When we evaluate green energy stocks or projects in our region, are we able to see the big picture and the arrangement of future unmet needs?

3. No renewable source is perfect. Near the centre of the Sundrop array temperatures can reach 550°C, and there is evidence that such large area solar concentrating installations can kill birds that fly over them. Again we return to the question of costs and tradeoffs: how do we compare bird casualties to the hyper-efficient spatial footprint of greenhouse horticulture, with a fraction of the land usage and fertiliser? There are not always win-win solutions, hard choices need to be made.

We will return to solar technology in future issues, but for now it’s nice to cover a good news story in the climate world — the burgeoning vines of twenty foot tomato stems, growing thick and juicy under the harsh desert sun, and knowing this might be the first foray into a process replicated in countless inhospitable locations in the years and decades to come.

Optimistically,

Owen C. Woolcock

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3 Questions I Am Asking Myself This Week

1. How much of Biden’s $4 trillion infrastructure plan will be the Green New Deal under another name?

2. Seawater next to solar to greenhouses feels so simple once I learned about it, it made think: great ideas look effortless. But because the ideas are so clear, casual observers probably don't appreciate how much time it took to refine them.

3. The cherry blossoms are peaking now in Kyoto. The data record for this annual ritual is a national treasure, having been maintained by emperors, aristocrats, governors and monks over the centuries. Records indicate this spring peak is the earliest in more than 1,200 years, a depressing vignette of our changing climate.

If You Read Or Listen To One Thing This Week

ABC Lateline: Sundrop Farms — if the story of Sundrop interests you, and you’re more of the visual type, this is a news story on the development site from 2016.