Recently I had the opportunity to comment for a CNBC.com piece by Trevor Curwin titled "Thinking About Food at Davos." Curwin's article focuses on food insecurity, political instability, and climate change, and to what degree these things are intertwined. The conversation that took place during our interview got me thinking about not only resource scarcity and conflict, but about how suddenly recent events seem to have emerged, and what that might mean about world politics, economics, and next economy investing.
As I was quoted as mentioning in the article, people tend to think of climate change as slow and occurring over extremely long periods of time, such that we don't need to concern ourselves with it when making short term economic decisions. But now, on the contrary, it has become evident that large scale changes are occurring so fast that we in reality are firsthand witnessing a crucial, transformative time in human history. As recently as 10 years ago, for example, researchers were sure there would be ice at the north pole during summers until at least 2100. Now, data suggests the arctic may be ice free in summers as soon as 2020. So what are the economic implications for this accelerating change?
As we wrote recently in our annual shareholder letter:
We work hard to model an economy for the day when the equations of earth’s economy and global ecology must be made to balance for the preservation of both. For make no mistake, the time has come when the two are mutually dependent, and we can no longer court the failure of either if we aspire to continue on with civilization and the natural world as we have known them. The day is today.
Yes, we invest for the long term. But every day that the world's economy remains over-dependent on the 18th century energy technologies of coal and oil the risks to that economy increase.
The continuing uprisings in the Middle East provide a clear example. Anthropologists consider it axiomatic that resource scarcity causes conflict. That the first moment of the Arab spring was triggered by the self immolation of a man, a fruit vendor protesting dramatic increases in grain prices, is not a coincidence. Was climate change directly to blame for the conditions that caused grain scarcity? It's tough to prove for sure, but it is easy to build an argument around events like the Russian drought that led to Russia banning grain exports, and the floods in China that led to China's first ever need to import soy beans.
These and other events have led to a 50% increase in world grain prices in the last year, and I personally believe they are climate related and so that anthropogenic warming thus indirectly caused the Arab spring. (Incidentally, HBO has a new documentary on the Arab Spring titled "In Tahrir Square" that I thought was worth watching.)
But even if climate change didn't cause the extreme events that in turn caused grain scarcity, it is safe to say that sooner or later, likely sooner, it will. As climate-related events that result in scarcity continue to occur, conflict over rare essentials is inevitable. These events will include things like the disappearance of mountain glaciers that provide fresh water to much of the world's population; for example, 1.3 billion depend on the runoff from Himalayan glaciers alone. What happens when that runoff dries up?
And most mountain ranges with glaciers are struggling. A recent piece about the American Rockies provides a good example:
A steady decline in Rocky Mountain snowpack the past few decades has led to a classic cascading ecological effect, with "powerful" shifts in mountainous plant and bird communities, according to scientists with the U.S. Geological Survey and the University of Montana. "This study illustrates that profound impacts of climate change on ecosystems arise over a time span of but two decades through unexplored feedbacks," said USGS director Marcia McNutt. "The significance lies in the fact that humans and our economy are at the end of the same chain of cascading consequences."
That last sentence bears repeating: "The significance lies in the fact that humans and our economy are at the end of the same chain of cascading consequences." We have to remember that whatever human economies can ever become is by definition limited to what the earth can provide.
So while the turmoil associated with the Arab spring did have positive outcomes like the removal of unjust dictators, as conflict escalates in general, the outcomes can't be as positive. History shows that resource wars are horrible, zero sum disasters overall. So, from this point of view, the Arab spring can be viewed as less of a blossoming of freedom than as a harbinger of destructive struggles among more and more people for fewer and fewer resources. The World Bank estimates that 1.4 billion people in this world live on less than US1.25 per day. What happens to them as food prices double, and how do they respond? We’re beginning to see.
So it's close to or even past time for civilization to act in transforming world economies away from fossil fuels and other destructive practices. Again, we're seeing a critical, transformative moment in history, ranking right up there with civilization’s primary defining events. We have to stop using fossil fuels wherever realistic to do so. It's not like economically viable alternatives don't exist.
We simply can't afford to fail in the transition to a next economy world where we no longer need the central grid, where every window is making electricity, and distributed sources are self sustaining for their local homes, business and communities. Yes, this will end our dependence on dirty, health damaging fossil fuels from unstable parts of the world. But it’s much bigger than that: the next economy will be individually, personally, economically and climatologically emancipatory.
In light of all of this, the entrenchment of the fossil fuel plutocrats and their huge campaigns to disinform the public about renewables means we may be at the most dangerous time financially and ecologically in the world's history. There are enormous risks emerging now, and money will be lost by those not prepared for those risks. But crisis and risk also provide opportunity, notably to those who provide solutions to problems and risks. Next economy investing then can be defined as a way to provide capital to those solutions, and is also the clearest path to competitive investment returns as the world becomes ever riskier and more politically and environmentally complicated. It amazes me that how we decide to manage our economies over just the next few years will make the difference between a new dawn of innovation, freedom and security for mankind, or a dangerous, dirty world fighting for what's left.
Whether the Arab Spring ends up representing a blossoming of social justice and democracy or the early stages of large scale resource wars is up to us.
Garvin Jabusch is cofounder and chief investment officer of Green Alpha ® Advisors, and is co-manager of the Green Alpha ® Next Economy Index, or GANEX and the Sierra Club Green Alpha Portfolio. He also authors the blog "Green Alpha's Next Economy."