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May 20, 2014 — 6:37 AM UTC by Guest Columnist Ron Rhoades
Brooke’s Note: Ron Rhoades and I do not agree on everything. His expressed disdain here for sit-coms I am mildly offended by. I look forward to my weekly viewing of Hawaii Five-0. But I agree with his stance on global warming and, in fact, I goaded Mr. Rhoades, to write this column. I knew of no one else in this RIA business brave enough to tackle it. It is frightening to take on the seemingly manic desire of humans to pump as much carbon (and methane by fracking) into the air as possible via smokestacks, SUV tailpipes and the business end of their cattle. It is also scary to take on the people who say that the problem doesn’t exist. Although we try sorely to avoid politics at RIABiz, I believe this politically charged subject is too relevant not to bring up for discussion. Financial planning must be goal-based and multi-generational to be considered successful and state of the art. In that context, how can it make sense to disregard the ravages expected by so many scientists, unless we don’t care about future generations? What can an advisor do? Not much alone. But standing side by side with thousands of fellow advisors who like to consider themselves good stewards of wealth — maybe just enough to tip a balance.
I don’t watch much television. Why? I’ve never had a client, near the end of his or her life, express the regret: “I wished I watched more sitcoms on TV.” And long ago I sensed that much of television news provides a skewed perspective on the important issues of the day, or no coverage at all of the truly important issues of our time.
I read a great deal — mostly about the economic issues that truly matter. And in such readings I seek out varied perspectives — conservative and liberal, Republican and Democrat, U.S.-centric and diverse views from around the world. For academic research informs us that no perspective is truly “objective.” Rather, the story told is shaped by each person’s perspective, which is in turn a product of the person’s culture, beliefs, personal history, and the influences felt. See: 13 for 2013: A baker’s dozen of issues you and your clients should really be focusing on this year.
Fifteen years ago a client asked me, during an annual client dinner, what kept me up at night. My response in 1999: “Oil.” Why? There seemed to be no technology that, in the short-term, would likely cease our reliance on oil. I thought that as demand for oil increased worldwide, and “peak oil” resulted in a limited supply, the cost of oil and its derivatives (including gasoline) could rise substantially.
With the U.S. economy intertwined with relatively (to many other parts of the world) inexpensive oil at the time, I was greatly concerned of the possible excess demand /reduced supply mismatch. And I was also fearful that lack of energy independence was, for our nation, a likely cause of foreign policies that we would some day regret. See: Why a senior Merrill Lynch advisor reluctantly broke away with ultra-affluent clients from the Texas oil patch.
Fast forward to the present day. Energy policies remain at the forefront of public discussion. Yet, with recent technological developments — from fracking to renewable energy to electric vehicles to energy efficient construction and lighting — my long-term fears have been substantially alleviated. The United States can be on its way to energy independence. And, with renewable energy sources — in particular wind and solar — improving so vastly in terms of efficiency, as a society we have essentially capped the long-term costs of energy.
Sure, we may still see some supply/demand imbalances over the next few decades, particularly with fluctuating oil and gas prices. But we also know the costs of deploying renewable energy is now near the costs of carbon-based energy sources, and with each passing year the gap narrows.
Human-based climate change
This brings me to the topic I would like to discuss with you today — man-induced, long-term global climate change.
We’ve seen an unprecedented string of years with near record-level global average high temperatures. Already evident are sea level rises affecting U.S. coastal cities, leading to billions and billions of infrastructure investments in the future to mitigate the disruption to many of our major cities.
I grew up in St. Petersburg, Florida, located on a peninsula surrounded by the Gulf of Mexico on one side and Tampa Bay on the other. Much of the city is low-lying, just a few feet above sea level. Like other coastal cities in Florida, for nearly a decade St. Petersburg has undertaken planning for the effects of sea level rise. And the preliminary results of such planning are not pretty. Billions of dollars to protect public and private property. Massive implications for environmentally sensitive lands. Further salt-water intrusion into diminishing fresh water sources. And some locations that, due to porous rock and soil, simply cannot be defended against rising sea levels.
Yet, according to Pew Research Center surveys conducted last year, only 25% of Republicans said they considered global climate change to be “a major threat.” This is in stark contrast to Democrats, 65% of whom agreed with the statement. How can we reconcile these disparate views? And how, as financial advisors, should we respond?
Why are Republicans behind the times?
We must question whether many Republicans simply choose to ignore science. I’m not talking just a few papers here. Rather, as John Cook et. al. discerned in their 2014 paper “Quantifying the consensus on anthropogenic global warming in the scientific literature,” a scholarly review of 11,944 scientific paper abstracts: “Among [the roughly one-third of] abstracts expressing a position on [anthropogenic global warning], 97.1% endorsed the consensus position that humans are causing global warming.” See: At TD event Mitt Romney resurrects his Massachusetts stance on global warming and throws cold water at Obama.
In a May 2015 report entitled “Climate Change Is A Global Mega-Trend For Sovereign Risk,” Standard & Poor’s stated: “While most sovereigns will feel the negative effects of climate change to some degree, we expect the poorest and lowest rated sovereigns will bear the brunt of the impact ….”
The report warned against possible downgrades on the sovereign debt of many nations as they wrestled with the effects of global climate change.
Moreover, in the Intergovernmental Panel on Climate Change (IPPC) Working Group I’s contribution to the IPCC’s Fifth Assessment Report, the authors state: “Human influence has been detected in warming of the atmosphere and the ocean, in changes in the global water cycle, in reductions in snow and ice, in global mean sea level rise, and in changes in some climate extremes … It is extremely likely that human influence has been the dominant cause of the observed warming since the mid-20th century.” (Emphasis in original.)
Perhaps few things are scientifically certain. But how much certainty do we require? How many more thousands of scientific studies must occur before Republican leaders acknowledge what the rest of the world already has? First, humans have been the major force in effective global warming. Second, the continued emissions of greenhouse gases will cause further warming and changes in all components of the climate system. Third, limiting climate change will require substantial and sustained reductions of greenhouse gas emissions globally.
Most of my colleagues and friends are Republicans. Most of my clients are Republicans. I come from a Republican family. I consider my friends, clients and family members, on the whole, rational and thoughtful people. Hence, I don’t believe that Republicans are immune to the persuasion of science.
Yet, many of my colleagues, friends, and family members bring up “talking points” again and again when the topic of global climate change comes up.
So where does the Republican intransigence on climate change (and the talking points they spew) come from? From political leaders — mostly Republicans. On May 11 one leader said on ABC’s “This Week”: “I don’t agree with the notion that some are putting out there, including scientists, that somehow there are actions we can take today that would actually have an impact on what’s happening in our climate.” So stated Florida Senator Marco Rubio, one of the potential candidates for the Republican nomination for president in 2016.
There are many other leaders of the Republican Party with similar views, although arguably the “biggest name in contemporary Republican politics has changed his stance:http://www.riabiz.com/a/5053083113488384/at-td-event-mitt-romney-ressurrects-his-massachusetts-stance-on-global-warming-and-throws-cold-water-at-obama. And, as we are all aware, the members of the any political party are greatly influenced by the publicly stated opinions of their leaders. Hence we have the denial, by so many self-identified Republicans, of the scientific fact of climate change. See: Regulatory Wire: Everything an RIA needs to know about the reform agenda in Washington.
I personally believe we owe it to ourselves to become better educated on these issues so we can, collectively as a society, move past the “debate” (should we even call it that?) that humans are largely responsible for global climate change which is occurring, and which is having effects, right now.
Complex problems, complex solutions
Acknowledging that human-induced global warming is a problem is the first step our leaders — whatever their political persuasion — must undertake. For this permits a careful examination of the potential solutions.
Wind energy and solar energy efficiencies have improved dramatically over the past five years. Even greater efficiencies are on the horizon. Huge innovations in grid-scale energy storage have occurred. Recent developments in material sciences hold out the promise of improved batteries that may power our vehicles much further than the batteries utilized today. See: Charles Goldman makes a green investment that involves black and white analysis.
We may now be in a position to ask, even as tax subsidies for renewable energy deployments are (hopefully) gradually withdrawn, whether any new coal plants should be built. Or even natural gas plants. See: Here’s a 15-item checklist of low-hanging tax tips for financial advisors.
We may also now be in a position to ask: Is the transition away from carbon-derived energy to a 100% renewable energy paradigm by 2050 an economic possibility for the United States? And what role, if any, should governments play in fostering such a transformation? A revenue-neutral carbon tax and tax credits for renewable energy? Withdrawing of favorable tax deductions and credits for further carbon-based deployment? Required carbon sequestration? See: Eavesdropping on SRI in the Rockies: SRI’s surprising growth, changes in the sector, and the question: How do you handle BP in a portfolio?.
There are many, many more possible technological and policy solutions that should be considered today. And new scientific innovations will bring forth new solutions, perhaps in ways we cannot foresee today.
Change from within
Yet, we cannot wait. In concert with other nations, we must begin to more rapidly deploy solutions that limit greenhouse gas emissions today. As science and innovation provide us with better technologies in the future, we can shift our resources as efficiencies dictate.
But first we must, as a nation, reach consensus that global warming is a human-induced major threat to our economic future. How? In the only way possible. Change must come from within.
In the context of the Republican Party, this means that Republican leaders need to hear from their constituents. They need to know that there are many, many astute and educated constituents who are concerned about global climate change and its potential devastating effects on the U.S. economy, and indeed on economies around the world.
Elected officials, while influenced by the funds flowing from so many moneyed special interest groups, ultimately respond to the views of their constituents.
In the run-up to the 2014 mid-term elections, and the 2016 presidential elections, is the opportunity to make your voice known on these issues. Research these important issues. Then write to your congressional leaders, expressing your concerns and suggesting a course of conduct. Such as acknowledging that man-induced global climate change is real, for a start. See: Before taking a self-imposed vow of silence, Ron Rhoades sounds off on the RIA industry and tells what’s it’s like to hit a professional wall.
Financial advisors’ special role
Where does leadership in our society come from?
As financial advisors we are accustomed to identifying risks that our clients may face, and then taking measures to eliminate, mitigate and/or insure against those risks. See: How RIAs describe exactly what they do in a few choice words.
Financial advisors are exceptional at analyzing complex data, interpreting it, and then conveying that data in understandable terms to our clients. Similar to the financial risk analysis undertaken by Standard & Poor’s above, with respect to the impact of global climate change on sovereign debt ratings.
As financial advisors we are stewards of our clients’ wealth. Should we assume a larger role? Should we also seek to be stewards of our society, wielding whatever positive influence we may? Should we speak out? If not for the sake of ourselves, our children and grandchildren, then perhaps also for the benefit of our clients and our society at large? See: One-Man Think Tank: Being a fiduciary is suddenly in style, even as lawmakers dance around the issue.
It is likely that this column will stimulate a desire for immediate response.
I can hear the comments already …
“Just because the Southwest is in a severe drought doesn’t prove anything.” (You’re right.)
“The climate is always changing.” (You’re right, although the pace of change today is unprecedented in human history.)
“It is not 100% certain that man is causing long-term global climate change.” (You’re right — it’s not 100% certain; rarely is anything so certain. Examine, as you would for a client, the facts, to weigh the likelihood and severity of the risk.)
“Even if the United State acts, China and India won’t.” (How do we know this, for certain, unless we try? Both of these countries have, and are making, substantial investments in renewable energy, by the way. And most countries in this world will feel the economic effects of rising sea levels, with billions of lives to be impacted across the globe over the long term.)
“So we should stop consuming beef?” (Cows, it seems, are a large source of methane, and grasslands don’t take up as much carbon as forests. But while I may be willing to follow my doctor’s advice and reduce my consumption of red meat, I still like my occasional cheeseburger.)
“Scientists are liberals. We can’t trust them.” (While certainly not all scientific conclusions stand the test of time, and there are cases of scientists manufacturing their conclusions, one must examine the entire body of scientific evidence. For if we dismiss substantial and compelling scientific evidence, then truly we choose to be ignorant.)
There will likely be many more such comments.
An advisor’s duty
But — before you comment — I ask that you use your analytical abilities to review the science out there. Don’t just listen to the talking heads. Don’t just read the news, whether you believe your news source is conservative leaning, liberal leaning, or “balanced.”
Instead, actually read the recent reports that have been published. Look further at the science; don’t just absorb pundits’ talking points.
And then, armed with knowledge and illumination, reach your own personal conclusions.
And if you find, as I have, that human-made global climate change is a reality today, and that the effects of such can be mitigated with global renewable energy deployments in a cost-effective manner over time, choose not to be silent.
Make your voice heard. With your letters and schedule your visits, to seek to influence those politicians who, in turn, influence so many. Ask them to first acknowledge that the problem of human-made global climate change is real. See: What happened when two advisors traveled to D.C. to be heard.
Perhaps then we can encourage our elected representatives to engage in the more complex debate. Perhaps then our politicians can tackle the many and varied policy choices that lie before us as we confront this major economic challenge to our society, and to our brethren elsewhere in this world.
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