Monday, April 19, 2010

Business and Climate Change

Climate change skeptics/laggards in their more lucid moments sometimes suggest that the market will resolve the problem of climate change through innovation. The common assumption is that scarcity generates innovation in finding technological replacements for whatever given good has become scarce. Scarcity (or marginal disutility) and substitution can apply to a material, an activity, an institution, whatever. The market magically guides this innovation by setting price signals along the way.

This article of neoclassical faith is advanced in support of arguments for avoiding organized activity (the UNFCCC, Kyoto, etc.) to combat climate change. The market is an oracle which will in time reveal our true destiny.

This article by Clive Thompson basically makes the case that such claims in support of climate change inaction are obsolete.
...there's one area where doubt hasn't grown—and where, indeed, people are more and more certain that climate change is not only real, but imminent: the world of industry and commerce.

Companies, of course, exist to make money. That's often what makes them seem so rapacious. But their primal greed also plants them inevitably in the "reality-based community." If a firm's bottom line is going to be affected by a changing climate—say, when its supply chains dry up because of drought, or its real estate gets swamped by sea-level rise—then it doesn't particularly matter whether or not the executives want to believe in climate change. Railing at scientists for massaging tree-ring statistics won't stop the globe from warming if the globe is actually, you know, warming. The same applies in reverse, as the folks at Beluga Shipping adroitly realized: If there are serious bucks to be made from the changing climate, then the free market is almost certainly going to jump at it.

This makes capitalism a curiously bracing mechanism for cutting through ideological haze and manufactured doubt. Politicians or pundits can distort or cherry-pick climate science any way they want to try and gain temporary influence with the public. But any serious industrialist who's facing "climate exposure"—as it's now called by money managers—cannot afford to engage in that sort of self-delusion. Spend a couple of hours wandering through the websites of various industrial associations—aluminum manufacturers, real estate agents, wineries, agribusinesses, take your pick—and you'll find straightforward statements about the grim reality of climate change that wouldn't seem out of place coming from Greenpeace. Last year Wall Street analysts issued 214 reports assessing the potential risks and opportunities that will come out of a warming world. One by McKinsey & Co. argued that climate change will shake up industries with the same force that mobile phones reshaped communications.

(h/t Wes)

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