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Heavy Weather

Updated: Aug 3, 2022

In November, the UK will host the 26th UN Climate Change Conference of the Parties (COP26). Considering this, and the recent extreme weather events in parts of the world that have blown scientists’ predictions out of the water, how can portfolios be protected from the headwinds to come, literal and metaphorical?

"There is little enthusiasm for such sacrfice"

To be clear, global emissions of greenhouse gases that cause climate change are just part of a broader issue, namely our chronic lack of interest in keeping our planet, our only home, neat and tidy.

It is nigh on impossible to comprehend the impact our species has had on the environment. Through science, we have come to know that in the distant past there were five mass extinctions, caused by such things as asteroid impacts, huge volcanic eruptions, and so-called ocean anoxia events.

Science also tells us that the sixth mass extinction is now underway – the average rate of vertebrate species loss over the last century is estimated to be up to 100 times the normal rate – and that we are causing it.

It is believed that one of the five ‘natural’ mass extinctions – the Triassic-Jurassic (T-J) extinction event – was caused by global warming and ocean acidification that resulted from volcanic emission of vast quantities of greenhouse gases.

A single pulse of volcanic activity at the time lasted up to a few thousand years and released as much carbon dioxide as we are expected to emit in just the 100 years of this century. The T-J event saw three-quarters of species on Earth wiped out.

We are gradually reducing our greenhouse gas emissions, but lag effects and positive feedbacks, such as the release of methane due to thawing of the permafrost in Siberia and elsewhere, mean that things will continue to get worse for some time to come.

Change will require sacrfice. If we want to spend more time looking after our planet, we must spend less time doing other things such as producing clothes, watching TV or eating meat. There is little enthusiasm for such sacrfice, particularly in emerging countries that have yet to attain the level of wealth of the developed world.

Also, change will require the sort of political action that relies on grassroots pressure. The sad reality is that until more people’s lives – particularly those in rich countries – are directly impacted by the effects of the damage done to the environment, change will likely remain inadequate.

If you were to infer that I am pessimistic, you’d be wrong.

Technological advance is such that humans will increasingly have some control over the climate. Moreover, our willingness and desire to exercise that control should strengthen alongside it.

There are two pathways by which carbon dioxide is removed naturally from the atmosphere. The organic pathway sees carbon dioxide converted to organic material during photosynthesis. The inorganic pathway involves rock weathering that eventually results in carbon dioxide being converted to carbonates If the carbon ends up on the oceanfloor, it can stay there for a long time; or, if it is pulled back into the earth at subduction zones, a very long time.

The point is, we already know how to replicate the two pathways artficially, and in what are already reasonably cost-efficient ways. If these so-called net emission technologies (NETs) are reasonably priced today, just imagine how much cheaper they will be in the future!

I’m not going to give specfic investment recommendations in relation to the question I posed at the start of this column, only to suggest that allocating a portion of your portfolio to technology and ESG (environmental, social and governance) would seem like a good idea. I will look at these in more detail in a future article.

One NET that makes use of the inorganic pathway involves sprinkling crushed basalt on farmland. Carbon dioxide and water in the atmosphere combine naturally to form rain containing carbonic acid – acid rain. This chemically weathers the basalt, forming soluble bicarbonate that makes its way to rivers and, in turn, the ocean.

The bicarbonate is used by marine organisms to build their skeletons, which may later end up on the ocean floor. Not only would this NET help to remove carbon from the atmosphere but it would also enhance crop yields. Of course, a large source of basalt would be required and for it to be mined, crushed, then transported widely by rail.

In the US, the Columbia River Basalt Group in Oregon and Washington constitutes the major source. The largest freight rail company in the US, with a focus on the western two-thirds of the country where the basalt can be found, is called Burlington Northern Santa Fe. Sadly, you cannot buy its shares, at least not directly – they are all owned by Warren Buffett’s Berkshire Hathaway.

Published in What Investment

The views expressed in this communication are those of Peter Elston at the time of writing and are subject to change without notice. They do not constitute investment advice and whilst all reasonable efforts have been used to ensure the accuracy of the information contained in this communication, the reliability, completeness or accuracy of the content cannot be guaranteed. This communication provides information for professional use only and should not be relied upon by retail investors as the sole basis for investment.

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