Much of Holland was under water until the Dutch, starting in the 15th century, built dikes to hold back the North Sea. In the 20th century, they constructed more dikes, dams and causeways and pumped out the huge shallow bay, the Zuiderzee (southern sea in Dutch), to use it for agriculture and housing, renaming it IJsselmeer (IJssel Lake) after the river that drains into it.
As the climate warms, the global production of crops such as corn are being planted further north to take advantage of longer sunlight and less extreme weather. Levees, flood walls and drainage systems now protect New Orleans to the point that Hurricane Ida created much less damage than Katrina in 2005.
Without offsetting measures, projected increases in sea levels between now and 2100 would flood vast areas of the world’s coastlines, creating $55 trillion in total damage (in 2005 dollars), or 5% of global gross domestic product, a study by the National Academy of Sciences projects. But with higher dikes, only 15,000 people would be flooded, estimates Bjorn Lomborg, president of the Copenhagen Consensus, compared with 3.4 million in 2000. He also says that the total cost of the damage, investments in new dikes and maintenance of existing dikes would fall six-fold between now and 2100 to 0.008% of global GDP. These measures would slash the number of people affected by flooding from 187 million to 15,000, Lomborg estimates. In contrast, lowering global temperatures by 2 degrees Celsius by the end of the century, the standard goal, would only cut the number of flood victims to 85 million a year.
In the long run, human ingenuity always overcomes major economic problems. I remember when serious economists believed that telecommunication development was limited by the finite supply of copper to make transmission wires. Then fiber optics were developed from silicone, the second most relevant substance on the earth’s surface next to oxygen. Computers were originally run by vacuum tubes that limited their size. The odds of any one tube burning out were low, but became substantial when thousands of them relied on each other. So big computers would function for only a few minutes. These limitations largely disappeared as more reliable semiconductors came into existence.
Then there was the Hubbert’s Peak forecast of crude oil production. M. King Hubbert, a geophysicist who joined Shell Oil in 1947, believed that oil field production followed a classic bell curve, or normal distribution, and that oil gets increasingly expensive to extract and is of lower quality after a field’s production peaks. Based on his theory, he predicted that production in the lower 48 U.S. states would peak in the early 1970s. So as demand for petroleum grew, shortages and sky-high prices might impede economic growth. Few believed him at the time of his predictions. U.S. oil output was expanding rapidly after World War II and, indeed, American production not only supplied domestic needs but also much of the rest of the world through exports. Still, his forecast proved accurate.
Hubbert’s followers subsequently extended his concepts globally and believed that worldwide production would top out in 2010, or in 2012 at the latest. Now, however, the issue is peak demand, not peak supply. Hubbert’s Peak fans didn’t expect natural gas, liquefied natural gas, the oil sands in Canada, heavy oil in Venezuela and elsewhere, oil shale, coal, hydroelectric power, nuclear energy, wind, geothermic, solar, tidal, ethanol and biomass energy, fuel cells and so forth to substitute significantly for petroleum.
Petroleum demand growth is slowing due to the ongoing shift from goods to services consumption, conservation, the substitution of natural gas for fossil fuels in electricity production and renewable energy, to say nothing of longer-term substitution of electric vehicles for gasoline- and diesel engine-powered autos and trucks. The International Energy Agency expects oil demand to eventually fall in all three of its scenarios that range from the status quo to zero net carbon emissions by 2050.
Clean-burning whale oil was the preferred fuel for lighting until the mid-1800s, so much so that the famous whaling fleets in Massachusetts were running out of whales in the nearby Atlantic Ocean. That forced the ships to take long and hazardous voyages around the southern tip of South America to the Pacific Ocean. There were fears that the world would exhaust the whale population and the lights would go out. Then in 1859, Edwin Drake, a retired railroad man, drilled the first successful oil well in Titusville, Pennsylvania. Kerosene refined from crude oil rapidly became the standard fuel for lighting, and the world’s remaining whales were spared.
Early in the Industrial Revolution, many feared it couldn’t continue. Charcoal was used to convert iron ore into steel, and England was running out of the oak trees needed to make charcoal. But an iron monger in Shropshire discovered that coke, a substitute for charcoal, could be made from abundant coal, and the Industrial Revolution was saved.
Current examples of adaptations include retailers, beset by supply-chain woes, who are pushing Christmas shoppers to accept alternatives for items that are out of stock or in short supply. Global supply-chain problems have also encouraged Chevron Corp. to substitute 3-D printed parts for scarce items at its Gorgon gas-export project in Australia.
With shortages of semiconductor chips, manufacturers are redesigning products to require fewer chips and relying on lower-tech models of their products. Digital features like screens and wireless connectivity in appliances are being discontinued temporarily due to chip shortages.
Malaysia, a country of 33 million people, has long relied on several million low-paid foreigners to work in factories, construction and rubber harvesting. It closed its borders to migrant workers early in the pandemic, making it difficult for the nation’s important semiconductor industry, among others, to keep up with demand. The national chamber of commerce believes the country is short 500,000 workers due to departing migrants, but rather than let them return, the government is pushing “Malaysianization” that offers extra pay to locals who take jobs previously held by foreigners. Malaysia’s leaders believe readily available and cheap foreign labor discouraged businesses from investing in automation.
Meanwhile, Saudi Arabia has encouraged companies to hire locals and introduced taxes on companies that hire foreigners. What a change for a country that previously relied on Pakistani and other foreign workers while Saudis enjoyed high-paid and often no-show jobs! In the U.K., Prime Minister Boris Johnson says the nation is reducing immigration to raise local wages and productivity, even as labor shortages persist there.
Renewed interest in nuclear power is unfolding as the enormous carbon footprints of wind, solar and the necessary batteries when the wind doesn’t blow and the sun doesn’t shine become more apparent. A nuclear engineering professor at the Massachusetts Institute of Technology, Jacopo Buongiorno, calculates that over the life cycle of power plants, including construction, operation, decommissioning and disposal of waste, the greenhouse gas emissions of nuclear power are 1/700th those of coal, 1/400th of gas and a quarter of solar. Private capital is interested in molten-metal reactors, liquid-metal reactors and advanced small modular reactors that are relatively cheap and quick to build.
Human brains and substitutions have always beat major economic problems and shortages, and probably always will. As an investor, sidestep the negative effects of climate change and concentrate on the new opportunities that are opening up.More From Other Writers at Bloomberg Opinion:
Carbon Reduction Costs Will Turn Off Investors: Gary Shilling
Manchin’s Climate Catchphrase Is Complete Nonsense: Liam Denning
Investors Are Punishing the Carbon Polluters: Orszag and Halem
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Gary Shilling is president of A. Gary Shilling & Co., a New Jersey consultancy, a Registered Investment Advisor and author of “The Age of Deleveraging: Investment Strategies for a Decade of Slow Growth and Deflation.” Some portfolios he manages invest in currencies and commodities.
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