Jeremy Siegel, Ph.D. The Future for Investors

Not anymore.

The reality of global warming is now accepted by virtually every scientist. And the economic consequences of this warming are going to impact our world much sooner than I had anticipated.

Some of the changes wrought by global warming are favorable. Warmer temperatures increase the growing seasons in Canada and Russia and reduce heating costs in northern climates. However, global warming also increases tropical storms and droughts and could disrupt the Gulf Stream that warms Europe. On balance, the above consequences are negative for the world economy, but not substantially so.

However, there is one consequence of global warming that could be absolutely catastrophic: a significant rise in sea levels due to the melting of the polar icecaps.

Climate Change

Jim Hansen, director of NASA’s climate research center and one of the most respected climatologists, has collected prodigious data, which measure the earth’s carbon dioxide levels, average air temperature, and sea level over the past 420,000 years. The correlation is striking and ominous (see MIT’s July/August 2006 issue of their Technology Review).

In the last century, carbon dioxide levels in the atmosphere have shot up from 285 parts per million (ppm) to 377 ppm. Historically, carbon dioxide levels had averaged between 180 and 290 ppm. Every 10 ppm increase in CO2 concentration is associated with a half a degree Centigrade increase in temperature and a 10 meter increase in sea levels.

The implications are scary. Hansen indicates that the continued increase in greenhouse emission can cause temperatures to rise between two and three degree Centigrade. If that happens the earth will be as warm as it was three million years ago when the seas were between 15 and 35 meters higher than today.

Certainly, there are mitigating factors: particulates in the air (which have actually been reduced over the past few decades through pollution control) and increased cloud cover due to warming seas (a factor in the increase in tropical storm activity), will offset perhaps half of the CO2 levels. Nonetheless, the impact on world water levels is likely to be significant.

Rising Water Levels

There is no question that sea levels are now rising. Both land and sea measurements indicate that sea levels are rising between three and four millimeters a year. At this rate, it would take at least 250 years for the seas to rise one meter. But the rise is unquestionably accelerating and has more than doubled over the last century. In southern Greenland, the country’s largest glacier, Jakobshavn Isbrae, has doubled its rate of slide to the sea between 1997 and 2003, a mere six year period. This glacier alone has contributed 4% to the rise in world sea levels.

And there is no controversy about what would happen to seas levels if the great ice sheets in the polar regions were to melt. The melting of Greenland’s ice would add seven meters to the ocean levels, West Antarctica (where the Larsen B ice-shelf recently broke off, causing glaciers to move two to six times faster into the ocean) would add another six meters, and East Antarctica, would add a devastating 70 meters, submerging almost half of the world’s population.

The scary forecast is that this process could take place in a matter of decades. The last great ice sheet collapse, about 14,000 years ago, sent the seas up a total of 20 meters at the rate of a meter every 20 years for 400 years. We are now seeing rapid melting in Greenland and Antarctica not dissimilar to the sea ice collapse the earth underwent after the last ice age.

If this pattern continues, the seas could be 10 feet higher in a mere 60 years. Of the five largest cities in the United States (New York, LA, Chicago, Houston, and Philadelphia), only Chicago and my own Philadelphia would not be seriously impacted. (If you think this comforts me, it does not. I would need a boat to reach the second floor of my home on the Jersey shore). And goodbye to New Orleans and trillions of dollars of real estate that lines our coasts. The economic consequences of rising waters would be catastrophic.

Solving the Problem

Clearly we must stabilize the levels of carbon dioxide in the atmosphere. Some suggest that it might cost 5% of GDP to do this, but most estimates are much lower, at 1% of GDP, or below. And actions to stabilize CO2 may not require a complete switch into solar, wind, nuclear, or hydrogen-based energy sources. The emissions from coal, the cheapest, dirtiest, and most abundant fossil fuel, can be harnessed by a process called “sequestration,” where emissions from coal plants are captured and stored underground.

I believe that to encourage such technologies, the U.S. and developing nations must take action. The U.S. now emits the most greenhouse emissions, but China and India will soon overtake us. That means that the U.S. must enact its own greenhouse measures (or renegotiate the Kyoto Accords) and use its clout to persuade China and others to participate.

I like the Emission-Trading Scheme adopted by Europe, which limits how much carbon dioxide producers can emit by letting them buy and sell emission credits. Carbon taxes are another possibility, but I don’t like handing the government more revenue. We could impose carbon taxes that are matched by tax reductions elsewhere so that the scheme is revenue neutral.

Successful emission controls programs can benefit us elsewhere. Pollsters tell us that “energy independence” is currently a hot political issue that cuts across all party lines. No one likes to give billions of dollars to oil-rich countries, many run by anti-American dictatorships. On balance, emission controls and energy conservation reduce our dependence on foreign oil.

Insurance Policy

There may be only a very small probability that a worst-case scenario that I painted above – the flooding of the world’s coastal regions – will occur. But that’s precisely what insurance is all about. Is it not worthwhile to take necessary measures today to significantly reduce the possibility of this event?

I think so. The fact that scientists have recently confirmed that the Gulf Stream inexplicably came to a halt for 10 days in November 2004 serves as a warning that changes may occur quickly. Let’s take action when the costs of doing so are still manageable.