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Decarbonizing the National Economy

Decarbonizing the National Economy

Ratings: (0)|Views: 110|Likes:
Published by Lyle Brecht
The normal temperature for the earth is very hot and little or no permanent ice.

Climate is essentially “a precariously balanced nonlinear system that lurches between very different states of coldness, dryness, wetness, and warmth.”

Estimates on the impacts from global food shortages, pandemics, and wars caused by climate change range from a morbidity of a few hundred million to a few billion humans at an economic cost ranging from $10,000 billion to $200,000 billion.

But, focus on GDP growth masks the fact that natural capital and ecosystem services are often discounted to zero. Accounting profits are being recognized in GDP accounting even as no real economic growth has occurred once externalities and contingent liabilities are added.

If the purpose of markets is to efficiently allocate capital to the most productive activities in an economy, this cannot happen unless better information is included in the cost of market transactions.

To better allocate investment capital, scale technological innovation, and create new jobs to decarbonize the economy, the systemic risk of climate change and degradation of ecosystem services must be costed and included in market transactions.
The normal temperature for the earth is very hot and little or no permanent ice.

Climate is essentially “a precariously balanced nonlinear system that lurches between very different states of coldness, dryness, wetness, and warmth.”

Estimates on the impacts from global food shortages, pandemics, and wars caused by climate change range from a morbidity of a few hundred million to a few billion humans at an economic cost ranging from $10,000 billion to $200,000 billion.

But, focus on GDP growth masks the fact that natural capital and ecosystem services are often discounted to zero. Accounting profits are being recognized in GDP accounting even as no real economic growth has occurred once externalities and contingent liabilities are added.

If the purpose of markets is to efficiently allocate capital to the most productive activities in an economy, this cannot happen unless better information is included in the cost of market transactions.

To better allocate investment capital, scale technological innovation, and create new jobs to decarbonize the economy, the systemic risk of climate change and degradation of ecosystem services must be costed and included in market transactions.

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Published by: Lyle Brecht on Oct 02, 2009
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01/18/2014

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You know that the best you can expect is to avoid the worst
1
 CLIMATE CHANGE IS NORMAL IN THE COURSE OF THINGSThe
normal
temperature for the earth is very hot and little or no permanent ice. As lifehas evolved, the earth has trended toward cooler temperatures. Past climate historyis that with little or no warning, there have been “dramatic shifts in temperature,storminess, and precipitation.”
2
Climate is essentially “a precariously balanced non-linear system that lurches between very different states of coldness, dryness, wetness,and warmth.”There are many interacting climate processes that cause “a warm world of flowingwater and verdant growth to become a cold world of dry winds and aridlandscapes.”
3
Greenhouse gases let visible light and ultraviolet radiation from thesun reach the earth’s surface, but absorb some of the infrared radiation reflected back to space, thus heating the earth’s atmosphere. Without the global warming effect of the greenhouse gas CO2, the surface temperature of the earth would be ~0 degrees F,rather than its present average of 59 degrees F. Without the cooling effect of photo-synthesis, especially the phytoplankton in the oceans, the earth would overheat and be uninhabitable by humans.ANTHROPOGENIC CARBON EMISSIONS ARE NOT NORMALPresently, human activity adds ~8.2 billion tons of carbon into the atmosphere annu-ally from all sources. Of this amount, the seas presently absorb 40%; therefore 4.4 bil-lion tons are added to the atmosphere annually. Today, there is ~880 billion tons of carbon in the atmosphere. Scientists believe that 935 billion tons may be the tippingpoint beyond which the earth will experience runaway warming as it has in past cli-mate cycles during the earth’s history. At the current rate of carbon emissions, wewill reach 935 billion tons by 2020.Accounting for both direct and indirect annual CO2 produced from consumption nomatter where products were produced: U.S. accounts for 50% of annual anthropo-genic CO2; Europe 35%. The breakdown of carbon accountability by region is as fol-lows: U.S. and Australia = 5.5 tons of carbon/year per person; European countries =3 tons per person; China = 1 ton per person; India = 0.5 ton per person.
CLIMATE CHANGE DECARBONIZING PLAN
LYLE A. BRECHT 410.963.8680 DRAFT 1.4 CAPITAL MARKETS RESEARCH --- Wednesday, October 14, 2009 Page 1 of 3
1
Italio Calvino,
If on a Winter’s Night a Traveler
(1979) inWilliam Poundstone,
Prisoner’s Di-lemma
(New York: Doubleday, 1992), 53.
2
Doug Macdougall,
Frozen Earth: The Once and Future Story of Ice Ages
(Berkeley: University of California Press, 2004), 141, 227.
3
John D. Cox,
Climate Crash: Abrupt Climate Change and What It Means for Our Future
(Washing-ton, DC: Joseph Henry Press, 2005), 65, 183.
 
WHAT IS AT STAKE - THE CLIMATE DOOMSDAY MACHINEThe longer-term systemic risk of climate change might include global annual GDP by2050, instead of increasing from $60 to $240 trillion, declining to $6 trillion. Worstcase might be eliminating a large portion of the world’s human population either,directly or indirectly, by altering the earth’s biologic capacity to support life.PLANETARY BOUNDARIES, MARKET ECONOMICS & SYSTEMIC RISKFocus on GDP growth masks the fact that natural capital and ecosystem services areoften discounted to zero. That is, accounting profits are being recognized in GDP ac-counting even as no real economic growth has occurred once externalities and con-tingent liabilities are added to the purported accounting profits. Just as any business would soon go bankrupt without understanding the condition of its balance sheet, the global economy is incapable of prudent operations without bet-ter knowledge of the natural capital and ecosystem services available to support theindustrial ecology of national and global interlinked economies.Accurate market pricing of goods and services can only occur with better informa-tion. What is presently left out of many market prices is the cost of systemic risk. Forexample, trillions of dollars of CDOs (collateralized debt obligations) were sold onWall Street and hundreds of billions of dollars of bonuses were paid on the sale of these CDOs. Yet, these financial instruments were not priced to include systemic risk.When the market for CDOs collapsed, U.S. taxpayers were asked to put up $17,500 billion in reserves (through a variety of mechanisms via the U.S. Treasury and Fed-eral Reserve) to cover the systemic risk of these toxic transactions.The downsides to not including the economic cost of managing systemic risk arethat: (a) systemic risk may not be managed adequately as its costs are not included inmarket transactions; (b) accounting profits are reported and compensation providedfor efforts even as no economic value added may be achieved; (c) capital is misallo-cated as an improper discount rate is often chosen that make projects look more at-tractive than they actually are in practice. Not managing systemic risk is ultimatelydestructive of capital.Every day, the global economy disavows the cost of systemic risk of exceeding limitsto the environmental support systems that underlie these economic transactions. Es-sentially, that is where global warming comes from. As anthropogenic discharge of CO2 emissions to the atmosphere is free, it makes perfect business sense to dischargeCO2, even though, from a systems perspective, these discharges are dis-economic(e.g. if 350 PPM is limit, remediation may cost $20,000 billion - the unaccounted forcost of managing systemic risk that was discounted in the market transactions whereCO2 emissions occurred).
CLIMATE CHANGE DECARBONIZING PLAN
LYLE A. BRECHT 410.963.8680 DRAFT 1.4 CAPITAL MARKETS RESEARCH --- Wednesday, October 14, 2009 Page 2 of 3

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