Climate Change and the Trillion-Dollar Disruption
Fortunes are made and lost on “disruptive events” that seem to catch us off-guard. Deep down, however, we all know that most disruptive events aren’t so much unseen before the fact as they are ignored.

Hundreds – perhaps thousands – of behavioral economists have earned their PhDs studying the psychology of denial, but I suspect a simple explanation, and it’s one we all know: denial is, quite simply, comforting. It’s almost as comforting as it is dangerous. It keeps smokers puffing and debtors borrowing. It also kept credit bubble bloating – albeit it with the help of financial incentives that made denial quite lucrative for some.

And there’s another unspoken truth we all know but don’t want to acknowledge: elements of evil conspire with our own psychology to keep those of us who know better from breaking free of our delusion, so smart money follows two courses: one that bets in favor of reality, and one that bets in favor of denial while actively keeping the delusion alive. That’s what happened with tobacco and the credit bubble, and it’s what’s happening with climate change.

The economic consequences are going to be disruptive, to say the least.

Let’s take a look at agriculture – the sine qua non of our modern, high-tech economy. In 2008, Columbia Researcher Wolfram Schlenker and North Carolina State researcher Michael J. Roberts examined the impact of rising temperatures on yields of corn, soybeans, and cotton.  They found that yields drift upwards as temperatures rise until we get into the 25°C to 30°C range (77°F to 86°F) – at which point they plunge dramatically. They published their findings in the August 28, 2009, Proceedings of the National Academy of Sciences.

They also took a stab at projecting yield reductions a century from now, and built their projections on the most optimistic and pessimistic warming scenarios. Under the most optimistic scenario, yields dropped between 30% and 46% by the end of the century; while under the most pessimistic projection, they dropped between 63% and 82%.

The prospect of an 82% drop in yields on the world’s staple crops is too frightening to even contemplate (it really is! Think about it.), but at the American Geophysical Union’s (AGU) fall meeting in December, 2011, Chris Field cited the Schlenker/Roberts study while examining two issues less likely to spark our collective denial reflex: uncertainty and non-linearity.

The AGU is a 50,000-strong nonprofit organization of geophysicists from more than 135 countries, and Field is the founding director of the Carnegie Institution’s Department of Global Ecology, as well as a professor of Biology and Environmental Earth System Science at Stanford University. In the video, he touches on the direct impact that temperatures have on yields, as well as on the indirect impact that temperatures have on yields via their direct impact on bugs that eat plants and the danger of crossing tipping points beyond which all bets are off. He points out, for example, that the risk of forest fires, quadruples in parts of the American West for every 1°C increase in temperature beyond a certain point.

Other research has shown how climate change has already extended summers in some parts of the country enough to give the northern pine beetle the comfort it needs to turn trees into kindling at unprecedented rates.

Food security, Field makes clear, is harder to project than mere climate change, because it involves massive, unpredictable migrations and the still-unknown responses of thousands of plant and animal species.  This isn’t speculation; it’s reality.  Junipers and aspens are dying en masse, because everywhere we look “nonlinear trigger events” are disrupting forest ecosystems, inhibiting their ability to suck carbon from the atmosphere – turning them from net carbon sinks to net carbon sources.  We don’t know how bad it will get, but we know it’s happening, and we know why.

Our economic system got us into this mess, and it can help get us out. In Kenya, for example, farmers are experimenting with financing mechanisms that tap carbon markets to promote “climate-safe agriculture” that conserves topsoil and ratchets up yields – in the process locking carbon in the ground. It’s a practice that’s already been implemented on 40% of US farms, where it locks roughly 60 million metric tons of carbon in the ground annually – and conserves topsoil to boot.

Such financing mechanisms work by incorporating the impact of environmental degradation into the cost of production, but even they won’t generate the kind of results we need if temperatures cross the tipping point. That’s when all “safe” bets are off, and the only smart place to be is long commodities — and bunkers.

(By Steve Zwick, Forbes Magazine, 05/01/2012)