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Michael McDonald

Michael McDonald

Michael is an assistant professor of finance and a frequent consultant to companies regarding capital structure decisions and investments. He holds a PhD in finance…

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Addressing Climate Change Could Be More Costly Than Thought

Wind Turbines

For all of the discussion around the dangers of climate change, one issue is often forgotten – the cost of fixing the problem. Cutting carbon emissions enough to halt changes to the Earth’s atmosphere is likely to prove extraordinarily costly. So much so that the process is going to put a huge financial burden on many nations and keep billions mired in poverty. That’s the conclusion of M.J. Kelly, a leading engineering professor and scientist with Cambridge University in a recently published study.

Dr. Kelly also sees the Paris Climate Accord as irrelevant from a climate change perspective, with the quest to reduce carbon emissions being at best costly, and very likely quixotic. Kelly sees carbon cuts as having a devastating effect on modern life around the world. Kelly’s views, while not shared by many other scientists, are based on a cost perspective rather than a view on the process of global warming. Kelly concludes that global warming is occurring, but rather than being as detrimental as many experts fear, he sees it instead as having a significant beneficial effect on fertilization and crop yields.

Kelly’s conclusions are notable in that they coincide with a recent report by the International Energy Agency. In that report, the IEA called for “concrete action” to address climate change in the wake of last year’s accord which was ratified by almost 200 nations. The IEA cites “massive changes in the energy system” that are needed to meet the goals of those accords. The IEA cites the cost of those changes and the required decarbonization as being roughly $9 trillion. For reference, that’s roughly ten times the amount of money invested by the United States in the wake of the financial crisis – actions which led to numerous protests about bailouts of Wall Street banks and financial institutions.

Further, an additional $6.4 trillion would be needed to make other industries more environmentally friendly in order to help sustain low carbon trends. Given that level of costs, it’s unclear where the money would come from. Outside of the U.S. and Western Europe, most of the world is still quite poor with many denizens living in third world conditions. Unfortunately, the costs of decarbonizing are too great to be borne by the U.S. and Western Europe alone. The total wealth of the U.S. for instance - including stocks, bonds, bank accounts, real estate, everything – is roughly $85 trillion. It’s unclear that the country is going to be willing or able to give up 20 percent of its total wealth to help the rest of the world. Related: Oil Supply Disruptions Highest In Five Years

Dr. Kelly argues that carbon dioxide should be considered a product of the immense benefits of a technologically advanced society, and that cutting carbon could result in a dramatic reduction in the world’s quality of life ushering in mass famine, poverty, and war. Kelly says “humanity is owed a serious investigation of how we have gone so far with the decarbonization project without a serious challenge in terms of engineering reality”.

He goes on to say that "Everyone assumes that every change is for the worse, but we are starting to find upsides" in carbon dioxide, he said. "The recent science is casting doubt on whether more CO2 is necessarily a bad thing."

Kelly’s views are still very much out of the mainstream, but he has a good point about the costs of changing not only the existing infrastructure around the world, but also the path to greater prosperity for the emerging parts of the third world. Those costs will be enormous – unlike anything the world has ever attempted. In that sense, it’s not a bad idea to make sure that investment is being well spent and to consider plan B choices.

By Michael McDonald of Oilprice.com

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  • Lee James on June 13 2016 said:
    Is it the case the Dr. Kelly initially did not believe in global warming? Now he thinks doubling of CO2 in our atmosphere is a good thing?

    Dr. Kelly, transitioning away from burning carbon needs to happen even if you don't consider planet warming and extreme weather. Do you like to fight over oil with other countries? Do you like supply and price volatility? Have you noticed that new types of oil supply are much more expensive than legacy oil? How much do you like to breathe, eat and drink the byproducts of oil combustion and leakage?

    For many reasons, we need to transition away from burning oil. Dr. Kelly, please consider all of the reasons. The developing world will increasingly bypass central power production and oil pipelines. They will avoid resource wars and expensive central infrastructure by developing local alternatives to burning fossil fuel.
  • John Scior on June 13 2016 said:
    It would be a hard sell for countries who have been through their own industrial revolution to convince emerging economies to forgo their own industrial revolution for the sake of CO2 mitigation. Imagine a wealthy country club as your neighbor attempting to get you to minimize drinking water and bathing because they tell you of the detriments of a coming drought , all the while they go full tilt in building decorative fountains and watering the golf courses to kep them looking "pretty". Dr. Kelly and this article point out a fact that I have expressed in the past as well, there may in fact be many benefits to global warming that people overlook .
  • Tina on June 14 2016 said:
    What a ridiculous concept. This nation is an embarrassment.

    "Dr. Kelly argues that carbon dioxide should be considered a product of the immense benefits of a technologically advanced society, and that cutting carbon could result in a dramatic reduction in the world’s quality of life ushering in mass famine, poverty, and war." As if the world is not already in the throws of abrupt climate change that we have been doing NOTHING about, even though we have known its dangers for decades. Stop giving these people air time and start accepting the utter destruction we, as a society and especially the fossil fuel industry, have caused around the globe.
  • David Hrivnak on June 15 2016 said:
    I believe we are finding out a clean economy is a cheaper economy. We have made the transition to rooftop solar to power our house AND two plugin cars. Rather than being very expensive we are saving solid money each month with no power or gasoline bills.
  • Henry on June 15 2016 said:
    I have followed the EROI studies. Two issues come up. First, for PV, even Weissbach's 2013 assessment refers to a 2005 study which itself is likely to refer to earlier studies. The issue is that silicon PV manufacturing has undergone a complete revolution/transformation over the las 7 to 15 years, as witnessed by a nearly 10x drop in price. Modern PV manufacturing produces cells of higher efficiency and much lower invested energy - but I haven't yet found a modern analysis of EROI for PV. Second issue has to do with EROI analysis. The tricky part is where to draw the boundaries of the system. In one study, the fuel consumption of the vehicles workers took to the site was included in energy invested. However, these workers may have used the fuel regardless - if not on a solar project then on a different construction project. Should that fuel be included? Are the boundaries drawn equally around all energy sources? There are no hard rules on how to do EROI.
  • russ on June 15 2016 said:
    Or a very low cost solution could be utilized. Plankton cooling has been the first and foremost victim of our high and rising CO2, think about it the oceans cover 72% of this blue planet. Plankton cooling can be immediately restored at incredibly low cost providing a multiplicity of benefits. http://russgeorge.net/2016/06/10/ocean-warming-due-plankton-collapse/
  • Joe Neubarth on June 16 2016 said:
    These people do not have a clue. And some of them are supposed to be scientists. Amazing!

    The issue is METHANE RELEASE IN THE ARCTIC. The scientists appear to be totally oblivious that the amount of releasing methane is almost as powerful as the CO2 in the atmosphere and yet, the methane is approaching 3 ppm to the 408 ppm for CO2. The only way to stop the methane is to Refreeze the North Pole. That is the only way to get the methane to stop coming out of the permafrost and up from the sea floor in the shallow waters of the Arctic Ocean.

    A few favorable volcano eruptions and massive geo-engineering can do it. It would probably cost about a hundred Billion Dollars, but we can save the Earth and the people on it.
  • Roger Hofer on June 18 2016 said:
    Dr. Michael McDonald really needs to a primer on what is going on in the real world of climate change. He should be embarrassed to write stuff like this. How do people like this end up with PhDs in ANYTHING? Is he not aware of the cost of methane releases in the Arctic and abrupt climate change? How much does CIVILIZATION COLLAPSE cost, Michael? My estimate is that that is pretty expensive, but I don't hold a degree in finance so what do I know, right?
  • mark on June 28 2016 said:
    Some people have a lotta faith in complex computer models that don't seem to work

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