Worldwide financial meltdown and what it means for the environment…

The worldwide financial meltdown is expected to have a dampening effect on demand for energy and goods. As the wallets lighten up, people will go out less, spend less on travel and luxury… at least that’s what the sound economics tells us.

Earlier this July (2008), when the crude oil prices had started heading north and peaked around $147 per barrel, there was a wide hope in the clean energy lobby that, perhaps finally now, the world had a financial justification to vigorously pursue development of clean energy alternatives.

The energy shock has galvanized everyone into finding alternatives, more so from the renewable sources and perhaps at a cheaper price point.

However, the financial meltdown, according to International Science Panel, poses a grave threat to efforts to turn back greenhouse gas emissions -- but it doesn't have to be that way, says the head of the international science panel that has authoritatively outlined the challenge for government policymakers.

It's crucial that carbon dioxide emissions that are on the increase be sent in the other direction by 2015, so the way to go is to use the current economic troubles to launch a recharged effort to rein in climate change, led by the next U.S. president, said R.K. Pachauri, chairman of the Intergovernmental Panel on Climate Change. Read more about his comments here.

Ramesh Jaura – also talks about the same theme - Enter the global financial crisis - exit action on climate change? According to him, that lingering apprehension is not shared by Pamela Cox, the World Bank's vice-president for Latin America and the Caribbean.

Adam Stein – discusses the same issue. According to him – “Although it is very difficult to make predictions about the direction of the economy, it appears likely the current downturn will continue for some time. Which is bad for the climate, mainly because of the way that a weak economy interacts with the other items on the list. For example, slow growth saps the political will for dramatic action on climate change”.

A weak economy could at least temporarily bring fossil fuel prices down. We continue to believe that the long-term trend in fossil fuel prices is up, up, up, but, as mentioned, volatility will muddy the investment picture for clean energy.

Margaret Kriz – talks about how financial crisis is dimming the hope for U.S. Climate Legislation. “Environmentalists had been looking to a new president and a new Congress to pass legislation dealing with global warming next year. But with tough economic times looming, the passage of a sweeping climate change bill now appears far less likely”.

However, the jury is still out on this issue.

Clean and green technologies may end up a big winner in the current global financial crisis, say some investment professionals.

Billions of dollars in new investments have been made in clean/green tech such as renewable energy and energy efficiency in recent years. And, despite fears of a major recession in the U.S., nearly all investment professionals and institutions reported plans to introduce new investment opportunities before the end of 2009, according a new survey of the 500-member Social Investment Forum (SIF), an association for socially and environmentally responsible investment firms.

"In the last two years the growth in the green economy has been tremendous," said Jack Robinson, president of Winslow Management Company in Boston.

"But the huge win for the green economy is the U.S. bank bailout programme," Robinson, a green investment expert, told IPS.

It turns out the near collapse of the U.S. financial system has a silver lining for the long-cash-starved alternative energy sector.

Another reason for green investor optimism is the virtual certainty that the U.S. will have a carbon cap and trade system by 2010 at the latest.

"The new Congress will regulate carbon emissions. The costs of fossil fuel will finally begin to reflect the costs of climate change," said Adam Seitchik, lead portfolio manager of Green Century Balanced Fund, and chief investment officer of Trillium Asset Management, Boston.

"Despite the credit crisis, the fundamentals of clean energy are so strong, they will find financing," Steitchik said in an interview.

Companies producing solar products have seen their revenues grow 60 to 140 percent this year and expect to reach 45 to 200 percent in 2009. One company, SunPower Corp., will see 2 billion dollars in sales in 2009, he said.

Although solidly profitable, the stock prices for these companies have plummeted just like all the others on Wall St. However that means they are terrific investment opportunities even if their earnings decline due to slowing economies and the credit crisis, he said.

"As energy prices continue to fluctuate and the need to address climate change becomes ever more urgent, many investors want to blaze a trail for clean energy solutions that meet demand and respond to the impacts of climate change," said Lisa Woll, chief executive officer of the Washington, D.C.-based SIF.

But if every dark cloud has a silver lining there's one over here as well...albeit it looks like a green one.

Tighter purse strings could (and already is) forcing the world to save energy and look at alternative options to stretch the dollar. Bjorn Lomborg, Danish author of 'The Skeptical Environmentalist' echoes, "Hopefully the crisis will make us smarter in spending our money."

There could be a perceptible shift in investments towards energy efficiency. More low scale and down to earth projects may reap the benefits. Consultants McKinsey & Co. opine that emissions-cutting measures such as better building insulation, fuel efficiency in vehicles, more efficient lighting and air conditioning end up paying for themselves via lower energy bills. More optimistically, if a bad economy fuels a grassroots green movement then that itself would be a big shift towards greener attitudes.

Some are still on the path of continuous investments. Sven Teske, renewable energy director for environmental group Greenpeace, said investments still made sense. He said that the wind energy market totaled $37 billion in 2007 and added more than 19 gigawatts to the grid.

The U.N. Climate Panel has estimated the costs of slowing climate change at only 0.12 percent of world gross domestic product to 2030, with vast benefits in avoiding human suffering. That is small change but the world is feeling an instant economic pinch right now. Are we losing sight of the forest by looking at the trees? Hopefully not, otherwise the battle to save the planet could turn into a war...too late

US Financial Earthquake; bailout rejected, what’s next?

Stocks suffered their worst decline ever on a point basis Monday afternoon, as the failure of the House of Representative to pass Wall Street bailout legislation led to widespread selling of stocks.

If you haven’t noticed already the US politicians are now claiming their decisions are not considered a “bailout” rather an “insurance program” aimed at protecting the consumer from taking on close to a trillion dollars of new debt. The reason for the change in terminology is the politicians don’t want to be associated with a “bailout” rather the term “insurance” appears to be more dignified and safe. Plus it creates great spin for the media and the average consumer will simply equate this legislation to “safety in the markets” which the politicians will take credit for and stand proud for protecting American consumers and the global financial markets in general.

I think we are watching economic history unfold.

No, not the kind that most analysts are whining about: the excess debt that will make the prophecy of US meltdown. a reality sooner, rather than later.

Everyone takes some risk. Some take more risk than others. Gambling in Las Vegas has risk. Starting a business has risk. Those that take risk hope to receive the reward of their risk. Calculating and providing protection from risk is the business of insurance companies.

As Ajit Dayal puts it - Hank Paulson may go down in history as the man who took the world from its path of greed and destruction to a more “socialist” path. And he may help reduce the US debt by selling the companies he is buying at a huge profit.

Hundreds of billions of dollars of profit.

Enough money to stay another 436 days in Iraq and Afghanistan.

Enough profit to cover - for 269 days – the oil required to fill all those 50 million cars driving across USA.

Hank’s deals may not save the USA but it will postpone the inevitable.

The Secretary of the Treasury, Hank Paulson, is not a typical government bureaucrat and a “do-gooder”. Nor is he an academic that made it to the top job because of some theoretical paper on “inflation targeting” or “interest rates and cost of money” or “public ownership of private goods”.

Oh, no.
No, no.

Remember: Mr. Paulson has worked with Goldman, Sachs. He was a key member responsible for the firm’s global success. This man is a walking power-point on building businesses – successfully. He is a turn-around artist.

I think he knows what he is doing: there is method in this madness. Or is there?

AIG, one of the world’s largest insurers, took risk and did not calculate the potential impact of the risk they took. Subsequently the US Government decided to bail AIG out at the tune of $85 Billion in addition to the roughly $600 billion of other financial risk gone bad by banks and Wall Street firms.

The current U.S. Government Bailout program represents a significant shift for financial markets, and for individuals and businesses alike, in that US government has now become the largest insurer in the world. However the government insurance program is unlike any other insurance offered by the private sector. The U.S. Government Insurance Program basically says to business markets, don’t worry if you fail we’ll back you up. What a deal for big business but what about small business and individuals? If a small business or a family fails financially will the government come to our rescue as well?

The problem with the proposed plan and the attitude from US politicians, indeed any politician for that matter, is that both are fundamentally flawed in their assumptions. The basis of risk management is founded on a set of choices about risk. Individually and institutionally there are five choices one makes relative to managing risk.

- Avoid the risk: Don’t participate in activities or endeavors that increase risk
- Spread (share) the risk: In the insurance world this is known as reinsurance
- Transfer the risk: Move the consequences of related risk for others to assume
- Mitigate the risk: The Wall Street firms, banks and AIG first choose to assume the risk they took which then fueled failure. By declaring bankruptcy they in essence transferred the risk for someone else to assume. The U.S. Government, and our beloved politicians, looked at the situation that their own previous legislation had created and decided the risk of a global economic meltdown needed to be mitigated by the US government assuming the risk of those that had failed to manage the risk to begin with.

The problem with this thinking and the related decisions is that by assuming the risk the US government is actually increasing rather than mitigating the risk. How many other banks, insurance companies and Wall Street firms will fail and expect the government to bail them out. How many “big businesses”, the auto industry has already begun, will ask the government to help them mitigate the risk of their own decisions.

The proposed “bailout” is nothing more than a band aid on a damn of rising expectations actually created and enhanced by those who think their past and current decisions can be covered up or protected from risk. The truth is their decisions are fueling the risk and related cost which will eventually fall onto the back of every consumer.

The government, any government, is funded by the people and any assumption of risk falls onto “we the people”. Ultimately we the people have to provide the economics of any bailout or insurance program created by those “we the people” elect to make these decisions for us?