Everything you need to know about Global Warming in 5 minutes by a Top Hedge Fund Manager

by Bhavani Prakash


Jeremy Grantham

Jeremy Gratham, a top hedge fund manager at GMO has raised quite a few eyebrows. Grantham Mayo Van Otterloo (GMO) is a Boston-based asset management firm with more than US $107 billion under management as at December 2009.  According to Wikipedia, “Grantham is regarded as a highly knowledgeable investor in various stock, bond, and commodity markets, and is particularly noted for his prediction of various bubbles. He has been a vocal critic of various governmental responses to the Global Financial Crisis.”

Photo: Library-Quest

Photo: Library-Quest

His quarterly newsletter which usually advises well heeled investors on all matters financial, has delivered on Page 7 a rather unexpected five minute summary on Global Warming.

And it’s hittingly concise and precise – especially coming from an investment banker.

Al Gore is often attacked for raising global warming alarm bells to prop up his “green” investments. Whatever his intentions are, Gratham’s five minute missive serves well to quell contrarian views and denial of climate change. Here goes:

Everything You Need to Know About Global Warming in 5 Minutes

(We’ve added notes and links for elucidation below the post)

1) The amount of carbon dioxide (CO2) in the atmosphere, after at least several hundred thousand years of remaining within a constant range, started to rise with the advent of the Industrial Revolution. It has increased by almost 40% and is rising each year. This is certain and straightforward. [A]

2) One of the properties of CO2 is that it creates a greenhouse effect and, all other things being equal, an increase in its concentration in the atmosphere causes the Earth’s temperature to rise. This is just physics. (The amount of other greenhouse gases in the atmosphere, such as methane, has also risen steeply since industrialization, which has added to the impact of higher CO2 levels.) [A]

3) Several other factors, like changes in solar output, have major influences on climate over millennia, but these effects have been observed and measured. They alone cannot explain the rise in the global temperature over the past 50 years.

4) The uncertainties arise when it comes to the interaction between greenhouse gases and other factors in the complicated climate system. It is impossible to be sure exactly how quickly or how much the temperature will rise. But, the past can be measured. The temperature has indeed steadily risen over the past century while greenhouse gas levels have increased. But the forecasts still range very widely for what will happen in the future, ranging from a small but still potentially harmful rise of 1 to 2 degrees Fahrenheit to a potentially disastrous level of +6 to +10 degrees Fahrenheit within this century. A warmer atmosphere melts glaciers and ice sheets, and causes global sea levels to rise. A warmer atmosphere also contains more energy and holds more water, changing the global occurrences of storms, floods, and other extreme weather events. [B]

5) Skeptics argue that this wide range of uncertainty about future temperature changes lowers the need to act: “Why spend money when you’re not certain?” But since the penalties can rise at an accelerating rate at the tail, a wider range implies a greater risk (and a greater expected value of the costs.) This is logically and mathematically rigorous and yet is still argued. [C]

6) Pascal asks the question: What is the expected value of a very small chance of an infinite loss? And, he answers, “Infinite.” In this example, what is the cost of lowering CO2 output and having the long-term effect of increasing CO2 turn out to be nominal? The cost appears to be equal to foregoing, once in your life, six months’ to one year’s global growth – 2% to 4% or less. The benefits, even with no warming, include: energy independence from the Middle East; more jobs, since wind and solar power and increased efficiency are more labor-intensive than another coal-fi red power plant; less pollution of streams and air; and an early leadership role for the U.S. in industries that will inevitably become important. [D]

Conversely, what are the costs of not acting on prevention when the results turn out to be serious: costs that may dwarf those for prevention; and probable political destabilization from droughts, famine, mass migrations, and even war. And, to Pascal’s real point, what might be the cost at the very extreme end of the distribution: definitely life changing, possibly life threatening.

7) The biggest cost of all from global warming is likely to be the accumulated loss of biodiversity. This features nowhere in economic cost-benefit analysis because, not surprisingly, it is hard to put a price on that which is priceless. [E]

8 ) A special word on the right-leaning think tanks: As libertarians, they abhor the need for government spending or even governmental leadership, which in their opinion is best left to private enterprise. In general, this may be an excellent idea. But global warming is a classic tragedy of the commons – seeking your own individual advantage, for once, does not lead to the common good, and the problem desperately needs government leadership and regulation. Sensing this, these think tanks have allowed their drive for desirable policy to trump science. Not a good idea.

9) Also, I should make a brief note to my own group – die hard contrarians.

Dear fellow contrarians, I know the majority is usually wrong in the behavioral jungle of the stock market. And Heaven knows I have seen the soft scientists who lead fi nance theory attempt to bully their way to a uniform acceptance of the bankrupt theory of rational expectations and market efficiency. But climate warming involves hard science. The two most prestigious bastions of hard science are the National Academy in the U.S. and the Royal Society in the U.K., to which Isaac Newton and the rest of that huge 18th century cohort of brilliant scientists belonged. The presidents of both societies wrote a note recently, emphasizing the seriousness of the climate problem and that it was manmade. (See the attachment to last quarter’s Letter.) Both societies have also made full reports on behalf of their membership stating the same. Do we believe the whole elite of science is in a conspiracy? At some point in the development of a scientific truth, contrarians risk becoming flat earthers. [F]

10) Conspiracy theorists claim to believe that global warming is a carefully constructed hoax driven by scientists desperate for … what? Being needled by nonscientific newspaper reports, by blogs, and by right-wing politicians and think tanks? Most hard scientists hate themselves or their colleagues for being in the news. Being a climate scientist spokesman has already become a hindrance to an academic career, including tenure. I have a much simpler but plausible “conspiracy theory”: that fossil energy companies, driven by the need to protect hundreds of billions of dollars of profi ts, encourage obfuscation of the inconvenient scientific results. [G]

11) Why are we arguing the issue? Challenging vested interests as powerful as the oil and coal lobbies was never going to be easy. Scientists are not naturally aggressive defenders of arguments. In short, they are conservatives by training: never, ever risk overstating your ideas. The skeptics are far, far more determined and expert
propagandists to boot. They are also well funded. That smoking caused cancer was obfuscated deliberately and effectively for 20 years at a cost of hundreds of thousands of extra deaths. We know that for certain now, yet those who caused this fatal delay have never been held accountable. The profits of the oil and coal industry make tobacco’s resources look like a rounding error. In some notable cases, the obfuscators of global warming actually use the same “experts” as the tobacco industry did! The obfuscators’ simple and direct motivation – making money in the near term, which anyone can relate to – combined with their resources and, as it turns out, propaganda talents, have meant that we are arguing the science long after it has been nailed down. I, for one, admire them for their P.R. skills, while wondering, as always: “Have they no grandchildren?” [H]

12) Almost no one wants to change. The long-established status quo is very comfortable, and we are used to its deficiencies. But for this problem we must change. This is never easy.

13) Almost everyone wants to hear good news. They want to believe that dangerous global warming is a hoax. They, therefore, desperately want to believe the skeptics. This is a problem for all of us.

Global warming will be the most important investment issue for the foreseeable future. But how to make money around this issue in the next few years is not yet clear to me. In a fast-moving field rife with treacherous politics, there will be many failures. Marketing a “climate” fund would be much easier than outperforming with it. [I]


Here are my Comments and links related to the above:

[A] Graph showing rise in average global temperatures and CO2 concentrations in the last thousand years, and a particularly steep rise in the last 150 years or so since the industrial revolution began.

Rise in temperatures and CO2 concentrations


[B] EWTT:  Impact of a Global Temperature rise of 4 deg C shows an interactive map by the Hadley Centre. It depicts the uneven impact of 4 deg C rise in different parts of the world. Now this is available in 3D form using Google Earth.

A1 English poster AW

Here’s a mind map showing a summary of the impact of Climate Change (Click on the image for larger picture)

Mindmap Impacts of Global Warming


[C] Agreed, there is a wide range of uncertainty in the projections. But by not doing anything, the likely outcome is that we’ll simply end up in the higher range!
See Climate Progress : M.I.T. doubles its 2095 warming projection to 10°F — with 866 ppm and Arctic warming of 20°F  That kind of 5 deg C or higher warming can lead to a 1000 year irreversible catastrophe! As the article concludes “A few decades of prevention is worth 1000 years of misery

Also check out Climate Scoreboard new tool (using the C-ROADS model created by Sustainability Institute, MIT, and Ventana Systems) which represents the long-term climate impacts (till 2100) of proposals which were under consideration in the Copenhagen negotiations to produce a global climate treaty

[D] There are many arguments against inaction
EWTT: High Stakes: The Economics of Climate Change in S.E.Asia – the documentary is based on a report by the Asian Development Bank. It shows for example that in Asia it will cost 6.7% of GDP by 2100 if we continue Business As Usual.

YouTube: Probably the most watched climate change video which logically argues against inaction :  The Most Terrifying Video You’ll Ever See

[E] The irony is that investment in biodiversity can yield huge returns, not only economic returns from investment, but also in preserving local livelihoods and species.

EWTT: Challenges and Prospects of a Green Economy which mentions and links toTEEB : The Economics of Ecosystems and Biodiversity report.

Science points to alarming rise in ocean acidification.  Bristol University cites Nature GeoScience research that Ocean Acidification is the fastest in 65 million years when a mass extinction of species occurred.

[F] This is most interesting – a “die-hard” contrarian hitting out against contrarianism in climate change, acknowledging the dangers of contrarianism for its own sake when it comes to climate science.

[G] Now, isn’t that so? Much of the climate change obfuscation is carried by fossil fuel lobbies, with funding from oil companies. Here’s an example from Guardian UK: US Oil Company donated millions to climate sceptic groups, says Greenpeace.

[H] Climate Denial is big business. And as Jim Hoggan points out in this article, climate change denial costs US $500 billion in delayed action.
A wealth of information is available in Skeptical Science.com with every possible counterargument against climate change denialism.

[I] If Grantham is unclear about the future of global warming (albeit from an investment angle), it goes to show how despite all the evidence shown by climate science, political will is still lacking to show the clear direction ahead, be it for markets for carbon or for various investments in green technologies and sectors.

Other links you may be interested in:
EWTT:  Contraction & Convergence: An Urgent Global Imperative to Tackle Climate Change


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Posted by on Aug 3 2010. Filed under Climate Change, World. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry

1 Comment for “Everything you need to know about Global Warming in 5 minutes by a Top Hedge Fund Manager”

  1. Could it be that we need to know how to make democracy, real democracy happen?

    Perhaps what we need, maybe all we need, is an adequately functioning democracy, but first ordinary people will have to liberate ourselves from the pernicious, widely shared and consensually validated thinking of a tiny minority in the human community who extol the virtue of greedmongering as good, as an activity to be valued most highly.

    Even an enlightened dictator is not a person in whom I could place much faith. We need for duly elected, common people who are chosen by a society to accept the responsibilities and fulfill the duties of leadership by meaningfully embracing democratic principles and eschewing greed, by not “selling out” to greedmongers.

    It appears to me that the most arrogant, foolhardy and avaricious, self-proclaimed masters of the universe among us rule the world in our time, and rule it absolutely. This situation is bold evidence of a corruption of democracy, not an example of the reasonable exercise of democratic principles and practices. These circumstances are not only a colossal insult to human beings with feet of clay, but also are a clear and present danger to global biodiversity, Earth’s environs, its limited resources and to a good enough future for the children.

    Democracy requires representatives who reject the entreaties and bribes of greedmongers as well as embrace principles and practices that promote long-term well being of ordinary people and not only the short-term desires and fantasies of masters of the universe.

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