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Creative Destruction

Posted by Sara Gutterman

Mar 21, 2013 6:33:00 PM

Overwhelming scientific evidence indicates that we are moving faster and faster towards a climate cliff, with an anticipated global temperature increase of somewhere between 2-6°C. Climate scientists report that with a 2°C increase, our current ecosystem services will remain intact. With a 4°C increase, things start looking a little dubious for life as we know it.

Large mainstream financial organizations, including the World Bank and International Monetary Fund (IMF), comprehend the implications of this accelerated system change, and they have issued a series of dire warnings that action is no longer just desirable—it’s absolutely necessary.

Christine Legarde, IMF Chief stated, in no uncertain terms, that unless we take immediate and robust action, “future generations will be roasted, toasted, fried, and grilled.”

The World Bank asserted that “the projected 4°C warming simply must not be allowed to occur… there is no certainty that adaptation to [this type of global warming] is possible.”

Ecology and economics have now been fused. Financial institutions such as HSBC and S&P have become advocates of climate change action in their own financial self-interest. They are incorporating climate change considerations into investment scenarios by analyzing the risk of carbon emissions, environmental impact, and other externalities when investing in and lending to gas, oil, and coal projects.

HSBC forecasts long-term market losses in the oil, gas, and coal industries due to the rise of renewables, which are simultaneously reducing demand for fossil fuels and eroding the profitability of high-margin, peak-period income.

Solar and wind energy are finally reaching price parity, making investments in conventional energy deals more risky and less desirable. Analysts at global investment bank USB are predicting that “socket parity—where the cost of installing solar is cheaper than grid-sourced supplies – is about to cause a boom in un-subsidized solar installation in Europe, and the energy market may never be quite the same again.”

These same analysts believe that the “unsubsidized solar revolution” (which has already created an inflection point in places like Southern Germany where solar is cheaper than grid electricity) will turn solar into a “no brainer” investment for households across Europe, which would clearly have a profound impact on the incumbent energy industry.

As author Paul Gilding stated, “It is an extraordinary turn around when key mainstream economic institutions lay out the case for dismantling what is arguably the world’s most powerful business sector.”

This ‘creative destruction’ is as significant as when the automobile replaced the horse and buggy. It will inevitably alter the course of our economy and change the power players at our helm. The potential for wealth transfer is unprecedented, and it could feel rather daunting if it weren’t so incredibly exciting.

What other factors do you think will influence the renewable revolution?

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