The $250 Trillion Green Economic Revolution

Editor's Note: This is the second post in a two-part series on the $250 trillion green economic revolution. In case you missed it, you can catch the first part here. 

Climate change economics is emerging as a disruptive mega-trend driven by estimates that the cost of global climate change will reach a staggering $72 trillion. This scale of cost is unprecedented in human history. The only comparative I could find is that the cost of climate change is four times larger than the United State’s annual gross domestic production. The sheer scale of climate change costs can no longer be disputed or ignored by governments, businesses or consumers. Climate change economics will reshape world economies, industries and consumer behaviors resulting in a green economic revolution.

Climate change economics drives increased carbon regulation and taxes

The politics of change is slow and painful. Major regulations like the removal of lead from gasoline, mandatory automobile seat belts, and restrictions on the use and advertising of tobacco had 50-year maturations from initial advocacy for change to government regulatory/taxing actions.

In 1980 Walter Cronkite, America’s most watched newscaster, did a milestone story warning of climate change due to global warming. Thirty five years later, the world’s governments are now starting to act to regulate and/or tax carbon emissions. Despite lukewarm, at best, voter support for higher taxes or increased regulation of carbon emissions, the world's governments face an economic reality in which not acting is more harmful than acting.

The politics will be brutal, and even could be in doubt, but the only politically sustainable outcome is to dramatically limit carbon emissions to levels that mitigate climate change consequences on human health and the economy.

Climate change economics will drive stock valuations

Actions by governments, and consumers, to limit carbon emissions will create an unprecedented reallocation of capital. For example, the current declines in energy company valuations due to lower oil prices are a blip in comparison to potential declines if current estimates are correct -- that $100 trillion of fossil fuels must be left in the ground unburned to successfully mitigate climate change consequences.

Because electric utilities still generate 67 percent of their electricity from fossil fuels, they face an economic horizon in which their production assets are devalued or stranded by aggressive carbon taxes and/or regulations while at the same time customer-owned investments in renewable energy, smart buildings and energy efficiency deliver lower monthly bills than utility-supplied electricity. If you are an investor trying to figure out how Tesla Motors could have a $30 billion market capitalization while operating at a loss, then recognize that electrification using renewable energy is the transportation technology path governments will likely endorse to reduce transportation’s climate-changing carbon footprint.

Climate change economics will have a ancillary impact on stock valuations by increasing consumer awareness, as they search for more sustainable products that deliver ‘in me, on me and around me' human health and environmental solutions. For example, obesity is now projected to carry a global economic cost of more than $100 trillion during the 21st century.

A heightened consumer awareness around climate change and obesity will push a sustainable brands revolution where products must successfully align with consumers on the issue of human and planet health to achieve revenue and market share growth. Those products and companies that fail to align with these customer expectations are likely to be the 21st century’s “pink slime” product catastrophes.

Climate change economics will actually have a long-term positive impact on global stock markets. Capital and revenues will flow to companies that can deliver price competitive solutions. While individual restaurant chains will rise or fall on their ability to serve healthy and price competitive food, the overall industry will grow revenues from consumers attracted to eating healthy, affordable, diverse and tasty food. The automobile industry will thrive as an entire generation of fossil fuel vehicles are replaced with plug-in and plug-in hybrid vehicles. Home and commercial building values will soar in locations that offer high walkability, biking and mass transit opportunities. Smart technologies will have multiple killer app opportunities to use artificial intelligence in managing human and environmental health. Imagine walking up in the morning to Siri saying, “Your smoked salmon, tomato and avocado breakfast biscuit on a whole grain bun will be delivered by Amazon electric drone in 15 minutes!”

The stock market bottom-line of climate change economics will be measured by innovation, solutions, revenue growth and higher stock prices.

The $250 trillion green economic revolution

In 2007, my economic analysis projected a $10 trillion green economic revolution by 2017. That estimate now appears conservative. The green economic revolution is emerging as a $250 trillion revolution in how investors value stocks and how consumers make purchases.

This mega-trend has already begun as a growing number of investors divest from companies that win price competitive advantage through pollution. Consumers are in active search for sustainable products. Bottled water is projected to outsell soda by 2017. The Nest smart thermostat is an in-home sales winner. Customer-owned solar is grid price competitive in all states. Utility success with their utility commissions in redesigning rates to reduce solar’s economic attractiveness is sustainable only until customer-owned battery technologies gain price competitiveness through global manufacturing economies of scale.

The economic bottom-line is that climate change and obesity together represent approximately $240 trillion in projected economic damage. That is a monster sized business opportunity that entrepreneurs will harvest.

The politics of change will be in doubt. Lobbying by entrenched companies will be intense. Behavioral economics points to irrational consumer adoption of sustainable technologies due to their strongly held beliefs, a bias for the status-quo and procrastination. But ultimately the economics of sustainability will be so compelling that change will happen. Governments will act. Capital will be reallocated. Customers will change what they buy and who they buy from. The result will be a $250 trillion green economic revolution delivering solutions for manmade challenges to human and planet health. This will define the economics of the 21st century.

Image credit: Flickr/401(K) 2012