Risky Business
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Disaster Capitalism

Is the planet really warming up? Just ask the corporations that stand to make—or lose—billions due to "climate exposure."

| Mon Apr. 19, 2010 6:00 AM EDT

LAST YEAR, Beluga Shipping discovered that there's money in global warming.

Beluga is a German firm that specializes in "super-heavy lift" transport. Its vessels are equipped with massive cranes, allowing it to load and unload massive objects, like multiton propeller blades for wind turbines. It is an enormously expensive business, but last summer, Beluga executives hit upon an interesting way to save money: Shipping freight over a melting Arctic.

Beluga had received contracts to send materials on a sprawling trip that would begin in Ulsan, South Korea, and head to the Russian port city of Arkhangelsk, located near the border with Finland.* Normally, this trip requires Beluga's ships to navigate an 11,000-mile route around the south of India and through the Suez Canal. But in 2008, its executives decided that global warming had eroded the Arctic's summer sea ice significantly enough that their ships could travel the Northeast Passage along the north coast of Russia. Previously, a cargo ship could only safely navigate that route if an icebreaker went ahead, smashing a route through thick ice.

Now, a warming climate had—for six to eight weeks beginning in July—transformed the route into mostly open water, studded with ice floes that the Beluga ships could navigate. So the executives got permission from the Russian government to travel along the coast, paid a transit fee of "a comparably moderate five-digit figure," and sent two ships on their way. Four months later, they'd finished the trip. Compared with the old Suez Canal journey, this shorter route saved an enormous pile of money: It cost $300,000 less per ship in fuel and bunker costs. Global warming had boosted the company's revenues by more than half a million dollars in one year alone.

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When I interviewed Beluga CEO Niels Stolberg via email this spring, he said he envisions using the Northeast Passage regularly. Indeed, he's planning on another trip this summer. He said that since the shorter passage requires generating far less CO2, it's "greener." It's also more ironic, since it was high concentrations of CO2 that helped melt the route in the first place.

"I am convinced, " Stolberg added, "that the Arctic will become an area of quite regular sea traffic at least during summer."

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IF YOU LOOKED merely at the realm of politics, it would be easy to believe that the question "Is climate change really happening?" is still unresolved. In the last year, skeptics have attacked climate science with renewed vigor. Doubters seized on "Climategate"—leaked emails from bickering atmospheric scientists—to argue that the evidence in favor of warming is being cooked. Other skeptics unearthed shoddy parts of the Intergovernmental Panel on Climate Change's 2007 report, such as the fact that it cited non-peer-reviewed work by an activist group when it predicted that most of the Himalayan glaciers would melt by 2035. And all along, conservative politicians have hissingly denounced global warming as a shady liberal scheme: Sen. James Inhofe of Oklahoma famously called it "the greatest hoax ever perpetrated on the American people." These attacks appear to be working. A spring Gallup poll found that Americans' concern over global warming peaked two years ago, and has steadily declined since.

But there's one area where doubt hasn't grown—and where, indeed, people are more and more certain that climate change is not only real, but imminent: the world of industry and commerce.

Companies, of course, exist to make money. That's often what makes them seem so rapacious. But their primal greed also plants them inevitably in the "reality-based community." If a firm's bottom line is going to be affected by a changing climate—say, when its supply chains dry up because of drought, or its real estate gets swamped by sea-level rise—then it doesn't particularly matter whether or not the executives want to believe in climate change. Railing at scientists for massaging tree-ring statistics won't stop the globe from warming if the globe is actually, you know, warming. The same applies in reverse, as the folks at Beluga Shipping adroitly realized: If there are serious bucks to be made from the changing climate, then the free market is almost certainly going to jump at it.

This makes capitalism a curiously bracing mechanism for cutting through ideological haze and manufactured doubt. Politicians or pundits can distort or cherry-pick climate science any way they want to try and gain temporary influence with the public. But any serious industrialist who's facing "climate exposure"—as it's now called by money managers—cannot afford to engage in that sort of self-delusion. Spend a couple of hours wandering through the websites of various industrial associations—aluminum manufacturers, real estate agents, wineries, agribusinesses, take your pick—and you'll find straightforward statements about the grim reality of climate change that wouldn't seem out of place coming from Greenpeace. Last year, Wall Street analysts issued 214 reports assessing the potential risks and opportunities that will come out of a warming world. One by McKinsey & Co. argued that climate change will shake up industries with the same force that mobile phones reshaped the way we communicate.

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CONSIDER, AS ONE colorful example, the skiing industry. Beginning 10 years ago, the Aspen Skiing Co. began noticing that European ski lodges were being slowly destroyed by warmer weather. Europe's ski resorts tend to be located on lower mountains—about 6,000-8,000 feet high, compared with American peaks up around 11,000 feet—so they're vulnerable to even extremely tiny increases in global temperature. The 2 degree average temperature rise in the 20th century was enough "to put a lot of them out of business," says Auden Schendler, executive director of sustainability for Aspen Skiing, which operates two resorts spread across four Colorado mountains.

But now, Aspen's own season is getting shorter: "More balmy Novembers, more rainy Marches," Schendler says. "That's what we're seeing, and that's what the science suggests would happen. If you graph frost-free days, there are more and more in the last 30 years." Climate-change models also predict warmer nights. Aspen Skiing has noticed that happening too, and the problem here is that nighttime is when ski lodges use their water-spraying technology to make snow—"and if you make it when it's warmer it's exponentially more expensive." The increasing volatility of weather overall—another prediction of climate change—poses a particular danger for ski resorts, because they operate in the red most of the year, making up their deficit during the busy spring break in March. So if the weather is terrific for the entire winter but suddenly balmy during March break, that can ruin the whole fiscal year.

Schendler has also learned firsthand a point that climate scientists have been making for some time: With climate change, "warming" isn't the only—or even the most serious—challenge. The sheer interdependence of complex ecosystems can grease you. For example, recent dry spells in Utah have kicked up red dust clouds that settle on Aspen's snow. This makes the snow melt more quickly (because the red absorbs more heat from the sun) while also making it too gritty to ski on.

Are all of Aspen Skiing's recent weather problems caused by global warming? It's impossible to tell. But as Schendler notes, the last few years certainly mimic the precise effects that climate models predict, so it is at least a taste of what's to come. During a recent dust storm on Aspen's slopes, Schendler's boss wandered into his office looking morose. "He said, 'Auden, if climate change is the scary thing for the future, this is the apocalypse now. What if you get this in March?'" Schendler recalls.

Now, all this tricky weather hasn't exactly destroyed Aspen Skiing; the firm could probably survive even worse stuff. The top of the mountain is so high, "We can ski it in 50 years and it'll be great," Schendler notes. But it could certainly erode Aspen's profits, and Colorado would suffer as a result: The ski industry overall is a $2.6 billion business for the state, drawing in 12 million visitors a year. So to try and preserve its profit margins, the Aspen Skiing Co. has recently become a loud voice in favor of congressional action on the climate. In 2007, Schendler testified before the House Subcommittee on Energy and the Environment, calling for renewable energy projects, among other things.

"Our attitude when we go to Congress is, 'Look, we're a business!'" he adds. "We didn't ask for this. We just started looking at the data and the science dispassionately and said, 'Hey, we've got a problem.'"

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ANOTHER INDUSTRY that can't pretend climate change is a myth is insurance. Insurance firms have always carefully studied real-world data to figure out what, precisely, constitutes a risky activity. As a result, they were among the first to notice that weather was getting more violent, and more unpredictably so.

"It's just a logical consequence," says Peter Hoppe, head of the "Geo Risks Research" division of Munich Re, a multinational firm that specializes in reinsurance (insuring insurance policies). "Global warming affects our core business. We have seen changes already in some readings." Worldwide, Munich Re has found that "great catastrophes"—act-of-God weather events that cause more than a billion dollars of damage—have tripled since 1950. In 2008, even though there weren't any Katrina-level disasters, weather-related events were so severe that "catastrophic losses" to the world's economy were the third-highest in recorded history, topping $200 billion globally—including $45 billion in the United States. Hoppe doesn't think global warming is all to blame; some of these events are likely due to natural cycles like the 20- to 30-year North Atlantic Oscillation that is currently warming the Atlantic. But Munich Re's policy is that anthropogenic global warming is already making things worse and that governments ought to act quickly while they still can.

Granted, a warming globe isn't all downside for insurance firms. There are also profitable new business opportunities, as Hoppe points out. Munich Re is now offering coverage for renewable energy products, because wind farms and solar parks need insurance against the possibility that low wind and weak sunlight will reduce their output. "It's very important for investors to dampen and level out the volatility from season to season," Hoppe says. Munich Re has also developed a product covering solar cells that wear out before their expected 30-year lifetime.

Buying insurance against bad weather isn't entirely new. Farmers have done it for years. But back in the late '90s, before Enron imploded, it created a huge new market of selling "weather futures" to electric utilities—hedges that would pay out if, say, a mild summer hurt their sales (because people would use less air conditioning). After Enron pancaked, weather futures stayed around—still mostly for utilities and farms—but buying them wasn't easy: You had to personally contact one of the few weather-futures traders who'd set up their own trading desks in the wake of Enron's dissolution. But with climate-change models predicting increasingly erratic weather, a new generation of startups is heading into the field, figuring that almost any firm might want to hedge against the bad economic effects of weather—such as clothing manufacturers (who could suffer massive losses in coat sales if an unexpectedly mild winter emerges), airlines (since weather is the top cause of delays), and sporting-event promoters (when it's rainy, everyone stays away).

*This sentence previously referred to the materials going "north and west." While that is true—as the crow flies—it was confusing to readers, as was a reference to the trip's final destination in Nigeria. We've simplified the sentence.

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