Emerging markets and climate change

11th November 2011

While we battle the financial crisis, the growth of the greenhouse gases that causes global warming continues unchecked – and this is set to wreak havoc on emerging economies; seen as the pillars of investors' search for wealth during the western world's economic turmoil.

For example, there is an explosive and seemingly unstoppable growth in emissions from China, which leapt by 9.3 per cent last year to 8.15 billion tons of CO2, according to figures for 2010 from the US Department of Energy, reports the Independent.


The Chinese have firmly taken over from the US as the world's biggest polluter

Alongside this trend, India, the world's third-biggest emitter, is increasing its carbon pollution. It has reached 2.06 billion tons, which is 6.1 per cent of world emissions. But its increase over the year was 9.4 per cent – the highest rise from any country. And there are no plans to bring CO2 down.


Confusion among climate sceptics

These emissions continue to soar, prompting some to argue against anyone who thinks that climate change is no longer "an issue".

The application of scientific data and information, some say, has been distorted by the media and misinterpreted to benefit people's own stance on the subject. Sceptics may claim that global warming has "stopped" – but this is focusing on "short-term noise".

The Skeptical Science blog says: "Right now we're in the midst of a period where most short-term effects are acting in the cooling direction, dampening global warming.  Many climate "skeptics" are trying to capitalize on this dampening, trying to argue that this time global warming has stopped, even though it didn't stop after the global warming "pauses"…

"…And while the global warming trend spans many decades, the longest cooling trend over this period is 10 years, which proves that each was caused by short-term noise dampening the long-term trend. 

"In short, those arguing that global warming has stopped are missing the forest for the trees, focusing on short-term noise while ignoring the long-term global warming signal.  Since the release of the BEST data which confirmed the global warming observed by all other global temperature measurements, climate "skeptics" have been scrambling for a way to continue denying that global warming is a problem, and focusing on the short-term noise has become their preferred go-to excuse."


So what does this mean for investors?

Given the combination of data and historical trend, the outlook for emerging economies appears bleak. Global warming threatens to have a detrimental effect on these markets, with the Stern report backing this up.

Some of the key points from the report include that all countries will be affected by climate change, but the poorest countries will suffer earliest and most. Average temperatures could rise by 5C from pre-industrial levels if climate change goes unchecked.

Alongside this, warming of 3 or 4C will result in many millions more people being flooded, and by the middle of the century 200 million may be permanently displaced due to rising sea levels, heavier floods and drought.

The poorest countries such as Thailand and India, for example, are also disproportionately at risk from climate-change-driven disasters such as flooding and storms, says the Guardian, as well as air and water pollution.

So while emerging economies have surged ahead in recent years, remaining tipped for investment success – but a series of problems could derail this growth. Could the threat of climate change dampen or even destroy investor portfolios – and might it even wipe these economies out?


More from Mindful Money:

Emerging markets: Climate change and future performance

Agriculture: Investment themes and climate change

Global CO2 increase: What should investors do?

Is climate change week a load of hot air?

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3 thoughts on “Emerging markets and climate change”

  1. David Lilley says:

    I was a little perplexed by the ECBs LRTO. Why did Barclays get some whilst not an EZ bank? Why did the ECB not direct how the money should be used?

    But I concluded that the LRTO was about recapitalising EZ banks via the ECB instead of relying on others such as the two pevious interventions by five non EZ central banks including the B of E, the FED and the B of J.

    The immediate impact of the first E500b was that short term gilt auction prices in Italy and Spain fell dramatically from disturbing highs as the banks could buy gilts at 3% with money that cost only 1%. Three years on and they could cash in their gilts and repay the ECB and have a clear risk free profit of 2% on their LRTO loans.

    The disapointment was that the banks couldn’t find a better opportunity in lending the money to wealth creation/private business. As you point out, lending to the non-bank private sector fell by E70b in this period.

    The success of the E1t LTRO must be in the prevention of an EZ banking credit crunch.

    Never the less, and despite successful EZ bank stress tests, we are faced with bank liquidity problems at Bankia and others. If Stephen Hestor can reduce the RBS loan book by £700b in one year and pay back all its B of E special borrowing then why can’t Bankia shift E32b of property liability at a discount.

    New subject.

    Simon. You were the first to tell us about the cooling in China, that the noticeable jump in US jobs and other US growth indicators in January and February would be short lived and that the exit of deposits from Greek banks was more significant rather than the election in Greece. Clearly your belief that monetary analysis has a better chance of successful forecasting is well founded and I shall follow your blog.

    1. Simon Ward says:


      Many thanks. I agree that the LTROs were
      important in stabilising the banking system – my post focused more narrowly on
      their effectiveness in delivering monetary stimulus.

  2. Simon Ward says:

    Many thanks. I agree that the LTROs were important in stabilising the banking system – my post focused more narrowly on their effectiveness in delivering monetary stimulus.

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