By definition, “climate change” is the overarching shifts in global temperatures, resulting in atypical weather patterns. We are not referring to the natural weather changes that occur due to volcanic eruptions, changes in ocean currents, earthquakes, hurricanes, etc. Rather, we are concerned with the unnatural climate shifts that are an indirect or direct result of burning fossil fuels, extended increases in carbon emissions, and the lack of desire, knowledge, or technological ability to minimize, reduce or reverse unnatural changes to our climate. As individuals, some are aware of the climate’s importance and others are not, but the scientific community has repeatedly proven that climate change unequivocally impacts our lives. According to NASA, “the current warming trends are of particular significance because they are the result of human activity since the mid-20th century.”
Taking a step back, humans, unsustainable corporate operations, and social norms have culminated into a toxic climate cycle resulting in rising global temperatures. For instance, the magnitude of gas-powered cars (approx. 92% of individuals in the US have access to a vehicle), the extensive use of fossil fuels (though diminishing), the inefficient electricity generation and heat production systems, agricultural industries (processing plants, livestock, soils, rice, etc.), commercial and residential real estate, consumer products, recycling inefficiencies, and social norms all culminate into an environment riddled with long-term climate risks. However, those risks also provide ample investment opportunities.
Without being overly pessimistic, 2021 earned itself as the sixth hottest year on record as the average global temperature continues to hover around record levels with the past 40 years delivering a temperature increase more than double the historical average. To put this into context, the 10 warmest years on record all occurred after 2005, highlighting the compounding effects of human activity on climate shifts and carbon emissions. At this rate, the irreversible effects of global warming will eventually reach a point of no return by 2050 if our society continues at the same pace of unsustainability and carbon emission negligence. Thinking about this rationally means that a “point-of-no-return” moment can fall within the lifespan of most investors. Some may argue that it seems so far into the future, but (in reality), it is less than 30 years away. This is the same amount of time that Nirvana’s hit song, “Smells Like Teen Spirit” soared to the top of the music charts in 1991. Doesn’t seem so far in the future now does it?
That is why we believe it is important to look at the vast industries that are impacted by climate change, including industries directly (and clearly) impacting the climate and those that “quietly” impact the climate (through previously undisclosed reasons). Simply, the impacts on the climate are all-inclusive. Let’s peel back the layers of the catalysts and the solutions to this potentially slow-moving catastrophe.
Catalysts of Climate Change
As mentioned earlier, the obvious industries that have negative effects on the climate and innately emit a copious amount of greenhouse gases are (and this is a generalization) the industries that focus on:
- transportation (automobiles, airliners, cruise liners),
- industrial and manufacturing,
- commercial and residential real estate (statistically),
- oil and gas exploration,
- basic utilities,
- non-innovative electricity plants,
- livestock and manure, rice cultivation, soils,
- wastewater and landfills,
- consumer products,
- non-precious metals production,
- chemical production, coal mining,
- food and tobacco industries,
- deforestation (as seen in the Amazon),
- commercial fishing (a form of deforestation and ecological aberrations), and more generally,
- the social anchoring and political agendas that have historically driven unsustainable
individual and corporate behaviors in all remaining industries.
Though that appears as an almost all-inclusive list of industries that impact the climate (to some degree), it does not include one of the novel culprits to greenhouse gas (GHG) emissions, as some emerging industries have an indirect or an incognito impact on the climate through disguised GHG emissions. One of the most dynamic, controversial, and most talked about emerging industries and markets that has recently emerged as a GHG emitter are the cryptocurrency, NFT, and blockchain segments. Though an innovative and disruptive technology with adoption by the masses, crypto mining, and crypto art (NFTs) shockingly rely on exuberant amounts of electricity and unsustainable energies.
Currently, according to the Cambridge Bitcoin Electricity Consumption Index, Bitcoin’s electricity usage (a proxy for all cryptocurrencies) at times is larger than some European countries (i.e., Denmark) and for every one coin mined is equal to roughly 13 years’ worth of regular household electricity usage. Additionally, according to The Verge, some artists “coin” crypto art (NFTs) “an ecological nightmare pyramid scheme” as the average NFT is said to have a carbon footprint equal to approximately a month’s worth of household electricity when the initial connotation of “digital” makes it feel, hear and appear relatively more sustainable. Thus, the compounding effects and speed to an adverse impact on climate change can metastasize much quicker in these segments if solutions are not attained. Education on this topic remains vital to illustrate that the climate issues are much bigger than what meets the eye. Decentralized currencies can make it difficult to track renewable energy alternatives and the demand to successfully mine the valuable coin adds additional complexity. For instance, China recently shut down an illegal bitcoin miner using coal-burning as an energy source. Additionally, the increasing number of mega warehouses using up astronomically large amounts of electricity and fossil fuels to mine the digital assets in states like Texas illustrates the vastness of this issue. However, these almost obvious drawbacks rarely get addressed by the blockchain community and “cryptoheads” from Reddit to Wall Street. At times, many of the same individuals who believe in the future adoption of blockchain also believe that climate change is a tangible problem that must be addressed within the next 20 years. This means that something is missing or those “in the know” know something that retail investors and lay individuals do not.
Uncovering that something (or “secret”) resulted in our conclusions that THE LARGER OPPORTUNITY IS A LOWER CARBON EMITTING FUTURE FOR ALL INDUSTRIES INCLUDING THE POTENTIALLY LUCRATIVE SUSTAINABLE CRYPTO MINING AND INFRASTRUCTURE PROSPECTS.
Thinking about it, that may explain why Elon Musk has made the pledge for SpaceX to be concerned with climate change and sucking carbon out of the atmosphere to halt the deleterious effects of climate shifts while also innovating within the sustainable infrastructure economy through his vehicle proxy, Tesla.
Thus, the current digital disguise of bitcoin (and other cryptocurrencies) and the assumption that digital assets are an intrinsically “cleaner” alternative is simply false advertising.
Nonetheless, this same “false advertising” or “greenwashing” applies to more traditional industries differently as these companies claim that their operations “plan” on using more renewable alternatives while “pledging” to reduce carbon emissions. But what is that relative to? That’s right…themselves, not the carbon lifecycle. For instance, many airliners pledge to become more sustainable and plan on reducing carbon emissions by investing capital in jet fuel alternative projects. However, that does not mean that airplanes will all remain grounded until an efficient sustainable substitute is discovered, that’s uneconomical. Rather it is a “pie in the sky” announcement that paints a “green” picture to the public (when in action they are not “green”) to satisfy the public agenda. From the recent Chinese bitcoin miners burning actual coal to traditional industries meeting basic climate mandates to individuals not recycling a water bottle after lunch, all of these decisions collectively impact our climate to different degrees, especially when these actions snowball (no pun intended) over time. In short, digital does not mean sustainable and verbal commitments do not mean action. Action means action.
The electricity usage of everyday industries to mining digital assets both need to find a more sustainable means to a prosperous end, or the climate jockeys and the unsustainable business leaders and “cryptoheads” will battle until one’s demise (leading to no one gaining any share of prosperity).
How do we halt climate change and act?
The short answer is innovation, and the long answer is a change in perspective. Innovation and technological advancements seem to be the cure-all answer for all issues regardless of the scale. However, when I say innovation, I am not always talking about new technologies (though they are needed as tools to help mitigate climate change), but the innovation of thought. Before any meaningful impacts on the climate can be obtained, individuals must first rationalize the magnitude, complexity, and promptness of climate shifts and their determinants on our planet, in our everyday lives, and for our future. Though not as talked about as it should, climate change remains one of the largest threats to our planet and future industry dynamics. Innovation must originate from our new perspectives for technological innovation to be more efficient and acutely impact carbon emissions, GHG, and climate change. Renewable energies such as wind, solar, nuclear, and water generated power, electric vehicles powered by batteries, green hydrogen (as discussed in Opportunities in Clean Energy Alternatives: The Accord of “Green Hydrogen” to Combat Climate Change), minimizing corporate carbon emissions, and significantly reducing fossil fuel usage must mutually be accomplished to compound the innovation of perspective. As investors, these are where the most opportunities remain from both a growth and a relative value perspective.
As we discussed in Alternative Approach to Value Investing: Is it “Reflex” or “Novel”, many of these industries fall within the “invested capital value” companies or companies that invest capital back in themselves for an attractive Return on Investment (ROI) (a growth characteristic). But they also remain relatively cheap compared to the overall market (a value characteristic). In short, climate innovation companies have the dynamics of “hidden” value stocks in a growth wrapper. This investing dynamic usually coincides with a once in a millennium thematic investing opportunity as we have seen with the internet and blockchain booms.
Many individuals (investors or not) may say that this movement has the potential to dwarf both the internet and blockchain movements combined because it does not only involve all aspects of our lives but the lives of every living creature on our planet (a much larger impact statistically and fundamentally). Investing in the innovation for climate change may be a once-in-a-lifetime investment opportunity and investors should remain nimble and aware of any companies or funds (public or private) that invest in this space as the returns may be something to remember. Investors and individuals can act by investing in our future.