Why People Does Not Understand Climate Risk: Warren Buffett

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    Billionaire Warren Buffett’s latest annual letter to shareholders dismisses the risk of climate change to his investors. And yet he never mentions that last year he spent $240 million buying another chunk of Canadian tar sands giant Suncor, upping his overall bet on the dirtiest liquid fuel to $1.1 billion.

    Buffett also sings the praises of renewable energy in the letter, while omitting any mention of his company’s numerous efforts to kill solar energy in the Western United States. I’ll discuss that in a later post.

    Buffett is undoubtedly one of the most successful investors in the world, though he still suffered terrible losses from underestimating the full risks of the Great Recession and housing bubble. Also, the stock of his company, Berkshire Hathaway, has actually underperformed the S&P 500 over the last five years.

    In his 2016 letter, Buffett responds to a “proxy proposal” asking for “a report on the dangers that this change might present to our insurance operation and explain how we are responding to these threats.” The good news is that the Oracle of Omaha generally takes climate science seriously. The bad news is he still doesn’t get the existential nature of the climate threat, like many in the business and financial intelligentsia, including his buddy Bill Gates, who sits on the board of Berkshire Hathaway. Buffett writes:

    It seems highly likely to me that climate change poses a major problem for the planet. I say “highly likely” rather than “certain” because I have no scientific aptitude and remember well the dire predictions of most “experts” about Y2K.
    It is certain that “climate change poses a major problem” for the planet, which is precisely why all of the nations of the world unanimously agreed in December to leave most fossil fuels in the ground — and the vast majority put forward serious plans to start that very process. It is “highly likely” that inaction on climate change would end modern civilization as we know it.

    Especially revealing is Buffet’s choice of such a flawed analogy — comparing the risk of climate change to that of Y2K. For starters, businesses and governments listened to those who warned about Y2K and spent massive amounts of money to prevent it. Whether all or even much of that spending was warranted or not is still subject to debate. But in any case, the Y2K case is not analogous to the climate situation where inaction creates a great risk of irreversible catastrophe lasting hundreds of years — something the world’s leading scientists and governments all agree on, as explained in the latest comprehensive review of the science.

    Y2K was a unique, largely untestable one-time concern raised by non-scientists who offered a fix that was not politically controversial. Extreme, abrupt, and catastrophic climate change has happened many times in the past when driven by a natural changes in greenhouse gases. So figuring out that human-caused carbon pollution is now forcing the climate to change dangerously fast is straightforward. Plus we can already see the accurate predictions of climate scientists about how the planet is warming, how heat waves and deluges are getting worse, how the Arctic sea ice and great ice sheets are melting, how sea level is rising, and so on…

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