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Supply Chain Risk

Global Warming and the Future of Investing

In the fall of 2019, Democratic Speaker of the US House of
Representatives, Nancy Pelosi, went on record saying that competition for
resources was turning ecology into a national security issue. A growing number
of politicians and experts share her opinion.

While most countries
worldwide take a “mixed” picture of the consequences, upsides
and downsides of global warming amid an ever-growing rivalry between states, the environmental idea is becoming a
convenient and attractive tool to discredit opponents. Moreover, for
some pro-Nature organizations, the proclaimed requisite to ensure environmental
protection outweighs any objective needs for the development of both individual
territories and entire states. Sometimes
it becomes almost impossible to draw a line between sincere idealism and
“lobbying for a new type of corporate interests.” As a result,
criticism of a development model based on the use of hydrocarbons actually
becomes an instrument of competition promoting the interests of the “green
economy,” which in recent years has often proved to be less than ecologically
impeccable.

Russian President Vladimir
Putin has repeatedly reminded the international community of what the advocates
of an immediate change to the global energy system fail to mention. Paradoxically, climate change and demands for a rash change of
political priorities to combat it both threaten to increase inequality between
countries.

On the one hand, political
instability caused by the increasingly changing climate throws into question
the long-term plans for the socio-economic development of entire regions and
even continents. According to the UN’s Food and Agriculture Organization (FAO),
shortages of drinking water and large-scale human migration in search for a
better live will emerge as the most pressing problems mankind will face in the
near future. The regions where conflicts provoked by
climate change will flare up in the coming years might include, among others,
territories south of Russia’s borders and the Arctic.

On the other hand, less
diversified economies, technological backwardness and outdated infrastructure
put most economically underdeveloped and developing states at a disadvantage to
the world’s most developed countries. The former argue,
however, and with pretty good reason too, that many of the world’s most
affluent countries keep using “dirty” technologies and production
facilities in a bid to maintain their economic growth, including tax exemptions
and even state subsidies. This is something ordinary citizens are well aware
of, as is proved by the “green-oriented” political forces’ modest successes
outside the “golden billion” states. In developed economies many people are wary of the high price of current
“green” technologies, which promise not so obvious gains and only decades later
at that,and politicians just can’t ignore this public sentiment.
Finally, widespread forecasts of a global economic slowdown and even a possible
recession are putting environmental problems on the back burner.

Besides, the
much-trumpeted predictions of the imminent triumph of “green”
technologies are not always grounded in reality. In
February 2019, The Economist wrote that companies using traditional
energy still generate more income compared to renewable energy projects. Global
demand for oil continues to grow by an annual 1-2 percent, just like it has
done the past 50 years. Most of the nature conservationists still move around
in cars with internal combustion engines and fly on airplanes. Relying on some
breakthrough developments and technologies whose prospects of mass-scale
implementation remain dim would certainly be premature. The $300 billion that
is currently being invested in renewable energy worldwide is just a drop in the
ocean compared with investments in the development of fossil fuels. Finally,
despite all high-profile statements regarding the introduction of electric
vehicles, even in 2030, up to 85 percent of cars will still be running on the
tried-and-true internal combustion engines.

In 2017, the US withdrew from the Paris climate agreement, and the Trump
administration is now trying to breathe new life into the country’s coal
industry. Even in many environmentally
aware countries, broad sections of the public have not yet been convinced about
the benefits of having to pay more for “green” goods and services. For
example, the idea of stimulating economic growth by means of tax cuts is not
popular with the high and mighty of the world’s leading economies. Meanwhile,
experts consider monetary incentives, aimed at encouraging public support for
technological and cultural changes aimed at reversing the global warming
process as one of the most promising measures able to ease the skeptics’ fears.
Therefore, assuring people that measures aimed at reducing harmful emissions
will not cause a catastrophic blow to their personal well-being may prove a
hard task. 

In this regard, many politicians, administrators and experts are
wondering just how dramatic changes in the existing economic structure over
several decades will be able to reverse the negative climatic phenomena and how
much should we focus on political, economic and social measures that would help
individual countries and associations of states adapt to the objective trends
of nature. And, finally, whether this
is not just an attempt by the developed countries to hamper their current and
potential rivals’ progress under the guise of solving environmental problems.

During 2019, the conflict between West and East European countries over
the issue of unification of their environmental policy was heating up threating
to further split the European Union. It turned out that “EU subsidies are no
longer part of its policy, but rather a kind of gift for loyalty. We are
talking about the familiar divide-and-rule policy”, about an almost deliberate
separation of EU states and regions, unwilling to unconditionally embrace
decisions taken by the bloc’s leading countries and by Brussels.
Simultaneously, the East European countries’ skepticism about the requirements
of the earliest possible rejection of “dirty” technologies is fueled,
among other things, by the example of Germany, where diversification of energy
sources has effectively resulted in increased consumption of traditional fuels
– coal and gas – with all the political and financial consequences this
entails. This is due to the hasty closure of nuclear power plants that “green”
generating units can’t fully compensate for.

In hindsight, one will
have to admit that climate change has long influenced the fate of states and
peoples. Some experts believe that the Late Antique Little Ice Age, “which began
in the 5th century AD and lasted about a hundred years” could be a
reason why the Byzantine Empire failed to maintain its growth. Today, access to fresh water is viewed as a
leading factor that may spark conflicts both between countries and inside
individual states. Since the mid-1990s, there have been forecasts
that the 21st century wars will not be fought for oil, but for
water. A population growth combined with an increase in the number of
territories suffering from lack of water resources may lead to a significant
increase in the number of refugees and internally displaced persons. This is a
problem a number of regions of Africa and Eurasia, including Central Asia,
Iran, Afghanistan and Turkey, may soon be grappling with.

Catastrophic climate
change is already contributing to an increase in cross-border migration, which
is contributing to the rise of political extremism.
 Poor countries with growing populations are increasingly at risk of
“political instability and violence.” The harmful effects of climate change can
exacerbate economic turmoil in various parts of the globe. Meanwhile,
population growth around the world may significantly outpace global economic
growth, which, as many experts already predict, will result in a protracted
period of stagnation at best. Overall, similar trends, which Republic.ru
pointed to in 2019, give rise to political discourse about “the need to
reconsider most of the existing paradigms,” and, very likely, “away
from classical capitalism and towards even greater state regulation.”

Climate change, which
provokes economic stagnation and intensifies cross-border and internal
migration, can further embolden separatist movements in many parts of the
world, including Europe. The fragmentation of countries into
smaller territorial entities increases the risk of conflict, and sets the stage
for outside intervention. Ultimately, the objective need for greater
international cooperation in tackling global problems will face an equally
objective upward trend in nationalism and isolationism.

For Russia, the Arctic
offers a particularly important example of the geopolitical importance of the
climate factor, as climate change is making this region increasingly accessible for
economic development, while simultaneously making it vulnerable to new
geopolitical challenges. Late this past summer, Bloomberg described the
Arctic as “a region, whose growing importance is reshaping the world’s
geo-economics.” As a result, the growing number of mineral exploration and
development projects, as well as a projected increase in shipping volumes, will
be ramping up competition, including military, between world powers.

There are other climate-related issues too. Russia also keeps reminding
its foreign partners that, unlike the United States, it recently signed up to
the Kyoto Protocol and, unlike the EU, has fully met its commitments under this
accord. Inconsistencies in the
assessment of the Russian forests’ and soil’s ability to absorb carbon dioxide
are a matter of strategic importance. As the Expert magazine
noted, Russian woodlands are an important factor in this country’s
implementation from 2020 of the terms of the Paris Agreement under the UN
Framework Convention on Climate Change, regulating measures to reduce carbon
dioxide emissions into the atmosphere. The problem is that underestimation by
foreign experts of the Russian forests’ CO2 absorption capacity can lead to the
introduction by Western countries of a “carbon tax” on exported Russian gas.

Meanwhile, as President
Putin noted during his traditional news conference summing up the results of
the outgoing year 2019, Russia has “great advantages in the fight against
climate change.” A “significant breakthrough” in the
development of generating capacities in hydropower combined with vigorous
development of gas production, including large-scale high-tech projects for LNG
production, makes Russia the greenest
in the world energy mix. And Moscow does not intend to stop there. By
ratifying the Paris Climate Agreement, Russia reaffirmed its strong commitment
to international cooperation in the field of climate change, aimed at creating
a paradigm of harmonious relations with nature. Working together, the
international community needs to find a balance between a clean and safe
environment while simultaneously maintaining the competitiveness of countries,
peoples and regions, and the interests of their long-term sustainable
development.

From our partner International
Affairs

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