Global Warming May Be Mother of All Finance Woes

By John F. Wasik

Oct. 23 (Bloomberg) -- Global warming is challenging celebrity worship as the latest obsession in worldwide media. Magazines from Newsweek to Scientific American have devoted issues to this threatening phenomenon.

If global warming triggers devastating climate change and disrupts world agriculture, financial markets will also react severely. It will be ``the mother of all market corrections,'' according to David Korten in his book ``The Great Turning.''

Overlay other widely circulated premises that oil and gas production may have reached its peak or might be subject to regional supply shutdowns, and it's clear you have a menacing leviathan lurking about.

On a personal level, energy prices socked almost every consumer this year, curtailing other financial goals. In a survey conducted by Boston-based Fidelity Investments, more than three- quarters of U.S. households said ``steep fuel prices in recent months had hurt their ability to save for retirement.''

Is it a stretch to say that global warming is also a significant personal-finance issue?

Most of the electricity generated in the U.S. is produced by fossil fuels, namely coal and natural gas. The more power that is produced -- with the exception of energy from nuclear, hydroelectric and alternative technologies -- the more atmosphere-heating carbon dioxide is spewed into the air.

While coal is cheap and abundant on most continents, the costs to the environment are hurting the physical and economic health of everyone. Pollutants released by burning coal circle the globe, scientists have found.

`Cleaning Up'

In lieu of a massive changeover to alternative energy systems -- something that will happen over decades -- the cost of ``cleaning up'' fossil-fuel power will rise.

Homeowners will ultimately foot the bill for cleaner power and heat in terms of higher utility payments.

Another troubling scenario is the catastrophic reduction of oil or natural-gas supplies through terrorist attacks. Major oil and gas production is dangerously concentrated in volatile areas such as the Middle East.

``A single well-designed attack could send oil prices to well over $100 a barrel and devastate the world's economy,'' the Committee on the Present Danger, an anti-terrorism group in Washington, said in a paper co-written by former Secretary of State George Schultz and former CIA Director James Woolsey.

Woolsey's Recommendations

Woolsey, now an energy consultant for Booz Allen Hamilton Inc., a global consulting firm based in New York, advocates the production of cellulosic ethanol from agricultural waste; 125 mile-per-gallon ``plug-in'' hybrid autos that recharge using cheap electricity at night; improved diesel vehicles; and a reduction of the amount the U.S. borrows to pay for imported oil.

``The U.S. in essence borrows about $2 billion a day, every day, principally from Asian states, to finance its consumption,'' the paper states. ``The single-largest category of imports is the approximately $1 billion per working day borrowed to import oil. The accumulating debt increases the risk of a flight from the dollar or major increases in interest rates.''

The committee's study is bolstered by a recent report by the Council on Foreign Relations that concludes ``the lack of sustained attention to energy issues is undercutting U.S. foreign policy and U.S. national security.''

Making It Personal

Global warming and escalating energy prices may make the North American status quo of vehicle-based commuting, large suburban homes, mammoth shopping malls and urban sprawl economically unsustainable. Yet such dire pronouncements are daunting for most people.

How do you personalize this issue? A useful starting point is reducing your ``carbon footprint,'' which is the amount of carbon dioxide your lifestyle is generating from your home-energy use and transportation habits.

Enter your energy-consumption estimates into a carbon calculator. There's one at http://www.cool-it.us . Then see what you can do to alter your daily routine to lower your output. Here are some basic suggestions:

-- If remodeling or building new, install the most energy- efficient appliances, lighting, doors, windows and heating- cooling systems. The U.S. government -- and many European and Asian agencies -- is offering tax credits for everything from solar panels to low-emission windows.

-- Downsize your transportation. You don't have to buy an expensive hybrid gas-electric vehicle to save on fuel and emissions. According to the Consumer Federation of America, a public-interest group, there's a 100 percent variance in mileage ratings within each class of vehicle. Shop carefully and buy the one with the best mileage that suits your needs.

Get Political

Comprehensive energy legislation is needed to marry tax incentives with tougher efficiency standards for appliances, homes and vehicles, and to make buildings and factories energy misers and producers.

An increased federal gasoline tax would further promote use of fuel-efficient vehicles and fund alternative-energy research and development.

Reducing your carbon footprint will not only make a difference environmentally, it will lower your home-operating expenses, simplify your lifestyle and free up more money to save for your financial goals.

``Going green,'' it appears, has never been a more profitable idea.

(John F. Wasik, author of ``The Merchant of Power,'' is a Bloomberg News columnist. The opinions expressed are his own.)

To contact the writer of this column: John F. Wasik in Chicago at jwasik@bloomberg.net .