Posted 30th September 2010
A recent Chartered Institute for Securities & Investment presentation “Is Carbon Trading and Investment the next Sub-Prime Crisis?” prompted the audience to revisit (and some to recant) their belief in man-made global warming and draw parallels with the sub-prime crisis. Click here for the podcast (sound and slides) of the presentation: ClimatePresentation_to_CISI_23Sep2010
Note: The podcast starts half way through the introduction by Michael Mainelli, Chairman of ZYen. In the question and answer session, there is reference to an additional three billion tons of wheat per annum for bio-fuel power stations, the correct figure is three million tons.
The slides used in the 23rd September 2010 presentation to the Chartered Institute for Securities & Investment are available here: CarbonTradingCrisis.v.1.7
Is Carbon Trading and Investment the next Sub-Prime Crisis?
Structural incentives obscured the toxic nature of mortgage backed securities and derivatives and fuelled the sub-prime crisis.
Until the 1970s, investors delegated due diligence to credit rating agencies for which they paid a fee. When rating agencies started charging bond issuers for ratings, their financial interests converged. Investigations following the crisis revealed evidence of collusion between issuing banks and rating agencies, optimising risk profiles of securities to achieve AAA ratings. Credit raters had no access to the underlying mortgage data which contained fraudulent applications and loans to house buyers with insufficient earnings. Consequently, they applied ratings on the basis of historical mortgage data from an era when loans were only granted to credit worthy owner-occupiers (Fig. 1).
Financial incentives ensured the true nature of the debt wasn’t revealed. Buyers and property agents gained in a rising property market and lenders removed bad loans from their balance sheets. Investors bought AAA securities at exceptional yields. Issuing banks earned fees and traded their own book, sometimes at their clients’ expense. Meanwhile, rating agencies enjoyed a fourfold increase in revenues from 2000 to 2007.
Had investors conducted their own due diligence rather than rely on the rating agencies, the sub-prime crisis could have been avoided. Carbon credits are ascribed value because they are the mechanism by which man-made or anthropogenic global warming (AGW) is being addressed.
The AGW hypothesis that man’s CO2 emissions are causing runaway warming, is premised on climate models and claims of unprecedented temperatures. By the scientific method, the onus of proof is on those proposing the hypothesis; data, methods, assumptions and programs must be made available for others to replicate results. That’s the way science is conducted in almost every field except climate change or, more particularly, in the narrow scientific community promoting man-made global warming.
The greenhouse effect is real and has been operating for millions of years. Without it the planet would be some 30ºC cooler. The AGW theory proposes that increased CO2 in the atmosphere is trapping more infra-red or long wave radiation from Earth’s surface and this heat is radiated back to cause warming. Positive feedbacks are also claimed, suggesting that increased CO2 multiplies the greenhouse effect, thereby creating a “tipping point” from which there is no recovery. For the AGW hypothesis to hold true, we should observe this additional heat in the mid-troposphere over the tropics because that is where most heat is emitted. However, contrary to what the climate models predict, satellite (since 1979) and weather balloon (from1958) data reveal no evidence of this heat. This one fact destroys the AGW hypothesis; as Albert Einstein said, “”No amount of experimentation can ever prove me right; a single experiment can prove me wrong.” Yet there is no mention of “missing hotspots” in the IPCC’s Summary for Policy Makers or by the mainstream media.
The IPCC admits that for the last 800,000 years temperature rises have preceded rises in CO2 by some 800 years but claims CO2 is now driving temperature, in spite of distinct cooling from about 1940 to 1979 when CO2 emissions were rising in the post-war industrial boom.
CO2’s contribution to the greenhouse effect is less than 3%. Although CO2 absorbs long-wave radiation at certain frequencies, the effect is logarithmic, ie. the first 20 parts per million (ppm) have the most effect, the next 20ppm much less and at the current 390ppm, the effect is negligible. For most of the last 600 million years, CO2 concentrations exceeded 1,000ppm and have been as high as 7,000. Furthermore, there is no evidence of positive feedbacks; Roy Spencer, ex-NASA climate scientist at the University of Alabama in Huntsville explains feedbacks are mildly negative.
Undaunted by this contrary evidence, the IPCC claims we are experiencing unprecedented temperatures and CO2 is the cause.
There is no definitive long term record of global temperatures. Surface temperature records go back to about 1850 but early records are restricted to a small number of locations mainly in the northern hemisphere. Later records are affected by the Urban Heat Island (UHI) effect: temperature recording instruments, once sited in remote locations, are now surrounded by urban environments. UHI exaggerates the perceived warming. Where records are missing, they’ve been estimated. Anthony Watts, a retired meteorologist, has undertaken extensive research into surface temperature data. http://wattsupwiththat.com/
For temperatures prior to 1850, there are proxy data from ice cores, tree rings, fossil pollen, coral etc.; some of these are affected by factors other than temperature and are not necessarily a reliable guide. Furthermore, proxy data are location specific and cannot give us a global record. Satellites cover some 80% of the globe and provide us with a global temperature record from 1979.
Fig. 3 HH Lamb graph of global temperatures over the second millennium
The first IPCC Assessment Report in 1991 contained the HH Lamb graph (Fig. 3) of temperatures over the last 1,000 years which accords with our understanding of the Medieval Warm Period (MWP) and the subsequent Little Ice Age (LIA) and for which there is ample anecdotal and archeological evidence: the Vikings settled and farmed in Greenland from about 980 to 1400AD over the MWP; the settlements collapsed with the onset of the LIA; burial sites have been found in the permafrost; Pepys wrote of the Great Frost Fair of 1683 and skating on the Thames when the river and surrounding estuary froze for weeks over winter. That temperatures have been rising since end of the LIA (c.1820) is neither surprising nor alarming.
Fig. 4 Mann’s Hockey Stick (MBH98)
Clearly, Lamb’s graph wasn’t going to convince us of the urgent need to reduce our CO2 emissions and for the Third Assessment Report in 2001, the IPCC came up with the Hockey Stick (Fig. 4) based on proxy data. This was produced in a paper (MBH98) by Michael Mann and others, claiming that the 1990s was the hottest decade of the millennium. A retired geologist and mathematician, Steve McIntyre, together with Ross McKitrick, an economics professor and statistician, set out to replicate Mann’s work but found statistical errors and evidence of manipulation of data to produce the hockey stick. Subsequently, the Wegman Committee, appointed by the US Senate to adjudicate on the hockey stick, found in favour of McIntyre and McKitrick, confirmed the flaws and repudiated the claim that the 1990s was the hottest decade of the last 1,000 years. A 2010 paper by McShane and Wyner, two statisticians, demonstrates why the original and subsequent versions of the hockey stick are flawed and not a reliable guide to global temperatures. No evidence suggests recent temperatures are unprecedented; on the contrary, there is circumstantial evidence that temperatures have been higher in the past and possibly as recently as the 1940s.
The leaked documents and emails from the University of East Anglia’s Climatic Research Unit (CRU) exposed collusion and manipulation of data to produce hockey stick graphs. Michael Mann and Phil Jones, the head of CRU, resisted requests from other scientists for data, methodologies and programs, in direct contravention of the scientific method. Former cabinet secretary, Lord Turnbull, described the three inquiries into Climategate as “ hasty and superficial.” He has called for “a full review of the science itself.”
The IPCC adduces other “evidence” of man-made global warming: extreme weather, melting polar ice caps and retreating glaciers. A leading hurricane specialist, Chris Landsea, resigned from the IPCC in protest over repeated, unsubstantiated claims of man’s CO2 emissions causing extreme weather. His 2007 study, of hurricanes over the last 100 years, found no link between climate change and the frequency or intensity of hurricanes. A more recent study by the Institute for Environmental Studies, Amsterdam, found no correlation between climate change and extreme weather. It concluded rising insurance losses were due to expanding populations in vulnerable areas.
Antarctic studies show evidence of cooling from 1966 to 2000. While some ice, protruding into the warm water pushed down from the tropics and circulating the southern oceans, has melted, in other areas ice has been growing. Equatorial waters moving north cannot circulate the globe but form gyres or spirals between the land masses and until 2007, caused Arctic ice to melt. Recent evidence suggests northern oceans are cooling and Arctic ice is growing again. A Swiss study shows alpine glaciers were melting much faster in the 1940s than today and cited solar radiation as the cause..
Arctic surface temperatures correlate with solar activity rather than CO2. (Fig. 5). Solar influences appear to interact with other cyclical phenomena such as the El-Nino Southern Oscillation which produces a warming pulse of varying intensity every 4-5 years. Following the peak El-Nino of 1998, the intensity has diminished. The Pacific Decadal Oscillation (PDO) has a 30 year cycle. The PDO’s reversal from positive to negative in 2007 depressed temperatures worldwide and heralds a 30 year negative cycle, leading some climate specialists to predict cooling. The Arctic Oscillation peaks every 60 to 70 years. It caused the warm spike in the 1940s as well as the recent warming. Sometimes, these oscillations cancel each other out and at other times they work in harmony. Fig. 6 is based on the PDO and projects cooling scenarios analogous to those seen in the past.
Fig. 6 Pacific Decadal Oscillation
The low sunspot count during the Maunder and Dalton minima coincided with very low temperatures over the Little Ice Age. Studies of solar effects reveal an inverse correlation between the solar magnetic field and galactic cosmic rays which stimulate reflective cloud formation (aka. albedo). Increased solar activity and reduced albedo from c. 1980 to 2000 account for warming over the period. Current indications of a weak solar cycle, increased albedo and the recent reversal of the PDO suggest cooling is more likely than warming.
In spite of all this evidence refuting the AGW theory, we are told the science is settled. However, more than 700 international scientists have made submissions to the US Senate Report, dissenting from the AGW “consensus.” Some wrote of the politicised environment in which scientists are afraid to speak out for fear of losing credibility and funding. John McLean analysed contributions to the IPCCs Fourth Assessment Report and found only 53 climate science authors and 5 reviewers explicitly support the claim of significant human influence on climate. 166 climate scientists have written to Ban Ki Moon challenging him to provide proof of man-made global warming.
Why doesn’t the IPCC reveal all this evidence? The IPCC’s mission is to assess “human induced climate change”. No AGW theory, no IPCC. Its chairman, Rajendra Pachaudrey, has commercial interests which benefit from his role in the IPCC. The paleoclimatic community (behind the temperature reconstructions) and climate models support the IPCC agenda; they are funded accordingly. Goldman Sachs, a key player in the sub-prime crisis, has a major stake in carbon trading which was worth $140billion in 2008. Should the US government adopt “cap and trade”, it will be a multi-trillion dollar market. Those who’ve staked their political credentials on the AGW theory stand to lose credibility and possibly their jobs; carbon footprint auditors, climate change pundits and those with a vested interest are similarly threatened, should the theory be abandoned. These structural incentives to obscure the truth, irrespective of the integrity of the individuals, are not dissimilar to those prevailing in the pre-crash sub-prime market. One individual, Al Gore has played a significant role in promoting the global warming agenda and is a major investor in carbon trading and climate change. All stand to lose power, prestige and of course, money.
The value of Carbon Credits is dependant on the IPCC’s flawed climate models and discredited hockey sticks (Fig. 7). The IPCC, the media and others have suppressed, dismissed or ignored contradictory evidence. By the scientific method, the onus of proof of the AGW theory is on the IPCC and there is none. Earth’s climate is a natural, chaotic, cyclical system which responds to solar cycles and oceanic oscillations. To learn this, one needs to explore the wide diversity of climate and related science, which is seldom brought together in an honest and open manner. Certainly, not by the IPCC nor, hitherto, in the mainstream media. Delegating due diligence to a third parties, with a vested interest in, and prior commitment to, man-made global warming, will not reveal the truth. Professional investors and carbon traders need to conduct fundamental research into climate science to avoid a repetition of the recent financial meltdown.