Jon Anda:
CLASS OF 1975
Prospect High SchoolClass of 1975
Mt. prospect, IL
University of Illinois - Commerce & BusinessClass of 1979
Urbana, IL
University of Illinois - AccountingClass of 1979
Urbana, IL
Jon's Story
Climate & capital markets; now or never
(sorry, but I could not add links or charts here, but you can see the full essay on Medium under my name...or link to it through my Twitter andac2k)
Hey mercy, mercy me
Oh things ain't what they used to be
What about this overcrowded land
How much more abuse from man can she stand?
Marvin Gaye included this hit on his forever classic album What’s Goin On from
1971. For me it was a summer-before-high-school song. It still moves me, and even more-so when I think my way into lyrics from his Inner City Blues as if surreptitiously tacked on:
Money, we make it
Fore we see it you take it
Oh, make you wanna holler
The way they do my life
Make me wanna holler
The way they do my life
This ain't livin', This ain't livin'
No, no baby, this ain't livin'
No, no, no
Maybe that says quite a lot about my generation (born 1957) both then and now.
We are delusional idealists. Not Marvin Gaye, of course. He was an artist of immense beauty. The ones listening to him I mean.
We inherited our world from a generation who was at risk of losing western liber- alism as we knew it, said no, fought with heart & soul to save it, and then rebuilt the worlds of both winners and losers. Born in the time of the Great Depression they were winners not whiners. Oh, and they fed the world through the green revolution, invent- ed transistors (leading to microprocessors) and managed not to use the existentially- threatening bombs they built for WWII except in the horrific Hiroshima and Nagasaki attacks. They were not so good on diversity at first - but at least didn't lean on LBJ's Presidency as an excuse to hold back legislation. And while we’re on legislation they pushed Republican leadership in Washington to give us the EPA, the Clean Water Act and the Clean Air Act.
My Dad was born in 1927, the year that global GHG emissions hit a billion metric tons C for the first time and global population reached 2 billion - doubling in size since hitting 1 billion in 1800. In my Dad’s ninety years, global emissions have grown from 1.1 to 10 billion tons C per annum (and global population from just over to 2 billion to nearly 7.4 billion).
In 1957, the year I was born, US oceanographer Roger Revelle and chemist Hans Suess showed that seawater will not absorb all the additional CO2 entering the at- mosphere, as many had assumed. Revelle wrote the prophetic line that "human beings are now carrying out a large scale geophysical experiment..." Just prior to this, in 1955, using a new generation of equipment including early computers, US researcher Gilbert Plass analyzed in detail the infrared absorption of various gases. He concluded that doubling CO2 concentrations would increase temperatures by 3-4C. (The IPCC AR5 2014 range was 1.5-4.5C.)
In 1975, the year I graduated high school, US scientist Wallace Broecker put the term "global warming" into the public domain in the title of a scientific paper. In 1979, as I'm graduating from college, the second energy crisis hits. A strengthened environ- mental movement encourages renewable energy sources while blocking new nuclear plants in the wake of the Three Mile Island accident. A National Academy of Sciences report finds it highly credible that doubling CO2 will bring 1.5-4.5 degrees C of glob- al warming. President Jimmy Carter installed 32 solar panels on the White House. That year I also wrote a term paper for a comms class on CFCs and the Ozone Layer. Since it was comms I presented it as well (metaphorically that presentation continues to this day). It was before the Montreal Protocol which, most readers know, was signed by Ronald Reagan in 1980 with assistance from the ever thoughtful George Schultz. Where have you gone science and multilateral respectful Republicans?
By 1986 I was a young banker at Morgan Stanley working with corporations on issuance of convertible securities and self tenders for share repurchase. I don’t know why, but between the 4th quarter of 1987 and the 4th quarter of 1990 a few events ocurred that have remarkable salience to present circumstances. First events, then salience at the close:
October 19, 1987 On Black Monday the Dow fell 23%. It was an eventful day (and night) to be in equity capital markets at Morgan Stanley; we had an open underwriting related to the British Petroleum IPO and were struggling to hedge our exposure. The Chancellor of the Exchequer, Nigel Lawson (a name I will never forget) ultimately capped the 4 lead underwriter’s losses at a then staggering $100 million each.
June 23, 1988 NASA’s James Hansen testifies before Congress and says:
"I would like to draw three main conclusions. Number one, the earth is warmer in 1988 than at any time in the history of instrumental measurements. Number two, the global warming is now large enough that we can ascribe with a high degree of confidence a cause and effect relationship to the greenhouse effect. And number three, our computer climate simulations indicate that the greenhouse effect is already large enough to begin to effect the probability of extreme events such as summer heat waves."
August 31, 1988 President George HW Bush gave a campaign speech that took glob- al warming seriously as well as outlined his planned actions on acid rain - noting that the environment is not a partisan issue saying (as Dana Carvey might similarly) “no left and no right”.
December 6, 1988 The United Nations votes to establish the International Panel on Climate Change (IPCC) as a group which will not carry out new research or monitor climate-related data, but rather to “base its assessments mainly on published and peer reviewed scientific technical literature to inform international policy and negotiation”. Might they have presciently structured IPCC to withstand a future of alternative facts?!
May 9, 1989 The Bush White House admits to censoring Hansen’s testimony the previous year:
"In his original text, before it was changed, Dr. Hansen asserted that computer projections showed that global warming caused by pollution from human ac- tivity would cause upheavals in the earth's climate. He warned of substantial in- creases in temperature, drought in mid-latitudes, severe storms and other stresses".
June 27, 1989 Don Henley releases The End of The Innocence with co-writer Bruce Hornsby
Oh, but I know a place where we can go Still untouched by men
Sit and watch the clouds roll by
And the tall grass waves in the wind
You can lay your head back on the ground
And let your hair fall all around me
Offer up your best defense
But this is the end
This is the end of the innocence
November 25, 1990 President Bush signed legislation designed to curb acid rain, urban air pollution, and toxic air emissions - with a cap & trade program for SO2 and NOx. Per Schmalensee, Stavins, 2013:
"The Clean Air Act Amendments of 1990 passed the US Senate by a vote of 89– 11 with 87 percent of Republican members and 91 percent of Democrats vot- ing yea, and the legislation passed the House of Representatives by a vote of 401–21 with 87 percent of Republicans and 96 percent of Democrats voting in support."
And again from Schmalensee, Stavins, 2013:
"The good news, however, is that cap-and-trade is no longer just a subject for academic seminars and journal articles; it is a proven, viable option for tackling large-scale environmental problems. It is now being used around the world, including for addressing CO2 emissions linked with global climate change. Even if the SO2 allowance trading program’s performance was enhanced by unanticipated benefits and declines in coal prices, and even if it has been essentially wiped out by later policy changes, the fact is that the allowance trading program achieved its target emissions reductions rapidly and cost-effectively. Few other environmental programs of any sort have performed as well."
In 2009, 30 years after the last energy crisis and Carter's solar panels, I testified before the House Energy & Commerce Committee on the Waxman-Markey bill for economy-wide cap and trade. The bill passed the House but the comparable Kerry-Graham-Lieberman Bill died i...Expand for more
n the Senate the next year after reconciliation was controversially used to pass the American Care Act. Around the time of my testimony I was fortunate to meet half the authors of a terrific paper that retains its relevance today. “Sharing global CO2 emission reductions among one billion high emitters” by Chakravarty, Chikkatur, de Coninck, Pacala, Socolow, and Tavonia was published by PNAS in May, 2009 - the abstract is below (long but worth a few minutes to fully absorb):
"We present a framework for allocating a global carbon reduction target among nations, in which the concept of ‘‘common but differentiated responsibilities’’ refers to the emissions of individuals instead of nations. We use the income distribution of a country to estimate how its fossil fuel CO2 emissions are distributed among its citizens, from which we build up a global CO2 distribution. We then propose a simple rule to derive a universal cap on global individual emissions and find corresponding limits on national aggregate emissions from this cap. All of the world’s high CO2- emitting individuals are treated the same, regardless of where they live. Any future global emission goal (target and time frame) can be converted into national reduction targets, which are determined by ‘‘Business as Usual’’ projections of national carbon emissions and in-country income distributions. For example, reducing projected global emissions in 2030 by 13 GtCO2 would require the engagement of 1.13 billion high emitters, roughly equally distributed in 4 regions: the U.S., the OECD minus the U.S., China, and the non-OECD minus China. We also modify our methodology to place a floor on emissions of the world’s lowest CO2 emitters and demonstrate that climate mitigation and alleviation of extreme poverty are largely decoupled."
One way to think of this is - place the mitigation burden on luxury emitters while allowing those without luxuries to acquire necessities like clean cookstoves, electricity, indoor plumbing, and safe drinking water. The other way to think of it is - the societies who developed while emitting long-lived greenhouse gases owe those now developing a fair share of atmospheric capacity. Or just ponder the cogent abstract above, along with the recent emissions data below:
In 2015 the Paris Accord was agreed. Then in 2017 the final TCFD reports are issued by the FSB (as an intellectually dishonest White House announces its intention to quit Paris). The private sector is now expected to pick up the slack of governments during "policy lag". But can it? The raisson d'être of global carbon pricing is to limit free riding to effect mitigation. So can capitalist forces voluntarily resist free riding while allocating burdens justly along the lines of sharing global co2 emission reductions as outlined above? Not the finance I practiced for 30 years - at least not without that zebra changing its stripes (something I’ve been trying to nudge, coax, and persuade for the past dozen years).
In early 2019, the fourteenth annual CCPI was released by Germanwatch, NewCli- mate Institute and Climate Action Network (“with the help of 350 energy & climate experts from all over the world”). CCPI takes into account a number of long-accepted factors in assessing where countries stand relative to their expected responsibilities.
Their summary exhibit below is an indication that America is not only failing climate... but also creating an economic excuse for other nations to fail in their own efforts.
What’s salient for about the 1987-1990 events listed above for our present circumstances?
- Climate science was little disputed among US and world leaders (as was the uniquely American idea of distorting it) 3 decades ago. And climate science was even pretty damn clear when I was born in the late 50’s. Not much has changed - except we now realize science's alarmist aversion has been keeping risk assessments of climate impact too conservative. Now it’s a four alarm fire because we’ve delayed the hard parts of learning how to get fossil fuels out of the system.
- People who love free markets (oughta) know they exist solely on society’s willingness to address market failures. The radiative forcing increase from co2, ch4, and other GHG’s (simple physics, not negotiable...think Dana Carvey again) is indeed the mother of all market failures. Real free market supporters know too that market-based solutions are effective and efficient if properly (i.e. not politically) constructed.
- Conserv-ation/ative have gone together since Teddy Roosevelt. That dual narrative has been embraced by many of the best Republican leaders in our history. When faced with humanitarian crisis (and related migration) from high wet-bulb temperatures, drought, famine, and extreme weather events - "conservative" means hedging extreme risk (tail skimming as Martin Weitzman of Harvard refers to it). If you are wrong you get (gee, terrible) lower energy intensity and cleaner air. The hedge is therefore cheap, unless you happen to be over-weight oil & gas. And whether with "the stone age didn't end because we ran out of rocks", or simply "Schumpeter" - protecting oil & gas doesn't justify foreclosing the climate options we are close to closing.
- Pigs get fat, hogs get slaughtered (see Black Monday). At the end of June I calculated 5 year annualized (price) returns for the S&P 500 since 1975. Sure we’re fresh off a huge corporate tax cut, anti-trust action is rare, and corporate profits are at a historically quite high 9% of GDP - but we’re still pigs not hogs, right?
- Of the 8 full 5 year periods since 1975 - 2 are negative, 4 are 1-5%, 2 are 5-7%, and the 1975-2018 overall CAGR is 3.1%. And the stub period of 2015-2018? 12.9%!
- Will capital always be around to mitigate emissions and adapt to more heat and moisture than agrarian homo sapiens have yet faced? A more conservative bet is to take advantage of good times by mitigating when capital markets are strong. If capital markets fund mostly internet advertising plays while passing on net-zero-necessary assets - and worse funding more fossil infrastructure - then I suspect that the value of finance to society is below its (rent-supported) market cap. Here’s where capital needs to flow (from the recently issued UK plan to achieve net zero GHG emissions by 2050):
For the, US net zero by 2050 would mean eliminating fossil energy subsidies and other measures appropriate for our oil & gas resource and export infrastructure. This quote from the conclusion of the essential paper “Current fossil fuel infrastructure does not yet commit us to 1.5 °C warming” Tong et al 2019 states today's US "leadership summons" clearly:
"First, geophysics does not yet commit the world to a long-term warming of > 1.5 °C. Second, even when phasing out existing CO2-emitting infrastructure at the end of its expected lifetime, warming is also kept to below 1.5 °C (or 0.4 °C warmer than today) with > 50% probability, whereas delaying action until 2030 reduces this probability to below 50%. This is important information, as it shows that whether global mean temperature increase will be kept to below 1.5 °C depends on societal choices made today and emissions reductions implemented over the coming decades."
My Dad, and his generation, accepted when it was time to step up - like when he boarded a Navy ship headed for Japan as an 18 year old in 1945 - or when President Truman approved the Marshall Plan in 1948 granting over $12 billion ($100 billion in 2018 dollars) in economic assistance to help rebuild Western European. Are we similarly, selflessly, accepting?
- This may be the end of innocence for the United States. If President Theodore Roosevelt had said “speak softly and carry 2 big sticks", would our big sticks of world dominant consumer and military spending (increasingly debt financed) resonate in tomorrow's history books? My biggest fear of tomorrow's history today is the ultimate irrelevance of US prosperity & might if our moral decay underpins species extinction and the human mortality referenced in IPCC SR15. The end of innocence indeed.
Jon Anda
Register for Free to view all details!
Yearbooks
Register for Free to view all yearbooks!
Reunions
Register for Free to view all events!
Photos
