Politics, climate and capital

In this Capital Market Outlook, we look at the challenges that climate change poses for people, the economy, politics and the capital market. As usual, we take a very critical look at the often one-sided media coverage and political measures. To this end, we have once again consulted research and sources that are less well known and less popular and show the issues in a different light to that which is commonly communicated. We want to emphasize that the issue of combating climate change is very complex and that there are alternative and, in our view, more efficient ways for politicians to combat climate change.

Due to the complexity of the topic, this report is longer than usual. Readers in a hurry are therefore referred to the summary under the heading "Conclusion" at the end of this report.

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In view of flood and forest fire disasters, the climate problem is rightly dominating the headlines. Due to the huge sums that need to be invested to reduce global CO2 emissions, this issue is also highly relevant for future returns on the capital markets.

However, we will not only be highlighting the undeniable need to curb the rise in global temperatures. This project of the century can only be successful if the costs are taken into account. The decisive factor for the development of a sustainable global economy will be that as many people as possible in as many countries as possible will also be prepared to bear the costs of conversion in the long term. Politicians therefore have a crucial task to solve. They must shape the transformation in such a way that the funds are used efficiently.

The financial resources of most countries are already limited in view of high national debt and weak growth prospects. Reducing CO2 emissions at any cost would soon force cuts in the social system or - if the climate costs are paid for by the central banks - lead to significantly rising inflation rates (see the detailed capital market outlook from June 2020, which you can find here ).

Both would bring politicians onto the scene who are likely to meet with growing approval with their calls for less climate protection; Donald Trump was unfortunately already successful in 2016 with his denial of the climate problem.

We will examine the following aspects of the overall topic:

• Definition of a meaningful objective for the development of a sustainable global economy, taking costs into account
• Presentation of the consequences of global warming and its costs
• Description of the costs and benefits of climate policy measures

1. meaningful objectives for the development of a sustainable global economy

A maximum reduction in CO2 emissions is an unsustainable goal, especially if it only applies to individual countries in isolation. The following Figures 1a-c from a model calculation show that an isolated immediate halt to all CO2 emissions (left-hand Figure 1a) in the rich industrialized countries (OECD countries, right-hand Figure 1c; as of July 2021) would curb global warming by less than 0.5 °C by 2100 (middle Figure 1b).

Such a brute measure would be technically impossible, financially ruinous and is not demanded by anyone, but nevertheless shows two dimensions of the problem, namely that a lot of patience is required and that national solo efforts will have no significant effect. If CO2 emissions in all developed countries are only gradually reduced to zero by 2050, the effect on curbing global warming will of course be even lower. Without emerging economies, it will therefore hardly be possible to build a sustainable global economy, and this is still lacking. In 2020 alone, China commissioned 38 gigawatts of new coal-fired power plants, which is equivalent to the output of 24 German nuclear power plants (Capital 07/2021, p. 36). 50 years ago, a Chinese person consumed less electrical energy than the poorest African today. Since then, the Chinese have increased their real per capita income 72-fold - probably a historic world record - but China is now the world's biggest CO2 emitter. Most poor countries would like to emulate the Chinese and prefer a stable and cost-effective power supply to renewable energy sources (Lomborg 2020, p. 105-107).

Figure 2 below shows what reductions in CO2 emissions would be necessary in the individual economic sectors worldwide in order to achieve climate neutrality by 2050.

An example from this study illustrates the challenges. The world's largest solar power plant (Bhadla Solar Park) is currently located in sun-rich India and produces 2.25 gigawatts of energy on an area of 5,700 hectares or 57 km², about the same as 1.5 German nuclear power plants. Another solar power plant of this size would have to be built every day until 2030. This is technically and financially feasible with great effort, but it is only a small building block. After that, $5,000 billion would have to be invested in energy generation worldwide every year, and €1,000 billion in Europe. By way of comparison, the EU's coronavirus aid fund amounts to a one-off € 750 billion. It could help politically that, according to McKinsey estimates, these investments are likely to create many millions of new jobs worldwide (source: Capital 07/2021, p. 32).

A study by Handelsblatt (handelsblatt.com from April 16, 2021, see also our capital market outlook from May 2021, which you can find here ), describes that just to convert Thyssen-Krupp's Duisburg steelworks to hydrogen as an energy source, a further 12,000 wind turbines would have to be added to the 30,000 in Germany. To achieve climate neutrality in the German chemical industry (including suppliers and raw material suppliers), the electricity requirement would increase from 50 to 600 terawatt hours. The demand for a single industry would thus exceed Germany's entire current electricity production, regardless of the renewable source (source: Wirtschaftswoche, July 23, 2021, p. 29).

At this point, we will briefly turn to the political problem in Germany in particular. Figure 3 below shows the development of wind energy in Germany, which has been in sharp decline for several years. At the same time, Germany has taken the unusual route of doing without nuclear power plants for the periods when the sun and wind are not providing any energy. Germany then has to import this energy from Poland (coal-fired power) or France (nuclear power) or produce it itself by ramping up its domestic coal-fired power plants at great expense. This is not only expensive (see Figure 4), but also does little to help the climate. The German government, which extended the operating life of existing nuclear power plants in 2009 because they are an ideal complement to electricity generation from renewable energies, acted against its better judgment in a populist manner when it decided to phase out nuclear energy quickly in 2011 due to the accident in Fukushima. However, the greatest long-term damage could come from the fact that industrial companies that rely on a stable power supply will leave the country. As long as politicians in Germany are neither willing nor able to combat global warming efficiently and reduce bureaucracy in approval procedures (see next paragraph), the energy transition may succeed in China, but probably not in Germany. The Merkel era's recipe for success of constantly reassuring voters and causing no inconvenience to anyone is reaching its limits when it comes to the greatest future task of our time (see Figure 3).

On page 18 of Wirtschaftswoche on July 23, 2021, an example is given of what the expansion of wind energy in Germany has to contend with most, apart from resistance from local residents, namely German bureaucracy. A black stork, which is particularly worthy of protection, had settled in the 2000-meter visual range of a planned wind farm, so that an analysis of the flight paths was requested by the authorities. The stork was no longer there the following year, so the flight path could not be analyzed during the mating season and the wind farm could not be approved. The stork could come back. A special permit from the Ministry of the Environment finally solved this first problem. The next issue was the possible combined noise emissions from the wind farm and a neighboring farmer's biogas plant, which had not been in operation for years. Furthermore, the authority then demanded an analysis of noise pollution in a dilapidated house owned by the wind farm operator that had been empty for years and in which someone could theoretically take up residence. The authority later had concerns about an earthquake monitoring station that had been set up 4.5 kilometers away during the approval process. This was to be implemented at the expense of the wind farm operator. The truly astonishing thing about this planning for 17 wind turbines, which has been going on since 2011 and has so far failed 10 years later, was that there had been no significant public protests. In addition to the enormous waste of time and the insufficient expansion of wind energy, the consequences of this absurdly uncoordinated approval practice are particularly high electricity costs in Germany (see Figure 4).

Germany has already shown with the "energy transition" in 2011 (shutdown of German nuclear power plants due to the nuclear accident in Fukushima) that such projects are handled with a complete lack of strategy. Even before that, attempts to reduce CO2 emissions from 2000 to 2010 were only moderately successful; during this time, the proportion of fossil fuels in Germany fell from 84% to 80% of total energy consumption. Things did not improve with the start of the "energy transition". By 2019, this figure had only fallen by a disappointing further percentage point to 79% (Lomborg 2020, p. 108) because (CO2-free) nuclear energy had to be replaced by Polish coal-fired power, among other things. Even 10 years after the start of the "energy transition", politicians have not ensured a power line-friendly objection and approval process for the transportation of electricity from wind-rich northern Germany to the industry-rich south; it is now expected to be completed in 2026. The reason for this is only to a small extent technical incompetence. The decisive factor is the overriding desire not to cause discomfort to either the individual black stork or the individual voter who could be inconvenienced by wind turbines or power lines in the neighborhood. However, the greater the minimum distance between a wind turbine and the nearest settlement, the more likely it is that the planned construction will collide with nature conservation and species protection. A way will have to be found to fairly distribute the unavoidable restrictions between the voter and the (actually existing) black stork. If all these problems are solved, the fact remains that the wind does not always blow and the sun does not always shine. To ensure that there is enough electricity available around the clock, some of the wind and solar power would have to be stored. However, there are of course sustained protests against pumped-storage power plants, which are ideally suited for this purpose, and the problem cannot be solved with batteries, at least not with today's technologies. In the USA, for example, the total capacity of batteries for storing solar power is sufficient for 14 seconds of average electricity consumption (Lomborg 2020, p. 104).

In summary, achieving global climate neutrality, as agreed in the Paris Agreement, is technically possible, but financially only if a very large number of countries pursue this goal and politicians find the courage to create the necessary changes to the framework conditions. Even then, however, the costs appear so high that it is unlikely that the majority of voters will be prepared to bear these costs in the long term. The non-partisan Energy Modeling Forum of the prestigious US university Stanford has compiled over 30 studies on the costs of the intended climate policy. Switching to emission-free energy sources increases energy costs due to the increase in the price of fossil fuels through CO2 taxes (the most efficient way). This leaves less money for consumption and investment. As a result, future national income will fall permanently. This decline is calculated as a cost estimated at $924 billion worldwide in 2030; this corresponds to around 1% of current global national income. Since politicians, not only in Germany, are guaranteed not to choose the most efficient path, but would like to demonstrate their electorally effective drive through micromanagement (subsidies for electric cars, distance rules for wind turbines, etc.), corresponding studies show that the costs will actually be at least twice as high (Lomborg 2020, p. 114-116, with further sources on p. 237). This corresponds to total global military expenditure. However, since the promises of the Paris Agreement are only sufficient to reduce the temperature by 0.03°Celsius in 2100 (Lomborg 2020, p. 117), the costs of containing global warming to a maximum of 2°Celsius would be many times higher. This is illustrated by a small example from New Zealand, whose Prime Minister Helen Clark promised in 2007 that the country would be carbon neutral by 2020. In 2020, the country's current Prime Minister, Jacinda Ardern, again promised carbon neutrality, this time by 2050. New Zealand's leading economic research institute has estimated the annual cost from 2050 of achieving half the target (50% of current carbon emissions) at US$19 billion, which is equivalent to the small country's entire education and healthcare expenditure. To reduce emissions to 0, the additional costs would be equivalent to spending on the social system, defense, police and justice, as well as all other government spending - and would be completely wasted if the rest of the world does not follow suit (source: Lomborg 2020, p. 121 - 122).

The exclusive fixation of climate policy on the elimination of CO2 emissions will most likely fail due to the enormous costs, even in the many countries that are better governed than Germany.

In view of the financial and political problems, a far more realistic objective would be that of former Norwegian head of government Gro Harlem Brundtland. She defines sustainability as

"...development that meets the needs of the present generation without compromising the ability of future generations to meet their own needs"

(Source: Gro Harlem Brundtland, Chair of the UN Commission on Environment and Development (Brundtland Report 1987)).

Instead of looking at just one variable - CO2 emissions - much more would be achieved with the scarce resources available if not only the cause but also the consequences of global warming were combated and the financial scope for a sustainable climate policy was retained, as shown below.

2. presentation of the consequences of global warming and its costs

First of all, it should be emphasized once again that global warming is undoubtedly happening and has been caused mainly or entirely by humans. What is less clear, however, is the appropriate set of measures to mitigate the consequences of this major problem. The optimal mix can only be found if the risks of global warming are seriously determined and the costs are then compared with the benefits of individual climate protection activities in order to be able to choose the path that can be sustained in the long term. As was shown in the previous chapter, focusing solely on reducing CO2 emissions as much as possible is not a promising approach.

One of the main reasons for the current sharp rise in investment in climate protection is a 2018 report by UN climate scientists. The media reported that the scientists were calling for a drastic reduction in CO2 emissions worldwide by 2030 in order to limit the temperature rise to 1.5°Celsius by 2100. In fact, however, the most important politicians had set this target three years earlier at the Paris Climate Conference in order to demonstrate their climate policy ambitions. The scientists were then asked what would be necessary to achieve this target. The answer from the scientific community was that this goal would require rapid, far-reaching and unprecedented changes in all components of society, and this was the only thing that was broadcast by all media worldwide. Danish statistics professor Björn Lomborg - definitely not a "climate denier" - author of the book "False Alarm", published in 2020, illustrates this process by asking NASA what would be necessary to relocate humanity to Mars. NASA would probably answer that this is technically feasible, but would require far-reaching changes in all areas of the economy and extremely high investments in space technology. If the media then reported in the same way as above, the message would be that NASA's space experts demanded that humans would have to accept massive cuts in order to be able to resettle on Mars (Lomborg 2020, p.24 to 25). Due to inaccurate reporting on the emergence of the climate target, many people now believe that the apocalypse is imminent if the rise in temperature is not limited by drastic cuts in CO2 emissions by 2030.

We are now investigating whether the consequences of absolutely indisputable global warming are actually so threatening that combating them directly at almost any cost is the only permissible response.

The correct presentation of the facts plays a decisive role here. The damage caused by weather-related events such as the tragic flooding of the Ahr valley has been increasing all over the world for decades. However, we usually forget to determine the proportion of this damage that is attributable to people's growing prosperity. If we compare a modern detached house and household contents in 2021 with what was common in 1973 - in that year, my parents built a single-glazed house with 156 m² of living space and 1,000 m² of land for DM 150,000 (= €76,700). Inflation would have caused the price to rise 2.9-fold to €221,000 by today, but incomes have not only compensated for the rate of price increases since then; and the household goods are not limited to a Ford 20m and Gelsenkirchen Baroque in the living room, but rather consist of 2 SUVs and chic designer furniture, and the electronic equipment does not only consist of a color TV, Grundig radio and record player. Kitchens of a higher standard cost only a fraction of today's €40,000. Therefore, even without global warming, the real damage increases at least by the general income development, i.e. the real national income. If property prices decouple from the general income trend, as is currently the case, the losses will increase correspondingly more. However, as the extreme weather events caused by rising temperatures have been increasing for decades, the real losses should actually rise sharply. However, human adaptability is working against this. The best example of this is Holland, most of whose land area is below sea level. Ever-improving systems for the targeted drainage of flood water from rivers and dyke construction have drastically reduced the number of fatalities in Holland and along the entire North Sea coast (source: Wikipedia: List of storm surges on the North Sea. Most recently, in the 18th. The last time over 10,000 deaths were recorded was in the 18th century; in the centuries before this was more frequent). During the flood disaster on the Elbe in August 2002, those who might have been affected were warned in good time, but a third of them did not know what to do. During the floods 11 years later, the population was better informed; there were significantly fewer fatalities (source: Wirtschaftswoche, July 23, 2021, p. 29).

Nevertheless, politicians have recognized the problem of supporting adaptability and founded the Federal Office of Civil Protection and Disaster Assistance in 2004, which is now to be provided with more money, staff and expertise following the flood disaster in Germany. The importance of adapting to increased climate-related risks is very great. It explains why, contrary to expectations, weather-related losses (merely adjusted to the development of national income) are not increasing, but are actually falling slightly worldwide. This is shown in Figures 5a-b below, initially for Germany:

Damage caused by natural events has increased in real terms in Germany since 1973, as reported by Der Spiegel in its issue of July 24, 2021 (figure left, 5a). Adjusted for the development of real national income, however, the trend was downward (figure on the right, 5b; unfortunately, Der Spiegel did not provide this calculation, as it would not have fitted the story. FINVIA has therefore made this necessary adjustment). This can only be explained by improved disaster protection or adaptation. Data is available for the USA for a much longer period (Figure 6a bottom left with a clear downward trend for 117 years). An excerpt of this data from the USA from 1973 onwards for comparison with the data from Germany shows that the trend in losses is similar (Figure 6b).

Data from Munich Re, the world's largest reinsurer and the company with the best databases on all types of major claims (which pays insurers worldwide for part of all particularly large claims), confirms the trends of declining weather-related claims as a percentage of national income (see Figure 7)

This does not correspond to the prevailing narrative of exploding damage due to global warming, which was also fueled by the study shown below through selective reporting in the media. Assuming that sea levels will rise by almost 1 meter by 2100 (the study's scenario with the largest increase without reducing CO2 emissions), the authors calculated that without additional flood protection measures, the number of annual flood victims (people who have to leave their homes) will rise from 3.4 million in 2000 to 187 million (red line in Figure 8). This catastrophic figure was emphatically disseminated by the media. However, the fact that otherwise, i.e. with constantly improved flood protection measures in the future (green line), as in previous centuries, there will only be 0.015 million flood victims in 2100 , even if sea levels rise by 1 meter, was not reported anywhere. That would have bored readers. The old journalistic principle that only bad news is good news has obviously had a considerable impact on public opinion and therefore on global climate policy.

In addition to the neglect of human adaptability and the selective and therefore often false representation of the problems in the media, the area of nutrition reveals another dimension that has an impact on climate policy. In some areas, e.g. plant growth, an increasing CO2 content in the atmosphere even has positive effects. It is generally assumed that progressive global warming will lead to increased famine; time and again we see the depressing images of animal skeletons on parched soils. The adaptability factor is once again being disregarded - whether consciously or unconsciously. The FAO (Food and Agriculture Organization) estimates that global grain production will increase by 41% by 2080 instead of 44% (without climate change) as a result of global warming (source: Lomborg 2020, p. 80). The ability to adapt to changing climatic conditions means that, for example, a farmer whose wheat harvests deteriorate must and will grow something else. In addition, the growth-enhancing effect of CO2 on plants is not taken into account. Studies that take into account the adaptability and growth effect of CO2 come to the conclusion that even under unfavorable assumptions no significant crop loss is to be expected (Lomborg, 2020, p. 81, further sources ibid. p. 233 footnote 11). Compared to the year 1500, the mass of global vegetation at the temperature low point (1960s and 70s) was around 30% lower, and in 2010 only around 26% lower than in 1500, i.e. long before the start of industrialization and subsequent global warming. It is estimated that due to the growing proportion of CO2 in the atmosphere, the level of 1500 will be reached again in 2100 (source: Lomborg 2020, p.56), also because plant growth in northern regions (Russia, Canada) will accelerate due to the warming.

Of course, there are no television programs, headlines or editorials about such reassuring findings for the reason already mentioned.

3. description of the costs and benefits of climate policy measures

The EU now spends 2% of national income ($400 billion) annually on the increased use of renewable energies, but has so far only achieved a reduction in the use of fossil fuels from 79% (2000) to 71% (2018) of total energy consumption (Lomborg 2020, p. 108). Electricity costs in the EU are now twice as high as in the USA, but will continue to quadruple by 2030 (Panos and Densing 2019, in: Lomborg 2020, p. 109 and 237). The climate policy measures to date have therefore been very expensive, but have achieved little so far.

Politicians will probably never be able to come up with the most effective measure. This consists of levying a uniform CO2 tax worldwide, which would get to the root of the problem. Environmental pollution is a classic case of market failure. Anyone who flies on vacation with kerosene - which is still tax-exempt in Germany - has the benefit of a (too) cheap vacation, regardless of whether the trip takes them to Malle or the Maldives. The damage, on the other hand, is borne by the world's population. German politicians have so far not even had the courage to tax aviation fuel at all, although reducing subsidies for fossil fuels would be one of the most effective measures to combat global warming (see below).

Maldives vacationers would probably not care about a kerosene tax, but not Malle vacationers. Climate protection costs, for example in the form of a CO2 tax, are much less of a burden on the "rich" than on everyone else, which is a difficult obstacle for politicians to overcome on the way to effective climate policy. Another problem is the growing conviction since the 2008 financial crisis that the state must and can regulate everything. In our Capital Market Outlook from October 2020 (which you can find here ), we outlined some of the most energetic government measures to steer the economy (the creation of the double bubble on the Japanese stock and real estate market until 1989, the state-initiated real estate boom in East Germany from 1990 to 1994, the state-supported global internet stock boom until 2000 and the "subprime" boom in the USA, Ireland, Portugal, Spain, ... also created with state aid); all of which brought little lasting benefit.), all of which brought little lasting benefit, but enormous damage for private individuals, companies and the states themselves. A CO2 tax would have the great advantage that private individuals and companies could decide for themselves how they want to save CO2 with as little effort as possible in order to avoid the tax. They can assess the benefits and costs of each CO2 saving better than the state. If the overall savings are too low, the CO2 tax is simply increased.

But that is not enough "action" for the politicians. They want to take action, which is why there are now 20,000 building regulations for residential buildings (1990: 5,000), e.g. triple-glazed windows that are too tight, so that a slit for air supply must also be installed. The subsidization of electric cars, in Berlin even of electric cargo bikes, distance rules for wind turbines and much more are also examples of how the efficient and affordable path to climate neutrality does not look.

The sole focus on CO2 reduction is not optimal even if all governments use the most efficient instrument for this (the globally uniform CO2 tax), as the following Figures 10a-b show:

This shows the long-term real costs of global warming (red bars), which are of course lower the lower the future temperature rise. However, the costs of achieving the respective limits on the rise in temperature are also estimated (orange bars), and this must be a component of serious policy. Entrepreneurs do not undertake complex future projects without planning the costs as well as the expected benefits. Politicians can obviously do without this with confidence. We also see this as the main reason why large government projects often have a very poor cost/benefit ratio. The 2018 Nobel Prize winner in Economics, William Nordhaus, put it this way:

"Limiting (global warming) to 2°Celsius is not feasible with reasonably available technologies, even with very ambitious renunciation strategies"

(Nordhaus, 2018, p. 334, see also Lomborg 2020, p.241, footnote 10).

To illustrate this statement, the lower two pairs of bars in Figure 10a show the cost increase if global warming is limited by just 0.1 °Celsius to 2.2 °Celsius.

The optimum in Figure 10a with a moderate limitation of global warming to 3.8 °Celsius by 2100 is superior to the more ambitious climate targets for the following reasons:

• Figure 10b (right) shows that CO2 emissions will be reduced significantly by 2100, even in the "optimum" scenario; soon after the turn of the next century, the global economy will no longer emit any net additional CO2
• However, the costs are only a fraction of the costs that would be required to achieve the climate target of global warming of no more than 2°Celsius. The poorer countries and the poorer populations of the rich countries would most likely not be prepared to bear these enormous costs. In contrast to the "optimum" scenario, this policy goal is therefore not realistic in the long term.
• The moderate and cost-effective reduction of global warming also takes into account the fact that humanity can certainly cope with the consequences of barely avoidable global warming through adaptation measures (see the example of flood victims without and with human adaptation)
• It also frees up financial resources to promote basic research for new technologies on the part of the state. A problem as big as global warming, which affects the whole world, is very likely to lead to the development of technologies that will help solve it. The surprisingly rapid development of coronavirus vaccines by several independent companies, some of which have used conventional and some new technologies, is an encouraging example of this assumption.

A few other examples from the recent past show comparable surprising technological leaps.

Until the middle of the 19th century, the whaling industry was very important because oil, extracted from the sperm whales' tran, was used to power oil lamps. Towards the end of the 1840s, the price of tran oil rose sharply because sperm whales had been hunted almost to extinction. This increased the demand for low-cost alternatives for lighting and lubricants (Wikipedia, keyword Edwin L. Drake). In 1855, Professor Benjamin Silliman Jr. from Yale University analyzed crude oil and found various ways of using this raw material, which had previously been sold as medicine (!), including as petroleum for lighting. Around 1860, my great-great-grandfather's family, a poor teacher with 11 children, was able to afford a kerosene lamp for the first time. Before that - whale oil lamps had been too expensive - all the children had to do their homework in the twilight of a candle in the evening. For my great-grandfather, who was 10 years old at the time, the bright light was still the most impressive experience of his childhood in his old age.

Towards the end of the 19th century, the inhabitants of booming London feared that they would suffocate under a meter-thick layer of horse manure as traffic continued to increase. Thanks to a rapidly spreading German invention, the automobile with an internal combustion engine, Londoners were able to escape this cruel fate.

Future climate-relevant technology areas that should be strongly promoted by the state include, for example:

• Filtering CO2 out of the air and subsequent final storage
• Storage systems for surplus wind and solar energy
• Geoengineering (creation of artificial (non-toxic) clouds to improve the reflection of sunlight - after the eruption of the Pinatubo volcano in 1991, the global temperature fell by 0.6 °Celsius in the following 18 months (Lomborg 2020, p.195 to 201)

Furthermore, politicians should strive to increase the prosperity of broad sections of the population so that the costs of climate protection are generally accepted in the long term. The German government in particular has completely neglected this issue for a long time (see capital market report from July 2021, which you can find here ). For the same reason, promoting the prosperity of poorer countries is important, because building a sustainable global economy can only succeed if (at least almost) everyone participates. Therefore, free trade agreements, an essential part of China's impressive rise, should be supported by all non-populist parties, also for climate policy reasons.

4. conclusion

Climate researchers largely agree that the earth is expected to warm by around 4 °Celsius by 2100 due to the growing proportion of CO2 in the air. The direct consequences of this warming would be

• a rise in sea level of approx. 1 meter
• an increase in the number of people worldwide who will have to leave their homes due to flooding, from the current 3.4 million to an estimated 187 million, if no further measures against flooding, such as dyke construction or better warning systems, are implemented
• Growing drought problems in parts of the world, but also improved harvesting opportunities in huge regions that are still too cool today, such as Canada or Russia; overall, the further global increase in food production will not be greatly affected by climate change (FAO estimates)
• Increasing damage from storms, fires (forest fires) and heat-related health impairments and deaths

As these issues are presented intensively in the media and are also immediately obvious to most people, politicians are concentrating on directly combating the cause, namely CO2 emissions.

Some aspects are insufficiently considered or not communicated at all.

• Even if all rich countries (OECD countries) were to immediately reduce their CO2 emissions to zero, accepting huge costs and economic problems, the global temperature rise could only be reduced by around 0.5 °Celsius to 3.6 °Celsius by 2100; the above-mentioned damage would therefore only be moderately less.
• Politicians must present the damage caused by global warming objectively - for example, the estimated number of flood victims in 2100 would not be 187 million, but only 0.015 million, even if global warming of 4 °Celsius were to continue unchecked, if the ability of people to adapt to changing environmental conditions through dyke construction and suitable warning systems, which has existed for centuries, is taken into account. Both figures come from the same study, only the first was communicated. Due to adaptability, weather-related damage worldwide has been increasing at a slower rate than national income for decades, which is also not made public.
• The most important prerequisite for successfully curbing CO2 emissions in the long term would be

1. the costs of restructuring the global economy towards a CO2-neutral economy should not become so high due to a one-sided fixation on reducing CO2 emissions that they cannot be borne by the poorer population of the rich countries and by the poorer countries. This requires
2. politicians completely abandon inefficient micromanagement (distance rules for wind turbines, subsidies for electric cars, 20,000 building regulations for residential buildings, ...) and instead introduce a high CO2 tax, where private individuals and companies can then decide for themselves how they want to save CO2 with as little effort as possible in order to avoid the tax. The resulting social problems - high fuel prices affect everyone equally - must be compensated for elsewhere. A particular problem here is the fact that an optimal CO2 tax must be the same internationally, because otherwise energy-intensive companies will move abroad
3. Stronger state support for new climate-relevant technologies, e.g. filtering CO2 from the air and its final storage, storage systems for wind and solar energy and geoengineering (artificial clouds so that more sunlight is reflected directly into space)
4. in addition to the benefits and costs of reducing CO2 emissions, to estimate the costs and benefits of measures to adapt to the consequences of rising temperatures (e.g. building dykes, etc.) in the best possible way and to combine them into an optimal overall climate policy package. US economist William Nordhaus was awarded the Nobel Prize in 2018 for the computer-aided simulation models developed for this purpose. His comment on the main climate policy goal is clear: "Limiting (global warming) to 2°Celsius is not feasible with reasonably available technologies, even with very ambitious mitigation strategies".

At present, we do not believe that politicians will take the necessary steps.

Micromanagement is popular with politicians and unfortunately also voters. Voters immediately understand bans on diesel cars or a rent cap, but the costs and side effects only surprise them years later. The CO2 tax, on the other hand, would not rely on the state, but on unpopular market forces. In addition, tax increases trigger direct resistance, especially from the poorer population. Furthermore, the tax would have to be the same internationally - a difficult task politically.

The serious presentation of costs and benefits is also not considered sensible by politicians. This is demonstrated in Germany by the numerous expensive, economically pointless and antisocial measures of recent years (mothers' pensions, skilled workers' pensions, rent caps, etc.).

You won't want to communicate a complex mix of measures to curb CO2 emissions.

We are therefore currently assuming a renewed massive waste of state capital without sufficient effect on global warming. Capital is being channeled into the economy to a considerable extent by governments providing loan guarantees for investments relevant to climate policy. The guarantees trigger a high willingness on the part of banks to grant such loans. The new money created by the banking system thus goes directly into the economy and increases demand for labor, building materials, etc., which are already in short supply. Inflation risks will therefore continue to increase over the coming years. After the 2008 financial crisis, it was not the financially strained banks, but only the central banks that created new money and gave it to the banks, which only used it to push up the prices of fixed-interest securities. The money hardly reached the real economy, so this money printing had no inflationary consequences. This time it will be different, also in another very important respect for investors. The last phase of inflation in the 1970s could be combated from 1980 onwards because government debt was low.

This time, fighting inflation is impossible due to the enormous national debt. Interest rates must not rise. This means that the environment for real assets (shares, investments, real estate, gold) will remain positive.

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