The red alert lasted for five straight days.
Schools were closed and parents were told to keep their children indoors.
The smog was so bad, you could only see 150 feet… 59 flights were canceled and another 124 were delayed… 30% of government fleet vehicles were ordered off the road, while factories and highways were closed. Police stopped giving tickets to motorists who ran red lights, because the drivers simply couldn’t see them.
That’s the way it was in the Chinese cities of Beijing and Harbin just a few weeks ago.
This happens every winter, as buildings turn on coal-fired heat and farmers clear their fields by setting them on fire.
Beijing officials went so far as to destroy 500 “illegal” barbecues to cut down on the smog.
In early December 2013, levels of pollutant PM2.5 — particles smaller than 2.5 microns in diameter that pose the biggest health risk — were 602.2 micrograms per cubic meter in Shanghai, more than 24 times the World Health Organization’s recommended levels.
In Beijing, lung cancer deaths are up 52% in 10 years. MIT estimates that Chinese in the industrial north lose 5.5 years of life expectancy compared to those in China’s south. It has been estimated that 43% of surface water and 55% of urban groundwater in China is severely polluted.
Massive pollution is the result of China’s “growth at all costs” policies. And while China’s economic growth may still be measured in the 7%-8% range, pollution may cost China nearly 6% of annual GDP. That’s around $490 billion every year. Some estimates are as high as $1.2 trillion.
China plans to spend $675 billion over the next few years on emission reduction, energy savings, and renewable energy.
Of course, this type of investment will be probably be good for the Chinese economy. But it doesn’t change the fact that the economic cost of pollution in China is huge.
Call It What You Want
Pollution like that which exists in China is often cited as the main catalyst for climate change, or global warming. It’s hard to find anyone not familiar with the term “greenhouse gas.”
I don’t know how you feel about climate change and/or global warming. There’s compelling evidence that carbon dioxide emissions are causing the planet to warm. And there’s an equally compelling counterpoint that higher average temperatures or a more or less “natural” part of the earth’s cycle.
I’m not a scientist, and can’t make any definitive statements on the matter. Ultimately, it doesn’t matter what I think about the issue…
However, right now, major U.S. companies are preparing for the day when carbon emissions become a balance sheet liability.
There will be winners and losers — and, as investors, we need to be prepared.
The list of companies that are actively incorporating a cost for carbon emissions into their future cost structure might surprise you. Of course, you might expect an oil company like ExxonMobil (NYSE: XOM) to anticipate some form of carbon tax. The same goes for utility companies like American Electric Power (NYSE: AEP) and Duke Energy (NYSE: DUK)…
You might not expect to find Wal-Mart, Microsoft, Google, General Electric, Walt Disney, ConAgra Foods, Wells Fargo, DuPont, and Delta Air Lines also making plans for the day when carbon costs hit the bottom line. But they are.
Twenty years ago, Exxon actively financed research organizations that questioned climate change. Today ExxonMobil openly acknowledges that carbon pollution from fossil fuels contributes to climate change. And while Exxon has long aligned it self with politicians who adamantly oppose any type of carbon tax or climate change legislation, even that’s changing…
As Exxon spokesman Alan Jeffers told the New York Times:
Ultimately, we think the government will take action through a myriad of policies that will raise the prices and reduce demand [of carbon-polluting fossil fuels]… We’re going to say and do what’s in the best interest of our shareholders… We won’t always be on the same page [with some of the company’s Republican friends].
The Times goes on to report that Exxon is reportedly working on the assumption that carbon pollution will be priced around $60 a ton.
A Line Item
As investors, we must recognize that the potential cost of carbon emission creates a lot of uncertainty.
Exxon, for example, has made huge investments in natural gas production, which gives off far less carbon dioxide than oil. It’s now America’s biggest nat gas producer. This is absolutely a cost-conscious investment in its own future.
Tom Carnac, the North American president of environmental data company CDP, says that companies like ExxonMobil have determined that a carbon price was an inevitable part of their financial future.
ExxonMobil will be one of the winners.
“Companies see that the trend is inevitable,” Carnac explains. “It’s climate change as a line item… They’re looking at it from a rational perspective, making a profit. It drives internal decision-making.”
At The Wealth Advisory, we seek to do the exact same thing: to look at issues with a rational perspective for the purpose of making a profit.
Right now, I’m recommending a company that will do very well as America prepares for carbon costs.
In fact, it just doubled its dividend to 4.5% — and that payment is likely to double again…
All told, this company has 67% upside coming in the next 12 months.
You can learn more about how we’re profiting from America’s energy future right here.
Until next time,
Until next time,
Briton Ryle
@BritonRyle on Twitter
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A 21-year veteran of the newsletter business, Briton Ryle is the editor of The Wealth Advisory income stock newsletter, with a focus on top-quality dividend growth stocks and REITs. Briton also manages the Real Income Trader advisory service, where his readers take regular cash payouts using a low-risk covered call option strategy. He is also the managing editor of the Wealth Daily e-letter. To learn more about Briton, click here.
