Climate change will boost the global economy and dominate financial markets
over the next 25 years, a leading investment bank has predicted.
In a new report, Barclays Capital challenges the conventional wisdom that global
warming will have a devastating impact on economic growth. It believes the need
to increase energy capacity by 50 per cent by 2035, while simultaneously
reducing dependence on hydrocarbons, will spark an "energy revolution"
reminiscent of the technology revolution which led to the dot.com boom.
"If ever the time were ripe for such an energy revolution, it is now," said Tim
Bond, global head of asset allocation at Barclays Capital, and author of the
report. "And like all historical adoptions of general purpose technologies, the
process should prove immensely stimulative to economic growth."
Mr Bond says that those who couch the climate change debate in terms of the cost
to growth are underestimating the impact of an energy revolution. Last year's
Stern Review concluded that if temperatures rise by five degrees celsius, up to
10 per cent of global output could be lost.
"All of the historical changes in energy supply - from dung to wood to coal to
oil - were stimulative for the economy concerned. Every major technological
change was accompanied or followed by faster economic growth." he said. Like
every revolution, there will be winners and losers, with the energy sector set
to reap the biggest rewards.
In the meantime, current uncertainty over US climate change policy may be
deterring energy investment, the report says. Until public opinion forces the US
administration to address the issue, energy scarcity will intensify and prices
will continue to soar. Indeed, futures markets suggest that oil prices, already
at levels last seen during the 1970s oil shock in inflation-adjusted terms, will
keep rising due to a worsening supply/demand imbalance. The same is true for the
other hydrocarbon, coal.
"The impact of the replacement, restructuring and expansion of our energy
infrastructure cannot be ignored," Mr Bond said. "Just as the personal computer
cannot be un-invented, neither can the impending energy revolution."
The report is contained in Barclays Capital's annual Equity Gilt Study, which
shows that equities were far and away the best-performing financial asset in
2006, as the stock market rally continued. Last year, money invested in stocks
and shares grew by 11.4 per cent, still less than the 19 per cent growth seen in
In contrast, money invested in gilts shrank by 4.4 per cent as rising inflation
wiped out nominal returns. Corporate and index-link bonds also suffered, falling
by 4.5 per cent and 2.1 per cent respectively. Cash returns edged up by 0.4 per
Barclays Capital calculated than an investor who put £100 in the stock market in
1899 would now be sitting on £25,022 if all income had been reinvested and
adjusted for inflation. The same money invested in gilts would now be worth
£323. If the £100 had been kept in cash, it would have swelled to just £286, it