Exponential Investor has covered geoengineering a couple of times before. It’s a newly resurgent idea to deal with climate change – which works by either sucking greenhouse gases out of the air, or by reflecting more sunlight into space. These techniques are known as carbon dioxide removal (CDR), and solar radiation management (SRM) respectively.

Geoengineering is one of the most radical ideas for the 21st century. Large-scale deployment would be a defining moment in human history – as we seek to deliberately modify our whole planet, for the first time. Of course, there are already things that we do to try and remove greenhouse gases from the air – such as planting trees. But the geoengineering proposals presently under discussion move this to a whole new level. They envisage planting energy crops on vast areas of land – approximately the size of India.

It’s not all about plants, however – despite the focus in the Paris agreement on “Bio-energy with Carbon Capture and Storage” (BECCS). There are in fact a range of alternative proposed CDR approaches. One interesting example, which recently got a lot of publicity, is Climeworks’ new plan. The firm is proposing to suck CO2 up in a new Iceland factory, before injecting it into the ground. There, the CO2 reacts with rock – sealing it away indefinitely. In Climeworks’ proposals, this process is powered by geothermal energy – meaning it’s essentially pollution-free.

Alternatively, SRM concepts exist for spraying chemicals high into the atmosphere – well beyond the reach of current airliners and cargo planes. Here, the chemicals would mimic one of the effects of volcanoes – forming a long-lived misty haze, counteracting the temperature increase from greenhouse gases.

I recently went to a conference on this subject in Berlin. (For clarity: as well as reporting on this field, I also publish academic work – holding an honorary research associate position at University College London. For those interested in a “deep dive” into the subject, my work is indexed at Google Scholar and academia.edu.)

At the Berlin conference press event, I was speaking to one of the field’s leading scientists – professor David Keith, from Harvard University. We were sparring over the potential involvement of private companies in geoengineering. My own research looks at how small, private firms could soon be making a profit from changing the climate – without working under the direction of the state.

It’s fair to say that David was strongly opposed to this kind of free-market approach. His argument appeared to centre on the fact that geoengineering is what economists term a “credence good” – ie, one whose quality can’t be accurately assessed, even after consumption. He argues that such goods are best provided by the state. That’s exactly what we see with the provision of NHS surgery, for example.

Can we trust private firms to provide credence goods?

Digging into David’s reasoning a little deeper, we can see that it doesn’t quite stand up. The NHS contracts out many services. Dentists I’ve been registered with take both private and NHS patients. GPs are often technically self-employed – although they bill the state.

As someone who works in the private sector, it comes naturally to me to see how companies can solve life’s critical problems. I believe that we don’t benefit from the state interfering in our lives any more than is necessary. For example, other than quality regulations, the government has almost no direct role in food processing and retail – and yet we all get fed.

I certainly recognise that having a completely unregulated geoengineering industry could cause chaos. We can’t have a situation where the global climate is swinging wildly around, as companies recklessly twiddle its various knobs. But having a reasonable framework of regulation allows up to private companies to do many potentially dangerous things – everything from making weapons, to conducting the outsourced dentistry, which we discussed above. Despite this, the world keeps turning – so I think it’s possible that we could have a similar model, for a future climate engineering industry.

How could private geoengineering be monetised?

At present, there are already ways to profit from managing climate. When you buy a flight or a car, you may be offered a financial product called a voluntary carbon offset (VCO) – often known as a carbon credit. These seek to create a kind of “pollution permit”, by paying some else to reduce their emissions.

To give one example of a VCO: cookstoves in developing countries often use fuel very inefficiently. Giving away better cookstoves means that households should, in principle, use less fuel – and thus put less pressure on forests. The theory goes that, if you give away cookstoves, you can drive your Chelsea tractor around without guilt. That’s an approach that’s been used by Jaguar Land Rover and ClimateCare, to manage the emissions of their gas guzzlers.

What could possibly go wrong?

Of course, I wouldn’t be the first one to point out that there are a few potential flaws in this plan. Taking our cookstove example, it’s possible that people might need fewer forests for firewood, and therefore they may cut them down for agriculture. Alternatively, they might just cook a higher proportion of their food, or be less careful about when they did and didn’t use the stove. Without directing any criticism at this particular scheme, it’s potentially much more complicated than it first appears.

These possible nasty surprises are real risks – albeit hard to assess. Accordingly, VCOs can be controversial – and I wouldn’t necessarily assume that buying them gives you carte blanche to pollute with a clear conscience. Nevertheless, it’s a fairly mature market – and not a tiny one, either. I’m not saying it’s perfect – but the industry is, as far as I can see, rather better run than it used to be. Do take a look, if you’re not already familiar with the concept.

What’s this all got to do with geoengineering?

Check back tomorrow, when we’ll be explaining how there may be some surprising profit opportunities in this field – by integrating these VCOs with geoengineering. Meanwhile, please let us know your views on carbon credits – andrew@southbankresearch.com.

Best,

Andrew Lockley
Exponential Investor