The United States has no national tax or price on carbon dioxide pollution. That doesn't mean it doesn't cost investors anything there or elsewhere, says former Vice President Al Gore. He and David Blood, co-founders of Generation Investment Management, this morning published a new paper explaining the evolution of their thinking on "sustainable capitalism," and how investors can lessen their financial risks from climate change. Gore and I spoke on Oct. 17.

Q: What are the hidden costs of carbon?

A: We saw them in New York City in the form of Hurricane Sandy. The day hurricane Sandy came in from the Atlantic Ocean, the temperature of the ocean was 5 degrees Celsius (9 degrees Fahrenheit) above normal and that put extra energy and moisture into that storm and made it more destructive. Last year the temperature was hotter in the United States than ever in recorded history, and drought covered 60 percent of the country, cutting crop yields.

We see the cost of carbon in multiple extreme weather events, in the melting ice and rising seas and the movement of tropical diseases into temperate latitudes, and climate refugees threatening the stability of governance in the developing countries of the world. So we're paying the cost of carbon every day.

Q: You're attributing a lot of extreme weather events to climate change, and scientists have always been reticent to do that. Do you think there's increasingly a visible signature?

A: Oh, yes, and the scientists now say that. The best of them -- Jim Hansen, Kevin Trenberth and others say that the fingerprints of the climate crisis are in every storm. There is, for example, 4 percent more water vapour in the Earth's atmosphere today than there was 30 years ago, so storms have more moisture to drop.

Accumulated manmade global warming pollution in the atmosphere now traps as much extra heat every day as would be released by 400,000 Hiroshima atomic bombs going off every 24 hours. It's a big planet, but that's a lot of energy.

Q: You'll have seen the report last month from the Intergovernmental Panel on Climate Change that included the idea of a global carbon budget and what it says is that if you want to hit a 2-degree target, more than half of the carbon budget is already exhausted. What are the ramifications of that?

A: There are many ramifications. There are at present approximately $7 trillion worth of carbon-based assets on the books of public multinational carbon companies -- oil coal, gas and the rest, and their valuation is based on the assumption that all of those carbon assets are going to be sold and burned. And yet it’s clear that no more than one third at most can ever be burned.

Just as the markets suddenly realized a few years ago that the subprime mortgages were worth only a fraction of what they had been led to believe, these sub-prime carbon assets pose a real threat to the global economy.

The flip side is that there are enormous opportunities in investing in renewable electricity generation. The cost-down curves for solar and wind has now pushed the price of renewable electricity to parity with the grid average price in many countries and within fewer than 7 years 85 percent of the globe's population will live in areas where renewable electricity is as cheap or cheaper than other sources.

Q: The coal industry in the U.S. says carbon capture and storage isn’t economically viable. What's your response to that, and what role do you think CCS could play?

A: I fear they're right at least with regards to the present level of technology development. Only a few years ago, they were saying that it was only a matter of time before CCS was widely available. Now that the Environmental Protection Agency has told them that they must pay a price for cleaning up coal unless they can capture and sequester emissions, suddenly they say ``hold on that's not feasible.'' There could well be a technological breakthrough that makes CCS more feasible economically, but at the present state of the technology it requires utilities to take a third of the power they're now selling to customers and divert it to run CCS operations and obviously that is not feasible.

Q: Do you worry that tackling climate change has slipped down the list of global political priorities since the Copenhagen climate summit in 2009?

A: There was a perfect storm a few years ago that was made up of 4 elements. The Great Recession, which hurt businesses across the board, particularly startups. There was the shale gas revolution which pushed the socket price of energy down to levels that were inconsistent with the business models for many alternative energy sources. There was the Chinese juggernaut which subsidized the price for wind and solar at levels below the cost of production in the west. And then there was the failure of policy even before Copenhagen in the United States Senate.

Since then we have seen support for those alternatives and for new policy gain rapidly once again. The polling numbers show a sharp increase in support for measures to reduce global warming pollution, and businesses are actually now ahead of politicians in making adjustments.

Q: Do you think markets are the right way, or could a carbon tax work? There seems to be growing Republican support; George Shultz has endorsed the idea of a carbon tax.

A: I think there is growing support for it and you can make it revenue-neutral by rebating it to the people. There are three ways to limit carbon emissions -- one is through a carbon tax, another is through a cap and trade system, and the third is through direct regulation like the regulation now being designed by the Environmental Protection Agency. I think we're going to need all three.