“If you can’t measure it, you can’t manage it.”
Another principal in the effort, former George W. Bush Treasury Secretary Hank Paulson, recently drew a comparison between climate change and the 2008 financial collapse, calling both examples of the need for risk management — and the Great Recession as a warning of what happens when society fails at that management.
“Businesses and investors have largely been kept in the dark about how climate change will impact specific industries or specific regions,” Bloomberg continued. “That puts American businesses and the American economy in an extremely vulnerable position.”
The purpose of the new study, called “Risky Business,” is to plug that information hole.
Headlined by Bloomberg and Paulson, along with billionaire environmental activist Tom Steyer and several others, the project drew on well-established risk management methodologies to quantify the intersection of climate science and economics for the U.S. specifically. The result is a kind of clearing house for how much damage climate change will do to different regions and industrial sectors of the country under different scenarios.
At the heart of the climate change problem is a shift in the distribution of risk. America’s economy and society were built upon assumptions of a certain range of “normal” weather outcomes. But global warming shifts that center of gravity, bringing what was previously extreme weather closer to normal — and bringing new, truly catastrophic extremes into the realm of the unlikely-but-possible.
CREDIT: Risky Business
“In many ways, the threat from [climate change] is actually more cruel and more perverse [than the 2008 crisis],” Paulson said. “When CO2 goes into the atmosphere, it stays there for many many years. It’s cumulative. So there’s no possibility for government to come in with action at the very last minute and prevent the very worst outcomes.”
To break down the risks of allowing global warming and humanity’s carbon emissions to continue unabated, the study focuses on three main areas:
Extreme heat: The report projects that by 2050 the average number of days over 95°F will double or triple — by 2100 it could quadruple — and by 2200 large chunks of the country could start seeing days in which it is literally too hot and humid for human beings to safely be outdoors. “Montana summers will soon be the same as New Mexico today,” said Dr. Alfred Sommer, Dean Emeritus and Professor of Epidemiology and International Health at John Hopkins, another principal in the study’s team. “There will be 10 to 20 times as many incremental deaths because of excess heat and humidity 100 years from now.”
So the risk of things like heat stroke would increase, cutting down on work that can be done outdoors. The American Southeast, for example, could see its labor productivity cut three percent — twice the infamous productivity slowdown of the 1970s.
Coastal flooding: By 2050, anywhere from $66 to $106 billion in coastal property and infrastructure will be below sea level, rising to between $238 and $507 billion by 2100. The study found a one-in-twenty chance (about the same odds an American has of developing colon cancer) that the number could go all the way to $730 billion by century’s end, with annual damage from storms and hurricanes hitting $108 billion. Within just the next 15 years, rising seas could bring that annual storm and hurricane damage to $35 billion.
Upheaval in agriculture: Thanks to the heat, and without any mitigation or adaptation, the Midwest and the South could see crop yields drop 10 percent within 25 years — and a one-in-twenty chance of a 20 percent drop. Within 100 years, those drops increase to between 50 and 70 percent. Climate change will likely make other areas of the country more productive for farming, so the food system will have options for adapting. But that will require massive shifts in the makeup of the industry, carrying its own risks.
All these changes — particularly the increases in heat — will also require new sources of electricity to combat. That will likely involve building 95 gigawats of new generating capacity over the next quarter century; the equivalent of about 200 new coal or natural gas power plants, at a cumulative cost of $12 billion a year to rate payers.
“This is the average,” emphasized Sommer. “This is the most likely outcome and it’s not good.”
The presentation was particularly aimed at making the business community aware of the financial risks it faces from climate change. Indeed, according to a new analysis from Ceres, an investment research organization, 43 percent of Fortune 500 companies have already set targets for reducing greenhouse gas (GHG) emissions, improving energy efficiency, or relying more on renewable energy. And 60 percent of the 100 companies have set goals for renewable energy or GHG reductions.
“Investors should insist that companies disclose their exposure to climate risks,” said former Treasury Secretary Robert Rubin, another principal. “That would include costs they may some day have to absorb to address carbon emissions, that would include assets that could be stranded by future climate change measures, and the actual impact that climate change could have.”
But the presenters didn’t just emphasize better business practices; they also pushed for the business community to pressure Congress for better policy. “We really need the business community to be an advocate for a level playing field,” said Steyer. “To solve climate change we really need to change the spreadsheet for American businesses … we need to reward people whose behavior reduces climate risk and penalize people who add to it.”
The new regulations for carbon emissions from existing fossil fuel-fired power plants set by the Environmental Protection Agency are a step in the right direction. But Paulson also noted in his op-ed previewing the study’s release that a national carbon tax would be the best tool to achieve that leveling.
“Many [of these risks] are already baked into the economy,” Paulson acknowledged. “But the good news is if we act immediately we can avoid the very worst outcomes.”
“Taking a cautious approach — waiting for more information, a business-as-usual approach — is actually radical risk-taking.”