What is happening to the climate change debate in the US? After decades of subsuming the requirements of the global climate to the demands of American business, the world’s biggest economy has this year seen a raft of policy initiatives to push the issue to the forefront of the debate.
First there was President Obama’s State of the Union address, in which he stated: “Climate change is a fact. And when our children’s children look us in the eye and ask if we did all we could to leave them a safer, more stable world, with new sources of energy, I want us to be able to say yes, we did.” A coalition of investors managed to get a raft of oil and gas companies to set out their view of the climate risks they face. Then came the National Climate Assessment, which set out the dangers of a changing climate to different parts of the country. The Environmental Protection Agency then got in on the act with the publication of its target to cut emissions from power plants by 30% (from 2005 levels) by 2030.
And now, with the publication of the Risky Business report, a new powerhouse group of players has entered the arena. The report, which brings together a bipartisan group of three former Treasury Secretaries (Hank Paulson, Robert Rubin and George Schultz), the former mayor of New York Michael Bloomberg and the billionaire investor Thomas Steyer, is a deliberate attempt to depoliticise the issue of climate change, which has become a toxic and highly partisan issue in the US. You might disagree with their conclusions, but you can’t ignore their credentials.
In the wake of the recent reports from the Intergovernmental Panel on Climate Change, which outline the increasing scientific certainty about the causes and impacts of climate change, Paulson, Treasury Secretary under President George W Bush, says that “it’s going to increasingly be difficult for anybody, regardless of party, to say there isn’t a problem.”
There are three things that make the report interesting – it focuses only on the US, it frames climate change as a risk issue and it talks only about the costs not the solutions. Taking this approach makes sense in a country where the debate has often focused on the costs to American businesses of taking action, which many people perceive as ceding an economic advantage to China. It is no good telling the American public that climate change is a global issue and that they need to take action because millions of poor people in Africa and Asia will be displaced by rising temperatures. While this is true, it is too remote for many people to worry about except in the most abstract sense.
But when you tell people how their own lives and livelihoods will be affected, that is a powerful message that resonates with people, particularly when it can be backed up by compelling recent evidence such as the impacts of Hurricane Sandy on the east coast and the ongoing consequences of droughts in California and the Midwest.
As Bloomberg, co-chair of the Risky Business Project, says: “Damages from storms, flooding, and heat waves are already costing local economies billions of dollars—we saw that first hand in New York City with Hurricane Sandy. With the oceans rising and the climate changing, the Risky Business report details the costs of inaction in ways that are easy to understand in dollars and cents—and impossible to ignore.”
While the National Climate Assessment pointed out the impacts of changes in climate to the various regions of the US, it made no attempt to put a cost on these changes. Risky Business: The Economic Risks of Climate Change to the United States (to give the report its full name) fills that gap. Focusing on the clearest and most economically significant risks – damage to coastal property and infrastructure from rising sea levels and increased storm surge, climate-driven changes in agricultural production and energy demand, and the impact of higher temperatures on labor productivity and public health, it presents a compelling case that business as usual is not an option.
“Our findings show that, if we continue on our current path, many regions of the US face the prospect of serious economic effects from climate change ,” the report says.
Here are some of the main impacts it outlines:
Coastal property and infrastructure. Within the next 15 years, higher sea levels combined with storm surge will likely increase the average annual cost of coastal storms along the Eastern Seaboard and the Gulf of Mexico by $2 billion to $3.5 billion. Adding in potential changes in hurricane activity, the likely increase in average annual losses grows to up to $7.3 billion, bringing the total annual price tag for hurricanes and other coastal storms to $35 billion.
The report does not pull its punches, saying: “If we continue on our current path, by 2050 between $66 billion and $106 billion worth of existing coastal property will likely be below sea level nationwide, with $238 billion to $507 billion worth of property below sea level by 2100.”
Agriculture. A defining characteristic of agriculture in the US is its ability to adapt. But the adaptation challenge going forward for certain farmers in specific counties in the Midwest and South will be significant. Without adaptation, some Midwestern and Southern counties could see a decline in yields of more than 10% over the next 5 to 25 years should they continue to sow corn, wheat, soy and cotton, with a 1-in-20 chance of yield losses of these crops of more than 20%.
Agricultural patterns and crop yields will shift, with likely gains for Northern farmers offset by losses in the Midwest and South. Some states in the Southeast, lower Great Plains, and Midwest risk up to a 50% to 70% loss in average annual crop yields (corn, soy, cotton, and wheat) unless they take measures to adapt.
Energy. Greenhouse gas-driven changes in temperature will likely necessitate the construction of up to 95 gigawatts of new power generation capacity over the next 5 to 25 years—the equivalent of roughly 200 average coal or natural gas-fired power plants—costing residential and commercial ratepayers up to $12 billion per year.
By the middle of this century, the report says, the average American will likely see 27 to 50 days over 95°F each year—two to more than three times the average annual number of 95°F days we’ve seen over the past 30 years. By the end of this century, this number will likely reach 45 to 96 days over 95°F each year on average.
But as with sea level rise, which will most affect the Southeast and Atlantic coasts, these national averages mask regional extremes, with the Southwest, Southeast and upper Midwest likely to see several months of 95°F days each year.
Labor productivity of outdoor workers, such as those working in construction, utility maintenance, landscaping, and agriculture, could be reduced by as much as 3%, particularly in the Southeast.
Over the longer term, it warns, at certain times of the year “extreme heat could surpass the threshold at which the human body can no longer maintain a normal core temperature without air conditioning. During these periods, anyone whose job requires them to work outdoors, as well as anyone lacking access to air conditioning, will face severe health risks and potential death.”
These heat extremes are not just a physical issue – they will mean that demand for electricity for air conditioning will surge, putting strain on regional electricity infrastructure and increasing power costs for consumers.
Risky Business has much in common with the Stern Review in 2006, which was the first to highlight the economic costs of the issue. However, it also illustrate a key change since that report was published – namely is an example of how it is now possible to look in very granular detail at possible impacts, a reflection of the growing amount of data that has become available over the last few years. The recent report by the Carbon Tracker Initiative on carbon supply cost curves is another example of this, outlining as it does the individual companies and projects that will be most affected by climate regulation.
Where Risky Business falls short is in proposing solutions, perhaps because this is the area where there is most disagreement – and so many options. But it does say: “If we choose a different path – if we act aggressively to both adapt to the changing climate and to mitigate future impacts by reducing carbon emissions – we can significantly reduce our exposure to the worst economic risks from climate change, and also demonstrate global leadership on climate.”
As Mindy Lubber, CEO of investor group Ceres, says elsewhere on Forbes.com, “the fact that this group has come together to release such an important report is yet another indication that the financial community is taking climate change seriously.” But she adds that policymakers around the world are still failing to take the tough action that is required.
“Politicians have consistently argued that we must choose between a stable environment or a stable economy. We know this argument is fundamentally flawed, and that continuing forward under this assumption will destroy our planet and will result in economic devastation worse than anything we’ve ever seen before,” she writes.
One of the key weapons in tackling climate change is a global agreement that all countries will cut emissions – and one of the key barriers to achieving that has been opposition from financiers and businesses around the world. Risky Business is a sign that this opposition is being replaced by a realization that tackling climate change is both an economic imperative and an enormous opportunity. The business and investor communities are demonstrating that they are increasingly ready for serious climate action from policymakers – the politicians need to react accordingly.
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