San Francisco Federal Reserve Bank commissions studies of climate change risks to the economy, impacts on labour productivity

In “Scared Central Banks Face Up to Threats From Climate Change”  (Sept. 23) , Bloomberg News reported that “Most major central banks — with the exception of the U.S. Federal Reserve — are joining forces to promote sustainable growth, after realizing that climate change threatens economic output and could even sow the seeds of a financial crisis.”  Now it appears that even the U.S. Federal Reserve Bank, or at least one of its components, the San Francisco Fed., is catching up to the rest of the world. Climate Change and the Federal Reserve  drew attention when it was published by the San Francisco Fed in March 2019,  and a special climate change-themed issue of the newsletter, Community Development and Innovation Review  was published by the San Francisco Fed in October , highlighting independent economic analysis it had commissioned.  The New York Times summarizes that research in  “Bank Regulators Present a Dire Warning of Financial Risks From Climate Change ”.

The economic research was also highlighted  in a conference on November 8. Host Mary Daly, President and CEO of the Federal Reserve Bank of San Francisco, introduced the event with  a speech entitled, “Why Climate Change Matters to Us ” .  Two highlighted conference papers: “Climate change: Macroeconomic impact and implications for monetary policy ” presented  by Sandra Batten from the Bank of England, which explains why central banks care about climate change, and includes the warning that “for each degree the temperature rises above a daily average temperature of 59°F, productivity declines by 1.7%”.   In “Long-Term Macroeconomic Effects of Climate Change: A Cross-Country Analysis “, six academics from the U.S., U.K. and Taiwan modelled the links between  historical levels of temperature and precipitation and changes in labour productivity. They conclude that global GDP per capita could fall 7% by 2100 in the absence of climate change mitigation effects, but that loss could be reduced to 1% by conforming to the Paris Agreement.

Of related interest:  SHARE Canada (Shareholder Association for Research and Education) summarizes the position of the major Canadian banks in an October 10 blog post “Responsible Banking – Part 2: Aligning finance with the goals of the Paris Climate Agreement .”

4th U.S. Climate Assessment provides new estimates of economic costs of climate change

The U.S. Global Change Research Program, a consortium of 13 federal government departments and agencies,  released volume 2 of the 4th National Climate Assessment  of Climate-change Impacts on the United States on November 23. This report is exceptional for the  unequivocal, comprehensive, and detailed information contained, and a new emphasis on the economic impacts of climate change, described as “broader and more systematic”, providing an advancement in the understanding of the financial costs and benefits of climate change impacts.  For example, the report estimates a worst-case scenario for 2090 where extreme heat results in “labor-related losses”  of  an estimated $155 billion annually;  also,  $141 billion from heat-related deaths, $118 billion from sea level rise and $32 billion from infrastructure damage by the end of the century. Other key themes: the negative impacts of climate change on trade, the disruption of supply chains for U.S. manufacturers,  likely loss of productivity for U.S. agriculture, unequal impacts of climate change on vulnerable populations, and the impact on Indigenous peoples.

In an article from the New York Times, climate expert Michael Oppenheimer  says, “This report will weaken the Trump administration’s legal case for undoing climate change regulations and it strengthens the hands of those who go to court to fight them.”   Small wonder the administration chose to release it on the eve of American Thanksgiving, when public attention would be distracted.

Volume 2, just released, is based on the scientific findings of the  4th National Climate Assessment, Volume 1,  which was released in 2017.  Volume 2 is over 1500 pages, and is composed of 16 national-level topic chapters, 10 regional chapters, and 2 response chapters. Each of the 29 individual chapters is downloadable from this link.  The Overview is here.   A Guide  briefly explains the modelling assumptions and sources of information used; more specific detail is in Appendix 3: Data tools and  scenario products   .

Media reaction and summaries include: “Climate Change Puts U.S. Economy and Lives at Risk, and Costs Are Rising, Federal Agencies Warn” in Inside Climate News  (Nov. 23);  “New National Climate Assessment Shows Climate Change is a Threat to our Economy, Infrastructure and Health” from the Union of Concerned Scientists (Nov. 23);  “U.S. economy faces hit, climate change report warns”  from the New York Times, reposted to Portside (Nov. 24) ; or “3 big takeaways from the major new US climate report”  in Vox (Nov. 24) .

4th climate assessment labour

From the 4th National Climate Assessment U.S. – Chapter 1 Overview

 

Proposed Carbon Tax Model Forecasts Job Increases; Hank Paulsen Calls Urgent Action Against Climate Change, Including a Carbon Tax

A new report models the effects of a carbon tax in the U.S. at the point of extraction, beginning in 2016 at a rate of $10 per metric ton of carbon dioxide and escalating at $10 per year until 2035. All proceeds from the carbon tax would enter into a “fee-and-dividend” (F&D) system that would refund money to all American households on a monthly basis, based on the number of people in the household. The report forecasts that by 2025, there would be: 2.1 million more jobs under the F&D carbon tax than in the baseline; 33% reduction in carbon dioxide emissions from baseline conditions; 13,000 premature deaths avoided because of improved air quality. The report was prepared for the Citizen’s Climate Lobby by consultants Regional Economic Models (REMI) and Synapse Energy Economics.
Models and research about carbon taxes may assume higher prominence as the U.S. business community becomes more and more open about discussing the possibility.

In an OpEd in the New York Times on June 21, Former U.S. Secretary of the Treasury, Hank Paulsen, a Republican, states that climate change is the challenge of our times and “The solution can be a fundamentally conservative one that will empower the marketplace to find the most efficient response. We can do this by putting a price on emissions of carbon dioxide — a carbon tax…. Putting a price on emissions will create incentives to develop new, cleaner energy technologies.“ Paulsen, along with former New York Mayor Michael Bloomberg and billionaire Tom Steyer, founded a business-oriented research initiative called Risky Business. Their high profile report is scheduled to be released on June 24, and will expand on the themes of Paulesen`s OpEd: the urgency of action and the risks of delay in fighting climate change.

LINKS:
The Economic, Climate, Fiscal, Power, and Demographic Impact of a National Fee-and-Dividend Carbon Tax is at http://citizensclimatelobby.org/wp-content/uploads/2014/06/REMI-carbon-tax-report-62141.pdf
“The Coming Climate Crash“ in New York Times OpEd (June 21) is at http://www.nytimes.com/2014/06/22/opinion/sunday/lessons-for-climate-change-in-the-2008-recession.html?ref=opinion
Risky Business website is at http://riskybusiness.org/

Lord Stern Proposes an Alternate Model of the Economic Cost of Climate Change

A new academic paper by Nicholas Stern and Simon Dietz critques the widely-used Dynamic Integrated model of Climate and the Economy (DICE), developed by William Nordhaus in the 1990’s, and updated in 2013. In a summary from the London School of Economics, Lord Stern states: “I hope our paper will prompt other economists to strive for much better models which will help policy-makers and the public to recognise the immensity of the potential risks of unmanaged climate change.” By modifying assumptions – for example, using a range of temperatures from 1.5C to 6C for climate senstivity, rather than the single 3C level of the DICE model – Stern and Dietz arrive at a level of $200 per tonne for the cost of carbon – astonishingly higher than $40 – $50 per tonne cost that the DICE model would produce. (The carbon tax in British Columbia grew from $10 per tonne at its inception in 2008, to the current level of $30 per tonne of CO2, since July 2012. )

LINKS:
London School of Economics press release is at http://www.lse.ac.uk/GranthamInstitute/news/dietz_stern_june2014/ . A working paper version of the article , Stern and Dietz (2014) Endogenous growth, convexity of damages and climate risk: how Nordhaus’ framework supports deep cuts in carbon emissions, is available from a link at http://www.lse.ac.uk/GranthamInstitute/publication/endogenous-growth-convexity-of-damages-and-climate-risk-how-nordhaus-framework-supports-deep-cuts-in-carbon-emission/.
“We’re massively underestimating climate costs, experts warn” (June 16) at Grist at http://grist.org/news/were-massively-underestimating-climate-costs-experts-warn/

Divestment Still a Necessary Strategy as ExxonMobil Reports on Stranded Assets

The largest oil and gas company in the world, ExxonMobil, agreed under pressure from activist shareholders to publish a “Carbon Asset Risk” report on their website, to provide information to shareholders on the risks that stranded assets pose to the company’s business model, and how the company is planning for a low-carbon world. Stranded assets for Exxon are the carbon reserves which would need to remain in the ground if the world were to follow a carbon budget to keep below 2 degrees of global warming.

Some environmentalists are claiming this transparency as a victory – GreenBiz described it as “a pivotal milestone on the road to a low-carbon economy”. Bill McKibben, noting that the Exxon report was released on the same day as the IPCC Report, said it is “probably at least as important in the ongoing battle over the future of the atmosphere”. But McKibben sees “consummate arrogance” in Exxon’s statement that “we are confident that none of our hydrocarbon reserves are now or will become stranded”. For McKibben, the solution remains a divestment campaign – a strategy that Archbishop Desmond Tutu also urged in an April essay in The Guardian.

See “Exxon, Stranded Assets and the New Math” at GreenBiz: http://www.greenbiz.com/blog/2014/03/24/exxon-stranded-assets-and-new-math, and an article in the Wall Street Journal Market Watch at: http://www.marketwatch.com/story/landmark-agreement-with-shareholders-exxonmobil-agrees-to-report-on-climate-change-carbon-asset-risk-2014-03-20. But see also Bill McKibben’s article in The Guardian on April 3rd, “Exxon Mobil’s Response to Climate Change is Consummate Arrogance” at: http://www.theguardian.com/environment/2014/apr/03/exxon-mobil-climate-change-oil-gas-fossil-fuels?CMP=twt_fd&utm_content=bufferfc5c8&utm_medium=social&utm_source=twitter.com&utm_campaign=buffer, and Desmond Tutu, “We Need an Apartheid-style Boycott to Save the Planet” at: http://www.theguardian.com/commentisfree/2014/apr/10/divest-fossil-fuels-climate-change-keystone-xl.

For an overview of Stranded Assets, see Unburnable Carbon: Wasted Capital and Stranded Assets at:
http://www.lse.ac.uk/GranthamInstitute/publications/Policy/docs/PB-unburnable-carbon-2013-wasted-capital-stranded-assets.pdf.

American Scientists Frame Climate Change as a Risk Management Issue

In the war for public support for action against climate change, a new campaign from the prestigious American Association for the Advancement of Science was launched with the document: What we Know: The Reality, Risks and Response to Climate Change (at: http://whatweknow.aaas.org/wp-content/uploads/2014/03/AAAS-What-We-Know.pdf). From the AAAS press release: “Scientists have developed a solid understanding of how the climate is responding to the build-up of greenhouse gases, but they recognize the considerable uncertainty about the long-run impacts – especially potential economic damages. Economists understand how to create incentives to limit pollution production with maximum effect and minimum collateral damage, but crafting the appropriate response is a complex valuation process that requires quantifying those same uncertainties…To do so requires scientists and economists to work together, ask tough questions, and break the boundaries of their professional silos. That’s what’s this initiative aims to do”.

New Research Initiatives Underway

1) In the U.S., a new research initiative led by hedge fund billionaire Tom Steyer, former U.S. Treasury secretary Henry Paulson, and outgoing mayor of New York Michael Bloomberg aims to calculate the true financial cost of climate change. In a report expected in summer 2014, “Risky Business” will “combine existing data on the current and potential impacts of climate change with original research to reveal the most vulnerable sectors and assist with preparation”. According to Bloomberg Markets Magazine, the team also hopes to show that the eventual consequences of “business as usual” will outweigh its short-term benefits. See http://riskybusiness.org/about or http://www.bloomberg.com/news/2013-10-01/climate-change-rescue-in-u-s-makes-steyer-converge-with-paulson.html  

2) Launched on September 24, the new Global Commission on the Economy and Climate, co-chaired by Nicholas Stern, will conduct a “year-long, $9 million study to analyze the economic costs and benefits of acting against climate change”. The study will use macroeconomic modeling techniques to analyze possible outcomes, factoring in potential policy mechanisms, economic growth, investment, employment, poverty reduction, income distribution, and the need for improved health, energy, and food security. The commission hopes to uncover pathways to a resilient, resource-efficient, low-carbon economy. See http://newclimateeconomy.net/

3) Wilfred Laurier University in Waterloo, Ontario will launch a Centre for Sustainable Food Systems on November 14, to bring together researchers from the departments of Geography and Environmental Studies, Psychology, Biology, Global Studies, Religion and Culture as well as the School of Business and Economics. From their website at: https://www.wlu.ca/homepage.php?grp_id=13686: “Our vision is to conduct research that is both grounded in practice and theoretically informed, and to disseminate this co-generated knowledge through local, national and global networks to advance opportunities for and educate about more sustainable food systems.”