Southern states including Florida, Louisiana, and Texas face some of the greatest financial risks from global warming, according to a study of the economic implications of climate change for the US.
The Risky Business report, a bipartisan project backed by three former US Treasury secretaries, sets out estimates of the potential costs of problems such as flooding caused by rising temperatures and higher sea levels.
Its aim is to move the debate in the US, which has become characterised by partisan divisions, into a more practical assessment by business and political leaders of how to manage the risks posed by climate change. The study looks only at the US, and only at potential costs, rather than possible solutions.
The project is chaired by Hank Paulson, who was Treasury secretary under President George W Bush; Michael Bloomberg, the former mayor of New York; and Tom Steyer, the former hedge fund manager turned environmental campaigner.
Mr Paulson, who was chairman and chief executive of Goldman Sachs, the investment bank, between 1999 and 2006, and then led the US administration’s response to the financial turmoil of 2008, drew a parallel between climate change and the “failure of risk management” that led to the crisis. “We are experiencing a climate bubble,” he said.
“In the run-up to the financial crisis, we incentivised lending. Today we are encouraging the overuse of fossil fuels.”
The analysis, based on work by Rhodium, a consultancy, and academics at Rutgers and Berkeley universities, attempts to calculate financial values for climate risks including flooding and storm damage, heat-related deaths, working hours and energy demand, broken down by state and locality.
Because of the large uncertainties involved in predicting both how far temperatures will increase and what the effects of those higher temperatures will be, the estimates of potential damage come in wide ranges.
For example, by the last two decades of the century, if greenhouse gas emissions carry on rising unchecked, the net number of heat and cold-related deaths in the US is forecast as likely to be 0.9 per cent to 18.8 per cent higher. But the analysis also shows a one in 20 chance that the number of deaths will rise more than 32.56 per cent, and another one in 20 chance that it will fall by more than 7.77 per cent.
Similarly, the study forecasts that by 2030 the additional cost of property damage from storm-related flooding as a result of sea level rise is likely to be $2bn-$3.5bn per year, a 7-13 per cent increase.
What is more certain in many of the estimates is that the greatest potential costs come from flooding in Florida and Louisiana and heat-related deaths in California, Arizona, Texas and Florida.
Mr Paulson argued that in spite of the uncertainties, “the right response to that is not to do nothing, but to act on the best information you have”.
Mr Bloomberg said that although “no one can guarantee what the future is going to be”, businesses would have to incorporate the potential threat into decisions on questions such as the location of facilities, flood defences and insurance.
“If directors are saying to a chief executive ‘OK, what are you doing about c limate change?’ and the chief executive is going ‘that’s just a load of hokey’, that chief executive is not going to last very long,” he said.
Robert Rubin, another former Treasury secretary who served under President Bill Clinton and is a member of the Risky Business advisory “risk committee”, said framing climate change as a risk management issue should resonate with many business people.
“When I talk to people, they generally agree that climate change is an important issue, but they say it is a long-term problem and they have other more immediate priorities,” he said. “The aim here is to say to people that this is an issue they should be thinking about today.”
Mark Way, head of sustainability in the Americas for Swiss Re, the reinsurance group, who was not involved in the project, described the study as “a solid foundation” for thinking about climate risk, and similar to work his company had done as it analysed the outlook for the industry.
He agreed that an early response was “likely to be the most cost-effective way” to reduce the potential impact of climate change.
Mr Bloomberg acknowledged that the climate was a global issue and had to be tackled internationally, but added: “You lead by example. If we do it, then others can do it.”
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