We need to manage the risks that climate change is creating

Robert Litterman, a member of our Advisory Board, testified before the Senate Budget Committee February 16 hoping to “help shed some light on the under-appreciated fact that climate change is not just an environmental problem, it is an economic and financial one as well.”

Bob is one of the giants in the field of risk management. An economist by training, he spent 23 years with Goldman Sachs, where he was a partner and head of the risk department. He then co-founded Kepos Capital, again specializing in risk management. 

In 2020, Bob chaired the Commodities Futures Trading Commission’s (CFTC) climate-related Market Risk Subcommittee, which published a unanimous and widely cited report, “Managing Climate Risk in the U.S. Financial System.” As he told the Senate Budget Committee, “[W]e came to the unambiguous conclusion that climate change poses several important risks to the American economy.” The report stated: “Climate change is expected to affect multiple sectors, geographies, and assets in the United States, sometimes simultaneously and within a relatively short timeframe…”  

Bob also cited a 2016 report by Freddie Mac, which, he testified, “estimated that the economic losses from sea level rise are ‘likely to be greater in total than those experienced in the housing crisis and Great Recession.’ And that was in 2016. Projections for sea level rise have only gotten more dire since then,” he said, “as scientists have learned more about the vulnerabilities of the Greenland ice sheet and several massive West Antarctic glaciers.” Bob was able to get a close look at the threat during a 2022 trip to Greenland with two of our co-founders (Bill Eacho and George Frampton) and two fellow members of our Advisory Board (John Englander and Julia Neshiewat). Bob is also on the boards of the Climate Leadership Council, the Niskanen Center, and other organizations.

“The physical risks of climate change,” Bob testified, “are those that stem from the disruptions it causes via rising seas, more severe storms and floods, more frequent droughts, more intense heat waves, and more destructive wildfires. Property is destroyed. Supply chains are disrupted. Crops wither. Labor productivity declines.

“The transition risks of climate change are those that stem from changes in policy, technology, and/or consumer preferences. As lower-carbon technologies become cheaper, demand for fossil fuels will decline. As more and more consumers demand sustainable products, demand for fossil fuels will decline. And as governments around the world take steps to decarbonize their economies, demand for fossil fuels will decline. 

“This process can lead to stranded assets in carbon intensive sectors. If investors have not managed this risk, it may cascade through the economy. Central banks have estimated the losses in the energy sector at up to $4 trillion in the energy sector, and up to $20 trillion in the broader economy.”

Pointing to the increasing frequency of extreme weather events, Bob testified, “100-year floods may happen every 5 or 10 years today because of the changing climate.” He stated, “Losses from billion-dollar extreme weather events totaled $165 billion last year and while it varies from year to year, it is clearly growing rapidly over time.”

Citing the agricultural sector as one example of the economic risks, Bob said, “[W]e found that climate change is likely to significantly reduce crop yields, decrease labor productivity, degrade soil and water quality, increase the range and virulence of pests, and disrupt supply chains.”

Some Americans think of climate change as a threat only to the planet, overlooking the impact on people’s health. To counter that view, Bob testified: “Climate change will also likely inflict large costs on human health, and by extension, significantly reduce labor productivity in certain sectors. Estimates of the annual monetized damages from premature deaths due to extreme heat in 2090 range from $60 to $140 billion. Lost labor hours could reach six percent in parts of Florida and Texas.”

Near the end of his statement, Bob said, “While the subject of this hearing is the economic risks and costs associated with climate change, I would be remiss if I did not mention one last thing. All of the research and analysis on this subject agrees that the sooner we act to reduce emissions, the fewer costs and risks we incur. In addition, it appears that transitioning to a low-carbon economy will actually result in substantial economic growth.” 

In our view, the most effective step our nation could take to speed that transition is to put an honest price on carbon emissions, via a carbon fee.

MED SCHOOLS STARTING TO INCORPORATE CLIMATE CHANGE INTO CURRICULUM

Evidence continues to mount about the threats that climate change poses to human health. Extreme heat, for example, increases the risk of strokes and heart attacks and exacerbates underlying health conditions such as diabetes and asthma, according to the Centers for Disease Control and Prevention (CDC).

The National Institutes of Health found that changes in air and water temperatures can increase bacteria, parasites, and chemical contaminants in food. According to research published February 7 by the United Nations Environment Program, climate change is heightening the risk posed by antibiotic-resistant viruses.

You might assume that the nation’s medical schools are on the case. Not exactly. A 2022 survey by the International Federation of Medical Students' Associations found that only 15 percent of medical schools worldwide were teaching a climate-and-health curriculum. The figures are better in this country. A 2022 study by the Association of American Medical Colleges found the percentage of medical schools covering the health effects of climate change doubled, to 55 percent in 2022 from 27 percent in 2019.

Karly Hampshire, now a fourth-year medical student at the University of California San Francisco (UCSF), is one of those who has been working hard to boost that percentage. Recalling her initial days of med school in 2018, when wildfires were raging in California, Humphrey told MedPage Today, “Even though we were walking to school every day in this awful hellscape ... our pulmonary block did not cover the health effects of air pollution,"

Hampshire and colleagues created the Planetary Health Report Card in 2019 to compile data on medical schools' climate-related offerings. The database includes information on 87 member institutions in eight countries, rating schools based on their planetary health curriculum, interdisciplinary research, institutional support for student-led projects, community engagement and advocacy efforts, and campus sustainability.

Within the next 5 or 10 years, Hampshire said, most schools will likely offer climate-and-health content. "We're already seeing the health effects of climate change play out in our immediate surroundings and immediate communities," Hampshire said. "I think medical schools will start to feel like they're lagging behind if they don't address it in the curriculum."

"This is fundamental to the mission of medicine," Renee Salas, MD, MPH, MS, an emergency medicine physician at Massachusetts General Hospital in Boston who researches climate change and health, told Amanda D’Ambroio of MedPage Today. "It is an obligation of medical schools and continuing education to ensure that we can optimally prepare individuals to practice in today's environment.”

Medical schools have taken different approaches to offering such education. Some schools offer semester-long courses on climate and health. Others choose a longitudinal approach, integrating climate change into their existing curriculum. Climate-and-health advocates have argued for an integrated approach to climate change education in medical school in order to address the concerns about taking time away from other necessary clinical topics.

Another institution moving forward on climate change is 350-year-old Harvard Medical School. Now in her third year there, Madeleine Kline was among a small group of students and faculty who helped convince school leaders to adopt the new curriculum, which was approved in January. It will include instruction on the effects of climate change on human health, the role health care systems play in contributing to climate change, and how physicians can work to be part of the solution.

As calls to include climate change in medical curriculums grow, The Boston Globe’s Zeina Mohammed reported, so do the resources available to schools interested in making changes. Last year, trainees and faculty at several U.S. universities launched the Climate Resources for Health Education, a free, digital resource bank to help guide the incorporation of climate change into medical curricula.

A dozen predictions for 2023

In the fight against climate change, 2023 will be a year unlike any other. No, the problem won’t be solved, but the range and seriousness of efforts to meet this severe challenge will enable us to make significant progress.

No one can know the future, even in the short term. That is especially true in a realm where so much is in flux–and with a European war creating unforeseen problems. Grist quizzed a wide range of experts about what lies ahead, and we are offering a dozen predictions for 2023:

A carbon border adjustment will gain momentum. European Union governments have reached a deal on the world’s first major carbon border tax, as part of an overhaul of the bloc’s flagship carbon market that aims to make its economy carbon-neutral by 2050, CNN reported. The measure will apply first to iron and steel, cement, aluminum, fertilizers, electricity production and hydrogen before being extended to other goods. How will the U.S. respond? Will Congress follow the lead of senators such as Sheldon Whitehouse (D-RI) and Mitt Romney (R-UT) and enact a carbon fee? That would make a lot of sense.

EV sales will surge–but there are obstacles that will limit that surge. The percentage of U.S. drivers who said they plan to purchase EVs is up three percentage points compared to the same point last year, a Deloitte survey found, with intent to purchase traditional ICE-powered vehicles dropping by six percentage points. Cox Automotive projects that 1 million EVs will be sold in the U.S. in 2023. Tax incentives in the Inflation Reduction Act (IRA) are helping boost demand. Obstacles to faster growth include a low supply of raw materials to make the batteries and driver skittishness about whether there will be enough charging stations.

“The real effects where these tax credits will have a big impact will be in the 2026-to-2032 period — a few years into the future — as automakers gear up and volumes increase,” said Chris Harto, a senior policy analyst for Consumer Reports magazine, told PBS.

Backers of mass transit will try to obtain a larger share of the federal funding. They maintain that U.S. car culture is a resource-intensive vision of the future, according to Politico’s Alex Daugherty. “It’s so blatant that you get tax credits for buying an electric vehicle but there’s zero dollars for buying an electric bike, zero dollars for riding public transit,” said Yonah Freemark, a researcher at the Urban Institute. “It is subsidizing car ownership more than any other mode of transportation by far.”

The trend toward electrifying American homes will ramp up sharply. Sam Calisch, head of special projects at Rewiring America, told Grist that the IRA “will provide the average American household an ‘electric bank account’ of $10,600 in incentives to electrify. This includes a first-of-its-kind electrification-rebate program with $4.5 billion to help low- and moderate-income households purchase heat pumps, induction stoves, and other electric appliances.” 

Geothermal energy will lose its low profile and attract growing interest. One of the oldest forms of clean power is ready for a comeback, Politico reported. The technology that harnesses the heat beneath the Earth’s crust is drawing fresh interest from the oil drilling sector after lawmakers boosted funding flows.

Winners of November’s state and local elections will embrace efforts to counter climate change. For example, some states will move toward cap-and-trade systems like Washington’s, where the first auction of credits is scheduled for February 28. The system makes companies pay for their emissions by buying tradable permits dubbed Washington Carbon Allowances. The pool of credits will shrink every year, encouraging companies to go green. The market is much like California’s, where the price is just over $30 a ton.

Resilience will become increasingly important as we battle climate change. Reducing greenhouse gas emissions is job one, but it’s increasingly clear that progress has been too slow, so building resilience is critical, and efforts will gain momentum. Maxwell Alejandro Frost, representative-elect for Florida’s 10th District and the first member of Gen Z elected to Congress, said, “Resiliency and infrastructure are top priorities for me. In my district in Central Florida, flooding is our biggest problem. We have to make sure that homes are more resilient to flooding and manage the flow of water. These hurricanes are becoming stronger and lasting longer. The cost of not doing anything is far greater than the cost of making bold moves right Dr now.”

IRA money will generate extraordinary investment by the private sector. “The price signal is just huge,” said PJ Deschenes, a managing director at investment bank Nomura Holdings Inc. But GOP will try to throw sand in the gears of the IRA. “It’s Solyndra on steroids,” the House Energy and Commerce Committee’s likely chairwoman, Cathy McMorris Rodgers (R-WA), said in September of the $250 billion included in the new climate law for the Department of Energy’s loan guarantee program.

Carbon capture will gain support. With the UN’s Intergovernmental Panel on Climate Change (IPCC) having concluded that the world cannot hit climate change targets without this technology, the race to scale it up will intensify. The IRA contains significant incentives. Today, there are 27 carbon-capture projects operational worldwide and 14 in the U.S., according to an October report from the Global CCS Institute. Another 108 are in development worldwide in various stages of production.

More Americans will realize the financial and health costs of climate change and will want action by governments and corporations. Over the past four decades, the United States has experienced an average of 7.7 billion-dollar disasters annually. But since 2017, the average has jumped to nearly 18 each year. So more of us are aware of the threats. Six-in-ten U.S. adults say that they are concerned that global climate change will harm them personally, according to a 2021 survey by the Pew Research Center.

Wind and solar developers will devise elaborate plans to provide round-the-clock renewable power. Since two of the main renewable energy sources generate electricity only when the wind is blowing and the sun is shining, project developers, utilities, and grid operators are trying a mix of options to overcome that challenge, including building huge amounts of renewable capacity, storing excess power on batteries, and using algorithms to make project economics work.

Federal courts could slow the transition to clean energy. Energy Wire’s Niina H. Farah wrote, “From pipeline permitting to agency rulemaking, federal courts are poised to decide a suite of legal challenges in 2023 that could set the pace of the nation’s transition away from fossil fuels. The rulings could also tee up a clash between Congress and the courts.”

Are you interested in making a profit from all this activity? On Jan. 2, Goldman Sachs chief risk officer Brian Lee listed the investment bank’s “top 20 buy-rated stock ideas,” based on “quantifiable” benefits from IRA spending.

Climate Change Is Increasingly a Factor When Americans Move. And Yet.....

Are Americans moving to places where climate change poses less of a risk? Some are. They don’t want to worry that rising sea levels are going to wash away their coastal home or that a wildfire will roar into their wooded western valley. Or they want to avoid triple-digit temperatures or water rationing.

“Millions and likely tens of millions of Americans” will move because of climate through the end of the century, Jesse Keenan, an associate professor of real estate at the Tulane University School of Architecture, told Yahoo News. “People move because of school districts, affordability, job opportunities. There are a lot of drivers, and I think it’s probably best to think about this as ‘climate is now one of those drivers.’”

Yet a surprising number of us are still heading to areas that face above-average threats. Census projections suggest the Southeast will see the nation’s largest population gains over the next two decades, despite the climate change-related risks that the region faces.

Joseph Von Nessen, a University of South Carolina economist, said that most of Southeast’s new residents are coming from New England. Many are retirees attracted by the region’s lower cost of living, mild winters and other charms. Younger workers are moving to the region as well, drawn by newly-created manufacturing jobs.

 The population of Charleston, S.C., grew 25 percent from 2010 to 2020. The city has approved plans for a 9,000-acre residential and commercial development that, environmental advocates say, would locate about half of its homes in a flood plain, Anna Phillips wrote in The Washington Post. From 1970 to 2020, Florida’s Cape Coral-Fort Myers area grew an astounding 623 percent, to more than 760,000 people.

 Can the insurance industry convince homeowners to choose wisely? “I’m very concerned,” New Mexico Attorney General Hector Balderas told The Associated Press, “that these natural disasters are either going to raise premiums or we’re going to be in a deeper crisis like Florida, where insurance providers don’t want to come to New Mexico because it’s a very challenging market to insure.” 

Some climate advocates fear that despite the hazards, newcomers to the Southeast may not be aware of the risks they’ll face. Realtors aren’t required to disclose the flood history of the properties they sell, and finding that information can be difficult, The Post’s Phillips reported. 

 “If every Realtor was required to tell people, ‘You should know over the period of your mortgage your home will flood at least once, maybe twice,’ I think people would go, 'Whoa, what?” said Rob Moore, a senior policy analyst at the Natural Resources Defense Council. “But due to policy failures in state capitals and in Washington, we have made it extremely difficult for people to not only find that information but to even tell people about it.”

 The reality, sketched out in a report by the nonprofit research group Climate Central, is that hundreds of thousands of homes and businesses in Louisiana, Texas, North Carolina, and Florida are in danger of being lost or severely damaged because of rising sea levels.

According to PBS, the report says that, in just 30 years, more than four million acres of land will be increasingly threatened by routine flooding. By 2100, over $100 billion worth of property could be in jeopardy as the coastlines of the U.S. continue to creep inland.

The most aggressive effort to persuade Americans to leave hurricane-threatened areas, The New York Times reported, may be a new program that prices federal flood insurance according to climate risk, dramatically increasing costs for people living in vulnerable places.

Another approach, now being tried by the Biden administration, will give three Native tribes $25 million each to move away from coastal areas or rivers. The three communities — two in Alaska, and one in Washington State — will move their key buildings onto higher ground and away from rising waters, with the expectation that homes will follow. The spending, The New York Times’ Christopher Flavelle explained, is meant to create a blueprint for the federal government to help other communities move away from vulnerable areas.

Help also may be coming from Congress. A bipartisan bill introduced by Senators Sheldon Whitehouse (D-RI) and Bill Cassidy (R-LA) would strengthen federal investments in coastal restoration and resilience efforts by sending revenue generated from offshore wind back to coastal states and amending the revenue sharing program under the 2006 Gulf of Mexico Energy Security Act. It was approved in July by the Senate Energy and Natural Resources Committee. Known as the RISEE Act, S. 2130 has 20 cosponsors. It will need to be reintroduced in January. Please urge your senators to support it and encourage your House representative to cosponsor the House version (H.R. 9049).

Could Putin's war speed global decarbonization?

No one should be writing a thank you card to President Putin, but his invasion of Ukraine may end up accelerating the world’s transition to clean energy. That was the message from three international energy experts recently.

While some countries have been burning more fossil fuels such as coal in response to natural gas shortages caused by the war, wrote The New York Times’ Brad Plumer, “that effect is expected to be short-lived, the International Energy Agency (IEA) said in its annual World Energy Outlook, a 524-page report that forecasts global energy trends to 2050… The agency now predicts that worldwide demand for every type of fossil fuel will peak in the near future.”

"Energy markets and policies have changed as a result of Russia's invasion of Ukraine, not just for the time being, but for decades to come," said IEA Executive Director Fatih Birol.

"The energy world is shifting dramatically before our eyes. Government responses around the world promise to make this a historic and definitive turning point towards a cleaner, more affordable and more secure energy system."

As Plumer explained, “Many countries have responded to soaring prices for fossil fuels this year by embracing wind turbines, solar panels, nuclear power plants, hydrogen fuels, electric vehicles and electric heat pumps. In the United States, Congress approved more than $370 billion in spending for such technologies under the recent Inflation Reduction Act.” 

Global clean energy investment is set to rise to more than $2 trillion a year by 2030, up by half from current levels, while "international energy markets undergo a profound reorientation in the 2020s as countries adjust to the rupture of Russia-Europe (energy) flows, the IEA said.

Global emissions of fossil fuels leading to climate change will peak by 2025, as coal use falls within the next several years, natural gas demand plateaus by 2030, and oil demand levels off in the middle of the next decade before falling.

"One of the effects of Russia’s actions is that the era of rapid growth in natural gas demand draws to a close," the IEA said, pointing to a rise in global demand for gas of less than five percent between last year and 2030.

Director-General Francesco La Camera of the International Renewable Energy Agency (IRENA) agrees with Birol. “In the mid- and long term, the Ukraine crisis will bring an acceleration to the energy transition because governments finally realize that going for renewables is not only good for the environment, jobs, GDP, but also good for ensuring higher energy independency," he said.

The head of the World Meteorological Organization (WMO) is singing from the same hymnal. "It's clear that this war in Ukraine will speed up our consumption of fossil energy and it's (also) speeding up this green transition," said Petteri Taalas, WMO’s secretary-general. "From a climate perspective, the war in Ukraine may be seen as a blessing," 

There are skeptics, though. At COP27, the research collaboration Climate Action Tracker asserted that nations scrambling this year to buy more natural gas to replace supplies from Russia are risking years of emissions that could thwart climate goals.

In any event, it behooves all countries and companies to press ahead with efforts to speed the transition from fossil fuels. That includes putting an honest price on carbon.