While the nation watches as California experiences a devastating drought, and as the world waits for the U.N. climate change meeting in late November, economists, current (and former) policymakers and advisors are assessing the ways that climate change is impacting the economy and what risks and opportunities for investors lay in nature’s unpredictable unveiling.
Higher seas mean greater financial exposure for coastal cities, where populations are growing and the value of buildings and infrastructure is increasing. More frequent flooding would likely disrupt insurance underwriting and with it the financing that drives development in cities such as Miami. If sea levels rose just 16 inches by 2050, the flood damage in port cities could cost $1 trillion a year. With ingenuity and significant investment, new fortifications might limit flooding, but cities would need to keep improving and maintaining them. Inevitably, an extreme weather event would overwhelm defenses. World Bank researcher Stéphane Hallegatte, who has estimated how much such events could cost urban areas at midcentury, says, “Protection protects us until it fails.”
President Barack Obama released in early August his final EPA rule designed to curb power plants’ emissions output. Many say the plan could revive the carbon tax at the state level as states are allowed to use “fees” (taxes) as a tool for meeting their emissions-cutting requirements.
The EPA issued in mid-August standards on the amount of methane that new oil and gas industrial operations are allowed to emit. Nicole Lederer, chairman and co-founder of Environmental Entrepreneurs, a nonpartisan group that advocates for policies that protect the environment and the economy, said the standards “will send another strong, clear market signal to the private sector that now is the time to invest in cleaner, more efficient energy technologies,” which she said translates into “more innovation, more jobs — and lower methane emissions.”
However, Lederer noted the logical next step to continue to cut methane emissions is “a standard for existing oil and gas industry infrastructure.”
Wrangling over the EPA’s budget will begin in earnest in October, when the congressional appropriations committees begin debate on how to allocate money to various federal agencies. Obama’s budget provides $8.6 billion for the EPA in fiscal year 2016, which is $452 million above the agency’s enacted level for FY 2015.
Of course, researchers as well as climate change activists view gas emissions output as the key driver of the world’s increasingly erratic climate patterns — rising temperatures, droughts, swelling seas and hurricanes to name a few.
Ellen Siegel, a financial planner with Ellen R. Siegel & Associates in Miami, says she’d advise clients to invest in technology companies that see “opportunity” in climate change, but as a Miami resident, she’s also “keenly attuned” to the devastation that rising sea levels will wreak on tourism, agriculture and international trade — most notably in Florida but in other coastal states and cities as well.
Investors in Florida and Miami would do well to look toward investing in companies whose business is “inland,” she says, “and not likely to be in a state of collapse in 20 to 30 years.”
The Scope of the Problem
A recent report from the Risky Business Project argues that while the Southeast U.S. and Texas are experiencing an “economic boom, mostly due to manufacturing and energy industry growth,” that boom is at risk from “unchecked climate change.” The Project is co-chaired by former New York Mayor Michael Bloomberg, former Treasury Secretary Henry Paulson and Tom Steyer, the now retired founder and senior managing member of Farallon Capital Management. It focuses on quantifying and publicizing the economic risks from the impacts of climate change. The Project report notes that climate change in the Southeast and Texas could put the region, “already one of the hottest and most weather-vulnerable of the country, at significant economic risk.”
The study notes, however, that if policymakers and business leaders act aggressively to “adapt to the changing climate and to mitigate future impacts by reducing their carbon emissions, this region can lead in responding to climate risk.”
The report, “The Economic Risks of Climate Change in the United States,” goes on to note that Louisiana and Florida will be hit hardest by property damages due to rising sea levels. By 2030, existing coastal property worth $19.8 billion in Louisiana will likely be below mean sea level, and by 2050, the value of that property increases to between $33.1 billion and $44.8 billion.
In Florida, losses of existing property will likely range between $5.6 billion and $14.8 billion by 2030 to between $14.8 billion and $23.3 billion by 2050, the report states.