Market Forces

How we underestimate the costs of climate change, and why it matters now

This post, co-authored with Maureen Lackner, originally appeared on Voices.

Costly flooding in Houston after Hurricane Harvey

Cities, states and businesses are still feeling the shock. The coronavirus has stolen more than 138,000 lives and obliterated budgets. Had the U.S. better prepared for the fallout, some of the impacts would have been less severe.

Countries in Asia, for example, accustomed to managing fast-moving viruses after their experiences with SARS, have fared much better than the United States, which leads all countries with 3.43 million COVID-19 cases.

Costs from climate will likely have similar effects, and sooner than we think. Understanding—or better yet, predicting—what we could face in the future is crucial for making the case for policy action today, not after calamity strikes.

Calculating climate costs is daunting

To make these calculations, economists rely on Integrated Economic Assessment models to estimate future costs of climate change. These models are complex tools that link emissions projections to climate and ultimately societal impacts, measured in metrics such as the costs of poorer health outcomes, lost labor, damage to infrastructure, agricultural losses and death. Economists can then value the economic cost of a changing climate in dollar amounts.

The estimated costs from prominent models vary, but they all emphasize how much we currently underestimate climate damages. One recent study focuses on just a few sectors, (agriculture, crime, coastal storms, energy, human mortality and labor), and finds that damages will cost about 1.2% of gross domestic product per +1°C on average.

Even so, estimating outcomes is exceedingly challenging, and many assessments have been leaving out or significantly underestimating several of the serious consequences of climate change on lives and livelihoods.

For example, some economists argue that integrated assessment models do not capture the potential for tipping points adequately, where impacts from climate change can either accelerate abruptly, or become irreversible, leaving us in an unprecedented scenario — perhaps much like the unprecedented times we are experiencing right now. Integrated economic assessment models do their best to reproduce the world’s climate, economy and systems as they exist and function today. Even so, they are ill suited to estimate what will happen in a world where our climate system is pushed past a breaking point.

In addition, there are many intangible impacts that cannot be evaluated solely using economic costs – among them, the loss of cultural heritage, or the trauma of losing your home, getting hospitalized, or losing a loved one.

Every economic model under-values the costs of climate change

What is clear: the damage estimates from these models do not adequately value future well-being and non-monetary factors. Simply put, no matter the model, the numbers it produces are more likely than not too low.

We’ve seen this play out in other major disasters.

The California Wildfires, Hurricanes Katrina and Sandy, and even the Mississippi river flood of 1927 not only resulted in direct catastrophic economic losses to the residents of those areas, they also contributed to trauma, loss of stability and displacement from those communities. Losses that weren’t quantified in damage assessments. Even less well-known disasters resulted in monumental damages. The 2006 California heat wave, for example, cost $5.4 billion, while an outbreak of West Nile Virus in Louisiana cost an estimated $207 million.

We know that climate change is going to be expensive. And it will likely be more expensive than we are able to estimate. That knowledge should prod policymakers to take action now—before it’s too late.

Inaction brought the entire world economy to its knees in a matter of weeks during a pandemic that scientists warned us would come.

Climate change is already starting to wreak havoc on the planet. We don’t have time to wait while the federal government is stymied under the Trump administration’s inaction—and in some cases—proactive rollbacks of climate protections. Just as they have in the pandemic, state and local leaders can and should lead the way to prepare for an uncertain and costly climate future.

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Nature-based solutions can help New York and New Jersey adapt to rising seas and intensifying storms

Are we prepared?

With peak hurricane season upon us and what seems like daily coverage of record storms, floods, and ice melt, climate adaptation solutions should be top of mind for individuals and governments alike. After all, recent data show billion-dollar disaster events continue to take place with increasing frequency. Here in New York, many are wondering whether we’ll be ready when the next big storm hits. An emerging consensus —even among local elected leaders —seems to be: “Nope.”

The ongoing upward trend in global GHG emissions suggests we are far from experiencing the worst impacts of a changed climate. And while swift decarbonization is a first-best solution, we also need to bolster community resilience to prepare for the climate impacts around the corner.

What to expect?

New York and New Jersey are acutely vulnerable to sea level rise and storm intensification. Roughly 400,000 New York City residents currently live in an area with a 1% annual chance of flooding. The region’s coast has a booming property market, with an estimated $101.5 billion of property value in an area with a 0.5% annual chance of flooding. Like so many coastal communities, a significant number of lives, assets, and locations of priceless social value are at stake.

An intermediate scenario from NOAA anticipates global mean sea level will rise by more than three feet by 2100. The New York City Panel on Climate Change recently introduced a new low-probability, high-impact “Antarctic Rapid Ice Melt” scenario, which considers the triggering of a critical tipping point that would result in 9.5 feet of sea level rise by 2100.

The science is clear: our coastline is going to look very different by the end of the century.

What can we do?

Superstorm Sandy was a wakeup call. It exposed myriad deficiencies with regard to disaster response, electricity systems, and post-disaster recovery. The storm incurred more than $19 billion in damages in New York City alone, and led to the deaths of 24 people from my home borough of Staten Island.

In the wake of the storm, a number of promising policy responses created momentum toward greater resilience in the region. One major effort is the Army Corps of Engineers’ “New York-New Jersey Harbors and Tributaries Study,” a comprehensive regional assessment spanning 900 miles of shoreline and 25 congressional districts  that will prompt the development of large-scale storm risk mitigation infrastructure projects across both states.

This work has massive implications. One of the alternatives includes a five-mile storm surge barrier, stretching from Breezy Point, Queens, to Sandy Hook, New Jersey. The preliminary price tag of the projects in this alternative: $118.8 billion. While this is just one of five alternatives under consideration, it is clear the Corps’ work will be expensive, transformative and serve as the backbone of the region’s storm risk mitigation infrastructure for generations.

Natural infrastructure can play a part

While the vast majority of the infrastructure solutions considered in the NYNJHATS study are grey — i.e., human-engineered structures which often include steel or concrete— nature-based solutions deserve full consideration as well, because they can be economically viable components of our adaptation strategies. For example, earlier this year the Corps released a final report for a smaller civil works project—still expected to cost more than $600 million—in the Rockaways and Jamaica Bay. EDF successfully advocated to include more than nine acres of new and restored wetlands and maritime forests, and they were ultimately included, as they were deemed the most viable and economically justified solutions in those cases.

While by no means a silver bullet, nature-based solutions are sometimes the most cost-effective flood mitigation options at our disposal. Unfortunately, current Corps guidance does not factor certain incidental benefits, including those from ecosystem services, into cost-benefit analyses. This means things like improved water quality, oxygenation, carbon sequestration, and habitat restoration are excluded from the calculation, on the grounds they are difficult to quantify. Even so, the recent release of “Engineering with Nature: An Atlas” suggests the Corps is moving in a direction that will feature natural infrastructure solutions more prominently in future coastal adaptation efforts.

In the face of historic sea level rise and flood risk, natural and nature-based solutions can play a key role to restore ecosystems and serve as additional lines of defense against flooding in New York and New Jersey. Adaptation authorities need to consider the full range of benefits natural and nature-based flood risk mitigation projects can provide, otherwise we run the risk of leaving economic value on the table. Adapting to climate change is going to be a costly endeavor- let’s not make it more expensive than it has to be.


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How climate policy can mitigate extreme weather’s economic toll


This post was co-authored with Maureen Lackner

In the wake of hurricanes Harvey and Irma, Americans are coming together to support communities as they recover from the physical, emotional and economic toll after lives, possessions and livelihoods were washed away. Reestablishing daily routines, including work, school and regular commerce will take time, and for many, life may not return to what was once considered normal. But as we begin rebuilding what can be replaced, it is necessary to first gauge the scale and cost of the damage. It is also time to face the possibility that devastating weather events like Harvey and Irma may become the new normal

Harvey and Irma are among the most expensive hurricanes in U.S. history

Harvey and Irma have brought front and center the high costs of extreme weather-related disasters. While the damage is still being assessed, Harvey’s could cost as much as $200 billion, making it the most expensive natural disaster in U.S. history, surpassing Hurricane Katrina ($194 billion in 2017 USD). Estimates of Hurricane Irma’s economic damage are less certain, but the storm will likely also be among the most expensive weather-related disasters in the United States. (And we can’t forget that before reaching Florida, Irma caused damage to many Caribbean islands, which in some cases exceeded their GDP.)

While hurricanes tend to be the most dramatic, other types of severe weather also cause billions of dollars in economic damages. During the first half of 2017 alone, nine weather events including hailstorms, flooding, and tornados racked up $16 billion in damages across several states.

Climate change elevates the risk of severe weather events, and that comes at a cost

Climate change doesn’t cause hurricanes, but sea level rise and warmer temperatures make storms more destructive. Storm surges along the Texas coast where Hurricane Harvey hit are now about 7 inches higher than storm surges a few decades ago as a result of sea level rise, which can make a big difference in flooding. In addition, evaporation intensifies with warmer temperatures, which results in more moisture in the atmosphere and therefore higher rainfall amounts and flooding when storms make landfall. Warmer ocean temperatures also fuel hurricanes, making them more powerful. Hurricane Irma was a classic example of just how powerful a storm can get from increased ocean temperatures.

It is also possible that severe weather-related events overall are becoming more frequent. One recent EDF analysis shows that U.S. counties experienced, on average, a fourfold increase in the frequency of disaster level hurricanes, storms, and floods between 1997 and 2016 than in the 20 years prior. In the Southeast, this increase is even more pronounced; on average, its states experienced close to four-and-a-half times more disaster declarations over the same time period.

In the coming decades, risk of climate change-influenced severe weather will differ from region to region, but one thing is clear: if left unmitigated, the effects of climate change could come at serious economic costs, not just to those who lose homes and livelihoods, but to their insurance companies or to taxpayers. Other aspects of the economy could experience significant pain as well.

In the Southeast alone, higher sea levels resulting in higher storm surges could increase the average annualized cost of storms along the Eastern seaboard and Gulf Coast by $2-3.5 billion by 2030. In some areas, like Texas, where sea levels are rising faster than the global average, these increases even higher. Research published in Science suggests that even if storms themselves do not become more severe, direct annual economic damage could rise by 0.6 to 1.3% of state gross domestic product (GDP) for South Carolina, Louisiana, and Florida under median estimates of mean sea level rise. This translates into billions of dollars in additional economic damage every year for each of these states.

Hurricanes and severe storms pose serious risks to U.S. energy infrastructure

During Hurricane Katrina, the extent of the damages suffered by Entergy New Orleans forced the utility into bankruptcy. Hurricane Irma caused power outages in Florida that left over six million people without power.

Beyond these local impacts, these events can cause damage nationwide. Texas is home to about 30% of domestic oil and gas refining capacity, half of which was disrupted by Hurricane Harvey. This shut down 16% of the nation’s total refining capacity, spiked the average national gasoline price approximately 37 cents per gallon, and forced crude exports to drop from 749,000 to 153,000 barrels per day in the week after Harvey. As of September 10, 2017, more than two weeks after Hurricane Harvey made landfall, five Gulf Coast refineries remained closed, representing 11% of total Gulf Coast refining capacity and 5.8% of U.S. refining capacity.

The Trump administration should focus on adaptation and mitigation

In the short term, the Trump administration should maintain existing programs designed to enhance U.S. energy security and disaster response. For starters, the administration should stop dismantling EPA programs expressly designed to help communities respond to damage from storms.

In the long term, we need to build climate resilient communities and infrastructure, through efforts like wetland restoration and smart development. President Trump would also do well to listen to Miami’s Republican Mayor Tomás Regalado, and rethink his approach to climate policy. Instead of rolling back smart policies and regulations, or simply ignoring the impacts of climate change, we need to stop compounding the problem and mitigate the effects of a warmer climate through policy that sets aggressive emissions reduction targets. Such strategies will do much more than just protect our economy’s bottom line—it will help ensure the safety, security, and well-being of millions of Americans.

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America needs critical energy data in a “post-fact” world: 2 quick examples

This post originally appeared on EDF’s Voices blog.

We learned earlier this month that scientists are rushing to save critical climate data on government websites before the Trump administration takes over in January. They fear that such data may be deleted and forever lost, and it’s not hard to see why.

The incoming administration has announced plans to roll back existing climate change initiatives and there have been proposals to cut research programs that support a broad range of scientific expertise, such as weather prediction critical to farmers and to states vulnerable to major disasters.

In addition to science-based climate data, however, there is concern that other critical information and analyses under the purview of agencies such as the U.S. Department of Energy may be imperiled early next year. Unbeknownst to many – including, perhaps, to the president-elect and his circle of insiders – all these datasets benefit a broad range of sectors that rely on solid economic forecasting.

Here are just two datasets that are absolutely central to the work economists and analysts do to help industry and other decision-makers interpret energy opportunities and challenges in a rapidly changing world.

1. Energy forecasts: companies depend on them

The Annual Energy Outlook reports produced by the Energy Information Administration – a 30-year-old, independent office within the Energy Department – offers economic and energy forecasts with data invaluable to the transportation and manufacturing sectors, among others. Researchers, regulators and policymakers use them, too.

It includes data on economy-wide energy consumption and electricity prices all the way down to minute information such as carbon emissions from residential clothing dryers. Companies use the report to inform energy cost projections as they strategize and forecast business operations.

This way, an aluminum smelting company that uses a very energy-intensive process, for example, can anticipate changes in energy prices and make decisions accordingly.

We already heard about a proposal to cut NASA’s climate research funding, so it’s no mystery we also worry about how a report such as the Annual Energy Outlook could be affected by a wider crackdown on scientific and economic research and data generation.

Notably, EIA was part of a controversial questionnaire the Trump administration recently sent the Energy Department.

2. Cost comparisons: help investors be smart

The cost of renewable energy is a constant source of debate and has a direct impact on innovation and investment. A utility that needs to add generation, for example, must remain informed about how the operational costs of wind turbines compare with those of a natural gas-fired power plant.

The Energy Department’s prestigious National Renewable Energy Laboratory provides a terrific amount of research on the costs of this and other sources of renewable energy, feeding them into tools such as the Transparent Cost Database.

These estimates help investors as well as consumers evaluate the cost of renewable energy sources in direct comparison to fossil fuels in an unbiased way. The outcome is smarter and more informed decisions.

Our national labs would be overseen by Texas Gov. Rick Perry if he’s confirmed as the Trump administration’s secretary of energy. The governor, who lacks the science credentials of past energy secretaries, once said he would eliminate the agency altogether.

So why the panic over data?

We know that many of the people picked for the Trump cabinet so far openly question climate science, or science in general, and that several of the nominees who will oversee agencies producing such data have a history of putting the interest of the fossil fuel industry ahead of progress on clean energy.

Beyond that, potential budget cuts are looming. Government agency heads opposed to climate action or investments in renewable energy could easily starve the programs that maintain, update and share data with the public if such information no longer fits the administration’s agenda.

Scientists are thus taking steps to download data in preparation for the day when access may be interrupted.

But a country needs hard facts and sound evidence to make smart decisions about its energy and economic future. So we need to continue to lean heavily on the apolitical data that hardworking researchers in government produce for our industry, farmers, entrepreneurs, local and state policymakers, and world-renowned researchers.

Perhaps more than ever before, we must protect and defend this vital information.

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Statistics 101: Climate policy = risk management

Bjørn Lomborg reviewed my book, Climate Shock (Princeton University Press, 2015), joint with Harvard’s Martin L. Weitzman, for Barron’s over the weekend. He started it by stating that “global warming is real.”

So far, so good.

But the book is not about whether the climate is changing. It is.

The book is about whether we are getting the order of magnitude of its effects right. Weitzman and I argue forcefully — in prose in the text, supported by a significant amount of research going into the 100-page end notes — that it’s what we don’t know that really puts the “shock” into Climate Shock. Lomborg asks how we can know that, if apparently we don’t.

The answer is simple, and it’s a statistical point that can’t possibly be lost on Lomborg, a former lecturer on statistics. The set of distributions that most directly represent climate uncertainty — the link between concentrations of carbon dioxide and eventual temperature outcomes — is inherently skewed. We know, and Lomborg agrees, that adding carbon dioxide increases temperatures. (Back to 19th century science.)

So we can very clearly cut off the distribution linking a doubling of pre-industrial concentrations to temperatures at zero. In fact, we can cut it off at least at around 1 degree Celsius (almost 2 degrees Fahrenheit). The world, after all, has already warmed by over 0.8 degrees Celsius (around 1.5 degrees Fahrenheit), and we haven’t yet increased pre-industrial concentrations by even 50 percent.

Reprinted from Climate Shock, with permission from Princeton University Press.

Reprinted from Climate Shock, with permission from Princeton University Press.

That skewedness of the underlying distribution is real. It’s important. The correct response, then, to those who are too sure about where the climate system will go isn’t to say, “cool it.” It’s to take the uncertainties seriously. Those, sadly, are skewed in one direction.

Climate risk is not our friend. It ought to prompt us to rethink not just how we talk about climate change. It should also inform our response. The burden of proof clearly rests on those who argue against these statistical facts.

First posted on Climate411.

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Climate Shock on FT McKinsey Business Book of the Year longlist

FT McKinsey Business Book of the Year 2015 longlist

Business Book Award longlist: must-read titles of 2015” by Andrew Hill (Financial Times, 12 August 2015).

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