Risky Business Report Highlights Economic Damage from Climate Change

5 Jul 2014

This week the unusual bipartisan coalition of business and political leaders known as the Risky Business Project released “Risky Business – The Economic Risks of Climate Change in the United States.”

The analysis uses a standard risk-assessment approach to determine the range of potential consequences for each region of the U.S.—as well as for selected sectors of the economy—if the U.S. continues on its current path.

Launched in October, 2013, the Risky Business Project focuses on quantifying and publicizing the economic risks from the impacts of a changing climate.

Risky Business Project co-chairs Michael R. Bloomberg, Henry Paulson, and Tom Steyer hired the Rhodium Group, an economic research firm that specializes in analyzing disruptive global trends, with an independent assessment of the economic risks posed by a changing climate in the U.S.  Rhodium convened a research team co-led by climate scientist Dr. Robert Kopp of Rutgers University and economist Dr. Solomon Hsiang of the University of California, Berkeley. Rhodium also partnered with Risk Management Solutions (RMS), the world’s largest catastrophe-modeling company for insurance, reinsurance, and investment-management companies around the world. The team’s complete assessment, along with technical appendices, is available at Rhodium’s website.

Although the report billed itself as an analysis of the risks posed to the U.S. economy by climate change, the results reported were somewhat limited and general.

Coastal threats – Within the next 15 years, there’s at least a 67.0 percent chance (meaning it’s likely) rising seas will increase the damage caused by storms along the Eastern Seaboard and Gulf of Mexico by up to $7.3 billion annually. That includes hurricane damage. By 2100, there’s a 5.0 % chance the annual cost could top $42 billion.

By 2050, it’s likely $66 billion to $106 billion of coastal property will be below mean sea level. Those numbers grow to $238 billion to $507 billion by 2100. Under the 5-percent scenario, the value of below-mean-sea-level property could exceed $701 billion by 2100.

Agricultural threats – “Extreme heat” could reduce annual crop yields by 50.0 percent to more that 70.0 percent in areas of the Southeast, Great Plains and Midwest. By 2100, the annual crop yield loss across the Midwest likely will reach 63.0 percent. The report did not analyze the agriculture impact in California and the rest of the Southwest region.

Energy - Greenhouse gas-driven changes in temperature will likely necessitate the construction of up to 95 GW of new power generation capacity over the next 5 to 25 years - the equivalent of roughly 200 average coal or natural gas-fired power plants- costing residential and commercial ratepayers up to $12 billion per year.

Labor Productivity – Hotter temperatures could lower labor productivity in outdoor occupations by 3.0 percent or more in some areas. The risk is especially acute in the Southwest.

Perhaps as much if not more interesting than the reported results of this effort are the process behind the report.

One component of the report noted by Co-Director Catherine Wolfram of the Energy Institute at Haas Business School, UC Berkeley, is its commitment to “open science.” There’s no hard and fast definition of that term, she says, but the Open Science organization defines it as, “the idea that scientific knowledge of all kinds should be openly shared as early as is practical in the discovery process.”

Dr. Solomon Hsiang, professor at UC Berkeley’s Goldman School of Public Policy, was the lead economic author on the technical report that generated all of the results for the Bloomberg et al. glossy. He and his co-authors developed their econometric model, which they call SEAGLAS (Spatial Empirical Global-to-Local Assessment System). The benefits to embracing open science in this case are pretty clear. If Dr. Hsiang and his co-authors make the code underlying SEAGLAS accessible, other researchers can check the code for errors, stress test it by using it to generate results different from the ones in the original report, write modules to expand it, and generally improve its usefulness. The report explicitly says, “We will be making our data and tools available online at climateprospectus.rhg.com. We hope others build on and improve upon our work in the months and years ahead.”

In addition to the high-profile chairmanship of the Risky Business Project there is a Risk Committee composed of high-profile and well respected politicians and businesspeople, liberals and conservatives, Republicans and Democrats, whose names attached to the project lend tremendous credibility to the effort. These Committee members are: George Shultz, former Secretary of State, Treasury, and Labor under Presidents Nixon and Reagan; Henry Cisneros, Founder & Chairman, CityView Capital and former US Secretary of Housing and Urban Development under President Clinton; Gregory Page, former CEO and current Chair of the Board of Cargill, Inc.; Robert Rubin, Co-Chairman, Council on Foreign Relations; former US Secretary of the Treasury under President Clinton and former Co-Chair of Goldman Sachs; Olympia Snowe, former Republican US Senator representing Maine; Donna Shalala, President, University of Miami; former US Secretary of Health and Human Services under President Clinton, former Chancellor of the University of Wisconsin-Madison; and Al Sommer, Dean Emeritus, Bloomberg School of Public Health, Johns Hopkins University.

This diverse team structure is clearly designed to deflect potential criticism of partisanship, provide a credible accounting that may cut through a topic that is rife with disinformation, and begin to turn American business to look inward at the risks of climate change to their own businesses, perhaps to realize that just parroting talking points written by incumbents and disseminated by chambers of commerce may prove to be counterproductive to them in the long run. Some industries, such as insurance and agriculture, have already come to their own conclusions regarding climate change and its effects on their business. Corporate shareholders are also playing an increasing role in calling for accountability in identifying potential stranded assets, such as the recent uprising in ExxonMobil by its Rockefeller family and other shareholders.

What will this mean for distributed energy resources? It has been a long arduous climb for distributed energy in the regulatory, legislative and economic arenas to climb from research curiosities to tiny fractions of one percent of generation to today’s low double-digit percentages. All along the way have been the persistent and forceful headwinds of resistance from entrenched incumbents, especially investor-owned electric utilities and fossil fuel asset-owning industries, such as ExxonMobil and Koch Industries who have been most visible. These companies, employing techniques developed and masterfully deployed by the tobacco industry beginning in the early 1960’s, have successfully obfuscated facts, confused and befuddled the general public.

But as California Public Utilities Commission Administrative Law Judge Kelly Hymes, who presides over demand response proceedings, puts in her signature block, quoting John Adams, “Facts are stubborn things; and whatever may be our wishes, our inclinations, or the dictates of our passions, they cannot alter the state of facts and evidence.”

So just as we once saw television advertisements showing doctors in white lab coats who preferred smoking Camel cigarettes, and we now have much declined smoking rates, so too will today’s talk of “utility death spiral” (a preposterous concept in the reality of regulated monopolies, but a great sound bite that will be around for years) evolve into a smoothly operating electric grid consisting of sustainable distributed energy resources efficiently networked together by regulated monopolies. It may take a generation, as there is no reason to suspect that resistance will collapse any time soon.

But facts are stubborn things, as John Adams said, and the Risky Business report is full of stubborn facts. It may be that the report triggers a sea change in the American public’s perception of climate change, and thence affects the political discourse, but most importantly, awakens the sleeping giant in this conversation that is American business and its enlightened self-interest.

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