Climate crises, like financial crises, will be damaging, unpredictable and almost impossible to avoid
Last year Australia’s central bank hoped that several interest-rate cuts would mark a turning point for its slowing economy. That was before the worst bushfires in Australia’s history hit tourism, consumer confidence and growth forecasts for this year. There is now a good chance the bank will cut interest rates again soon.
Welcome to a world in which climate change’s economic impact is no longer distant and imperceptible.
- Puerto Rico never fully recovered from Hurricane Maria in 2017.
- Extreme drought in California and poorly maintained utility power lines led to severe wildfires in 2018, the utility’s bankruptcy and blackouts last year.
Climate change can’t be directly blamed for any single extreme weather event, including Hurricane Maria, California’s wildfires or Australia’s bushfires. But it makes such events more likely. “They are starting to be more than tail events, they’re starting to affect economic outcomes,” Robert Kaplan, president of the Federal Reserve Bank of Dallas, told an economic conference earlier this month.
Climate crises in the next 30 years may resemble financial crises in recent decades:
- potentially quite destructive,
- largely unpredictable and, given the powerful underlying causes,
Climate has muscled to the top of business worries.
Every year, the World Economic Forum asks business, political, academic and nongovernmental leaders to rank the most probable and consequential risks, from cyberattacks to fiscal crises. This year, ahead of its annual meeting next week in Davos, Switzerland, climate-related risks took the five top spots in terms of probability, the first time a single issue had done so in the survey’s 14-year history.The New NormalAs global temperatures rise, extreme temperatures and environmental disasters become more common.Summer temperatures for local regions in the northern hemisphereSTANDARD DEVIATION FROM 115-YEAR AVERAGETHOUSANDS OF OCCURRENCES1961-19802011-2015-4-3-2-10123450102030405060World-wide extreme weather eventsSources: McKinsey Global Institute (temperature distribution), JPMorgan (extreme weather events).events1980’85’90’952000’05’10’150100200300400500600700800900
Of course, economies have always been vulnerable to natural disasters. Before the modern industrial era, crop failures were a leading cause of recession. The monsoon season remains a key economic variable in India, and the Tohoku earthquake and tsunami in 2011 tipped Japan into recession.
And while estimates of climate’s economic impact are suffused with uncertainty, they don’t suggest any major economy will be pushed into recession, much less depression.
Studies reviewed by David Mackie of JPMorgan Chase suggest climate change could reduce global gross domestic product by 1% to 7% by 2100, assuming “business as usual” (i.e., absent policies to mitigate emissions of carbon dioxide). Given that the impact is spread out over 80 years, in which per capita incomes probably rise 300% to 400%, even larger climate change impacts would appear small, he said.
Aggregate changes in GDP, though, can be misleading. As global temperatures climb, the probability of extreme temperatures and events and the associated economic consequences should rise more.
This relationship is driven home in a study released Thursday by the McKinsey Global Institute. It estimated that “unusually hot summers” affected 15% of the Northern Hemisphere’s land surface in 2015, up from 0.2% before 1980.
McKinsey estimated that climate change made the European heat wave that in 2019 killed 1,500 in France 10 times more likely and the forest fires that devastated northern Alberta in 2016 up to six times more likely.
Looking ahead, assuming business as usual, McKinsey projected the probability of a 10% drop in wheat, corn, soybean and rice yields in any given year will rise from 6% now to 18% in 2050. Such a change wouldn’t cause food shortages but could cause prices to spike. The probability that a catastrophic cyclone disrupts semiconductor manufacturing in the western Pacific will double or quadruple by 2040. Such an event “could potentially lead to months of lost production for the directly affected companies,” McKinsey said. The probability of rain heavy enough to halt the mining in southeastern China of rare-earth elements, vital to many electronic devices, will rise from 2.5% now to 6% by 2050.
Such an exercise comes with plenty of caveats. The projections make no allowance for adaptation, though no doubt some outdoor activity will move indoors, some businesses will relocate from flood plains, and insurance will cushion the cost for many.
But adaptation goes only so far. Humans can’t survive prolonged high heat and humidity beyond certain thresholds. Those thresholds are rarely met now, but will be reached regularly in some regions by 2050.
Adaptation and insurance may be deemed too costly. “Underinsurance may grow worse as more extreme events unfold, because fewer people carry insurance for them,” McKinsey predicted.
Some on Wall Street are starting to treat climate change the way they regard financial crises. “Climate change is almost invariably the top issue that clients around the world raise with BlackRock,” Chairman and CEO Laurence Fink told chief executives this week in explaining why climate would be a key criterion in how BlackRock Inc. invests its $7 trillion of client money. For businesses, mandates—private or government-driven—pose a risk distinct from climate change itself. Car companies are now spending heavily to market electric vehicles with no assurance they will be profitable.
Some central bankers are also talking about climate risk the way they talk about financial crises. Christine Lagarde, the newly installed European Central Bank president, told European parliamentarians last fall, “At a minimum…[the ECB’s] macroeconomic models must incorporate the risk of climate change.”
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Yet worrying about it isn’t the same as doing something about it. Unlike financial crises, neither Wall Street nor central bankers have the tools to alter the forces making climate crises more likely: rising carbon dioxide emissions and economic development in vulnerable regions. Only political leaders can—and it isn’t clear they will.
The Madrid climate summit in December “is the most recent example of countries failing to cooperate to create a global emissions trading regime,” Mr. Mackie said. “Most likely, business as usual will be the path that policy makers follow in the years ahead…[which] increases the likelihood that the costs of dealing with climate change will go up as action is delayed.”
Join Anand Giridharadas author of Winners Take All, in conversation with Belfer Center Executive Director Aditi Kumar on the perils of philanthropy and policy in the hands of the global elite.
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Washington (CNN)A vehicle accident that killed one cadet from the US Military Academy and injured 21 others Thursday is refocusing attention on a startling statistic — more American service members are dying during training exercises than in combat operations.Between 2006 and 2018, 31.9% of active-duty military deaths were the result of accidents, according to a congressional report updated last month. By comparison, 16.3% of service members who died during that time were killed in action.And a large majority of those accidents occurred in circumstances unrelated to combat deployments.“Since 2006 … a total of 16,652 active-duty personnel and mobilized reservists have died while serving in the US armed forces. Seventy-three percent of these casualties occurred under circumstances unrelated to war,” the report states.It is a trend that has only seemed to pick up momentum of late, as noncombat deaths have exceeded the number of military members killed in action every year since 2015.In 2017, nearly four times as many service members died in training accidents as were killed in combat, according to a House Armed Services Committee report related to the National Defense Authorization Act for fiscal year 2019 — a key point highlighted by many lawmakers and military officials who argued for additional defense spending to help offset readiness issues that have compounded for years.“In all, 21 servicemembers died in combat that year while 80 died as a result of noncombat training-related accidents,” the report said.The military endured a high rate of training-related deaths again in 2018 and a spate of deadly noncombat military aircraft crashes prompted then-House Armed Services Chairman Mac Thornberry, R-Texas, to say the “readiness of the military is at a crisis point.”“This crisis is not limited to military aviation,” Thornberry wrote in a 2018 report. “This past summer, the Navy lost 17 Sailors in separate collisions involving the USS McCain and the USS Fitzgerald. Navy investigators later found that both accidents were related to ongoing Navy readiness problems.”One of the most recent accidents occurred in March, when two Marine pilots died in a helicopter crash near Yuma, Arizona, during a routine training exercise.While details on the cause of Thursday’s deadly accident remain unclear, the incident serves as yet another reminder of broader safety issues related to military training.Lt. Gen. Darryl A. Williams, the superintendent of the US Military Academy at West Point, was unable to immediately provide details about the cause of the rollover vehicle accident, citing the ongoing investigation. He said the name of the deceased cadet would not be released until the family was notified.“Today was a tragic day for the West Point community and our United States Army,” Williams said.