The world will certainly remember 2020 for the coronavirus and its devastating impact on human lives and the world economy. But 2020 will also be remembered as a year when events driven by climate change overwhelmed our defenses. Wildfires in Australia and California reminded us that a pandemic is not the only thing that can quickly exceed our ability to protect our lives, property and economy. Just as social distancing and the wearing of masks are critical in controlling the virus while vaccines are being deployed, a rapid reduction in greenhouse gas emissions is needed to prevent climate change from progressing beyond our ability to cope. In addition to the human cost of more frequent natural disasters, businesses are taking notice of the huge economic costs.
In 2020 there were several reports, including from conservative institutions, that conclude that continuing on the current path of stable, or increasing, carbon emissions will cost far more than aggressively decarbonizing the economy. For example, the major reinsurer MunichRe has observed nearly a four-fold increase in the number of insurable losses from the 1980s to the 2010s, and now prominently features climate risks on its website. Here in the U.S., there were 16 climate-related disasters in 2020 with losses exceeding $1 billion each. The average number of climate events from 2015 to 2019 was 13.8, and for the 40 years prior, the average was 6.6. The first climate-driven hazard that usually comes to mind is sea level rise, but now we are seeing river flooding and wildfires as significant risks. Many in California have had their insurance canceled in the wake of recent wildfires, which means that taxpayers are now becoming the insurer of last resort for wildfires, as they already are for flooding, through the National Flood Insurance Program.
Not only is the insurance industry concerned, but the Commodity Futures Trading Commission, all five of whose commissioners were appointed by President Trump, stated in its September 2020 report, “Climate change poses a major risk to the stability of the U.S. financial system and its ability to sustain the U.S. economy.” The report predicts climate and pollution damages in the year 2050 ranging from $50 trillion to $140 trillion on the current emissions path. By comparison, they estimate that decarbonizing the U.S. grid in the next 20 years will cost only $4.5 trillion.
In the private sector, the Business Roundtable, whose members are CEOs of companies representing more than 15 million employees and 27% of U.S. stock market capitalization, stated, “Unchecked, the changing climate poses significant environmental, economic, public health and security threats to countries around the world, including the United States. The consequences of climate change for global prosperity are significant; the world simply cannot afford the costs of inaction.”
The flip side of a threat is an opportunity. Climate change is certainly a threat, but solving climate change should be viewed not as a threat, but as described by Jigar Shah, president of venture capital firm Generate Capital and former CEO of SunEdison, “the greatest wealth creation opportunity of our time.” It is already the case that renewable energy is creating jobs at a faster rate than the fossil fuel industry — a solar energy company is a much better investment today than a coal company. From large scale battery storage technology to EV charging stations, there is a huge clean energy infrastructure yet to be realized. The market has already recognized this opportunity: from 2017-2019 (pre-COVID), the iShares Global Clean Energy ETF, the largest exchange-traded fund in the U.S. investing in clean energy, increased 152% while the Energy Select Sector SPDR Fund, the largest oil and gas ETF, declined 20%. In other words, the smart money is already repositioning itself for the future.
While these developments in the financial sector are as hopeful as they are inevitable, getting the right policies in place is critical to the acceleration that is needed to achieve decarbonization in the required timeframe. The best economic policies will steer the economy towards the goal, while avoiding shocks to the financial infrastructure and regressive actions that burden those at the bottom of the economy. For this reason, 3589 economists, organized by the conservative Climate Leadership Council, signed a statement in support of carbon fee and dividend (CFD). CFD is a policy tool that places a fee on carbon emissions and returns the funds as an equally distributed dividend to U.S. households.
The best example of legislation enacting CFD is the Energy Innovation and Carbon Dividend Act (EICDA) from the last Congress — expected to be reintroduced soon in the new Congress. This is the most successful carbon pricing legislation ever proposed in Congress, with 86 cosponsors, including our member of Congress, Joseph Morelle. There is no policy that can solve our emissions problem in one fell swoop, but EICDA is a policy that would make a huge dent in emissions while protecting our economy. As we begin a new Congress and a new Administration, EICDA is an example of the kind of policy that businesses and households should be demanding.
Paul Kane is a retired scientist and member of Citizens’ Climate Lobby.