The longer we wait to address climate change, the more it’s going to cost, says a new report from the President’s Council of Economic Advisors.
According to Jason Furman and John Podesta:
“Our report finds that the costs of achieving a fixed climate change goal would be 40 percent larger if we waited a decade to take action. And those costs could grow exponentially with a longer wait. That’s because, if we delay action in achieving a fixed set of climate goals, then we have to incur greater upfront costs to make up for the years in which additional carbon pollution was released into the atmosphere.”
Similarly, if a delay leads to higher carbon dioxide levels, the effects of climate change may be even greater and more costly. If temperatures rise by an additional 1°F, economic losses could increase by 1 percent of GDP, every year—that’s equivalent to approximately $150 billion of economic output lost in the U.S., based on this year’s GDP.
Most concerning is the possibility of hitting a “climate tipping point.” Climate change could trigger large, irreversible changes that would have a devastating effect on businesses and households. Trigger events could include the destabilization of the West Antarctic ice sheet, disappearance of Artic sea ice, or a rapid increase of carbon stored in Northern permafrost. While the chances of this happening are small, the consequences are so severe that it makes sense to take action as a form of insurance against these threats.
The report echoes what we’ve been hearing from many leaders in financing.
Earlier this summer, a report spearheaded by business leaders Michael Bloomberg, Hank Paulson and Tom Steyer quantified the economic impact of climate change. Without action, rising sea levels may flood coastal property, high temperatures may reduce worker productivity, and agricultural yields may decline.
In addition, Business Forward looked at the costs of severe weather for the auto industry. The costs of the EPA’s new standards for power plants are relatively small (about $7 for a $30,000 car) when compared to the costs of a severe weather ($1,250,000 per hour of downtime). With continued climate change, severe weather may become more intense and occur more frequently.
The high cost of climate change means we need to start addressing these risks now.
“Capital markets participants traditionally have short term horizons. But environmental change is a long-term issue that they cannot ignore.,” wrote Standard & Poor’s president Neeraj Sahai in Fortune. “Over time, it will play an increasing role in determining both financial risk and return.”