Getting the Memo on Climate Risk
Getting the Memo on Climate Risk
Economists are trying to gauge the magnitude of the threat the planetary crisis poses to our economy, and this is a very good thing.
The chasm between the way things work now and how they’d need to work to thrive in this planetary crisis means that the systems that make our lives possible are woven through with massive, unattended risks.
I’m known for ranting about the need to take seriously the financial and economic risks of our growing carbon, brittleness and expertise bubbles, but I gotta say that recently there’s been some actual progress.
The economists and researchers who best understand these risks have been shouting to be heard from the fringes of the debate for years. They’ve mostly encountered crisis triangulation from governments and major institutions — with a few notable exceptions, like the Financial Stability Board’s work on limiting the threat to the world’s economic system posed by unacknowledged climate-driven risks.
That seems to be changing, now.
A new memorandum from the Biden Administration, “Tools to support the management of near-term macroeconomic and financial climate risks,” shows just how fast planetary reality has moved towards the center of serious discussion.
The memo builds on President Biden’s 2021 landmark executive order on climate-related financial risk, and focuses, according to Heather Boushey of the Council of Economic Advisers, on “the need to reimagine the intersection of climate and economic modeling to support near-term decision-making.”
It lays out a path towards getting economic models that accurately assess the magnitudes of risk presented by overvalued unsustainable and brittle assets and practices. It’s a critical step to counting right in the planetary crisis.
Four of its most interesting suggestions are:
“Account for extreme event risks: Rather than including only information on changes in average climate conditions, improved integrated climate-macroeconomic models would include extreme climate events and their social and economic consequences.
Account for transitional dynamics and frictions: Market failures and adjustment frictions can impact macroeconomic outcomes of climate change and climate policies. For example, skill mismatches in the labor market or geographic dislocation of workers can produce lingering increases in unemployment as workers take time to search for or retrain for other jobs in response to climate impacts.
Include short- and intermediate-term timescales and greater spatial granularity: Current climate modeling is oriented around long timescales and large spatial scales. Modeling that assesses impacts over shorter timeframes and at finer geographic levels would better inform economic policymaking.
Account for effects on particular income groups, subnational units, and subsectors of the economy: Place- and people-based policies can address the distributional effects of physical and transition risks from climate change. For example, certain communities may be geographically more susceptible to climate-related disasters while others may be more susceptible to declining labor demand for fossil-fuel industry jobs.”
Some note that almost all of the work being done on climate risk is still at the stage of “let’s see if we can measure how big this shitstorm is” and not yet close to “here’s our shitstorm management plan — grab a shovel.”
Yes, time is short and the stakes are high. Work should be moving much faster. Even in the best-case scenario, these bubbles are not going to go away just because we admit they exist, and most informed observers think a massive loss of value is inevitable. But recognition of discontinuity is the essential first step in responding to it.
For more on understanding the nature of climate risks in the U.S., read my letter on the recent Fifth National Climate Assessment.
If you want to know more about how these kinds of risks threaten our homes and prosperity, check out my letter on the recent Treasury report, The Impact of Climate Change on American Household Finances.
If you want to know how to ready yourself for what’s coming, start with my essay, Ruggedize Your Life.
How to find me elsewhere online:
- Subscribe to this newsletter to support this work, get access to the supporters-only podcast, and get first notice about new courses and events — with subscriber-only discounts!
- Schedule a consultation with me to discuss climate foresight, personal ruggedization or strategies for discontinuity in your life or business.
- Hire me to give a keynote talk at your conference or a bespoke presentation. Email to inquire.
- Check out my books: Worldchanging and Carbon Zero
- View my TED Global talks on sustainability and cities.
- I was featured in a 2022 NY Times Magazine piece, "This Isn't the California I Married."
- I talk about personal ruggedization on these podcasts: The Big Story; Everybody In the Pool
- Visit my Bookshop shop to discover some of my top reads.
- Stay connected on social: Twitter, Facebook, Instagram, Bluesky