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The economic risks of climate change affect every one of us

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Climate change is not only about the environment and sustainable planet. Economic risks associated with climate impacts are already affecting American business resiliency, and as a result, affect people’s lives and would livelihoods.

In a dialogue organized by Acterra.org last week, Kate Gordon described the Risky Business project, a new initiative focusing on the economic risks created by climate change. Gordon outlined the reasoning for the study project, and why it's important for businesses to understand the potential impact of climate change on economic activity.

The lecture was a part in a series of conversations by Acterra titled “Solving the Climate Puzzle”, that are focused on different solutions to protect our climate and how to make the transition to a new energy future (see more information below).

How to change the conversation about climate change?

We are already witnessing changing climate conditions in the U.S., from storms, floods, hurricanes, wild fires, to severe droughts. The changing climate will continue to affect every aspect of the U.S. economy, from agriculture production to labor productivity. This will impact businesses by posing potential risks but also affect investors’ decisions, as well of living conditions and livelihood of many people. Failing to disclose potential risks associated with worsening climate conditions will back fire. Risky Business tries to take the conversation outside the environmental point of view to have a broader reach by the business world, by financial sectors and by government. Risky Business aims to help high level decision-makers in various industries to recognize and demystify the risks associated with climate inaction.

The Risky Business team took a different approach: Instead of engaging with environmentally or climate savvy personnel and bringing them into the risk management realm, the idea was to bring risk management experts, i.e. financial and business professionals, into the climate area. Then, couple such expertise with research functions. Therefore, Risky Business offers an independent risk assessment of the potential financial risks in the U.S. due to unmitigated climate change. The assessment combines existing data on the current and potential impacts of changing weather patterns with research that will quantify potential future economic costs that are focused on regional and sectoral areas. The results will be released in the summer of 2014.

Risky Business has set several goals:
- Bring high level individuals with regional and sectoral expertise, whom have experience 
in decision making in the face of uncertainty. For example public safety and security expertise.

- Asses the risks climate change presents to their region, industry or profession, in areas such as electric grid security, healthcare, agriculture, financial services, coastal communities, and more.

- Research and communicate the findings to colleagues, policymakers, and the public.

Gordon said that when assessing the economic risk, there is no prescription or a formula to solve the issues, intervene or mitigate the risks due to climate change. Further, risks are based on regional and sectoral conditions and are not generic.

In California, we face several changing conditions due to global warming:

  • Rise level in sea level
  • Warming surface temp
  • Storm surge
  • Droughts

These pose risks to assets and key infrastructure with the estimated cost of billions of dollars. For example, California's electricity transmission infrastructure is at risk from severe wild fires, which are made worse due to climate change.

California drought is also taking a toll on hydropower generation. Hydroelectric power is a major source of California's electricity and is already facing a threat due the drought we are currently experiencing, with predictions to additional and significant implications in the future. The amount of hydroelectricity produced varies each year and is largely dependent on rainfall. According to the California Energy Commission (CEC), in 2007, hydroelectric power plants produced 43,625 gigawatt-hours of electricity, or 14.5 percent of the total. California has nearly 400 hydro plants, which have a total dependable capacity of about 14,000 MW of capacity.

In 2011, California ranked as follows:

  • Third in the Nation in conventional hydroelectric generation,
  • First in net electricity generation from other renewable energy resources,
  • First as a producer of electricity from geothermal energy

(Source: EIA - U.S. Energy Information Administration - The State of California )

The CEC website explains that the conventional hydroelectric facilities are dams and run-of-river. Dams raise the water level of a stream or river to an elevation necessary to create a sufficient elevation difference (water pressure, or head). Dams can be constructed of earth, concrete, steel or a combination of such materials. Dams may create secondary benefits such as flood control, recreation opportunities and water storage. Run-of-river, or water diversion, facilities typically divert water from its natural channel to run it through a turbine, and then usually return the water to the channel downstream of the turbine. Both types of facilities need — water, rainfall, and snow — where California is short of.

Gordon said that Risky Business selected to study six sectors in depth, choosing the areas that have big impact and also have sufficient data to perform a valuable analysis. In these six sectors we have data on past events and the knowledge of the economic impact due to extreme weather changes:

  • Agriculture
  • Public health
  • Coastal over structure
  • Coastal sys
  • National security
  • Labor productivity

How can labor be affected by extreme weather conditions?

Extreme heat and heavy precipitation affect outdoor workers like construction and agriculture. A solution may be to do the work in the evenings and at night versus the day time. The Heat wave in Chicago affected public health. Snowstorms close down cities, schools, businesses and many community services. The list is, unfortunately, long.

Risky Business project takes a very conservative approach and examines areas where data is available and impacts were realistic. This is doesn't give an economy-wide view of the entire U.S.

Gordon reported that based on findings thus far, when it comes to economic risks as a result of climate change, the general feeling is 'business as usual' but it needs adaptation. These are the encouraging news: some degree of adaptation is needed, and it is needed now.

However, how to weigh the cost of adaptation versus the cost of mitigating the impact?

Well, there is no clear answers here. The Agriculture industry seems to be able to adapt and off-set the associated costs, for example in water conservation. With investments in agriculture, gaining financial advantages over a 10 year period or even sooner are possible.

ADDITIONAL INFORMATION

1. The Risky Business project is supported by former NY City Mayor Michael Bloomberg, ex-Treasury Secretary Hank Paulson and financier Tom Steyer: www.riskybusiness.org

2. Acterra - www.acterra.org

Climate Change Lecture Series “Solving the Climate Puzzle”: http://www.acterra.org/lectures/

3. Hydroelectric power in CA is at risk and already facing a threat. Source: http://www.energy.ca.gov/hydroelectric/index.html

4. General: for Climate Change in depth click http://en.wikipedia.org/wiki/Climate_change

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