Unless dramatic counter-measures are taken, annual losses to the U.S. economy from climate change could reach billions of dollars by the end of the century, according to a comprehensive interagency report from the U.S. federal government released last week. Even though the report’s subject arguably is outside this blog’s bailiwick, I am highlighting the report here out of a concern that due to the report’s publication late in the afternoon on the Friday of a holiday weekend many may have missed the report and its message. The report is sober, detailed, and serious, and should be read and studied by anyone concerned about important risks facing our national economy and business environment. The bottom line is that climate change clearly represents a significant risk for all enterprises, regardless of sector and of geographic location.
The full November 23, 2018 report of the U.S. Climate Change Research Program can be found here. The Report-in-Brief (which I recommend for its relative brevity and ease of access) can be found here. The Summary Findings can be found here. A November 24, 2018 New York Times article about the report entitled “U.S. Climate Report Warns of Damaged Environment and Shrinking Economy” can be found here.
In the Global Change Research Act of 1990, the U.S. Congress mandated that the U.S. Global Change Research Program (USGCRP) deliver a report to Congress and to the White House no less than every four years analyzing the effects of and the current trends in climate change, and to project current trends for the next 25 to 100 years. The current report is actually the fourth assessment pursuant to the congressional mandate (and thus refers to itself as NCA4). The report issued last Friday is actually the second part of a two-part report to be issued during the current reporting cycle; the first part, released last year and focused on the scientific aspects of climate change study, can be found here.
The Report was prepared by an interagency task force lead by the National Oceanic and Atmospheric Administration (NOAA), and involving the participation of representatives from 13 different federal agencies, including the Department of Energy, the Department of Transportation, the Department of State, NASA, and the National Science Foundation. A team of more than 300 federal and non-federal experts volunteered their time to produce the assessment. Among other things, the report team conducted more than 40 workshops around the country, reaching more than 1,000 individuals. The ultimate report was reviewed both by external experts and by the general public. The external review included expert peer review.
The Report’s Findings
The report concludes that the “earth’s climate is now changing faster than at any point in the history of modern civilization” and that the “impacts of global climate change are already being felt in the United States and are projected to intensify in the future.” Decisions made today “determine the risk exposure for current and future generations.” While mitigating steps are now being taken (such as measures to reduce the greenhouse gas emissions through the use of alternative fuel sources) “neither the global efforts to mitigate the causes of climate change nor regional efforts to adapt to the impacts currently approach the scales needed” to avoid “substantial damages” to “the U.S. economy, environment and human health and well-being over the coming decades.”
The report’s catalog of observed climate change is sobering – temperature extremes and heavy precipitation events are increasing; glaciers, snow cover, and sea ice are shrinking; seas are warming, rising, and becoming more acidic; flooding is becoming more common along the U.S. coastline; and wildfires are becoming more frequent and more severe. Graphical exhibits in the Report-in-Brief detail the increase in the average annual U.S. temperature; the significant decline in the Western U.S. snowpack; the dramatic shrinkage of the artic sea ice; the rise in the number U.S. heating degree days and the decline in the number of cooling U.S. degree days; the significant increase in the length of the growing season throughout the U.S.; the rise of the U.S. sea level; and the increase in ocean acidity.
In all, 17 of the 18 warmest years on record have occurred since 2000. The warming trend has been driven in large-part by land-use changes (including cutting down forests and paving over natural surfaces) and rising emissions of greenhouse gases (including carbon dioxide from the burning of fossil fuels and methane from livestock production).
The report specifically attributes the magnitude of climate changes to human activity: “the unambiguous long-term warming trend in global average temperature over the last century cannot be explained by natural factors alone. Greenhouse gas emissions from human activities are the only factors that can account for the observed warning over the last century.”
These processes will continue to affect the climate in the decades ahead. The extent of the future changes depends in part on the level of greenhouse gas emissions going forward. While significant mitigation activity could ameliorate the more severe trends, without significant greenhouse gas mitigation, the increase in global annual temperature could reach nine degrees Fahrenheit or more by the end of the century. In the best scenario, high temperature extremes, heavy precipitation events, high tide flooding events along the U.S. coastline, ocean acidification and warming, and forest fires are projected to continue to increase, while land and sea ice cover, snowpack, and surface soil moisture are expected to continue to decline in the coming decades.
These and other projected changes are expected to “increasingly impact water resources, air quality, human health, agriculture, natural ecosystems, energy and transportation infrastructure, and many other natural and human systems that support communities across the country.”
The changes are “expected to cause substantial net damage to the U.S. economy, especially in the absence of increases adaptation efforts.” The “potential for losses” in some sectors “could reach hundreds of billions of dollars per year by the end of this century,” which is “more than the current gross domestic product (GDP) of many U.S. states.” All told, the report says, climate change could slice up to one-tenth of the gross domestic product by 2100, more than double the losses from the global financial crisis ten years ago.
The report’s projection of the economic impact from global climate change is detailed and specific. The report notes that climate change likely will increasingly disrupt critical infrastructure and property and labor productivity. Regional economies and industries that rely on the environment or natural resources – such as agriculture, tourism, and fisheries – will be particularly vulnerable. Agricultural yields could fall to 1980s levels by midcentury and fire season could spread to the Southeast.
Moreover, climate change will have impacts beyond our borders, and could lead to disruptions to trade, for example through disruptions to overseas operations and global supply chains. Extreme weather and climate-change events could result in risks or failures to critical systems, such as water resources, food production and distribution, energy, transportation, public health, international trade, and national security.
The report does note that there have been important steps taken by communities, governments, and businesses to reduce the risks and costs associated with climate change by taking actions to reduce greenhouse gas emissions and implement adaption strategies. Among these steps are transformations of the energy sector, including in particular the displacement of coal by natural gas and the increased deployment of renewable energy. However, while these steps can help reduce climate impacts, “more immediate and substantial global greenhouse gas emission reductions, as well as regional adaptation efforts, would be needed to avoid the most severe consequences.”
While the report is unusually detailed and specific, in many respects the report’s message is not new. Other climate change task forces – both national and international – have sounded the alarm on global climate change. The significant messages that this report adds to the dialog are, first, its message that global climate change is not some distant, vague, future event – it is in fact happening right now in every part of the country; and, second, its message that climate change represents a significant threat to our economy, our public health, and our national security.
It might be expected that such a detailed message of a significant set of threats facing the country might represent a call to arms that might galvanize the country’s leadership to action, particularly given the report’s unmistakable message that climate change represents not just a threat to the economy but also to trade and to national security. However, no such action is likely. The current administration’s approach to environmental issues generally is inconsistent with the kind of inquiry, planning, and action that the report’s findings dictate. Indeed, for years, serious climate change concerns have been subordinated to the dynamics of the country’s cultural and political divide. While it could be argued that the White House did nothing to suppress this report, the reality is that the White House dropped the report after 2 pm on the Friday of a holiday weekend.
However, for anyone serious about identifying significant risks facing the economy and facing individual businesses, the report’s messages cannot be ignored. Any enterprise with operations in coastal areas or in areas prone to wildfires; any organization dependent on an extended global supply chain; any organization with operations in the most easily identified and vulnerable sectors, such as agriculture, fisheries, and tourism; any organization dependent on aging or vulnerable infrastructure – in short, every enterprise and organization — will need to understand, assess and address the risks identified in this report.
Moreover, it may not be sufficient for organizations simply to identify, disclose, and to try to plan for climate change vulnerabilities. In the absence of any coherent governmental action or response, it may be incumbent on private enterprise to act, if simply out of prudence and self-defense. These actions might include active measures to reduce greenhouse gas emissions in company operations, distribution, and transportation; examining supply chains and other operational structures to see where climate mitigating measures might be introduced; and examining operational inputs (such as raw materials) to see where vulnerabilities may exist.
The report makes it clear that climate change represents a threat at both the economic and enterprise levels. The risks that climate change presents represent a challenge for every organization. The risks not only potentially could affect future operating success. The risks could also represent an important source of potential corporate liability, to the extent that various stakeholders seek to hold companies and their management accountable for failing to take steps to identify, address, and mitigate the risks that climate change presents.
The possibility of liability actions arising based on action or failures to act with respect to climate change issues is not mere conjecture; just in the last few days, shareholders filed a securities class action lawsuit in connection with the California wildfires, and shareholders and others have previously filed actions based on climate change-related disclosure issues (refer here and here). I know some readers may feel I have gone on a bit too much about the kind of management liability threat that climate change-related issues might represent, but the reality is that climate change-related claims, like climate change itself, are already here. And just as climate change is likely to be an increasingly serious problem, climate change-related claims will become increasingly important as well.