Stuart Kirk, head of responsible investing (!) gave a talk last week. for HSBC’s asset management division, gave a talk titled “Why investors need not worry about climate risk,” in which he declared that it’s no big deal: “Who cares if Miami is six meters underwater in 100 years? Amsterdam has been six meters underwater for ages, and that’s a really nice place. We will cope with it.”
Kirk has reportedly been suspended, although the Financial Times also reports that his theme and content had been “approved internally” before the talk. Still, his self-immolation may be helpful in making a crucial counterpoint: Investors — and, more important, human beings — need to worry about climate risks right now. For climate change isn’t something that will happen decades in the future; its effects are happening as you read this. And while we may “cope with it” for a while, there will come a point when we can’t — and the scale of catastrophe will be immense.
There are many forms of climate denial. Kirk simply offered one version — still unforgivable from someone who’s supposed to be a risk manager — which goes, “Hey, what’s the big deal if the planet gets a degree or two warmer?”
With apologies to climate scientists, who know that I’m about to perpetrate a vast oversimplification, and further apologies for my D.I.Y. I offer a schematic explanation as to why that argument is flawed.
Weather is unpredictable and extreme weather events have occurred even before the advent of fossil fuels. For a particular location — say, northern India — the distribution of temperatures might have looked something like this:
I’m assuming — again, a huge oversimplification — that there’s some critical temperature that represents a danger point. The shaded area indicates the frequency at which that threshold would be exceeded before the fossil fuel era.
Now, imagine that a buildup greenhouse gases raises average temperatures, shifting probability distribution to the left. Even if the average temperature — the peak of the bell-shaped curve — remains below the danger level, the frequency of episodes of dangerously high temperatures may dramatically increase:
It’s not just temperature, of course; it’s all the side effects of the temperature rise. Climate change is increasing the frequency of severe droughts, storm surges, and other destructive weather phenomena.
Once you get this, you’ll see that climate change is all around you. For example, last week saw an extreme heat wave in southern Europe. Fortunately, it passed after I had completed my cycling trip to Portugal.
Although such heat waves have occurred before, climate change has made them more common. According to one estimate the record-breaking heat wave in India and Pakistan this year was 30 times more likely without human-caused climate changes.
Consider the megadrought that is currently afflicting Western United States.
There have been droughts in the West for centuries. This drought, however, has been ongoing for more than 20 years and has reduced water levels at key reservoirs to records lows. It is the worst in at most 1,200 year.
So climate change isn’t an issue for the distant future. Its effects are happening already, although there’s surely much worse to come.
But will we, as HSBC’s Kirk asserted, “cope with it”? Yes. For a while.
Modern societies — certainly high-income countries like America, and even lower-middle-income nations like India — have far more capacity to deal with problems than preindustrial societies. They can assist hard-hit areas; adapt their agriculture and living arrangements for changing weather; they can likely keep the appearance of a more or less normal existence for many years.
But there’s a well-known proposition in my original academic home field of international economics known as Dornbusch’s Law, named after the Massachusetts Institute of Technology economist (and my mentor) Rudiger Dornbusch: “The crisis takes a much longer time coming than you think, and then it happens much faster than you would have thought.” Rudi was talking about currency crises, but his rule applies to other crises too.
What I fear — and, alas, expect — is that for years, maybe even decades, to come we’ll avoid the worst-case scenarios for climate disaster. Famines can kill millions but not tens or hundreds of millions because food will be rushed in to the affected areas when crops fail. For a while, it will be rare to see incidents in which wetbulb temperatures, which is a combination of heat and humidity, exceed human endurance. Residents of cities flooded by storm surges may be rescued.
Thanks to human ingenuity, we’ll cope — until we can’t, because the scope of the crisis will exceed even modern society’s ability to adapt. I liken our response to climate change to a rubber band, which can be stretched out a lot before it snaps. And then, the megadeaths start.
I wish I was being hyperbolic, but I think I’m just being realistic.
The problem is that the climate crisis can be solved. The rapid progress in renewable energy has meant that even a modest policy push could still result in a significant reduction in greenhouse gas emissions.
But none of this can happen without participation from the United States, and rational climate policy in what is still the world’s essential nation is being held hostage by people more concerned with imaginary threats from critical race theory and swarming immigrants than with the rapidly changing fate of the planet.
Quick Hits
Renewable energy.
Sigh. No Build Back Better, which would have addressed climate change, wouldn’t have been inflationary.
Even if Jeff Bezos claims the contrary.
A blast from my own past: My first significant published paper was basically about Dornbusch’s Law.
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Source: NY Times
