Climate Change
Floor Speech
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Mr. WHITEHOUSE. Madam President, let me first thank my friend Senator Schatz, of Hawaii, for joining me on the floor today to talk about the financial hazards that are associated with ignoring climate change. He has been a really terrific leader on this subject. I have to say that I am sometimes a little bit embarrassed that Rhode Island is the Ocean State when Hawaii has so much ocean out there in the Pacific. I guess that is what you get for getting there first, but I am delighted that Senator Schatz is here.
What I want to do in my time here, in my following up on Senator Schatz' remarks, is to go through some of the recent warnings that have come out. One I will go back to from last year, and the other ones I will follow up on quickly. They are all between March 25 of this year and now, just in the last couple of months.
The one from last year is a Wall Street Journal article that documented the increasing climate risk and the insurance industry's need to recalculate. It had the legendary investor--the ``Wizard of Omaha''--Warren Buffett warning that if reinsurance contracts--and he is a reinsurance guy--covered 30 years, he would be crazy not to include climate risks. Those were his words.
The article goes on to point out that climate change may be gradual but that its effects are volatile. It is like something steady for a long time and then, in the words of the article, a sudden large, unexpected hit. ``You can have an increased potential for an outsized loss in a single year,'' and they conclude ``there's a cost for inaction.'' What we are doing here, which is nothing on climate change, has a very significant cost.
The article points out that after Hurricane Andrew hit Florida, 13 insurance companies were ordered liquidated because they were not adequately well prepared. The risks are going up precipitously. The probability of a Texas storm dropping about 20 inches of rain was about 1 percent a year until 2000, and it is expected to increase to 18 percent a year--an 18-times increase in the risk of that level of storm and flooding.
Swiss Re says in the article that coastal flooding could leave certain coastal areas ``so exposed, insurance becomes no longer viable. It becomes uninsurable.'' Indeed, in this article, it points out that if you take climate change into account, flood losses could exceed $1 trillion per year by 2050. In saying this, it aligns with Moody's, the famous bond evaluator and insurer, which is going to start evaluating municipal bonds for coastal communities based on their preparation for coastal risk. This is not some green organization. When it is starting to evaluate, something is going on.
Freddie Mac has warned of a coastal property values crash that could be as serious as the 2008 mortgage meltdown. Again, Freddie Mac is not a green or environmental group. It is warning about a coming risk. We will not listen to those risks because too many people here are told what to do and what to think by the fossil fuel industry.
Just recently, on March 25, 2019, a Federal Reserve research paper warned that climate risk could cause a financial crisis: Losses from natural disasters magnified by higher temperatures and elevated sea levels could spark a financial crisis. The article identified the three key forces that are transforming the economy in our time, and one of those three is climate change.
This is not some side-bar issue. It quoted the latest National Climate Assessment. ``Without substantial and sustained global mitigation and regional adaptation efforts, climate change is expected to cause growing losses to American infrastructure and property and impede the rate of economic growth over this century.'' The reason, it describes, is due to a fundamental market failure. ``Carbon fuel prices do not properly account for climate change costs.'' Of course, the fossil fuel industry loves that market failure, but we should not tolerate it if we purport to believe in a market economy.
Senator Schatz and I support a carbon fee. They call it a carbon tax, pointing out that it can appropriately incentivize innovations, which we need, and that it should equal the social cost of carbon, which our bill does. It also points out that we are creating a risk for generations to come. We might get off pretty free in terms of the punch that comes back, but our kids and our grandkids are not going to think that we did a very responsible job here.
What are the increasing financial risks the article mentions? They are business interruptions in bankruptcies, unexpected losses in the value of assets or companies, and climate-based credit risk exposure, particularly in my coastal State, which is concerned about loans to affected businesses or mortgages on coastal real estate--again, lining up with what Freddie Mac and others have said about the dangers of a coastal property value crash.
The next article of April 4, BlackRock, which is the world's largest asset manager, warns that investors are underpricing the impact of climate-related risks. The report points out that all major U.S. metropolitan areas were already suffering mild to moderate losses to GDP as a result of climate change--already suffering that--and that the risk of a property being hit by a category 5 hurricane was expected to rise by 275 percent if no climate action were taken.
This is a map from that article of the economic impacts of climate change. All of the reds are in real trouble; the tans are in trouble; yellows are in some trouble; trouble for the light green, and green is very scarce and is seeing a little bit of GDP improvement. Yet, if you look at the map, that is a country that is hurting economically as a result of climate change.
OK. Four days later, on April 8, EPA scientists published an article that climate change will cost the U.S. hundreds of billions of dollars per year. Unchecked, climate change will cost the United States hundreds of billions of dollars per year. Cutting emissions of carbon dioxide and other greenhouse gases would prevent a lot of the damage and reduce the annual economic toll in some sectors by more than half. Unmitigated warming could reduce the global GDP by as much as 20 percent, said a related report by the British Government.
Now, think about that. You are going to take a 20-percent hit to the global GDP. What does that do? That is an economic downturn of a very dark order. It also points out that the cost of inaction is really high and that the cost of reducing emissions pales in comparison.
We are taking the more dangerous and expensive path because the group that gets hurt has control over this body, the fossil fuel industry. Yet, as other warnings will point out, it can't change the inevitable. All it can do is postpone it, and the inevitable then gets worse. It warns that damage to coastal property, primarily on the gulf and east coast, will reach $120 billion per year.
If you are from a noncoastal State, you may think that is funny. I am from a coastal State, and I don't think that is funny at all. I think my colleagues should take a warning like that seriously. The benefits that the country stands to reap by cutting greenhouse gas emissions was another theme. There is an upside here. We win economically by cutting greenhouse gas emissions. If we don't, the cost is hundreds of billions of dollars.
Next, on the same day of April 8, 2019, a CNBC article, in summarizing an Urban Land Institute report, warns that for real estate investors in particular, risk is rising exponentially in the age of climate change to the point at which a new cottage industry of companies has emerged that assess climate risk to real estate. ``Climate change,'' the article reads, ``is likely to have a bigger impact on valuation in the future as asset and market liquidity are affected.''
Asset and market liquidity mean that the market seizes up, that you can't sell your house. Of course, that matches Freddie Mac's prediction because, if the person you are trying to sell your house to can't get a mortgage because the bank thinks, at the end of 30 years, the property is going to be literally underwater or that the bank will not be able to get insurance for its mortgage, suddenly, you have a real problem in selling that house. Now you are only selling to cash buyers, and that is a dramatic shift in the price you can get. That is why Freddie Mac is talking about the coastal property value crash.
The following day, on April 9, the investment advisory firm Mercer comes out with another report that describes this warning is the latest from the financial sector of the physical and financial risks posed by rising temperatures. Some investment strategists warn of physical and social damage cascading across the economy.
Again, these are not environmentalists. This is an investment advisory firm. It is warning us of financial perils ahead if we don't start paying attention. A part of it is the loss in value or simply the outright loss of wide swaths of coastal property. So, when I come back to rely on mine as a coastal State, I hope my colleagues here can appreciate that this isn't funny when you are talking about the loss of value or simply about the outright loss of wide swaths of coastal property.
The scenarios aren't good. They are negative for global growth, and they aren't really great for anyone. It is a declining global economy that has no big winners spiking up, and it can move fast. Asset prices, they say, could quickly shift to reflect the risk. There could be material impacts, especially at the sector level, in a relatively short period of time. That is how crashes work. They creep up on you, and then they crash. That is why they call them crashes.
Next, on April 18, 2019--9 days later--we have the central banks. Thirty central banks around the world called for a better assessment of the risks from higher global temperatures. As Senator Schatz pointed out, the U.S. Fed and the Central Bank of Brazil were among the institutions not involved in the initiative. It is pathetic on our part.
Climate change is identified as a source of financial risk that these financial regulators feel is well within their mandate to begin to address. They considered that the report issued a loud wake-up call for the global economy to act on climate change. Good luck getting through the muscling of the fossil fuel industry around this particular building, but the wake-up call is ringing in the financial community.
Mark Carney, the Governor of the Bank of England--who was warned about this previously--and Villeroy de Galhau, the Governor of the Bank of France, warned that climate change and the poor management of the transition to a low-carbon economy have the potential to trigger a ``sudden collapse in asset prices that could devastate the global financial systems.''
``If some companies and industries fail to adjust to this new world,'' they argue, ``they will fail to exist.''
Again, as others have said, the article argues that the costs of decarbonization are likely to be small compared to the costs of not taking action.
Yet again, we are listening to the fossil fuel industry here. It has a huge stake in all of this. It has a huge conflict of interest. It has control over a significant part of Congress, and it is blocking us from taking the essential safe, low-cost path.
The last one is from April 17, the Network for Greening the Financial System, which is the comprehensive report by a group of central banks. Again, it points out that these climate-related risks are a source of financial risk.
Indeed, the head of the Bank of England--the regulator for insurance and banking in the UK--has described this as a systemic risk. What is a systemic risk? That means that when the entity collapses, like when the carbon asset bubble collapses, it doesn't just take the carbon asset bubble companies down with it; the rest of the economy pours in behind, and you have a systemic economic meltdown. Just like happened in 2003, it wasn't just the banks with the junk mortgages that failed; a whole bunch of others businesses got sucked into that vortex, and the same is predicted here.
They point out a couple of final things about the nature of this financial risk:
One, it is far-reaching in its breadth and magnitude. That is an ominous description of a financial risk. It is potentially aggravated by tipping points in a nonlinear fashion; i.e., it gets to a certain point and then crashes. We New Englanders appreciate this when we have the snow melt in the springtime. The snow piles up on the roof of your house. It piles up storm by storm and snowflake by snowflake. But one warm spring day, you suddenly hear ``woomph'' outside because the whole snowpack on your roof has slid off. It is a catastrophic failure of snow adhesion in that case. In this case, it is an example of how quickly a nonlinear tipping point can lead into economic distress.
Two, it is foreseeable. We know it is coming. There is a high degree of certainty that these risks will materialize. We know perfectly well this is coming; we just won't do anything about it because the people who have to deal with it first--the fossil fuel industry--have this place tied in knots.
Three, irreversibility. When it happens, there is no going back. There is currently no mature technology to reverse the process of overheating our climate and acidifying our ocean. For our children and grandchildren and their children and grandchildren, that leaves a pretty bleak prospect that we have just discounted away as if they weren't going to be born, as if they didn't exist now, as if this weren't going to happen, as if we shouldn't care. Irreversibility.
Here is the last one: dependency on short-term actions. The magnitude and the nature of these irreversible, foreseeable, far-reaching, future impacts will be determined by actions taken today. It will be determined by actions taken today. If we don't make the right decisions now, our mistakes, our indolence, our ignorance, our greed, our subservience to this industry--whatever it is--will cascade through the decades irreversibly with far-reaching impact. They will look back at us and say: It was foreseeable. Didn't you guys know this was foreseeable? You were told. You were warned. How could you have done nothing?
I don't have a very good answer.
It is time to wake up.
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