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Report shows climate change imperils the U.S. financial system

phys.org
4 min read
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Burnt orange daytime skies signal that the consequences of climate change are already here. But while we tend to focus on the death and destruction resulting from the growing frequency and severity of wildfires and other disasters, we often pay less heed to the ways their costs ricochet through the financial system, with the potential for widespread collateral damage.
The wildfires raging in the West illustrate the problem. Their unprecedented damage has spooked insurance companies, which have raised rates, dropped coverage for high-risk properties and even walked away from markets entirely, depressing property values. This has forced states like California to step in and offer more coverage for affected residents. Beyond putting taxpayers on the hook, it could also lead to municipal bankruptcies, large bondholder losses and financial crises.

People in the West aren't the only ones facing these problems. Droughts and floods are becoming more common in many regions, including my own state of Indiana, threatening crops, property and infrastructure while driving up insurance premiums.

As an expert on the impacts of climate change, I contributed to a recent report that examined what climate change means for the U.S. financial system. Our report includes many important findings and recommendations, perhaps most notably that the U.S. financial system is imperiled by climate change.

The report's greatest significance, though, may be that it exists at all.

Unanimous agreement from a diverse group

The subcommittee I served on was formed last November by the Commodity Futures Trading Commission, the government agency that regulates complex financial instruments known as derivatives. This alone was a bit surprising given that the Trump administration, which appointed the commissioners, has been consistently hostile to efforts to fight or even assess the risks of climate change.

Our group included representatives from oil companies, agribusiness, banks, investment firms and environmental organizations, as well as a handful of academics like me. We were told to broadly assess the implications of climate change for the…
Jeffrey Dukes
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