(Roughly) Daily

Every few months, a news outlet will write a story heralding the next financial crisis, with an assumed assuredness that we should all view as suspect. Predicting the next crisis has become a sport, one that typically magnifies risks and displays an unreasonable degree of certainty. But if you had to choose a looming event that’s most likely to produce a negative shock to the financial system, it would almost certainly be the climate emergency.

That’s the takeaway from a fascinating issue brief… from the Center for American Progress’s Gregg Gelzinis and Graham Steele from the Stanford Graduate School of Business. Both worked for the Senate Banking Committee for many years, and they make a compelling case, not only that headline risks to financial stability will flow from a warming planet and the efforts to mitigate that, but that federal banking regulators have gone almost completely AWOL in monitoring or even assessing this legitimate threat.

Worse, to the extent that any financial regulators in Washington are paying attention to the climate crisis, they’re seeking to dismiss it. A subcommittee formed at the Commodity Futures Trading Commission (CFTC) to look at climate-related market risk is stacked with fossil fuel industry representatives, including several executives from climate-polluting agribusiness, banks with significant carbon-intensive portfolios, and fossil fuel giants BP and ConocoPhillips.

The committee’s clear intent is to examine the climate risks to polluting companies’ core business, not from their polluting. As one critic—Paddy McCully, the climate and energy director at the Rainforest Action Network—notes, “We should recognize that there’s risk from the climate to the economy, and that the corporate sector needs to assess their contributions to climate change and then deal with it.”

The report explains that global economic losses from a rise in temperatures of 4 degrees Celsius have been estimated at $23 trillion per year. This would pose two kinds of risk to the financial system: physical risk from natural disasters, and a more indirect risks from transitioning away from fossil fuels…

A new paper makes the case that financial regulators are ignoring the significant risks from a warming planet and even from efforts to green the economy.  The fascinating– and chilling– analysis in full at “The Biggest Threat to Financial Stability Is the Climate.”

* Richard Thaler

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As we internalize externalities, we might recall that it was on this date in 1952 that the Great Smog of London began,  A period of cold weather, combined with an anticyclone and windless conditions, collected airborne pollutants—mostly arising from the use of coal—to form a thick layer of smog over the city.  It caused far more severe disruptions than “pea-soupers” of the past,  reducing visibility and even penetrating indoor areas.  While the Underground maintained service, bus service was virtually shut down (as visibility was so severely and reduced; and thus, the the roads, congested). Most flights into London Airport were diverted to Hurn, near Bournemouth and linked by train with Waterloo Station.

Government medical reports in the following weeks estimated that 4,000 people had died as a direct result of the smog; and 100,000 more, made ill by the smog’s effects on their respiratory tracts.  More recent research suggests that the total number of fatalities may have been considerably greater, one paper suggesting about 6,000 more died in the following months as a result of the event.

The disaster had huge effects on environmental research, government regulation, and public awareness of the relationship between air quality and health.  It led quickly to several changes in practices and regulations– perhaps most notably, the Clean Air Act 1956.

Nelson’s Column during the Great Smog

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