Risky Business of Climate Change
Air Date: February 28, 2015
Kate Gordon explains the Risky Business initiative.
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I’m Alexander Heffner, your host on The Open Mind.
Secretary of State John Kerry has forcefully articulated that climate change is the greatest challenge of our generation. “We should not allow a tiny minority of shoddy scientists and extreme ideologues to compete with fact,” Kerry said this year.
Despite our present-day realities – disturbingly ferocious weather events, lives destroyed, homes shattered and trauma visited upon American communities, our political system appears incapable of responding.
But not all are willing to let the country languish away. An original founder of the Green Jobs Movement, today’s guest is leading a kind of modern Manhattan Project to protect our safety. She is Kate Gordon, Director of Energy & Climate Policy for Next Generation, an organization founded to tackle climate change…that is terrorizing families and children more than ever before.
Kate Gordon’s latest effort is the Risky Business Initiative. She and her colleagues have assembled a high-powered bipartisan group to document the enormous financial cost of inaction and to advocate for clean energy reform.
I don’t mean to sound the alarm so extremely, but I first want to hear from Kate Gordon if she believes that anything other than a cataclysmic climate change-induced disaster can spur us to act? Welcome, Kate Gordon.
GORDON: It’s great to be here, thanks.
HEFFNER: So how about that?
GORDON: (Laugh) Well, you raise a great point. Many people say, “The only way we’ll get action on climate change is a disaster.” Of course, we’ve seen disasters and they spur a response. It’s not a holistic response to climate change.
What we tried to do with the Risky Business Project was to say, “Okay, let’s not wait for a disaster, let’s instead take a step back and look at this the way we look at many other crisis-like issues in American business.”
So, American businesses constantly model out risks, they model out extreme weather events actually, particularly the insurance sector. They model out war and terrorism risk, particularly like infrastructure builders. They model out the risk inflation, the risk of other financial events.
The way you do that risk modeling is to accept a level of uncertainty, but to take the best data available and say, “What is … what are the risks that I may be facing over the short, medium and long term? What are the error bands, you know the plus or minus 20 risks?”.
And we said, “Look climate change is just like that. It’s a … we, we know it’s happening, scientists agree, we don’t know exactly what will happen as a result, but we can take a standard risk assessment approach to this issue and say, “What are the potential, what are the potential crises we may be facing and how do we plan for those today?”
And our feeling was if that gets into the mainstream business approach for any new capital intensive project, for any infrastructure project, for bond rating, for insurance, it will start to filter through the economy and maybe we don’t need a crisis then to start to deal with this issue.
HEFFNER: Mmmm. So, had business leaders formed a consensus, in your estimation?
GORDON: I wouldn’t say, well, I wouldn’t say consensus and it’s interesting how you ask the question, because if there’s one thing this project taught me, it’s that there’s no such thing as business leaders. It’s … climate change is a profoundly local set of impacts.
We looked in this study just of the United States, but we did it at a very granular level, so we actually model out climate risk in several effectors of the economy … down to the county level … out through 2100 and what we find is that for the energy sector the risks are completely different than for the agricultural sector, are completely different than for coastal property and even within each of those … if you’re in Miami, you have a completely different risk picture than if you’re in Anchorage, right, to be extreme about it. So, yeah …
HEFFNER: But you accept that we need a Federal solution.
GORDON: I accept that we need … that climate change is, is complicated because it has local impacts, but we need a global solution.
So you need to be able to translate these very local impacts to a global action, which is the central challenge of this issue … honestly. I absolutely accept we need … we need, we need US leadership and global action. No question.
HEFFNER: So, from this report, the economic risks of climate change … what did you find most resonated with populations that did not believe this was a tangible threat?
GORDON: Well, I think the approach itself … I mean one thing I’ve heard now since the report came out from a lot of people in the business community … particularly investors. Has been we, we get this way of talking about the issue … they, they had sort of only talked about climate change in a very kind of fuzzy political way … you know. This is an issue for our children, this is an issue for our time. What people like about this study is it … risk assessment is a well understood assessment approach. So people are … sort of said, we got into it in a different way than we’d gotten into it before, and what we found really resonated with some groups is that it doesn’t start with a fight over who’s fault it is.
So, is there man-made climate change and who’s fault is that? And it doesn’t start with a fight over a particular solution. Those are both very partisan fights.
It starts in the middle. It starts with “Let’s accept that these are risks we need to face and what, what do they look like?”
And we’ve been able to have conversations with groups that we never would have been able to get into the room with before. The National …
HEFFNER: Like …
GORDON: … Farm Bureau, for instance. Who is, is out opposing the EPA standards, but it’s very open to conversations about risk assessment in the agricultural sector on climate change. So it’s a different approach aimed squarely at the mainstream business community.
HEFFNER: But there are geopolitics within this country that are vitally important to understand in that context to persuade local mayors …
HEFFNER: …to take action and to agree with the business interests. I mean in this climate in which corporations and the face of corporate America is so demonized … how, how are you selling this? I mean have you gotten some blow back?
GORDON: You know, it’s surprising little and I think, I think that’s a combination of things. And we were very careful in designing the report and the project to have a very bi-partisan set of high level messengers … Hank Paulson, Michael Bloomberg and Tom Steyer are the three co-chairs … of the project … Bob Rubin is involved, Greg Page from Cargill George Schultz is involved, Olympia Snowe.
It’s been a very … both bipartisan and interdisciplinary group of people. So Henry Cisneros was the Mayor of San Antonio and then HUD Secretary, now is a national housing developer and was on the project. Right. So it comes with a housing expertise and a public sector expertise.
We tried to bring in people like that who had approached this issue from a variety of perspective. But also did a really robust and I think pretty unassailable research project underpinning this whole thing.
All together we, we used 20 terra bytes of data in this project which is the equivalent of 300,000 computers worth of data. And we used data not only from the scientists side, but also from economists and from econometricians, so we brought together all these different disciplines and I think because it was a rigorous approach, because it was a bipartisan approach we muted a lot of the criticism we would otherwise have had.
And your point is, is important because what I’ve really found is that at the individual business level and the sector level and the city level, the partisan fight kind of fades away and what you tend to have is a conversation about real bottom line economic interests.
What does your supply team look like, is it at risk? What does your city like, what’s your economic development plan? Does it depend on risky investments in, in infrastructure that might be under water. Those are real issues for people working at the local level. It’s much less political.
HEFFNER: So you’re going to go house to house to really attempt to persuade the American public that the financial cost of inaction exceeds that of just going, you know, day by day and living with the high energy price. That it’s going to become even higher if we don’t act on climate change.
GORDON: Well, I think one important thing about this project is it’s not aimed at the American people. We’re going to go, not house by house, but boardroom by boardroom, absolutely.
We are working with the principals on the project … that group I mentioned to work with individual CEO’s mostly and business sectors to have this conversation, to say “Here are the data on what these risks actually look like in your sector, and they’re very relevant to you business. What are you doing to think through incorporating climate risk into your capital investments? What are you doing to think thorough incorporating carbon, you know, disclosure into your, into your business.
Our goal ultimately is that climate risk is incorporated into every decision that gets made in the public sector or the private sector. Whether it’s infrastructure, whether it’s energy, whether it’s agriculture and then it becomes part of the DNA, frankly, of American business.
HEFFNER: So it sounds as if you’re banking on the fact that there are corporate lobbyists and that they are a dominant feature of Washington, DC and this is kind of a way to go around them in the sense, persuading the business leaders that climate change action is important, it’s warranted and it’s necessary to preserve our environment.
GORDON: Well, this is a pretty profoundly non-DC project, so I think you’re right, that we’re not going in that way. And to follow up on an earlier point … is just to say that in those boardroom conversations, what’s interesting is that when you’re talking to business leaders, you get pretty quickly to the question of … beyond what they can do as a business … and to the question of what the public sector’s role is in setting a constant framework for, for evaluating and managing climate risk because ultimately as you see in the report, you can start to manage some of the risks we face today that are already baked in the system. It’s very, very harder to manage the ones that are coming if we don’t do anything.
And we can actually avert them, I mean we can change the curve … bend … we can change the path we’re on. So, so I like the bottom up approach in general … getting to that question of how do we change the path and how do you engage the public sector through business leaders?
How that then translates into dealing with vested interests that are producing carbon emissions is, is a huge question. And …
HEFFNER: Vested interests that often receive special benefits …
HEFFNER: … as a result of not following the rules … or at least the rules of the local leaders and companies …
GORDON: That’s right.
HEFFNER: … that you speak with.
GORDON: One, one thing that, you know, Hank Paulson, former Treasury Secretary Hank Paulson is one of the leaders of this project … has said a couple of times lately in public … is …and he’s really right … if you really want to take climate risk seriously, one thing you can’t do in terms of the public sector, is give subsidies to risky business practices.
And one of the …those, of course is … huge investments in fossil fuels. I mean if you want to even the playing field and make this a less risky economic development plan for our country, you do need to get rid of those subsidies, so absolutely that’s the kind of federal action that makes complete sense.
Getting the Securities and Exchange Commission to require companies to disclose their climate risk, that’s another thing the Federal government can do that’s … it’s about transparency, it’s about consistency, it companies working within a framework that’s a … that’s transparent and visible and consistent and where there’s an even playing field. I think we’re all about that.
HEFFNER: I mean do companies say to you that’s it’s just too difficult to really tackle this and preserve the bottom line that is going to allow them to keep their employees on … to provide them the benefits. I mean is there a vein or a current of thought that it’s just too tough to think about this because the business climate is already so difficult.
GORDON: You know, it’s interesting. It’s …that’s not the primary concern that we hear. A lot of companies are already thinking about this. You would be amazed by the agricultural sector. I mean that was a real shock to me. So, you, you see in, in our report that that’s a very dispersed story. I mean in the Southern parts of the United States agricultural yields go down in our major commodity crops and in the Northern parts they actually go up. So it’s a, if you look at it just as holistic US story, it’s sort of flat or a little down. But if you look at specific counties and states it’s a really significant decline.
But the agricultural industry is actually already incorporating a lot of that into its decision making there. Whether you like it or not, Monsanto developing dry-resistance crops is a climate strategy. And they are doing climate modeling every day in developing those, so they’re adapting and they’re very open to thinking about doing that going into the future.
The bigger concern we hear is not “We can’t do this.”, it’s … it’s that there’s no moral hazard in not doing it. So, to give it an example for that. Insurers doing flood insurance in Florida, which is the single most affected state when it comes to coastal … sea level rising, coastal inundation. The most that … it’s the state with … it and Louisiana with the most property that goes underwater … by, by mid- to late century.
Insurers in Florida right now, there’s no incentive for them to stay … to push this issue or price it into insurance rates because what they’ve just decided to do is get out of the market or get subsidized by the Federal Flood Insurance program.
So, so long as the Federal Flood Insurance program is backing up insurers in areas that are high climate risk, there’s no incentive for those companies to act.
As long as the Farm Insurance program is backing up farm production in places that have a huge climate risk, there’s no incentive.
So, I think that’s a bigger problem, is that Federal subsidy of risky practices and that’s what we hear from these companies … is there’s no … it’s actually … it’s, it’s negative for me financially because I’m being paid not to do it.
HEFFNER: Is that emblematic of a problem you see with insurance?
GORDON: Well people who buy insurance, buy it … I mean … health insurance for instance … we buy it because we are thinking about the long term … right. I mean it’s a great example of how we have …
HEFFNER: But not that long term.
GORDON: Well …
HEFFNER: … not the …
GORDON: … it’s a pretty long term. I mean if you think about things like cancer risk. Those are, you know, those are within the next 20 or 30 years. A lot of what we talk about is mid-century, which is only 20 years from now … 20 to 30 years from now. It’s not that long.
So we’re actually making decisions based on actuarial tables that absolutely calculate your risk and my risk of developing cancer in the next 60 years. I mean that is being calculated today. (Laugh)
We make those decisions. I smoked when I was in my early 20’s, I don’t smoke any more. That was a very specific decision to mitigate my risk of getting lung cancer … right. So you make these decisions through insurance, through your own behavior.
What you … what’s important with health insurance, though, as an example is most of that is priced into our insurance. So if you’re a risk taker, your insurance costs are higher. If you’re risk-taker in the property business and you’re a risk taker in terms of planet risk, your insurance premiums are not higher. So it is not being incorporated into the cost of doing business right now.
HEFFNER: Hmmmm. Well, this is really some staggering graphics you have here, in, in the report. And I mean you highlight extreme heat …
HEFFNER: … coastal erosion, the larger public health incentive for action is great … we talked and I mentioned at … in the introduction, a tiny minority still bears responsibility for a large percent, relatively speaking of the electorates ignorance on the subject. Is that still an issue?
GORDON: I have not had a single conversation about this report and I’ve had a lot of conversations with a lot of people in different parts of the business sector … absolutely different political parties. Not one person has been, as been an actual climate denier that I’ve talked to.
What … people don’t like the way that the issue is presented, I think … is a … there’s a real downside in coming into a conversation and starting with “Do you believe in manmade climate change and what is your industry’s role in promoting it?” That sort of is a, is a non-starter for a lot of companies. (Laugh)
And then there’s a real challenge in coming in with this sort of “Will you sign a letter supporting a carbon tax approach?” We have really found that individual business CEO’s and leaders are completely … understand this approach, may not even … even if they don’t believe that the science is 100% … a 97% certainty is absolutely enough for them to do a risk analysis. In other areas they do a risk analysis for far less. So then war and terrorism is a great example, we do risk analysis on that for tiny risks with a high catastrophic potential impact. Nuclear planning is another great example. The risk of a nuclear meltdown is below ten … I mean it’s below 5%, it’s very, very low. But obviously big catastrophic potential impact.
So we plan for these things. It’s not unusual for us to do that. It’s, it … you’ve got to take it away from being an ideological question and make it a question of just pure fact assessment.
HEFFNER: I mean you will hear perhaps even a majority of Congress still touting this anti-climate change denialism without consequence. And that still permeates the political DNA of our culture. But it’s not a problem with the people you’re interacting with.
GORDON: Well, you know, there’s a reason we didn’t start out this project with a big call for some kind of a Federal action. In fact, we didn’t do that, and we also didn’t design it as a cost benefit analysis. The … some people may remember the Stern Report that came out in 2006 which was a British Economics of Climate Change big study on the cost of inaction.
And the way that, that they approached it was very good. It was a cost benefit analysis … if you want to do a cost benefit analysis, you have to measure inaction against action and to measure action you have to measure specific action, which means you have to actually lay out a policy agenda.
So we didn’t lay out a policy agenda either through out analysis or in terms of recommendations and I’ll tell you why. I mean it’s, it’s indicative of where we are politically in this country. We would have lost half of our leadership on this project if we’d done that because it is such a partisan issue and people came on to this project specifically to have a non-partisan conversation about this issue.
And we also, frankly … it would have … every conversation would have immediately gone to the merits and the details of that particular proposal …
GORDON: … instead of a conversation about “What are we actually talking about in terms of the economic risks to this country. What does it actually look like? What does it look like for my county, for my sector?” You don’t even have that conversation or an opening for that conversation if you go straight to a policy, a policy answer. So we just preferred to go in with the facts, use the facts to have a conversation, instead of the other way around.
HEFFNER: And you would think that here in New York obviously in the aftermath of Hurricane Sandy, but across the country in Western states, certainly California face severe drought … this was across the socio-economic ladder. So you would, you would think that this is resonating and I know you have been dealing with businesses over the last year, but from people’s perspectives I think they’re waiting to hear now so what are answers …
HEFFNER: … we talked a bit, off camera about how in 2009 and ’10 there was a failure on the part of the Democratic leadership to articulate a message that was both life affirming of America and also ready to combat climate change.
And so I’m wondering, what are some of the lesser or least risky moves that we can make on the short term and long term basis to begin to tackle the problem?
GORDON: Well, I think in, in 2009 and ’10 when I was working in DC, during the Waxman-Markey, Cap and Trade Bill debate there … that was a very, very important debate and, you know, I wish we had come out with some kind of a national plan on climate change. But …
HEFFNER: Why didn’t we?
GORDON: Well, I think one … I think there are a host reasons. I mean I, I don’t want to attribute it to one thing … there was a simultaneous health care debate and the economy was collapsing so those were fairly significant (laugh) … it’s very hard to get environmental legislation passed at times when the economy is really bad. So, just historically we’ve mostly passed those at times of … at high points in the economy.
But, but within the debate itself, I would say that one of the issues was actually a failure to recognize this regional nature of climate change that our report really highlights. If you take a national top down, very kind of prescriptive approach to how to deal with climate change then you mask all of those variations and so for some parts of the country, it will be much harder to reach those goals than other parts of the country.
The new EPA regulations actually recognize that and set different goals for different states which is interesting and I think a good lesson learned from Waxman-Markey. But I would say that, that I am interested right now in what can the Federal government do to set standards that allow for the transparency and the sort of floor that we need for businesses to take actions. So again, whether it’s disclosing material risks of climate change or whether it’s getting rid of subsidies so everyone’s at the same place, right? So things are priced a little more accurately.
But I’m also interested in, frankly, regional and state solutions. I mean there’s California where I live … now has a “cap and trade” system that’s pretty effective. It’s working pretty well, we’re about to add transportation for the first time ever to that system. But we also have the regional green house gas initiative in the Eastern states and we have the Northwest states considering a price on carbon. If those three areas were put together and each of them had a price on carbon … you’d be looking at like 40% of the US economy. So that’s not an insignificant …
HEFFNER: So a regional pact might be able to overtake or overcome the Federal intransigence.
GORDON: It might. I mean … we … you know the whole notion of progressive Federalism … right … is that if the states start to do something and sort of set in motion something that has economic impact, then businesses often call for it to become a Federal program because it’s so frustrating to work across different regions and different states with different sets of requirements.
We see that all the time, so it … you know, Civil Rights was a progressive federalism movement … is a, is an example, but there have been many others.
HEFFNER: It sounds like you’re very interested in this idea of businesses maintaining a record of their individual environmental or carbon footprint.
GORDON: Well, I wouldn’t, I wouldn’t say “carbon footprint” a lot of really good work has been done on disclosure of carbon footprint. So the carbon disclosure project for instance, has companies, or helps companies to disclose how much carbon they currently … what’s their, what’s their kind of carbon footprint and how vulnerable are they because of the amount of carbon they burn.
I’m actually more interested in, in something that builds on that which is companies disclosing the kind of risk they’re taking by, for instance, locating their supply chains in Bangladesh (laugh) or even frankly in the Southeast of the United States which is a very vulnerable region if we don’t do something about climate change.
I’m interested in what kind of decisions energy companies are making …
HEFFNER: That’s, that’s an amazing statement …
GORDON: It’s …
HEFFNER: … about the South …
HEFFNER: … and about the potential for that kind of cataclysmic …
GORDON: It’s where most of our manufacturing and energy infrastructure is in this country is in the Southeast, which is the single most vulnerable … not just from just a sea level rise perspective, but from a rising heat perspective.
One thing we model in the report which is scary to a lot of people is this potential risk of what we call the humid heat stroke index, which is a combination of heat and humidity. If you get a high enough heat combined with a high enough dew point, you can actually have a heat stroke by being outside.
We’ve never seen this in the US, we start to see days like that by end of century. But it’s pretty significant and where that happens in the Southern states, where, where you also have sea level rise, where you also have all our manufacturing and energy infrastructure. So if I’m a utility going to a service commission and saying “I want to build a new power plant, central power plant with big transmission lines coming off it in this very vulnerable place in the United States where heat is rising, my energy costs will rise, because demand from air conditioning will go up … where my power plant will put out less energy because I have to spend so much time cooling it … if I’m a PSE, I should be saying “no” to that project. That’s a risky project, it makes no sense, given the kind of projections we have in this report. And then that turns you to a discussion about alternatives which automatically turns you to things like distributed energy and renewables.
So I want to get at it that way instead of kind of making it a prescribed set of options.
HEFFNER: I can’t believe it, Kate Gordon, it’s been such a pleasure to have you on the program, but we’re out of time.
GORDON: So sad.
HEFFNER: I can’t believe it, just as much as I know a lot of Americans can’t believe that there’s a cost to doing business in the South now. And we have to figure out a way to do it.
HEFFNER: Thank you, Kate.
GORDON: Thank you.
HEFFNER: And thanks to you in the audience. I hope you join us again next time…for a thoughtful excursion into the world of ideas. Until then, keep an open mind.
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