The economics of climate change

Norfolk - Hurricane storm surge risks

A map showing downtown Norfolk and the surrounding areas, and likely storm surge inundation areas under different categories of Hurricanes. Should a category 4 ever strike the area, most of the region will be flooded. However, coastal flood risks in the area go well beyond the risk of hurricane-related storm surges. Coastal flooding events are becoming increasingly common as sea levels rise, with huge economic impacts on the region. Map Source: Source: Virginia Department of Emergency Management, Commonwealth of Virginia Storm Surge Inundation Maps.

This is the the week the Trump administration may announce their intentions to stay or abandon the Paris climate agreement. There’s some indication that Trump may actually be getting cold feet about abandoning the agreement. However, given the other moves the administration has already made, stating they’re sticking with the agreement may just be window dressing, as reversing Obama’s Clean Power Plan likely makes it impossible that the U.S. could actually meet the agreed upon levels of greenhouse gas reductions. With an administration full of climate-change deniers, it may not seem like there’s a lot of long-term hope that the U.S. will be a meaningful player in trying to mitigate the worst potential climate-change scenarios. However, there is hope…

The New York Times had a great piece yesterday about the Norfolk, Virginia area, and the potential impacts of climate change. What makes the piece wonderful is that it localizes the impacts of climate change and shows how it’s already changing people’s lives. Norfolk, like most coastal cities, is likely to be heavily impacted by climate change and the resultant sea-level rise in coming decades. In the case of Norfolk, however, those impacts have already arrived. Sea-level rises, coupled with sinking coastal land overall in the area, means that the relative sea-level is now 18 inches higher than it was at the start of the 20th century. As the story notes, locals have become accustomed to learning the “dry” spots for parking their cars, avoiding parking in areas where wind-blown tides may bring water inland. The impacts go far beyond the minor inconvenience of finding a dry parking spot, however.

As stated in the New York Times piece, Elisa Staton bought a house in the Larchmont-Edgewater area of Norfolk in 2005.  There were never any records that it had been flooded. Her flood insurance was reasonable, and although the house was within the 100-year flood zone, she wasn’t worried. In the last 10 years, her house has twice flooded. Her flood insurance rates skyrocketed, and the house she purchased for $320,000 was worth perhaps half of that original value. The story notes that flood insurance premiums are rising by as much as 25% a year, and that for every $500 annual increase in flood insurance cost, the value of a house goes down by about $10,000. Short-term remedies include “re-purposing” lower-level rooms to “low value storage space”…in effect reducing the habitability of lower-level rooms in order to get breaks on insurance premiums. Longer-term remedies typically involving raising the house and allowing for increasingly frequent coastal flood waters to flow under the habitable space of a home.  However, even those measures are likely doomed to fail, as relative sea levels in the area may rise by an astounding 6 feet by 2100.

So why did I say there’s some hope regarding climate change, after pointing out the damage Trumps administration has done to U.S. efforts to mitigate greenhouse gases? The current administration may be completely inept on climate change issues, but eventually, basic economics is going to force the hand of government.  The Norfolk story quantifies economic impacts for just one small coastal area in the U.S. In 2008, Norfolk hired a Dutch team (a country well-versed in dealing with coastal flooding and inundation) to develop a climate-change adaptation plan for the city. The price tag? At least $1 billion. That “100-year flood plain” that Elisa Staton’s house was found, where 2 coastal inundation events have occurred in just the last 10 years?  There is over $1 trillion in property in 100-year coastal flood plains along the eastern seaboard of the U.S.  The story does a great job talking about insurance and other economic impacts as well.

Economics.  That’s why there’s hope. Politicians are too short-sighted. As politics has become more partisan in the United States, governing for the long-term welfare of the people has been replaced by governing for the next election cycle.  Climate change impacts? When the next election is a year or two away, climate change is the last thing D.C. politicians worry about.  At a local level however?  With coastal home prices plummeting in areas like Norfolk, you can certainly imagine that local politicians have to address climate change and the resultant economic impacts in their area.  Local residents who feel their livelihoods and homes threatened by climate change will demand it.

That’s where there’s some hope, in the local-level, aggregate response to the economic impacts of climate change. As stories like Norfolk’s become more and more common, the sheer economic impacts of climate change will have to be addressed at the larger state and national scales. Business interests increasingly recognize the devastating impacts climate change may have on their bottom dollar, and realize they can’t ignore the issue.  Our own Defense Department recognizes the threat of climate change to disrupting populations across the globe and introducing instability. At some point, D.C. politicians are going to have to follow suit.


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