CFTC: Managing Climate Risk in the US Financial System

[PDXTabs]

The Commodity Futures Trading Commission just released a report titled Managing Climate Risk in the US Financial System. Lots of negative predictions for US GDP economic growth in there.

[BicycleB]

10 minutes in, learned a lot, but hadn't found predictions for US GDP growth. Where are they in this 196 page report?

I am heartened by the many details of how business and regulators have been taking steps (baby steps) toward measuring climate risk, but the report's 3 main conclusions seem to be:

1. Society (such as the US) needs to implement a big fat carbon price, pronto
2. Regulators and business need to measure climate risk much more thoroughly
3. US regulators have the legal ability to do much of this already, but need to step it up

[PDXTabs]

10 minutes in, learned a lot, but hadn't found predictions for US GDP growth. Where are they in this 196 page report?

With those caveats, the latest research suggests that, by the end of this century, the negative
impacts on the United States from climate change will amount to about 1.2 percent of annual
gross domestic product (GDP) for every 1 degree Celsius increase (Hsiang, et al., 2017).
This is roughly the equivalent of wiping out nearly half of average annual GDP growth rates
in recent years. There is great uncertainty about how those losses may be distributed across
the United States and within any given sector or asset class. But the research suggests
that the South, Central and mid-Atlantic regions likely will be more heavily impacted than
northern regions. This could affect how capital is distributed among regions (Hsiang, et al.;
NGFS, 2019a). The relationship between climate change, warming temperatures, and
economic output is not anticipated to be as linear as described in this chapter. Beyond
certain ecological and economic thresholds, economic losses could be significantly greater. - Page 13

The spatially-concentrated nature of economic activity in the United States compounds
this risk. As shown in Figure 3.1, in 2018, just 31 counties—accounting for 1 percent of
all counties—were responsible for generating one third of U.S. gross domestic product
(GDP) (Tartar and Pickert, 2019). A majority of those counties are located along coastlines
and are exposed to physical climate risk. Depending on how interrelated physical and
transition risks become, economic activity in some of those counties could be adversely
impacted both by transition and physical risk. Multiple shocks affecting several of those
economic hubs over a short time horizon—a more intense version of what the country
experienced in 2017-19, for instance—could cumulatively translate into an economic and
financial shock with nationwide consequences. - Page 27

Hurricanes, floods, and other disasters are already affecting the economies of issuing
municipalities, and that risk is expected to grow. One analysis calculated that within a
decade, if significant climate action is not taken, more than 15 percent of the current S&P
National Municipal Bond Index by market value will be issued by cities suffering likely yearly
economic losses of 0.5 percent to 1.0 percent of GDP. By the end of the century, close to
40 percent of the index would be issued by cities facing 3 percent or more of yearly GDP
losses because of climate-related impacts (BII, 2019). Also, climate impacts could be even
more devastating to municipalities in the aftermath of the COVID-19 pandemic, which likely
will weaken the fiscal condition of many state and local governments. Climate-related losses
could impair municipalities’ ability to service their obligations and lead to downgrades and
eventually defaults and losses for municipal debt holders. - Page 36

Among others.

[BicycleB]

10 minutes in, learned a lot, but hadn't found predictions for US GDP growth. Where are they in this 196 page report?

With those caveats, the latest research suggests that, by the end of this century, the negative
impacts on the United States from climate change will amount to about 1.2 percent of annual
gross domestic product (GDP) for every 1 degree Celsius increase (Hsiang, et al., 2017).
- Page 13

Holy shit! That's a lot.

Thanks for replying.

[former player]

10 minutes in, learned a lot, but hadn't found predictions for US GDP growth. Where are they in this 196 page report?

With those caveats, the latest research suggests that, by the end of this century, the negative
impacts on the United States from climate change will amount to about 1.2 percent of annual
gross domestic product (GDP) for every 1 degree Celsius increase (Hsiang, et al., 2017).
- Page 13

Holy shit! That's a lot.

Thanks for replying.

"By the end of this century" is 80 years away and most on this forum will be long dead.

My personal view is that the shit will have hit the fan long before then, though.