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Climate Change Presents Growing Economic Risks Amid Tariff Turmoil
While financial markets fluctuate due to President Trump’s inconsistent tariff policies, drawing global attention to immediate economic instability, a more significant and long-term disruption is emerging: the escalating economic cost of climate change. Recent indicators suggest that the financial implications of a warming planet are becoming an urgent concern, overshadowing even short-term trade tensions.
Escalating Global Temperatures: A Looming Economic Threat
A recent Morgan Stanley report on rising air-conditioning demand casually mentioned that the planet is almost certain to surpass the Paris Agreement’s goal of limiting global average temperature increases to 2 degrees Celsius above pre-industrial levels. Their report’s “base case” scenario anticipates a 3 degrees Celsius temperature surge.
This once-considered extreme forecast is now becoming increasingly common. The 2024 United Nations Emissions Gap report indicated a likely 3.1 degrees Celsius warming this century without rapid emissions reductions. The Intergovernmental Panel on Climate Change projects potentially even higher temperatures by century’s end if drastic climate action is not implemented.
Understanding the Impact of Temperature Increases
A persistent challenge in discussions about global warming is comprehending the profound impact of seemingly small temperature changes. Even a single degree increase can trigger substantial alterations to the planet.
Therefore, it’s critical to consider scientific projections of a 3 degrees Celsius global temperature rise and its associated economic ramifications.
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A Transformed Planet Under 3°C Warming
At a 3°C warming level, rising sea levels are projected to submerge numerous coastal cities, including major urban centers like Rio de Janeiro, Shanghai, Miami, and Osaka, Japan.
Furthermore, a range of severe issues would intensify, such as:
- Extreme weather events
- Persistent heat waves
- Increased spread of insect-borne diseases
- Widespread species extinction
- Declines in agricultural yields
Mounting Financial Losses Due to Climate Change
Quantifying the precise financial toll of these disruptions remains complex. However, as the likelihood of intensified warming grows, preliminary estimates are surfacing.
By 2049, annual losses from climate change impacts could exceed $38 trillion, according to research from the Potsdam Institute for Climate Impact Research.
Within the United States, climate change is anticipated to erase $1.47 trillion in real estate value by 2055 alone, as indicated by a First Street climate risk model report from February.
In New York City, over 80,000 homes might be lost to flooding within the next 15 years, as recently reported.
Beyond immediate damage from severe weather and floods, broader economic decline is expected due to crop failures and strained supply chains from extreme heat.
GDP Decline and Systemic Financial Risk
Researchers at ETH Zurich have estimated that a 3°C warmer world could lead to an average 10 percent decrease in global gross domestic product, with developing nations disproportionately affected.
The Looming Threat of ‘Systemic Risk’ to Financial Stability
Günther Thallinger, a supervisory board member at Allianz SE, a Swiss insurer, recently issued a stark warning on LinkedIn regarding the potential implications of these costs for the financial system.
He emphasized that climate change is rendering certain aspects uninsurable.
“The calculations fail; the necessary premiums outstrip affordability for individuals and businesses,” he stated. “This is already reality. Entire regions are becoming uninsurable.”
Thallinger stressed that these risks extend beyond the insurance industry.
“This isn’t a temporary market correction,” he wrote. “It’s a systemic risk jeopardizing the very foundation of the financial sector. If insurance becomes unavailable, other financial services follow. An uninsured house cannot be mortgaged. Banks will not grant loans for uninsurable properties. Credit markets will freeze, leading to a climate-induced credit crunch.”
Thallinger concludes that at this juncture, “the financial sector as we recognize it will cease to operate.”
“Consequently,” he added, “capitalism as we know it will become unsustainable.”
Further Developments on Climate Policy
Trump Administration Reduces Climate Report Funding and Staff
The Trump administration has decreased funding and personnel for the program overseeing the federal government’s primary report on the national impacts of global warming. This has prompted concerns among scientists about the future of this crucial assessment.
Congress mandates the National Climate Assessment every four years. It analyzes rising temperatures’ effects on public health, agriculture, energy, water resources, transportation, and other facets of the U.S. economy.
State and city governments, along with private sector companies, utilize this report for climate change preparedness. The most recent assessment was released in 2023.
Trump Administration’s Climate Policy Shift
The Trump administration has initiated a series of executive actions and policy changes concerning climate in recent days. Key actions include:
Executive Orders to Revive Coal Industry
President Trump signed executive orders aimed at boosting coal mining and consumption in the U.S. One order directs federal agencies to eliminate regulations that “discriminate” against coal, to open federal lands for coal extraction, and to assess coal-powered plants for potential use with A.I. data centers.
State Climate Policies Under Threat
Following federal climate regulation rollbacks, the Trump administration has broadened its scope to challenge state and local initiatives designed to mitigate global warming’s hazardous effects.
An extensive executive order signed on Tuesday instructs the Justice Department to impede “burdensome and ideologically motivated ‘climate change’ or energy policies” that threaten American energy dominance and national security.
Research Funding Cuts and “Climate Anxiety” Claims
The administration announced cuts of nearly $4 million in federal funding for climate change research at Princeton University, arguing that the research promotes “overstated and unrealistic climate threats” and increases “climate anxiety,” particularly among younger Americans.
These funding cuts, affecting programs studying sea-level rise and coastal flooding, were announced by the Commerce Department, which includes the National Oceanic and Atmospheric Administration (NOAA), a leading climate science agency.