June 14, 2018

Time to Wake Up: Two Crashes

Mr. WHITEHOUSE. Mr. President, a crash takes place in a system when conditions in that system reach a tipping point and the system rapidly destabilizes.

Climate change promises a lot of tipping points in the Earth’s natural systems—ocean acidification, for instance, reaching a tipping point where foundational species, such as the pteropod, have trouble forming their shells, and populations of those foundation species crash, taking down the trophic levels above them; polar warming, for instance, releasing trapped frozen methane from Arctic tundra and hyperaccelerating the greenhouse effect. At the more local level, seasonally linked species, reacting to changing seasons, can get out of phase with one another, so the feeder and its food source no longer overlap in time, and then they have a crash.

In what Pope Francis has called ‘‘the mysterious network of relations between things,’’ climate change promises natural disruptions, large and small.

Of course, the same kind of disruption can occur in economics. Because we are ignoring climate change, we are hurtling toward natural disruptions like the kinds I mentioned. On top of that, recent warnings indicate that we are also hurtling toward economic disruptions—crashes, if you will—which we could avoid or moderate if we prepared. But since the fossil fuel overlords of the present Congress won’t let that preparation happen, we need to expect these economic crashes. What are these economic crashes? The first one I will discuss is the effect of sea level rise on coastal real estate values.

Sea level rise can hit you economically long before the ocean actually laps against your doorstep. When the prospect of coastal flooding begins to creep into the 30-year mortgage horizon or when the prospect of coastal flooding begins to darken property insurance horizons, there will be an effect.

Long before your house is actually flooded, its value can crash if the house becomes uninsurable or if it becomes unmortgageable to the next buyer. Freddie Mac has described the effect of this property value crash on America’s coastal regions as follows: ‘‘The economic losses and social disruption may happen gradually, but they are likely to be greater in total than those experienced in the housing crisis and Great Recession.’’ Those of us who lived through the great recession of 2008 and forward know how serious that warning is.

It is not just Freddie Mac; the insurance industry shares this exact concern. Here is what the editor of the trade publication Risk & Insurance had to say: ‘‘Continually rising seas will damage coastal residential and commercial property values to the point that property owners will flee those markets in droves, thus precipitating a mortgage value collapse that could equal or exceed the mortgage crisis that rocked the global economy in 2008.’’ So from government-backed housing corporations to private insurance industry representatives, the warning is clear.

The leading edge of this predicted effect may already actually be upon us, as we have recently seen coastal property values begin to lag inland property values in a way that experts think may reflect this emerging coastal economic hazard. When talking about matching the damage done to the economy by the 2008 recession, that is a serious risk.

The second economic crash we are warned of is the effect of a so-called carbon bubble—a carbon bubble in fossil fuel companies. This carbon bubble collapse happens when fossil fuel reserves now claimed as assets by the fossil fuel companies turn out to be not actually developable and thus become what are called stranded assets. A recent publication by economists in the journal Nature Climate Change has described the following estimated asset reductions in fossil fuel reserves: ‘‘The magnitude of . . . stranded assets of fossil fuel companies (in a 2 degrees C economy) has been estimated to be around 82% of global coal reserves, 49% of global gas reserves, and 33% of global oil reserves.’’

That would be 82 percent of global coal reserves gone, wiped off the balance sheets; 49 percent of global gas reserves gone; and 33 percent of global oil reserves gone.

This asset collapse ahead would explain why fossil fuel companies have fought so hard against shareholders who sought honest reporting of this risk, and it could explain why such reports as have been produced look like exercises in ‘‘cooking the books’’ to avoid actually acknowledging a risk of this scale.

More recently, a group of economic analysts published a separate review of what the bursting of this carbon bubble would look like for fossil fuel companies. The report’s analysis is pretty stark. It estimates that a potential $12 trillion—$12 trillion—of financial value ‘‘could vanish off their balance sheets globally in the form of stranded assets.’’ The report notes that this is over 15 percent of global GDP.

This economic report posits a market scenario in which lower cost producers unload their fossil fuel reserves while they still can into this collapsing market—‘‘selling out’’ their assets, in the language of the report—unloading their fossil fuel assets even at fire-sale prices to get what value they can while they still can.

In this analysis, the report says, ‘‘regions with higher marginal costs . . . lose almost their entire oil and gas industry (for example . . . the United States).’’

In this environment in which there is a rapid crash in fossil fuel prices, as sellers saturate the market at whatever low price they can get to get some money for their reserves before they evaporate and get wiped off their balance sheets, the market moves rapidly and regions like ours—like the United States, with higher marginal costs— lose almost their entire oil and gas industry.

Obviously, for the United States to rapidly lose almost its entire oil and gas industry would create a dramatic economic shock, spilling over into other industries and into the economy at large, making this what the authors of this report call a ‘‘systemic’’ economic risk.

There is a recommended solution to avoid this shock in asset prices, and that is for the United States to begin decarbonizing, to invest more in renewables, and to broaden our national energy portfolio away from this asset collapse risk and into renewable energy. The paper concludes that ‘‘an exposed country can mitigate the impact of stranding by divesting from fossil fuels as an insurance policy,’’ and it goes on to say specifically about the United States of America that ‘‘the United States is worse off if it continues to promote fossil fuel production and consumption than if it moves away from them.’’

Let me revert to the earlier economic piece I mentioned because it concludes with very similar advice. I quote from the first article:

If climate policies are implemented early on and in a stable and credible framework, market participants are able to smoothly anticipate the effects. In this case there would not be any large shock in asset prices and there would be no systemic risk. In contrast, in a scenario in which the implementation of climate policy is uncertain, delayed, and sudden . . . this might entail a systemic risk because price adjustments are abrupt and portfolio losses from the fossil-fuel sector and fossil-based utilities do not have time to be compensated by the increase in value of renewable-based utilities.

Both economic analyses agree that transitioning to renewables is a hedge against this fossil fuel asset collapse risk, but this earlier paper also notes something else. It also notes that this transition to renewables, away from the asset collapse risk, need not be a painful transition. To quote the report, ‘‘a transition to a low-carbon economy could also have net positive aggregate effects.’’ On one side, you have the risk of a major fossil fuel asset collapse creating a sufficient economic shock for there to be systemic risk to the economy. On the other side, you have the prospect of net positive aggregate effects. Who in their right mind would not turn toward net positive aggregate effects? A large and sudden economic shock affecting 15 percent of global GDP and precipitating systemic economic risks will, of course, be very painful.

This is stark advice. Whether we can actually heed this advice depends on the Congress of the United States being able to put the interests of the United States first over the interests of the fossil fuel industry. Given that Congress’s fossil fuel industry overlords will likely object and given that we seem incapable in Congress of either seeing through their massive conflict of interest or ever telling them no, it is not presently likely that Congress will heed these warnings or take these precautions.

After all, the warnings of natural crashes ahead have so far been completely ignored due to fossil fuel industry pressure. So why expect that we would heed the warnings of economic crashes ahead?

In the days when war loomed over Europe but England would not prepare, Winston Churchill quoted a poem. The poem’s image is of a train bound for destruction, rushing through the night, and the conductor is asleep at the controls. The poem begins:

Who is in charge of the clattering train? The axles creak, and the couplings strain.

Inside the train cars, the poem describes the occupants of the doomed train:

Lull[ed into] confident drowsiness.

But then comes the end:

[T]he pace is hot, and the points are near, And Sleep hath deadened the driver’s ear; And signals flash through the night in vain. Death is in charge of the clattering train!

That is how the poem ends. Let us hope that we wake up before our collision, that the many warning signals nature is flashing at us do not flash through the night in vain, and that we do not hurtle into these foreseen collisions with our fossil fuel industry overlords having deadened the driver’s ear with their money and their power.

We have been lulled into confident drowsiness, and it is time to wake up.

I yield the floor.