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FOSSIL FUELS IN THE GROUND AND IN YOUR PORTFOLIO

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FOSSIL FUELS IN THE GROUND AND IN YOUR PORTFOLIO

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Climate One | 2020

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Greg Dalton: This is Climate One. On today's program - the stock market as a tool for climate action.

Anne Simpson: We need, we request, we require these companies to bring their emissions down typically be about 80% to 90%. So that the biggest emitters in the global economy have got to what's called net zero by 2050. [:15]

Greg Dalton: When institutional investors divest from fossil fuel companies, does it make a difference, or is the impact merely symbolic? Some say it's better to keep your stock and your influence, using investor dollars to encourage change from within.

Pratima Rangarajan: That's what we do in our business; we follow the carbon. Where there's carbon it's our job to figure out to go invest in solutions to mitigate it and then figure out how to scale it up.[:11]

Greg Dalton: Fossil fuels in the ground and in your portfolio. Up next on Climate One.

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Greg Dalton: Can your nest egg finance the transition to a cleaner economy?

Climate One conversations feature oil companies and environmentalists, Republicans and Democrats, the exciting and the scary aspects of the climate challenge. I'm Greg Dalton. Today's program was produced with the generous support of Bank of the West.

Universities, churches, pension funds and other organizations with $14 trillion in assets have hopped on the divest-invest bandwagon. But it will take more than that to move the needle in a global economy.

Anne Simpson: If these emissions keep rising and causing global warming to increase, that's going to have a knock-on effect on the world economy on communities right around the globe. And that means simply by having a green, clean portfolio isn't going to help us with this risk unless we actually get the real economy into a green, clean economy.

Greg Dalton: And while we may hope that our retirement funds can decarbonize the economy, not every country has enough energy options to use divestment as a tool.

Pratima Rangarajan: I don't hear about it when I'm sitting on a panel in India. They ask please can we have gas power. Gas is too expensive for us, but the coal is choking the kids.

Greg Dalton: On today's program - sustainable investing in a financially volatile world. How can we use our portfolios to promote the values we care about? My guests and I are coming to you from our homes via the internet. All four of them are involved in handling people's money - maybe even yours.

Brian Deese is Global Head of Sustainable Investing at BlackRock, the world's largest asset manager. Lori Keith is a Portfolio Manager with Parnassus Investments, a leader in the field of socially responsible investments, or SRIs. Pratima Rangarajan [PRAH-tee-mah ran-GAHR-ah-jahn] is CEO of the Oil and Gas Climate Initiative, an investment fund backed by some of the world's largest oil companies including BP, Chevron, and ExxonMobil.

And Anne Simpson is Director of Board Governance & Strategy at CalPERS, the California Public Employees' Retirement System. It's the largest pension fund in the United States with more than $300 billion in assets.

With few cars on the roads or planes in the air, the world is awash in oil with few buyers. Oil prices hit historic lows and even briefly went negative. How does that affect the transition away from fossil fuels for institutional investors such as CalPERS?
PROGRAM PART 1
Anne Simpson: We are absolutely focused on the need for this transition so that we get global warming under control. If we don't do that, we're going to be facing a wave of climate emergencies which are going to require a similar level of response. And the longer we leave it the more difficult it is. In other words, what we say is, you know, there's a stopping distance here. It's easier to just slow down when you can do it reasonably safely than having to slam on the brakes right before you go over a cliff.

So, you know, our view of this is the way we need to work; our theory of change if you like is that investors like CalPERS, we are owners, the co-owners of the companies that are producing these emissions. Our fiduciary responsibility is to make sure we've got the safety and soundness in this portfolio. So we need, we request, we require these companies to bring their emissions down typically be about 80% to 90%. So that the biggest emitters in the global economy have got to what's called net zero by 2050. And although we're dealing with an immediate emergency we can't, because the house is on fire with one issue, we can't avoid paying attention to other risks which are going to undermine returns in the short, medium and long term.

Greg Dalton: Brian Deese, has the coronavirus crisis changed attention away from the longer seemingly less acute or urgent climate situation for investors? The market drop is so dramatic has it taken attention away from climate?

Brian Deese: Well look, there's a set of immediate and urgent fiduciary elements particularly when you see the kind of market dislocation and liquidity issues that we saw in the month of March. But if you step back, I think for us, we came into this year and this pandemic crisis with similar to what Anne just described, that climate risk is investment risk. And more generally that we were on the front edge of a larger decade-old structural shift in investor preferences that really changes and up ends a lot of how traditional financial models intrusion of financial analysis assesses sustainability work. And as we look at what's happening in the current environment it actually gives us a very interesting test case to try to understand some of these convictions and some of these hypotheses that we've operated with.

So just two quick ones. One is, you know, our perspective at BlackRock has been that integrated sustainability into portfolios builds a component of resilience. Which means that you should see better performance in risk off environments where we have a unique and unprecedented moment here. And what we've seen is if you look at benchmarks, you know, 24, 26 of the major ESG benchmarks have outperformed their traditional market cap benchmark. If you look at our portfolios the sustainably integrated portfolios have really held up quite impressively during this crisis.

And then the other element is around, you know, there's been a sense of if there was a severe market downturn would investors run away from sustainability because they have to focus on other things. And if you look at flows into sustainable strategies in fact, in the first quarter you saw record flows. And flows uncorrelated with the kind of flight to safety and outflows in other market categories. So I think from our perspective, if you just look at what's happening in the market we're learning interesting things but mostly reinforcing some of our, I'd say the convictions about the ways in which integrated sustainability can actually improve a fiduciary orientation around investing, number one.

And number two, as we come out of this crisis, I believe that we are going to see key elements of sustainability rise in importance for companies and for governments and regulators as they grapple with the longer-term implications of this crisis. A lot more to say about that but I think suffice to say that our perspective and our conviction around the importance of sustainability coming into this crisis is reinforced by what we're seeing. And I think it's going to likely become an even more central part of the conversation going forward.

Greg Dalton: Lori Keith, your firm Parnassus has been devoted to that idea that Brian just mentioned. That sort of being good corporate citizens actually drives excellent or perhaps superior financial results. Your take on how this downturn in the market is affecting the turn toward cleaner energy, is it helping or hurting or too early to tell?

Lori Keith: We think there's a very structural shift. We're in an era of decarbonization right now and we think this is a multi-decade trend as companies continue to decarbonize. And we think, certainly, there's going to be in this immediate environment there may be a bit of a slowdown. Certainly, we're seeing some disruptions right now for instance in supply chains for solar panels. Also in terms of implementation of those panels right obviously with everyone shelter in place right now there will be some temporary delays. But that by no means impacts the long term strategy.

When we look at the significant risk for environmental climate change risk we think companies certainly at the state level are taking very much a proactive role in pushing forward renewable standards. We're starting to see that broadly across many states and certainly in Europe they've really been on the forefront of this. So nothing really derails that story and for us as ambassadors, you know, it's really been a source of ALPHA to find and invest in a collection of companies that really best in class around managing their environmental social and certainly their governance factors.

Greg Dalton: And Alpha being additional return above additional risk.

Greg Dalton: Pratima Rangarajan, you were in the renewable energy business. I'm curious why you left renewables and went to go work for a group of, an investment fund run by the largest oil companies in the world and what is that fund doing?

Pratima Rangarajan: Thank you, Greg. Yes, I was in renewables for more than 10 years before I took this role. I'm a big believer that renewables has revolutionized the way we decarbonize the power sector. But, you know, a few years ago I decided to just work on climate directly. And so I started studying the data on carbon emissions. And I took home two important learnings. At that time we had less than two decades just like we have now in our carbon budget to stay under 2 degrees. And with renewables at less than 10% of the energy mix it just seemed to me that we didn't have enough time to scale renewables to cover the rest of the 90% not to mention the growth. So we have to work on the rest of 90%, you know. As I told my kids, I have to stop working the chocolate chips and go work on the cookies as well.

The second realization I came to is that there are substantial sources of carbon that are emitted in this world that are not about energy. And here I can just take cement as an example we all know and love. It's responsible for about 7 billion tons of carbon dioxide every year. It would be the third largest country if it was a country. And less than half of cement emissions come from the energy piece of cement. The rest of it is really chemistry because we take carbon emissions material and make it into cement. So it actually just emits carbon dioxide.

So when you look at both of those, I realized that I was really working on a small-piece of the pie. I wanted to work on the overall climate challenge which is the carbon challenge. So one of the pleasures of my job is that I can just look this from the lens of following the carbon. That's what we do in our business we follow the carbon. Where there's carbon it's our job to figure out to go invest in solutions to mitigate it and then figure out how to scale it up. So I'm following the carbon, Greg.

Greg Dalton: Anne Simpson, we have a question from Cynthia Kaufman on YouTube who says, "How can CalPERS justify losing our money in order to engage with fossil fuel companies that are still fighting the transition to a just green economy?" It sounds like she may be a CalPERS member. So Anne Simpson, CalPERS approach.

Anne Simpson: Yeah, thank you very much. The question is what you're trying to do. So at the moment the world economy is about 80% dependent on fossil fuels for energy. So what we need to do is get that energy sector changed to a situation where the emissions have come down as we said by about 80%, 90% by 2050 is what we need. And I do want to fully agree with Pratima that it's not just oil, gas. The message here. On the Climate Action 100+ list we have Heidelberg Cement the largest cement company in the private sector in the world. They are one of the companies that have committed to bring their emissions down to be in line with the Paris agreement. But also we have utilities, we have companies like Nestle, Pepsi, companies with a very long supply chain in agriculture. So we need to be open and honest about where the emissions are coming from. They're coming from agriculture, they're coming from chemicals,they're not just coming from the fossil fuel sector.

Now, specifically on this question so what do you do about that. Well, certainly for some investors and Parnassus is an example choosing to instruct the portfolio of other companies that make sense. But for us, we are still exposed to the risks of those emissions. We have nowhere to hide. If these emissions keep rising and causing global warming to increase, that's going to have knockon effect on the world economy on communities' right around the globe. And that means simply by having a green, clean portfolio isn't going to help us with this risk unless we actually get the real economy into a green, clean economy.

So the reason that we've taken on these biggest emitters what we're calling the systemically important emitters, is not they're easy companies to deal with. There are strategy as to line up with the Paris goals. If we don't do that we can have a neat, tidy green portfolio and the economy can be collapsing around our ears. So obviously CalPERS is very big but we can't do this on our own. What we've done with Climate Action 100 is team up with other investors. BlackRock recently joined which we're delighted about. But there are investors that we are working with now have something in there over $40 trillion that they're responsible for. And because of that we're starting to see big change at these companies, which are at the heart of this energy transition. Today, Shell making its announcement, and if you go to the Climate Action 100+ website you'll see utilities chemicals companies, cement companies, companies in the agricultural sector moving their strategy to be in line with Paris. And ultimately, that's what's going to protect us from this risk.

I want to add one other thing quickly. Which is that when we're thinking about climate change we can't just think about this as some issue to do with science and finance. We've also got to start looking at the people who were at the heart of the impact that climate change is bringing. So something which I think we're learning in this pandemic is to put people at the center of what we're thinking about.

So at CalPERS we call this human capital. It's financial capital, human capital, natural capital. And in our engagement with companies and our work at the SEC we're saying that companies need to be reporting on issues like health and safety, employee engagement, workforce turnover. Because if we don't take care of people in the process of this transition we simply won't achieve the consensus from the public, the private sector and from civil society. So really, this is, the name of the game here is change. We're too big to walk away. And even if we did walk away, we're still gonna get hit by what's coming down. We've actually got to change the course of events. We can't sit and be the victim of the course of events. Even if we're -- so big we could actually construct a portfolio that looked neat and tidy and green. We've actually have got to be in the business of transition.

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Greg Dalton: You're listening to a Climate One conversation about using our investment portfolios for change. Coming up, equal opportunity - why it's important to make sure we're lifting all boats.

Anne Simpson: Retirement security is something that should be for everyone. We cannot have an island of comfort floating in a sea of misery.

Greg Dalton: That's up next, when Climate One continues.

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Greg Dalton: This is Climate One. I'm Greg Dalton, and we're talking about finances and fossil fuels. My guests are Anne Simpson of CalPers, Lori Keith of Parnassus Investments, Pratima Rangarajan of the Oil and Gas Climate Initiative, and Brian Deese,from BlackRock.

When it comes to sustainable investing, the conversation usually centers around divestment - using the stick, not the carrot. Brian Deese of BlackRock believes that framework is too simplistic, for a couple of reasons.
PROGRAM PART 2
Brian Deese: The first is that I think we come at this from the perspective of risk. And investment risk in trying to fully understand and reflect the risks that we're all talking about here into investment processes. We did announce earlier this year that on our active portfolios, which means the portfolios where we have discretion when we're managing our client's assets, we did announce that on that portion of where we have discretion we would be exiting all of our exposures to thermal coal producers because that was an area where we identified the risk the business model risk itself is pronounced toward that.

But as we look more broadly and we look at these risks, I would make two points. One is, we're very focused on this issue of transition that Anne just outlined in two respects. The first is, trying to understand which companies and which business models today are the most well-prepared to actually navigate effectively and in fact effectively take advantage of what we believe will be an accelerated transition toward a low carbon economy. And if you take that perspective, what it allows you to do is not look for example at the entire energy sector or all companies that are involved in traditional energy and look at them sort of monolithically. But instead say, some of those companies are making significant changes to their business model. Taking a lot of their current R&D and cap ex and investigating in different ways, and some of them are. And from a risk perspective, investment perspective those difference is really important when you're trying to think about which companies were actually best positioned in the future. And we use that not only in terms of allocating risk capital but also as Anne said, engaging with companies. Where we own equity on those companies on behalf of our clients and that as Anne referenced is connected to the work of Climate Action 100 that we are now supportive of and partnering.

The last point I would make though that is connected with transition is that ultimately, the pace of the global low carbon transition will be dictated by the ambition and the effectiveness of government policy globally. And as somebody who spent a lot of time working to and getting the Paris agreement agreed to and then entered into force in 2015, 2016, I think you look at that framework and you see in it the potential for countries to increasingly increase the ambition of their national policies, their nationally determined commitments in a way that would signal long term trajectory of how the economy will decarbonize that would then accelerate massive transformations of capital and shifting of private capital. Obviously the state of global policy is not where it needs to be. I think that we will see an acceleration but the more that that ends up happening too late and in an uncoordinated way that doesn't provide those long-term signals. But more challenging it's going to be for capital to actually move and accelerate this process.

Greg Dalton: Pratima, I wanna ask you the whole divestment conversation focuses on publicly traded oil companies, people who know the markets deeply. Most of the hydrocarbon reserves are actually held by state owned oil companies that shareholders divestment can't get at, China, Saudi Arabia, etc. So actually you have a window into that world because a couple of state owned or semi-state owned oil companies for Brazil and China are involved in your work. So tell us what window you have into the big part of the oil market that is not talked about in this whole divestment conversation.

Pratima Rangarajan: That's actually right, Greg. I think divestment has done a good job in raising public awareness about climate challenge and that is important. But in terms of actual climate impact we don't really see it on the emissions. And that's because it's not really effective, divestment isn't such an effective tool where other forms of investment or other forms of capital are available. It's not a great tool when you think about nationally driven, as you said, oil companies which is where a lot of this is. And it looks at all fossil fuels as the same, whereas if you really when we need to solve real problems, we have to be contextual. And we have to look at what is countries what regions are capable of and what they need as well. A one-size-fits-all approach is great on paper. But in reality, one cannot use the same approach in Europe and in Africa. In Africa 57% of the population doesn't even have access to basic forms of energy. It just isn't the same story. And as Brian said and Anne said we cannot forget people in this. It has to be equitable and a just transition. It cannot just be financial.

So, if you look for something that's really a much stronger potent tool in getting to the core -- in answering the climate charge, I absolutely agree with Brian, it is policy. Policy can drive us to scale a lot faster and we can actually hit the carbon challenge in the timeframe we have. And the first thing there is to put a value on carbon. Two centuries of economic history tell us that we will not change behaviors unless we value what we are talking about and we need a value on carbon. That's just plain and simple. And we need to put all our political will behind this so all our economic and political.

From an investor viewpoint, I think it is much more effective to do what Anne and Brian were talking about. Which is work with the companies, work with entities, work with regions. To reward companies that are ahead of the curve. And that's really important. We're seeing with divestment a regime is that there are some real regions of need where we have to take a much more nuanced view. And so we're making no progress into making substantive progress. Because all-or-nothing is not a very good option everywhere.

Greg Dalton: Let me jump in there on the political will. The companies that have invested in your fund BP, Chevron, Exxon Mobil and some European companies are also, you know, that's like an interesting technology bet and they're trying to learn about the future and make some very interesting investments that people wouldn't expect oil companies to invest in. And you talk about we need political will; at the same time those companies with the exception of BP which just pulled out from American Petroleum Institute they say publicly we need a price, you say value on carbon, because they don't want to get involved in carbon tax or cap and trade. But then they also support the American Petroleum Institute, which does everything it can and spends millions of dollars lobbying in Congress to prevent a price on carbon and to oppose legislation to do the kinds of things that they publicly support. Help us understand that there's an inside game and an outside game. And corporations are not monoliths and there's different power centers and conflicting interests. But since you mentioned political will, will the industry use its political muscle?

Anne Simpson: I have a comment on that too.

Pratima Rangarajan: Anne, would you like to go first?

Anne Simpson: I mean only because you are receiving if you like venture capital funds. And what CalPERS and BlackRock and others are doing with the companies is getting this political lobbying issue dealt with. So, we're calling for first of all with these companies' governance of whole. It means the board takes responsibility we hold them accountable through our votes but it also means lining up executive pay and rewards with the new goals of reducing. And we do not want shareholder money being used for lobbying purposes that undermines the commitment that these companies have made to supporting Paris. So, you'll see the companies that you've mentioned including Shell including BP including others which have agreed to review, revise and pull out of trade associations that are not lined up to support this. But for all those of you looking at the proxy season, you'll see there's a whole string of share owner proposals coming to other companies calling upon them to do the same thing. In other words what you say and what you do with shareholder money has got to line up.

So that's one thing the owners have got to get this all in check. Secondly, I just want to flag that many of the investors who are involved in this work also are part of initiative called the Investor Agenda. Which is being coordinated by the same investor networks, PRIs, series, IIGCC in Europe and their counterparts in Asia and Australia. What that group is doing is focusing on a whole range of issues in the policy framework which are going to make all the difference. Because Pratima is right, this can't be done just to engagement. So our strategy at CalPERS is three part. It's engagement, it's advocacy with policy makers where carbon pricing mandatory climate risk reporting are just two examples of what's on that measure. And then thirdly, integration. And that's where we take what we're learning about the transition not just to manage risk but also to find the opportunities. So you'll see even in our portfolio we have private markets something like 12 billion invested very productively in the broad theme of climate solutions. So this is not just a one-way street. This transition is opening up lot of opportunity as well.

Greg Dalton: If you're just joining us we're talking at Climate One today with Brian Deese, Global Head of Sustainable Investing at BlackRock, the world's largest asset manager. Lori Keith, Portfolio Manager at Parnassus Investments and Pratima Rangarajan, CEO of the Oil and Gas Climate Initiative, an investment fund backed by some of the world's largest oil companies. And Anne Simpson, Director of Board Governance and Strategy at CalPERS the California Public Employees' Retirement System the largest pension fund in the United States.

I'd like to go to our lightning round and ask some true or false questions for our guests.

Anne Simpson. True or false, divestment from fossil fuels is a feel-good gesture that has zero financial impact on the targeted company?

Anne Simpson: Well you said it. The question is do you want to look good or do you want to roll your sleeves up and get involved in this messy business of change. I do want for the record though to say that CalPERS several years ago did sell its holdings in companies with the majority of revenues from thermal coal. However, that was after engagement process in which we, you know, decided to keep several which were involved in the transition. But the others we didn't see the transition opportunity. So just, you know, investment decisions have to be kept under close attention. Thank you.

Greg Dalton: Thermal coal is kind of easy to get out of. Once an industry is kind of dying then a lot of people head to the doors. Pratima. True or false, battery storage is hot and sexy?

Pratima Rangarajan: Absolutely.

True or false. Anne Simpson, picking individual stocks is a fool's errand?

Anne Simpson: Well, a fool and his money are soon parted, as has been said. Stock pickers have not been able to beat the market in the downsize, you know. When you're outsized you cannot like a small investor construct an active portfolio. No, it's a fool's game. Agreed.

Greg Dalton: True or false. Pratima, mining lithium for batteries is a clean and sustainable enterprise?

Pratima Rangarajan: It can be but what lessons have we learned from history. Let's make sure that BlackRock and CalPERS are keeping all the miners clean and making sure that they are doing this in a sustainable way for the future.

Greg Dalton: True or false. Anne Simpson, before you move from the U.K. to California you thought everyone here wore tie-dye clothes and had flowers in their hair.

Anne Simpson: Yeah, it was such a disappointment. I thought I'd be tie-dying my daytime suit in the bath. Yeah, true.

Greg Dalton: Also for Anne, today they are once again wearing tie-dye shirts and not taking showers as often.

Anne Simpson: In California I'm sure it's all very good for saving water.

Greg Dalton: There you go. True or false. Brian Deese, pension funds have returned targets that are highly unrealistic?

Brian Deese: I think there's spectrum of pension funds, a spectrum of return targets and some of them are unrealistic and some of them are valuable resource.

Greg Dalton: Alright. Thank you for getting through the lightning round. One of the more memorable and fun parts of Climate One.

I do wanna talk about the clean side we've been talking about the dirty side. Let's talk about its divest and invest. Lori Keith, we've seen oil companies move into renewables I've been doing this long enough that it's kind of like the hokey pokey. They put one toe in they pull it out, one toe in. Is there a meaningful investment now as a measure percentage of their overall capital expenditures or cap ex that fossil fuel companies are going toward cleaner energy or is it just kind of greenwashing and marketing? Is there real money being put by fossil fuel companies to alternative?

Lori Keith: As investors certainly in the mid-cap space those finances mid-cap we're not seeing that certainly across, you know, many of the shale independence in North America. We're not seeing any movement towards renewables at this point. All of the capital expenditures are really going back into the ground to try to enhance recoveries in those existing shale wells or for additional acquisitions. And so we think there has yet to be an appetite to really shift away from fossil fuel and shale development by many of the players. Certainly there are one offs internationally and some of the very large players that are starting that route. But we think it's gonna be a long road, frankly.

And in the meantime we think there's gonna be significant risk to many of the players particularly when we're looking at commodity prices today, you know, certainly $20 per barrel on the West Texas intermediate today's price. At that level certainly, yeah, the Kansas City put out a projection that 40% of energy companies in North America potentially will be bankrupt within one year at this commodity price. Many of those being smaller players but we think yeah there's very significant risk. And so as an ambassador you're really having to bet on an increase in commodity price for these stocks to work and the economics simply aren't there.

Greg Dalton: Pratima, Lori Keith talked about the mid-range companies. You deal with like the super majors, the global giants. We have a question from Lala on YouTube. "Will the oil and gas companies invest more or less in clean tech in 20 and '21?" So what are you seeing I understand your fund is separate from the companies they all put some money in, it's a separate entity. But does that trickle into larger investments by the oil and gas companies in some of the clean technologies that they might discover in your fund or learn about?

Pratima Rangarajan: Yeah, absolutely. So two points. One is that the money they put in our company is separate from what they already do. So if we look at Equinor they do offshore wind. Everyone of the companies has their own portfolio of clean technologies.

Greg Dalton: But to be fair, it's a small part of their overall expenditure, right. I mean it's 1%, 2% of what they spent.

Pratima Rangarajan: It is a small part but, you know, when you look at what it actually takes the cap ex that takes to go drilling for oil is not the same cap ex when you set up a wind farm. And I come from the wind side of the base, and so we just don't run so cap ex which in general. And I think you're gonna see the changes you're gonna see the changes in the business models because that's what we need. The world is gonna need it, COVID is going to, I think in some ways increase the pace because we're going to have recovery plans. And it's always good and sometimes crisis makes you look at things very differently. We're not gonna come back to the same place.

But in terms of our fund, the billion plus dollars that we have in our fund, obviously I commend the companies to give us that as an investment capital. But in addition to being investment capital, they also co-invest with us in some of our investments. They actually, but most importantly they are collaborators. They take our innovations they pilot them, they test them and they are actually deploying them at scale right now. So that's really important because we need to shorten the time for commercialization, time for impact. And then when we also take on some difficult projects that's when they become really, really important partners for us. They take it over from us.

So in the U.K. we have a carbon capture utilization storage project. It's very ambitious, C-I grew it over the last three years. And the goal is to decarbonize the entire northeast of England. And this project grew out of our capabilities as a small investment fund. And has now being taken on by five of our member courtesy of member conference. And they are going to take it out to operationalize. Now this is not a typical type of project and this is really important for couple reasons. One, it's not a typical project that they would normally invest in. They're doing this in order to demonstrate that we can decarbonize industrials across an entire region. When they do this, what's the most important thing is that they will be able to transition the technologies the resources the knowledge they have into the industrial sector and allow for the decarbonization of the neighboring sector. So these are all the ways we work with them. So yes, the impact is much broader than what we do as a fund. We're just the catalyst.

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Greg Dalton: You're listening to a conversation about climate change and the stock market. This is Climate One. Coming up -- when it comes to socially responsible investing, let the buyer beware:

Lori Keith: There are a lot of firms that will say check the box, say we're doing environmental social governance investing. But when you look behind the scenes and see what companies they're investing in, most of those wouldn't even meet the standards.

Greg Dalton: That's up next, when Climate One continues.

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Greg Dalton: This is Climate One. I'm Greg Dalton. We're talking about investing for change. My guests and I are talking from our homes via the internet. I'm speaking with Pratima Rangarajan, of the Oil and Gas Climate Initiative, Anne Simpson of CalPERS, Brian Deese of BlackRock and Lori Keith of Parnassus Investments.

We invited our listeners to submit questions during the livestream. This one came from John, asking for help finding sustainable funds and companies. What resources are out there for the individual investor who wants to go green? Lori Keith has some suggestions.
PROGRAM PART 3
Lori Keith: First of all I would suggest really looking at the spectrum of what the offerings are. Certainly going directly to websites offered by individual mutual funds as an example, you can really get a sense what is it that they own. Because I think it's really important as an investor to understand what are those companies that are truly being invested in, how are they disclosing for instance their proxy policy. How are they voting as it relates to issues around climate change. Full transparency I think is really important. And so I would definitely encourage one to go out and look at the information that's provided on those websites. See if there is a report any sort of shareholder sustainability reporting that is provided on annual basis. Engagement reports see what type of engagements that firms are involved with for us as investors at Parnassus mean we're very actively involved in engagement efforts with a number of our investment holdings. And we report out on what we're doing and what stage does engagement efforts are in.

So I think that can be very helpful but I do think it's really important to understand because there are a lot of firms that will say check the box, say we're doing environmental social governance investing. But when you look behind the scenes and see what companies they're investing in, most of those wouldn't even meet the standards as it relates to environmental social governance standing. So I think it's really important to understand what you own. And I would definitely recommend going directly to websites and look at the shareholder reports. Certainly, you know, for myself I just authored the recent quarterly report that will be coming out shortly. We do that every quarter and you could read through those reports in plain English and see what the strategies are and what they're investing in. And I think that's really important.

Greg Dalton: Sometimes they are in plain English. Another useful tool is fossil free funds.org. Really useful tool you can plug in the ticker for any fund and you can see there a lot of the funds that pretend to be fossil free or low carbon there's a lot of carbon in there. Brian Deese.

Brian Deese: Yeah, I just want to pick up on this and say something that Anne said earlier about, you know, we've learned from decades of financial research that the most important decision that an individual investor makes is actually at the portfolio construction level. And one of the things that's really exciting about the space that we're in now is where as a decade ago it was much more that actually people's choices were constrained to a limited number of sustainable funds that were in one sector. So just equity, not fixed income maybe it took a lot of risk which might be appropriate for somebody who has a very significant risk appetite but not build a whole portfolio. Now there are a wealth of building block exposures, low cost, straightforward that an investor can start. So I would say the other thing you could do is start whether it's with your financial advisor or websites like you're saying and start at the initial question. If you're building a 60/40 portfolio how can you think about embedding sustainability in the core of what you're doing. Not just in thinking about having a satellite exposure to 5% of the money in your portfolio to go into a NSRI fund. That's a really exciting change and, you know, we're seeing a democratization of access to underlying building blocks.

Now to your point, we need to look at what below the headline label, you need to understand particularly if you're getting screened funds what they screen out. You know, I would say in fairness there is no one unified vision the definition of fossil fuel. Every company including renewable energy companies consumes energy of one form or another. But with that said, the number of choices and the quality of products has exploded recently. And I would just encourage think about that question when you start building your portfolio, not just when you're at the end and you said I wanna get some exposure to an SRI fund.

Greg Dalton: If you're just joining us we're talking about investing in fossil fuels and cleaner forms of energy, at Climate One. I'm Greg Dalton. My guests are Brian Deese, Global Head of Sustainable Investing at BlackRock. Lori Keith, Portfolio Manager at Parnassus Investments. Pratima Rangarajan, CEO of the Oil and Gas Climate Initiative an investment fund backed by some of the world's largest oil companies. And Anne Simpson, Director of board Governance & Strategy at CalPERS, the California Public and Employees' Retirement System, the largest pension fund in the United States.

Greg Dalton: And as we wrap up I'm hearing this conversation thinking about half of Americans don't have participation in the market. We're in a time of severe economic distress where people have difficulty paying rents people -- unemployment is in the double digits. So I want to end and think about asking you something you're grateful for and maybe evoke some empathy for people who feel frankly excluded by this conversation we're having because they don't have access to the markets and retirement plans. So many Americans and others live paycheck to paycheck. Let's start with Anne Simpson.

Anne Simpson: Thanks very much. Retirement security is something that should be for everyone. We cannot have you know an island of comfort floating in a sea of misery. CalPERS relies for its own members we have nearly 2 million members in our pension fund. But it's absolutely good for the capital markets to have this type of long-term savings it's absolutely right for our members that they have dignity in retirement. And that should be something that all communities can rely on. It shouldn't be viewed as a privilege for a few. It's good for the economy it's good for communities and it's most definitely good for people in their vulnerable years. So CalPERS is a great supporter of retirement security for all that's essential.

Greg Dalton: Pratima, you spoke earlier about other parts of the world that are less energy fortunate than we are talking on this conversation. Your thoughts on kind of empathy and gratitude at this time of global economic pain?

Pratima Rangarajan: Greg, I think COVID has shown us some of the real gaps in our society when it comes to healthcare when it comes to social net for young people, even young people or older people. Both parts of society are finding themselves in difficult times right now. There are kids out there who are not getting their meals when schools are not open, right. And there's some real parallels between what we're seeing in COVID and the climate challenge. They are both going to affect the people at, you know, the difficult parts of society where the poorer parts of our society more. They're going to affect some foreign nations more. And I think we really got to start thinking about coming out of COVID-19 as we look at our economic recovery plans. We really got to think harder about our social recovery plans. And how do we transition even to this climate in a just equitable way for all.

It is where I hear the most about divestment is in the halls of Imperial and Oxford and Cambridge when I'm in London. I don't hear about it when I'm sitting on a panel in India. There they ask please can we have gas power. Gas is too expensive for us but the coal is choking the kids. The emissions in Delhi were terrible. So it's just the, you know, I think we do have to think about we're very privileged and there are multiple ways, multiple lenses we should be looking at the world right now. And I hope maybe COVID has really opened our minds to some of that.

Greg Dalton: Brian Deese, your thoughts on that privilege at this moment when there's so much pain in the economy.

Brian Deese: Look, I'm enormously grateful for the health of my kids and my partner and my family. I'm incredibly grateful and awed by the heroism of the frontline workers and healthcare officials who are not sitting as we all are in our homes facing challenges of our own, but are out on the frontlines helping to fight this physical threat to our lives and our economy. And I'm also very aware at this moment that as Pratima says, these types of physical threats are accelerants to the type of inequality that was already really hitting societies within countries and between countries.

And, you know, if you live in Atlanta today you're 15% more likely to die from coronavirus than if you live 15 miles outside in the suburbs. Because the local air quality in Atlanta is bad and it exacerbates respiratory diseases. As we move into the winter in the southern hemisphere and we see this crisis extended to emerging market economies. We're gonna see the kind of disproportionate impact where you see the intersection between air quality and pandemic. We know the intersection between climate change and disease. It was coronavirus here but we see the extension of vector-borne illnesses as climate change and in fact, as habitats and humans start to intersect with each other. And in fact animal borne disease or diseases that initiated animals are much more likely to occur and spread as climate change forces people into, you know, into closer proximity.

And so as global community we need to be much more capable of actually preparing and being in front of this. But I would say, to your point about gratitude and empathy. I would add to it urgency because even as we're talking about this sort of how do we get to these longer-term issues. The actions that government policymakers that first responders that health professionals and that investors take in the next weeks and months will help to also reinforce whether or not we can come out of this having blunted some of the worst impacts of that or not. So, I also in addition to feeling that gratitude and sense of connectivity to these larger challenges to feel some urgency around this making sure that we're doing everything we can to not have the impacts of this crisis which already will be huge even more as we move into the next phase or phases of this epidemic.

Greg Dalton: Lori Keith, what gives you hope when you think about urgency, gratitude and empathy. What gives you hope?

Lori Keith: Yeah, I would echo much of what's been said so far. But I think we're very fortunate. I saw a journal article, Wall Street journal article today highlighting that only about 37% of Americans can actually work remotely. So I feel very fortunate that I'm one of those people that are able to continue my job work remotely, my three children are all able to continue with their distance learning. But frankly, there's a whole rest of the society that is not able to do that. And so we have essential workers really on the frontline whether it be healthcare professionals, first responders grocery clerks. Many of them, you know, haven't really been taken care of in terms of worker pay, you know, benefits, things that are now considered very essential for our society to operate.

So I think this emphasis around investing in human capital management, investing in employees it got to something, you know, as we look to invest in companies that are gonna be sustainable over multiple years that is such a critical function and I do feel very strongly that coming out of that there's gonna be this resurgence of making sure that companies are aligning their longer term strategy with really investing in their talent base. That's really critical. So that's one of my hopes and certainly one of the structural shifts that I hope comes out of this.

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Greg Dalton: You've been listening to Climate One. I'm Greg Dalton. We've been talking about sustainable investing, with Lori Keith, Portfolio Manager with Parnassus Investments, Brian Deese, Global Head of Sustainable Investing at BlackRock, Pratima Rangarajan, CEO of the Oil and Gas Climate Initiative, backed by BP, Chevron, ExxonMobil and others. And Anne Simpson, Director of Board Governance & Strategy at the California Public Employees' Retirement System. This program was underwritten by Bank of the West.

Greg Dalton: To hear more Climate One conversations, subscribe to our podcast at climateone.org. Please help us get people talking more about climate by giving us a rating or review wherever you get your pods. It really does help.

Greg Dalton: Kelli Pennington directs our audience engagement. Tyler Reed is our producer. Sara-Katherine Coxon is the strategy and content manager. Steve Fox is director of advancement. Anny Celsi edited the program. Our audio team is Mark Kirchner, Arnav Gupta, and Andrew Stelzer. Dr. Gloria Duffy is CEO of The Commonwealth Club of California, where our program originates. [pause] I'm Greg Dalton.

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Fossil Fuels in the Ground and in Your Portfolio

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Can your nest egg finance the transition to a cleaner economy? Universities, churches, pension funds and other organizations with $14 trillion in assets have hopped on the divest-invest bandwagon. CalPERS, the California Public Employees' Retirement System, is one of the finance giants using the stock market as a tool for climate action.

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Finance is the mother of all human systems: where capital flows, momentum follows. Change Finance builds impact-focused, performance-oriented exchange-traded funds (ETFs) that aim to change the world for the better, one investment at a time. Through a conscious, rigorous, rules-based approach to index and ETF construction, we've created investment products centered around social and environmental justice that we don't believe sacrifice performance in the process. We believe doing good can profit people, planet, and investors. Won't you join us?

Learn more about who we are and how we're changing finance for the better.

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Finance is the mother of all human systems: where capital flows, momentum follows. Change Finance builds impact-focused, performance-oriented exchange-traded funds (ETFs) that aim to change the world for the better, one investment at a time. Through a conscious, rigorous, rules-based approach to index and ETF construction, we've created investment products centered around social and environmental justice that we don't believe sacrifice performance in the process.

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100,000 PEOPLE SAVINGS 100,000 PEOPLE/YEAR 1,2 MtCO2e 1,6 MtCO2e 0,4 MtCO2e SEE SAVINGS FOR 100,000 PEOPLE

508,000 PEOPLE 508 MILLION PEOPLE/YEAR 6,1 GtCO2e 8,1 GtCO2e 1,9 GtCO2e SEE SAVINGS PER POPULATION OF THE EU - 508,000 MILLION PEOPLE

1.1 BILLION PEOPLE Enough to meet the 2030 emissions gap to stay within the 2C limit*1.1 BILLION PEOPLE/YEAR 13,4 GtCO2e 17,5 GtCO2e 4,1 GtCO2e SEE SAVINGS PER POPULATION OF NORTH AMERICAN AND THE EU - 1.1 BILLION PEOPLE

* under the conditional NDC scenario>>

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Gold Standard sets the standard for climate and development interventions to quantify, certify and maximise their impact - creating value for people around the world and the planet we share.

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Computer-Aided Destruction: Art, Autodesk, and What Accountability Looks Like for the Tech Industry

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Computer-Aided Destruction: Art, Autodesk, and What Accountability Looks Like for the Tech Industry

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Drilled | Amy Westervelt | 2020

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Computer-Aided Destruction: Art, Autodesk, and What Accountability Looks Like for the Tech Industry by Drilled

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ZURICH (Reuters) - Natural disasters like wildfires which devastated parts of the United States and a record number of hurricanes in the Atlantic caused $76 billion in insured losses during 2020, Swiss Re said on Tuesday.

The 40% increase from $54 billion in 2019 dwarfed the $7 billion in man-made losses during 2020, the reinsurance company said in its sigma estimate for the year.

The total insurance industry losses of $83 billion made 2020 the fifth costliest year since 1970, the company said.

"Losses were driven by a record number of severe convective storms - thunderstorms with tornadoes, floods and hail - and wildfires in the U.S.," Swiss Re said.

In California, Oregon and Washington State, more than 800 wildfires burned close to 6 million acres, destroying thousands of structures and triggering billions in insured claims.

The North Atlantic hurricane season brought 30 named storms, causing $20 billion in insurance claims, the company said.

Five storms hit Louisiana alone, although most of the landfalls did not hit densely populated areas, reducing the total level of insured losses from the $97 billion level seen in 2017.

Climate change is expected to worsen the number of such events, as humid air and rising temperatures create more extreme weather conditions, Swiss Re said.

"As with COVID-19, climate change will be a huge test of global resilience," said Jerome Jean Haegeli, Swiss Re Group Chief Economist.

"But while COVID-19 has an expiry date, climate change does not, and failure to 'green' the global economic recovery now will increase costs for society in future."

It noted its catastrophe loss estimates excluded claims related to COVID-19, which it said would take considerably longer than normal to assess and tally.

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wind / hurricanes / typhoons / tornadoes

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Natural disasters cost insurance industry $76 billion in 2020 - Swiss Re

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ZURICH (Reuters) - Natural disasters like wildfires which devastated parts of the United States and a record number of hurricanes in the Atlantic caused $76 billion in insured losses during 2020, Swiss Re said on Tuesday. The 40% increase from $54 billion in 2019 dwarfed the $7 billion in man-made losses during 2020, the reinsurance company said in its sigma estimate for the year.

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Social and Economic Impact of Climate Change

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Social and Economic Impact of Climate Change

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Expert Consensus on the Economics of Climate Change

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Expert Consensus on the Economics of Climate Change

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Institute for Policy Integrity | NYU School of Law

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Ten facts about the economics of climate change and climate policy

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Ten facts about the economics of climate change and climate policy

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Brookings | 2019

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Introduction: Scientific Background

Substantial Biophysical Damages Will Occur in the Absence of Strong Climate Policy Action

The world's climate has already changed measurably in response to accumulating greenhouse gas (GHG) emissions. These changes as well as projected future disruptions have prompted intense research into the nature of the problem and potential policy solutions. This document aims to summarize much of what is known about both, adopting an economic lens focused on how ambitious climate objectives can be achieved at the lowest possible cost.

Considerable uncertainties surround both the extent of future climate change and the extent of the biophysical impacts of such change. Notwithstanding the uncertainties, climate scientists have reached a strong consensus that in the absence of measures to reduce GHG emissions significantly, the changes in climate will be substantial, with long-lasting effects on many of Earth's physical and biological systems. The central or median estimates of these impacts are significant. Moreover, there are significant risks associated with low probability but potentially catastrophic outcomes. Although a focus on median outcomes alone warrants efforts to reduce emissions of GHGs, economists argue that the uncertainties and associated risks justify more aggressive policy action than otherwise would be warranted (Weitzman 2009; 2012).

The scientific consensus is expressed through summary documents offered every several years by the United Nations-sponsored Intergovernmental Panel on Climate Change (IPCC). These documents indicate the projected outcomes under alternative representative concentration pathways (RCPs) for GHGs (IPCC 2014). Each of these RCPs represents different GHG trajectories over the next century, with higher numbers corresponding to more emissions (see box 1 for more on RCPs).

Box 1. Representative Concentration Pathways (RCPs)

The expected path of GHG emissions is crucial to accurately forecasting the physical, biological, economic, and social effects of climate change. RCPs are scenarios, chosen by the IPCC, that represent scientific consensus on potential pathways for GHG emissions and concentrations, emissions of air pollutants, and land use through 2100. In their most-recent assessment, the IPCC selected four RCPs as the basis for its projections and analysis. We describe the RCPs and some of their assumptions below:

RCP 2.6: emissions peak in 2020 and then decline through 2100.

RCP 4.5: emissions peak between 2040 and 2050 and then decline through 2100.

RCP 6.0: emissions continue to rise until 2080 and then decline through 2100.

RCP 8.5: emissions rise continually through 2100.

The IPCC does not assign probabilities to these different emissions pathways. What is clear is that the pathways would require different changes in technology and policy. RCPs 2.6 and 4.5 would very likely require significant advances in technology and changes in policy in order to be realized. It seems highly unlikely that global emissions will follow the pathway outlined in RCP 2.6 in particular; annual emissions would have to start declining in 2020. By contrast, RCPs 6.0 and 8.5 represent scenarios in which future emissions follow past trends with minimal to no change in policy and/or technology.

The four RCPs imply different effects on global temperatures. Figure A indicates the projected increases in temperature associated with each RCP scenario (relative to preindustrial levels). ¹ The figure suggests that only the significant reductions in emissions underlying RCPs 2.6 and 4.5 can stabilize average global temperature increases at or around 2°C. Many scientists have suggested that it is critical to avoid increases in temperature beyond 2°C or even 1.5°C-larger temperature increases would produce extreme biophysical impacts and associated human welfare costs. It is worth noting that economic assessments of the costs and benefits from policies to reduce CO2 emissions do not necessarily recommend policies that would constrain temperature increases to 1.5°C or 2°C. Some economic analyses suggest that these temperature targets would be too stringent in the sense that they would involve economic sacrifices in excess of the value of the climate-related benefits (Nordhaus 2007, 2017). Other analyses tend to support these targets (Stern 2006). In scenarios with little or no policy action (RCPs 6.0 and 8.5), average global surface temperature could rise 2.9 to 4.3°C above preindustrial levels by the end of this century. One consequence of the temperature increase in these scenarios is that sea level would rise by between 0.5 and 0.8 meters (figure B).

Countries' Relative Contributions to CO₂ Emissions Are Changing

The extent of climate change is a function of the atmospheric stock of CO2 and other greenhouse gases, and the stock at any given point in time reflects cumulative emissions up to that point. Thus, the contribution a given country or region makes to global climate change can be measured in terms of its cumulative emissions.

Up to 1990, the historical responsibility for climate change was primarily attributable to the more-industrialized countries. Between 1850 and 1990, the United States and Europe alone produced nearly 75 percent of cumulative CO2 emissions (see figure C). Such historic responsibility has been a primary issue in debates about how much of the burden of reducing current and future emissions should fall on the shoulders of developed versus developing countries.

Although the United States and other developed nations continue to be responsible for a large share of the current excess concentration of CO2, relative contributions and responsibilities are changing. As of 2017, the United States and Europe accounted for just over 50 percent of cumulative CO2 emitted into the atmosphere since 1850. A reason for this sharp decline (as indicated in figures C and D) is that CO2 emissions from China, India, and other developing countries have grown faster than emissions from the developed countries (though amongst major economies, the United States has one of the highest rates of per capita emissions in the world and is far ahead of China and India [Joint Research Centre 2018]). Therefore, it seems likely that in order to avert the worst effects of climate change, emissions reduction efforts will be required by both historic contributors-the United States and Europe-as well as more recently developing countries such as China and India.

Nations' Pledges under the Paris Agreement Imply Significant Reductions in Emissions, but Not Enough to Avoid a 2°C Warming

The future of climate change might seem dismal in light of the recent increase in global emissions as well as the potential future growth in emissions, temperatures, and sea levels under RCPs 6.0 and 8.5. Failure to take any climate policy action would lead to annual emissions growth rates far above those that would prevent temperature increases beyond the focal points of 1.5°C and 2°C (figure E). As indicated earlier, cost-benefit analyses in various economic models lead to differing conclusions as to whether it is optimal to constrain temperature increases to 1.5°C or 2°C (Nordhaus 2007, 2016; Stern 2006). ² Fortunately, countries have been taking steps to combat climate change, referred to in figure E as "Current policy" (which includes policy commitments made prior to the 2015 Paris Agreement). Comparing "No climate policies" and "Current policy" shows that the emissions reduction implied by current policies will lead to roughly 1°C lower global temperature by the end of the century. A large share of this lowered emission path is attributable to actions by states, provinces, and municipalities throughout the world.

Further reductions are implied by the 2015 Paris Agreement, under which 195 countries pledged to take additional steps. The Paris Agreement's pledges, if met, would keep global temperatures 0.5°C lower than "Current policy" and about 1.5°C lower than "No climate policy" in 2100 (see figure E). Although this can be viewed as a positive outcome, a morenegative perspective is that these policies would still allow temperatures in 2100 to be 2.6 to 3.2°C above preindustrial levels-significantly above the 1.5 or 2.0°C targets that have become focal points in policy discussions.

In the following set of facts, we describe the costs of climate change to the United States and to the world as well as potential policy solutions and their respective costs.

Fact 1: Damages to the U.S. economy grow with temperature change at an increasing rate.

The physical changes described in the introduction will have substantial effects on the U.S. economy. Climate change will affect agricultural productivity, mortality, crime, energy use, storm activity, and coastal inundation (Hsiang et al. 2017).

In figure 1 we focus on the economic costs imposed by climate change in the United States for different cumulative increases in temperature. It is immediately apparent that economic costs will vary greatly depending on the extent to which global temperature increase (above preindustrial levels) is limited by technological and policy changes. At 2°C of warming by 2080-99, Hsiang et al. (2017) project that the United States would suffer annual losses equivalent to about 0.5 percent of GDP in the years 2080-99 (the solid line in figure 1). By contrast, if the global temperature increase were as large as 4°C, annual losses would be around 2.0 percent of GDP. Importantly, these effects become disproportionately larger as temperature rise increases: For the United States, rising mortality as well as changes in labor supply, energy demand, and agricultural production are all especially important factors in driving this nonlinearity.

Looking instead at per capita GDP impacts, Kahn et al. (2019) find that annual GDP per capita reductions (as opposed to economic costs more broadly) could be between 1.0 and 2.8 percent under IPCC's RCP 2.6, and under RCP 8.5 the range of losses could be between 6.7 and 14.3 percent. For context, in 2019 a 5 percent U.S. GDP loss would be roughly $1 trillion.

There is, of course, substantial uncertainty in these calculations. A major source of uncertainty is the extent of climate change over the next several decades, which depends largely on future policy choices and economic developments-both of which affect the level of total carbon emissions. As noted earlier, this uncertainty justifies more aggressive action to limit emissions and thereby help insure against the worst potential outcomes.

It is also important to highlight what figure 1 leaves out. Economic effects that are not readily measurable are excluded, as are costs incurred by countries other than the United States. In addition, if climate change has an impact on the growth rate (as opposed to the level) of output in each year, then the impacts could compound to be much larger in the future (Dell, Jones, and Olken 2012). ³

Fact 2: Struggling U.S. counties will be hit hardest by climate change.

The effects of climate change will not be shared evenly across the United States; places that are already struggling will tend to be hit the hardest. To explore the local impacts of climate change, we use a summary measure of county economic vitality that incorporates labor market, income, and other data (Nunn, Parsons, and Shambaugh 2018), paired with county level costs as a share of GDP projected by Hsiang et al. (2017). ⁴

Figure 2 shows that the bottom fifth of counties ranked by economic vitality will experience the largest damages, with the bottom quintile of counties facing losses equal in value to nearly 7 percent of GDP in 2080-99 under the RCP 8.5 scenario (a projection that assumes little to no additional climate policy action and warming of roughly 4.3°C above preindustrial levels). ⁵ Counties that will be hit hardest by climate change tend to be located in the South and Southwest regions of the United States (Muro, Victor, and Whiton 2019). Rao (2017) finds that nearly two million homes are at risk of being underwater by 2100, with over half of those being located in Florida, Louisiana, North Carolina, South Carolina, and Texas. More-prosperous counties in the United States are often in the Northeast, upper Midwest, and Pacific regions, where temperatures are lower and communities are less exposed to climate damage.

An important limitation of these estimates is that they assume that population in each county remains constant over time (Hsiang et al. 2017). ⁶ To the extent that people will adjust to climate change by moving to less-vulnerable areas, this adjustment could help to diminish aggregate national damages but may exacerbate losses in places where employment falls. Moreover, the limited ability of low-income Americans to migrate in response to climate change exposes them to particular hardship (Kahn 2017).

The concentration of climate damages in the South and among low-income Americans implies a disproportionate impact on minority communities. Geographic disadvantage is overlaid with racial disadvantage (Hardy, Logan, and Parman 2018), and Black, Latino, and indigenous communities are likely to bear a disproportionate share of climate change burden (Gamble and Balbus 2016).

Fact 3: Globally, low-income countries will lose larger shares of their economic output.

Unlike other pollutants that have localized or regional effects, GHGs produce global effects. These emissions constitute a negative spillover at the widest scale possible: For example, emissions from the United States contribute to warming in China, and vice versa. Moreover, some places are much more exposed to economic damages from climate change than are other places; the same increase in atmospheric carbon concentration will cause larger per capita damages in India than in Iceland.

This means that carbon emissions and the damages from those emissions can be (and, in fact, are) distributed in very different ways. Figure 3 shows impacts on per capita GDP based on a study of the GDP growth effects of warming, highlighting the relatively high per capita income reductions in Latin America, Africa, and South Asia (though higher-income countries would lose more absolute aggregate wealth and output because of their higher levels of economic activity). The figure also uses a higher estimate of potential economic damages that takes into account impacts on productivity and growth that accumulate over time as opposed to looking at snapshots of lost activity in a given year. Thus, the estimates are higher than those presented in facts 1 and 2, highlighting both the uncertainty and the potentially disastrous outcomes that are possible.

Beyond showing the potentially destructive scale, this map suggests global inequity: Several of the regions that contribute relatively little to the climate change problem-regions with relatively low per capita emissions-nevertheless suffer relatively high climate damages per capita.

Fact 4: Increased mortality from climate change will be highest in Africa and the Middle East.

The reductions in economic output highlighted in fact 3 are not the only damages expected from climate change. One important example is the effect of climate change on mortality. In places that already experience high temperatures, climate change will exacerbate heat-related health issues and cause mortality rates to rise.

Figure 4 relies on estimates from Carleton et al. (2018) to show climate change's expected effects on mortality in 2100. The geographical distribution of the impact on mortality is very uneven. Some of the most-significant impacts are in the equatorial zone because these locations are already very hot, and high temperatures become increasingly dangerous as temperatures rise further. For example, Accra, Ghana is projected to experience 160 additional deaths per 100,000 residents. In colder regions, mortality rates are sometimes predicted to fall, reflecting decreases in the number of dangerously cold days: Oslo, Norway is projected to experience 230 fewer deaths per 100,000. But for the world as a whole, negative effects are predominant, and on average 85 additional deaths per 100,000 will occur (Carleton et al. 2018).

Also evident in figure 4 is the role of income. Wealthier places are better able to protect themselves from the adverse consequences of climate change. This is a factor in projections of mortality risk from climate change: the bottom third of countries by income will experience almost all of the total increase in mortality rates (Carleton et al. 2018).

Mortality effects are disproportionately concentrated among the elderly population. This is true whether the effects are positive (when dangerously cold days are reduced) or negative (when dangerously hot days are increased) (Carleton et al. 2018; Deschenes and Moretti 2009).

Fact 5: Energy intensity and carbon intensity have been falling in the U.S. economy.

The high-damage climate outcomes described in previous facts are not inevitable: There are good reasons to believe that substantial emissions reductions are attainable. For example, not only has the emissions-to-GDP ratio of the U.S. economy declined over the past two decades, but during the last decade the absolute level of emissions has declined as well, despite the growth of the economy. From a peak in 2007 through 2017, U.S. carbon emissions have fallen 14 percent while output grew 16 percent (Bureau of Economic Analysis 2007-17; U.S. Environmental Protection Agency [EPA] 2007-17; authors' calculations). This reversal was produced by a combination of declining energy intensity of the U.S. economy (figure 5a) and declining carbon intensity of U.S. energy use (figure 5b). However, emissions increased in 2018, which suggests that sound policy will be needed to continue making progress (Rhodium Group 2019).

U.S. energy intensity (defined as energy consumed per dollar of GDP) has been falling both in times of economic expansion and contraction, allowing the economy to grow even as energy use falls. This has been crucial for mitigating climate change damages (CEA 2017; Obama 2017). Some estimates suggest that declining energy intensity has been the biggest contributor to U.S. reductions in carbon emissions (EIA 2018). Technological advancements and energy efficiency improvements have in turn driven the reduction in energy intensity (Metcalf 2008; Sue Wing 2008).

At the same time that energy intensity has fallen, the carbon intensity of energy use has also fallen in each of the major sectors (shown in figure 5b). Improved methods for horizontal drilling have led to substantial increases in the supply of low-cost natural gas and less use of (relatively carbon-intensive) coal (CEA 2017). ⁷ Technological advances have also helped substantially reduce the cost of providing power from renewable energy sources like wind and solar. From 2008 to 2015, roughly two thirds of falling carbon intensity in the power sector came from using cleaner fossil fuels and one third from an increased use of renewables (CEA 2017). Non-hydro-powered renewable energy has risen substantially over a short period of time, from 4 percent of all net electricity generation in 2009 to 10 percent in 2018 (EIA 2019a; authors' calculations).

Fact 6: The price of renewable energy is falling.

The declining cost of producing renewable energy has played a key role in the trends described in fact 5. Figure 6 shows the declining prices of solar and wind energy-not including public subsidies-over the 2010-17 period. Because these price decreases have followed largely from technology induced supply increases, solar and wind energy now play a more-important role in the U.S. energy mix (CEA 2017). In many settings, however, clean energy remains more expensive on average than fossil fuels (The Hamilton Project [THP] and the Energy Policy Institute at the University of Chicago [EPIC] 2017), highlighting the need for continued technological advances.

The increasing share of renewables in energy supply is due in part to cost-reducing advances in technology and increased exploitation of economies of scale. Government subsidies-justified by the social costs of carbon emissions-for renewable energy have also played a role. When the negative spillovers from CO2 emissions are incorporated into the price of fossil fuels, many forms of clean energy are far cheaper than many fossil fuels (THP and EPIC 2017). However, making a much broader use of clean energy faces technological hurdles that have not yet been fully addressed. Renewable energy sources are in many cases intermittent-they make power only when the wind blows or the sun shines-and shifting towards more renewable energy production may require substantial improvements in battery technology and changes to how the electricity market prices variability (CEA 2016). The technological developments that drive falling clean energy prices are the product of public and private investments. In a Hamilton Project policy proposal, David Popp (2019) examines ways to encourage faster development and deployment of clean energy technologies.

Fact 7: Some emissions abatement approaches are much more costly than others.

There are many ways to reduce net carbon emissions, from better livestock management to renewable fuel subsidies to reforestation. Each of these abatement strategies comes with its own costs and benefits. To facilitate comparisons, researchers have calculated the cost per ton of CO2-equivalent emissions. ⁸ We show high and low estimates of these average costs in figure 7, reproduced from Gillingham and Stock (2018). ⁹

Less-expensive programs and policies include the Clean Power Plan-a since-discontinued 2014 initiative to reduce power sector emissions-as well as methane flaring regulations and reforestation. By contrast, weatherization assistance and the vehicle trade-in policy Cash for Clunkers are more expensive (see figure 7). It is important to recognize that some policies may have goals other than emissions abatement, as with Cash for Clunkers, which also aimed to provide fiscal stimulus after the Great Recession (Li, Linn, and Spiller 2013; Mian and Sufi 2012).

But when the goal is to reduce emissions at the lowest cost, economic theory and common sense suggest that the cheapest strategies for abating emissions should be implemented first. State and federal policy choices can play an important role in determining which of the options shown in figure 7 are implemented and in what order.

A common approach is to impose certain emissions standards-for example, a low-carbon fuel standard. The difficulty with this approach is that, in some cases, standards require abatement methods involving relatively high costs per ton while some low-cost methods are not implemented. This can reflect government regulators' limited information about abatement costs or political pressures that favor some standards over others. By contrast, a carbon price-discussed in facts 8 through 10-helps to achieve a given emissions reduction target at the minimum cost by encouraging abatement actions that cost less than the carbon price and discouraging actions that cost more than that price.

However, policies other than a carbon price are often worthy of consideration. In a Hamilton Project proposal, Carolyn Fischer describes the situations in which clean performance standards can be implemented in a relatively efficient manner (2019). ¹⁰

Fact 8: Numerous carbon pricing initiatives have been introduced worldwide, and the prices vary significantly.

At the local, national, and international levels, 57 carbon pricing programs have been implemented or are scheduled for implementation across the world (World Bank 2019). Figure 8 plots some of the key national and U.S. subnational initiatives,
showing carbon taxes in green and cap and trade in purple. By imposing a cost on emissions, a carbon price encourages activities that can reduce emissions at a cost less than the carbon price.

Immediately apparent from figure 8 is the wide range of the carbon prices, reflecting the range of carbon taxes and aggregate emissions caps that different governments have introduced. At the highest end is Sweden with its price of $126 per ton; by contrast, Poland and Ukraine have imposed prices just above zero. ¹¹ A sufficiently high carbon price would change the cost-benefit assessment of some existing nonprice policies, as described in a Hamilton Project proposal by Roberton Williams (2019).

A crucial question for policy is the appropriate level of a carbon price. According to economic theory, efficiency is maximized when the carbon price is equal to the social cost of carbon. ¹² In other words, a carbon price at that level would not only facilitate the adoption of the lowest-cost abatement activities (as discussed under fact 7) but would also achieve the level of overall emissions abatement that maximizes the difference between the climate-related benefits and the economic costs. ¹³ Although setting the carbon price equal to the social cost of carbon maximizes net benefits, the monetized environmental benefits also exceed the economic costs when the carbon price is below (or somewhat above) the optimal value.

Estimates of the social cost of carbon depend on a wide range of factors, including the projected biophysical impacts associated with an incremental ton of CO2 emissions, the monetized value of these impacts, and the discount rate applied to convert future monetized damages into current dollars. ¹⁴ As of 2016, the Interagency Working Group on Social Cost of Carbon-a partnership of U.S. government agencies-reported a focal estimate of the social cost of carbon (SCC) at $51 (adjusted for inflation to 2018 dollars) per ton of CO2 (indicated by the dashed line in figure 8). ¹⁵

Fact 9: Most global GHG emissions are still not covered by a carbon pricing initiative.

Just as important as the carbon price is the share of global emissions facing the price. Many countries do not price carbon, and in many of the countries that do, important sources of emissions are not covered. When implementing carbon prices, policymakers have tended to start with the power sector and exclude some other emissions sources like energy-intensive manufacturing (Fischer 2019).

The carbon pricing systems that do exist are not evenly distributed across the world (World Bank 2019). Programs are heavily concentrated in Europe, Asia, and, to a lesser extent, North America. This distribution aligns roughly with the distribution of emissions, though the United States is an outlier: as discussed in the introduction, Europe has generated 33 percent of global CO2 emissions since 1850, the United States 25 percent, and China 13 percent (Ritchie and Roser 2017; authors' calculations). According to currently scheduled and implemented initiatives, in 2020 the United States will be pricing only 1.0 percent of global GHG emissions; by comparison, Europe will be pricing 5.5 percent, and China will be pricing 7.0 percent (see figure 9).

Figure 9 shows each region's priced emissions-including both implemented and planned (in 2020) carbon pricing-as a share of total global emissions. Between 2005 and 2012, the European Union's cap and trade program was the only major carbon pricing program. However since the Paris Agreement, there has been a growing number of implemented and scheduled programs, with the largest of these being China's national cap and trade program set to take effect in 2020. Despite this activity, it is likely that a carbon price will still not be applied to 80 percent of global emissions of GHGs in 2020 (World Bank 2019; authors' calculations).

Fact 10: Proposed U.S. carbon taxes would yield significant reductions in CO2 and environmental benefits in excess of the costs.

To assess proposals for a national U.S. carbon price, it is important to understand the size of the likely emissions reduction. Figure 10 shows projections of emissions reductions from Barron et al. (2018) under different assumptions about the level and subsequent growth rate of a U.S. carbon price. Over the 2020-30 period a carbon tax starting at $25 per ton in 2020 and increasing at 1 percent annually above the rate of inflation achieves a reduction in CO2 of 10.5 gigatons, or an 18 percent reduction from the baseline (emissions level in 2005). A more-ambitious $50 per ton price, rising at 5 percent subsequently, would reduce near-term emissions by an estimated 30 percent. ¹⁶

A major attraction of using carbon pricing to achieve emissions reductions (as compared to adopting standards and other conventional regulations for this purpose) is its ability to induce the market to adopt the lowest-cost methods for reducing emissions. As of late 2019, nine U.S. states participate in the Regional Greenhouse Gas Initiative (RGGI), in which electric power plants trade permits that currently have a market price of around $5.20 per short ton of carbon 10. Proposed U.S. carbon taxes would yield significant reductions in CO2 and environmental benefits in excess of the costs. (RGGI Inc. 2019). ¹⁷ That means that electric power plants covered under the RGGI are able to find methods of emissions abatement at a cost of $5.20 per ton at the margin and would buy permits at that price rather than undertake any abatement opportunities at a higher cost. A lower aggregate cap-or a higher carbon tax-would continue to select for the abatement approaches that have the lowest costs per ton for a given sector.

Even at much higher levels, emissions pricing leads to environmental benefits-reduced climate and other environmental damages-that exceed the economic sacrifices involved (i.e., the expense of reducing emissions). ¹⁸ A central estimate of the social cost of carbon (in 2018 dollars) is $51 per ton (Interagency Working Group on Social Cost of Carbon 2016). However, many recent proposals have tended to entail carbon prices below this level. ¹⁹ Goulder and Hafstead (2017) find that a U.S. carbon tax of $20 per ton in 2019, increasing at 4 percent in real terms for 20 years after that, yields climate related benefits that exceed the economic costs by about 70 percent. ²⁰

The authors did not receive financial support from any firm or person for this article or from any firm or person with a financial or political interest in this article. None of the authors is currently an officer, director, or board member of any organization with a financial or political interest in this article.

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Ryan Nunn, Jimmy O'Donnell, Jay Shambaugh, Lawrence H. Goulder, Charles D. Kolstad, and Xianling Long

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Ten facts about the economics of climate change and climate policy

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The Hamilton Project and SIEPR aim to summarize how the world's climate has changed in response to accumulating greenhouse gas (GHG) emissions, and how those changes have affected research into the nature of the problem and potential policy solutions, adopting an economic lens.

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IMF | 2019

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How Carbon Trading Works | RMIT University

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What is carbon trading? | CNBC International