The Federal Reserve directed the six largest banks in the U.S. to disclose the vulnerability of assets in their portfolios to climate change.
By the end of July, major financial institutions will have to study how anticipated droughts, wildfires, hurricanes and heat waves could impact commercial real estate holdings and loans under their management.
The analysis will look at two components. First, banks will have to assess the “physical risks” to people and property and the costs those risks will incur. Then they will have to estimate the “transition risk”, or the cost of implementing appropriate measures to adapt to those climate events.
This appears to be the first policy response to a growing concern among economists of a “carbon bubble” stemming from climate change.
In case 2008 is a distant memory, an economic “bubble” is when any asset has an artificially high value that exceeds its intrinsic, or ‘true’, value. Climate change has the potential to create bubbles in several sectors, with real estate at the top of the list.
Beachside properties that haven’t yet priced in impending sea level rise or the upgrades necessary to weatherize them are already overvalued. Once the reality of climate chaos sets in, those valuations are bound to crater, as they already have in Florida. The response from policymakers there has so far been to let taxpayers pick up the bill.
The metric assigns a price tag to every metric ton of carbon pollution that comes from a proposed energy source. The policy’s first iteration actually came from the end of the Obama Administration, which was subsequently watered down by Trump. Biden has since restored the measure and increased the cost from $51 per ton of emitted carbon to $190.
There’s just one hitch: accounting for the cost of an energy project won’t account for the damage a project might do to natural carbon sinks like forests or wetlands during its construction.
For example, a proposed solar farm producing extremely low carbon emissions would garner a low social cost of carbon. But let’s say the transmission lines connecting that solar farm to the grid will cut through a forest to get there, thereby disrupting a powerful carbon sink. Those carbon impacts won’t be counted yet.
The U.S. government has based its social cost of carbon calculations on more than a decade of data and modelling. Unfortunately, federal agencies are further behind in making those calculations for the benefits of natural ecosystems, although they are expected in the coming months.
The first of a new generation of small nuclear reactors got its first formal approval in the United States this week. The U.S. Nuclear Regulatory Commission (NRC) gave the green light to NuScale Power’s innovative nuclear reactors.
NuScale’s reactors take up about a third of the area of a traditional nuclear plant and employ a significantly more efficient water cycle. That marks a big improvement over existing nuclear facilities that depend on large adjacent bodies of cool water, something that is becoming increasingly rare across the planet.
The announcement has been nearly a decade in the making. The DOE provided nearly $600 million to the development of NuScale’s VOYGR small reactors since 2014. The project still has a ways to go before plugging into the grid, however, as it is estimated to be operational in 2029 with full scale operation starting in 2023.
This week’s technical and financial innovations were exciting, but it's just as important as keeping the best old-fashioned carbon sinks we have left.
Brazilian President Lula da Silva sent anti-deforestation agents into action this week in the rainforest states of Roraima, Acre and Para. Agents from Ibama, the Brazilian environmental enforcement agency, used satellites to identify several areas in the Cachoeira Seca indigenous reserve where illegal loggers had set up shop and begun conducting burns and clear-cutting operations.
The raids represent a badly needed rebound for rainforest protection efforts in Brazil. Under Bolsonaro, an area larger than Denmark was deforested in just four years. That’s a galling 60% increase over the already concerning rate of deforestation before he took office.
Ibama became the focus of former President Jair Bolsonaro’s ire during his one term as President. In addition to slashing funding and drastically cutting Ibama’s staff, Bolsonaro attacked the agency in the media for handing out fines to illegal miners and farmers.
The machete-wielding forest protectors have already seen their authority restored under Lula, and this week’s raids will hopefully have a chilling effect on illegal deforestation.
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