Climate Change Is Costing You a Lot of Money—And Congress Is Largely Ignoring It

National Journal

NORFOLK, Va.—Jimmy Strickland can tell you exactly how much money rising sea levels have cost his business. In 1989, he opened his accounting firm in a one-story brick building near Norfolk’s historic cobblestoned Hague district, which surrounds one of this low-lying city’s many tidal rivers.

Dressed in pinstripes and a large, gold class ring, the white-haired Strickland is a consummate Southern gentleman—and also a consummate small-business owner. In his soft coastal accent, he tells the story of how the rising tides of Norfolk have eroded his bottom line. “I was here for 14 years, and nothing happened. We had no idea this area flooded. It had never happened before,” Strickland says. “Then, over the past 10 years, we had three big ones.” In 2003, Hurricane Isobel drove a foot-high surge of seawater into his office, drenching the foundation and walls. On Veterans Day 2009, a nor’easter brought a repeat. Last October, while most of Virginia escaped the wrath of superstorm Sandy as it barreled up the coast toward New York, the tidal waters in Norfolk rose and soaked through his cinder-block foundation. Strickland and his wife spent 36 hours in the office, vacuuming the moisture as it seeped through the floor. Now, whenever a storm is forecast, the boss and his staff come in to prep two days before it is due. That means moving furniture and files, as well as wrapping the photocopiers and fax machines in plastic. It means hours of setting up the $12,000 “door-dam” system that Strickland bought online—an assembly of metal panels and pegs that can hold floodwaters from the building for a few tide cycles.

“I could be billing $150 an hour for my workers,” he says. “Instead, this is what we’re doing. And then it’s another two days or more after the storm to put it all back.”

Afterward comes the long wrangling with the Federal Emergency Management Agency, which has paid out about $250,000 each time to repair Strickland’s damaged building, replace his furniture, and truck in an arsenal of fans and dehumidifiers to dry everything out.

Strickland wants a more permanent solution. He has thought about selling the building, but he’s worried that after being hit by three floods in 10 years, he’ll have a hard time finding a buyer. Instead, he’s looking into elevating the structure on stilts. Local contractors have bid the job at $1.5 million to $2 million. He’d like to use the post-Sandy $250,000 from FEMA to help offset the cost, but the federal government pays for cleanup only, not prevention.

“At some point, you’d think they’d say, ‘Enough is enough. Let’s pay for a permanent solution.’ But either way, somebody’s paying,” he says.

And Strickland fully expects someone, whether it’s him or taxpayers, to pay more in the future, as sea levels climb higher. “In the last couple of years, we’ve seen more and more evidence of the waters rising,” the accountant says. “I’m just a small businessman. I’m looking at my building, on the impact of this on me and my employees; but other people are going to start thinking, am I going to want to relocate my business here?”

It’s a question being asked all across the region, as a series of scientific reports have singled out Norfolk as one of the nation’s cities most vulnerable to flooding and economic devastation as a result of sea-level rise—second only to New Orleans. The reason: rapidly rising sea levels due to climate change. Among the chief causes for that rise, according to the Nobel Prize-winning Intergovernmental Panel on Climate Change, are carbon emissions from burning fossil fuels, which trap heat in the Earth’s atmosphere, melting polar ice sheets and driving up the tides. Over the past century, the planet’s sea levels have risen about 8 inches. Globally, scientists now project sea levels to rise another 1 to 4 feet by the end of this century.

View gallery

.
Infographic

And the story gets worse. A 2012 study by the U.S. Geological Survey determined that sea levels along the East Coast will rise three to four times faster than the global average. The study named Norfolk, New York City, and Boston as the three metro areas most vulnerable to the devastating effects of rising sea levels—ranging from the dramatic increase in storm surge, as winds scoop up water from the sea and dump more of it farther from the coast than ever before, to the steady erosion of roads, buildings, and arable soil as seawater creeps inland.

Norfolk, however, faces a double whammy: The city and the surrounding region of Hampton Roads sit on soft marshes, so while the tide is rapidly rising, the land is slowly sinking. The economic impact of these forces will be profound; some estimates run as high as $25 billion. Hampton Roads is a major engine of the state’s economy, home to 1.6 million people, the world’s largest naval base, including the only U.S. shipyard that builds nuclear submarines, and the tourist mecca of Virginia Beach.

In the 1980s, when then-Rep. Al Gore, D-Tenn., first sounded the alarm about climate change, it was a frightening specter, but it sounded far off, like someone else’s future. But that future is starting to arrive. Scientists and economists agree that we’re now experiencing the measurable, real-world effects of human-caused climate change. Those effects are hitting Americans where they notice first—in their wallets. Climate change is quantifiably slowing economic growth, raising government spending, and creating new layers of risk and uncertainty for investors.

Michael Roberts, an agricultural economist at the University of Hawaii who has studied the impact of global warming for the National Bureau of Economic Research, says, “We’re starting to see the first price tags on climate change.”

AN OYSTER MYSTERY

Netarts Bay stretches along the lush northern Oregon coast, chiefly populated by brown pelicans and the occasional migrating gray whale. Since 1972, it’s been home to the Whiskey Creek Shellfish Hatchery, one of the three largest suppliers of oyster larvae to the Pacific Northwest shellfish industry, which is valued at $270 million a year.

For more than three decades, Whiskey Creek produced 7 billion to 10 billion oyster larvae annually, sending them to nearly 50 other farms throughout the Northwest. The full-grown oysters are then shipped to markets and restaurants around the country. But in 2008, the company’s production plunged to just 2.5 billion larvae. Panicked, the owners called in Alan Barton, a biologist and oyster expert at the University of Oregon.

He spent months running tests to determine what was wrong. “I came here thinking I was an oyster hotshot,” Barton says. “But I couldn’t figure it out.” One day, a lab test showed something surprising: The carbon levels of the ocean water were at abnormally high levels, rending it intensely acidic. Repeated tests showed that the highly acidic ocean water was eating away at the oyster shells, killing the sensitive larvae.

For millions of years, the planet’s oceans have absorbed carbon dioxide, the gas that causes global warming. Over the past decade, so much carbon dioxide has been pumped into the atmosphere that the oceans’ carbon levels have shot up, translating to heavily acidic water that is deadly to shellfish, as well as to other marine life. Around the world, increasingly acidic seawater is slowly destroying the foundation of the oceans’ food chains. In the South Pacific, it’s eating away at coral reefs. The water is also slowly destroying microscopic shellfish called pteropods, a staple of Pacific salmon’s diet. New studies show that, eventually, the heavily acidic waters could deprive salmon of this essential food source, triggering a breakdown in a crucial food chain and a major industry.

At the Whiskey Creek hatchery, Barton came up with a temporary but expensive solution: pumping alkaline water through the oyster beds to balance the acidity of the ocean water. That’s brought production back to about 6 billion larvae per year.

The workaround hasn’t been enough to return Whiskey Creek to its former profitability, however. “We’re now spending about as much as we make. We used to make about a $1 million profit a year. Now we break even,” Barton says.

Meanwhile, yields of commercially viable wild-caught oysters, which are grown without the benefit of chemical help, are dropping fast. “We’ve crossed a line. In 20 or 30 years, there won’t be any water in the Northwest where we can grow oysters,” Barton warns. “This isn’t 100 years down the road. It’s happening right now. It’s having a big economic impact, right now.”

CRITICAL MASS

Last month, 13 federal agencies jointly released a draft of the third National Climate Assessment, which concluded, simply, “Climate change is already affecting the American people.” The report found that climate change, caused by human activities, has caused rising sea levels, more frequent and intense heat waves, heavy downpours, floods, and droughts. And that’s not all. Prolonged heat waves and droughts, driven by climate change, are pushing down production of crops and livestock, thus driving up food prices. The changes are also sparking larger and more frequent wildfires; melting the glaciers and mountain snowpack that are essential sources of water supply in the West; and lowering the levels in major bodies of water, from the Colorado and Mississippi rivers to the Great Lakes.

Climate change is causing major disruptions to the nation’s transportation and energy infrastructure, leading to increased power outages and fuel-price spikes, and slowing the movement of goods and people. Heavy levels of carbon are acidifying the oceans, destroying the organisms that support the nation’s seafood industry.

All of this comes with costs. A 2012 study by the Madrid-based group DARA found that extreme weather associated with climate change is costing the world economy $1.2 trillion a year, destroying 1.6 percent of global gross domestic product. The study projects that the effects of climate change could cut global GDP by 3.2 percent a year by 2030.

In the United States, 2011 and 2012 were the two most extreme years on record for destructive weather events. A record 14 weather disasters occurred in 2011, sustaining more than $1 billion each in economic losses for a total of $60.6 billion. Last year brought 11 weather disasters that each cost $1 billion or more; while the total economic loss has not been determined, experts say the dollar figure is almost certain to exceed 2011’s. Meanwhile, the insurance industry estimates that its losses from 2012’s natural disasters will total $58 billion—more than double the average yearly losses of $27 billion from 2000 to 2011.

As incidents of extreme weather mount, so do the costs to taxpayers. Congress allocated $61 billion to pay for superstorm Sandy. (That figure, by the way, almost entirely cancels out the new revenue raised by the New Year’s Day fiscal-cliff deal that increased taxes on the wealthy.) Taxpayers also paid out a record $20 billion in federal crop-insurance claims in 2012, to cover the devastating losses from the record drought that scorched the nation’s heartland last summer.

View gallery

.
Infographic

It’s important to point out, of course, that no single weather event, including Sandy, can be attributed to climate change. But the data show that climate change has already locked us into a future of more Sandy-like storms—which will come with Sandy-sized price tags. The Natural Resources Defense Council, an environmental-advocacy group, estimates that by 2025, taxpayers could be shelling out more than $270 billion a year for disaster relief if no action is taken to cut the fossil-fuel pollution that causes global warming or to prepare for the damage that science tells us—and evidence shows us—is coming.

Despite all the evidence that climate change has started costing the economy, businesses, and taxpayers, and that much higher costs are to come, the congressional response has been to largely ignore the problem, except to pay for damages as they arise. And while Congress authorized $61 billion for Sandy relief, the House rejected amendments that would have required planning for the impact of sea-level rise due to climate change. In the past, FEMA’s budget has included money to prevent flood damage—to help pay, for example, for projects like elevating Jimmy Strickland’s office. But Congress slashed that funding last year, and the Obama White House has proposed eliminating it altogether. Over the past year, House Republicans have voted to block programs aimed at researching the effects of climate change on the United States, programs to help farmers adapt to the impact of climate change, and a Securities and Exchange Commission requirement that companies disclose financial risk related to climate change. In some state legislatures, lawmakers have pushed to have scientific data on the effects of climate change excised from development and infrastructure plans.

“Up until recently, the debate was, how much does it cost us to address climate change—and the cost of acting overwhelmed us,” says Matthias Ruth, an economist at Northeastern University who has published a series of reports on the economic impact of climate change on various states. “The cost of inaction is at the same order of magnitude, if not higher, than doing something about it.”

RISK ASSESSMENT

If Washington isn’t paying much attention, the business and financial sectors are. When Sandy deluged Wall Street itself, flooding the subways and shutting down the New York Stock Exchange, it dramatically underscored the need for businesses and investors to take climate science seriously and to plan accordingly.

The coming world carries a growing risk of economic disruption. Businesses with profit margins that depend on goods and supply chains that could be suddenly upended by drought, power outages, spikes in fuel costs, property damage, and changes in insurance coverage are looking toward a future of increased risk. Owners of those businesses are trying to figure out how to plan for such a future. In 2011, a study by the consulting firm Mercer warned that climate change could increase investment-portfolio risk by 10 percent over the next 20 years.

“There’s no word on Wall Street more important than risk. And climate change is the ultimate risk,” says Mindy Lubber, who heads the Investor Network on Climate Risk, a group of more than 90 investors, representing approximately $10 trillion in assets, that coordinates U.S. investor responses to climate change. “Climate-change financial implications are the equivalent of the subprime-mortgage meltdown. They impact the entire market.”

Insurance companies, which have to pay out for damages caused by extreme weather, have been among the first to feel the pain—and they have started revamping the industry for a future shaped by global warming. It involves examining data on where extreme weather and sea-level rise have hit, and looking seriously at scientific projections about what comes next. That has led to spikes in insurance rates around the country, particularly for property owners on the coasts, near rivers, and in regions where extreme droughts have triggered wildfires. Some insurers are pulling out of the market entirely—particularly around cities like Norfolk.

The companies that take the largest risk are reinsurers—the entities that, effectively, insure insurers. Munich Re, the world’s largest reinsurer, sees an increase of volatile weather in North America, driven in part by climate change, as one of the greatest sources of risk to its bottom line. In an October report, the Germany-based company wrote, “The intensities of certain weather events in North America are among the highest in the world, and the risks associated with them are changing faster than anywhere else.”

The study concludes that natural catastrophes globally have more than doubled in the past 30 years, driven chiefly by an increase in extreme weather. But in North America, the rate of weather disasters has increased nearly fourfold, costing more than $1 trillion over 30 years.

In 2010, the SEC began requiring publicly traded companies to disclose risk to their bottom line associated with climate change. The agency’s job is to protect investors by making sure they know what they’re in for when they put their money into a company.

So what poses a reportable climate risk? Businesses that make products that need water, including major beverage producers, are already experiencing more risk in an increasingly water-constrained world. Climate data tell them that risk will continue to climb as drought makes water scarcer. Coca-Cola learned this firsthand in 2004, when it lost an operating license in India due to water shortage.

The SEC disclosure of the world’s largest beverage-maker references climate change directly: “Water is the main ingredient in substantially all of our products. It is also a limited resource in many parts of the world, facing unprecedented challenges from overexploitation, increasing pollution, poor management, and climate change. As demand for water continues to increase around the world, and as water becomes scarcer and the quality of available water deteriorates, our system may incur increasing production costs or face capacity constraints which could adversely affect our profitability or net operating revenues in the long run.”

No company is more iconic than Coke. By acknowledging the risk that climate change could cause, and planning for it, Coca-Cola is attempting to safeguard its future. “Volatility could be increased by frequency and severity of changes in the weather,” says Lindene Patton, the chief climate product officer for Zurich Financial Services. “You can’t ignore it. You must manage it, in order to plan for your business.”

A THREAT TO GROWTH

From his office on the 16th floor of the iconic Gateway building in downtown St. Louis, John Posey gazes down on the barges navigating the Mississippi River. He is the director of research services at the East-West Gateway Council of Governments, the planning organization for metropolitan St. Louis. It’s his job to think about how this city at the geographical and commercial crossroads of the country can grow in smart fashion, while safely moving both people and goods.

Over the past several months, Posey has watched the ongoing drought lower the water levels in the river, slowing traffic on one of America’s vital conduits. The Mississippi carries freight loads of steel and grain from the heartlands’ farms and factories on their way to international ports on the Gulf Coast. But this summer, as a scorching drought sent water levels lower and lower, barges were delayed or blocked from moving at all. In 2008 and 2011, by contrast, Posey’s windows looked out on raging storms that flooded the river and stopped its traffic.

Shipping delays come with price tags. Drought-related closures affecting commercial barge traffic will result in losses of about $7 billion through the end of January, according to the barging industry. For now, the government is stepping in with a short-term solution. The Army Corps of Engineers is dredging the river to keep it open. The cost to taxpayers is about $10 million.

Posey is an urban planner, not a climate scientist. But it’s clear to him that a changing climate is affecting how people and goods move, and the data tell him it’s going to get worse. “Increasing temperatures and changing precipitation patterns have the potential to affect transportation in every part of the country,” he says, adding that the challenge now is to act. “There are a wide range of adaptive measures that can make a community more resilient against the challenges we’re facing. Part of a planner’s job is to assess vulnerability and design systems that work well under different scenarios.”

The Great Lakes, which also play a crucial role in North American shipping, are experiencing a similar pattern. A 2008 study by Canadian economist Frank Millerd concluded that higher temperatures caused by climate change are lowering lake levels, restricting the numbers of vessels and weights of cargo that can transit the lakes. That increases the number of trips necessary to ship the same amount of cargo and raises shipping companies’ costs by an average of up to 22 percent.

The draft National Climate Assessment report identifies the nation’s roads, rivers, ports, highways, and airports as highly vulnerable to the effects of climate change, which then ripple throughout the economy.

The interagency report cites a number of examples of quantifiable damage, which experts say offer a clear preview of what’s to come. In December 2007, heavy rainfall west of Washington state’s Interstate 5, combined with melting snow from the mountains, blocked the highway, downed power lines, and flooded roads and drainage systems. State officials estimated the economic damage from the flood at almost $75 million. In Alaska, an entire network of roads and highways has been built on a foundation of permafrost—soil saturated with frozen water. As temperatures have warmed, the permafrost is thawing into mud, road shoulders are slumping, highways are sliding, and runways are sinking. Already, Alaska spends $10 million a year repairing damage caused by melting permafrost.

LET IT RAIN

Not far from St. Louis, the drought is laying siege to Kent Peppler’s livelihood. “It’s so dry here,” bemoans Peppler, a farmer who raises corn, wheat, barley, and alfalfa hay on the high plains of Mead, Colo. “We’re hoping for some flakes of snow to help the soil.”

Peppler, who is president of the Rocky Mountain Farmers Union, likens the economic drought to a cancer. “It just grows and grows,” he says. “When the farmer doesn’t have any money to spend in the community that he lives in, it affects the whole community. It’s a train wreck. People have land and machinery payments. Insurance covers some things, but it doesn’t cover everything.”

American farmers such as Peppler grow more corn than anyone else—40 percent of the world’s supply. Last year, they grew a lot less, and it hurt. The record summer heat wave that gripped the nation caused a devastating drought that parched crop soil across the Midwest and South. That sent U.S. corn production plunging by about 23 percent, according to a December report by the National Bureau of Economic Research. And the economists who wrote the report concluded, “While extreme heat was significantly above normal, climate-change scenarios suggest that the 2012 outcomes will soon be the new normal.”

In the 2011-12 season, the price of corn averaged $6.22 a bushel. This year, it is forecast to shoot to record levels of $6.95 to $8.25. That price spike will seep through the rest of the economy because corn is part of almost everything we eat. It is the main ingredient in the feed for cattle, hogs, and chickens, so spikes in corn prices are driving up the cost of milk, eggs, beef, pork, and chicken.

Says Roberts, the agricultural economist, “Without climate change, a summer like last year’s would be a 1-in-100-year event. With climate change, it’s likely to be a 1-in-10-year event.”

The economic hit to farmers, farming communities, and food prices will continue, he says. “With climate change, this is a long-run, permanent change. It’s very hard to see a situation where corn prices aren’t going up in the long run.”

In Texas, the scorching summer of 2011 dried up crops, led to massive livestock sell-offs, and forced cities and towns to ration water. Even restaurants instituted a “one-glass-per-customer” rule. And some of the biggest, thirstiest water consumers of all—electric power plants—were forced to shut down entirely.

A typical coal-fired power plant can consume up to 11 million gallons of water to operate each day. During the 2011 drought in Texas, water shortages threatened more than 3,000 megawatts of generating capacity, enough power to supply over a million homes. At the same time, electricity demand spiked as people cranked up air conditioners against the sweltering heat. Production prices shot up to $3,000 per megawatt-hour—more than three times the amount that generators are allowed to charge their customers.

Here’s one of the greatest ironies of the cost of climate change. The scientific data are clear about the biggest culprit: pollution created by burning fossil fuels, particularly oil and coal. And those industries are among the first suffering from the changing climate. Hotter, drier weather makes it more difficult for electric power plants to get the water they need to operate. Rising sea levels and extreme storms, particularly in the Gulf of Mexico, have already dealt a series of body blows to the U.S. oil industry’s infrastructure.

The Gulf, off the shores of Alabama, Louisiana, Mississippi, and Texas, is home to a vast network of drilling rigs, pipelines, ports, and refineries that collectively produce and import more than 20 percent of U.S. oil. In 2005, Hurricanes Katrina and Rita offered a preview of what’s in store for that offshore industry in a future of more extreme storms. The hurricanes sliced through the heart of the Gulf Coast’s fossil-fuel infrastructure, destroying 113 oil and gas platforms and damaging 457 oil and gas pipelines. Oil prices spiked by $3 a barrel, and gasoline prices shot up to nearly reach $5 a gallon in some parts of the country.

“These events have given us a clear preview of what’s to come,” said Susan Tierney, an energy analyst with the Boston-based Analysis Group and a former assistant secretary of Energy. “There’s no question we’ll see more of them, and that they’ll directly impact the industry—and consumers.”

The cost of climate change will affect consumers far beyond the gas pump. The National Climate Assessment projects a future of longer, hotter summers, which means more demand for air conditioning. The report estimates that by 2070, Midwesterners will experience 33 more 95-plus degree days a year, and a 64 percent increase in the number of days they’ll need to run their air conditioners. Southeasterners will get 23 more 95-plus degree days, and 43 percent more air-conditioning days. Residents of the cool Northwest will experience only five more days per year of at least 95 degrees, but an 89 percent increase in the days they’ll need air conditioning.

PLANNING PROBLEMS

More volatile weather and stronger storms aren’t the only worries for the residents of the Norfolk area. Several times a year, high tides flood the city’s main thoroughfare, Hampton Boulevard, cutting off access to the center of town, the naval base, and the hospital. In the elegant neighborhood of Colonial Place, where grand old homes line Mayflower Drive along the inland tidal Lafayette River, high-tide flooding has become a regular occurrence. Sidewalks have been stained to a rust color, from saltwater interacting with the iron in the concrete. As far as two blocks inland, the oak and flowering crape myrtle trees that shade the neighborhood are dead or dying, a result of saltwater soaking the roots. The ocean water has also killed the grass in the once-gracious lawns across the street from the river. In its place has grown up a spiky, scrubby swamp grass, known as spartina.

Norfolk’s mayor, Paul Fraim, is worried. “It’s clear that the sea level is rising,” he says. “It’s discernible; it’s verifiable. We’ve already had to spend a lot of money on mitigation…. Last year, we budgeted $7 million in city funds for flood mitigation. We’ll do the same this year.” Fraim has met with White House budget officials to make the case for more federal money to help with the flooding and damage that’s coming.

But in Virginia’s capital of Richmond, mentioning climate change is politically radioactive. While neighboring states such as Delaware and Maryland have included climate-change data in their long-term regional planning and reduced development in areas where higher sea levels could cause damage, Virginia’s Republican governor, Bob McDonnell, shelved a climate-change action plan proposed by a commission under his Democratic predecessor, Tim Kaine.

McDonnell’s possible successor, GOP Attorney General Ken Cuccinelli, has waged an aggressive campaign against including climate change in public-policy decisions. He also made headlines in 2010 for investigating University of Virginia climate scientist Michael Mann, and again in 2012 for trying unsuccessfully to block the Environmental Protection Agency from regulating greenhouse gases. In 2011, delegates from the Hampton Roads area sought money from the Virginia General Assembly to study how sea-level rise could affect coastal regions. After tea-party activists objected to spending money on climate science,- the language was changed to “recurrent flooding” and passed by the Legislature.

The same hostility can be found in neighboring North Carolina. There, a group of coastal developers pushed the state to junk a study showing that climate change would likely lead to a 3-foot sea-level rise by the end of the century, a level that could damage more than 2,000 square miles of the low-lying state. For now, the developers remain free to continue building along the fragile coastline, as the state Legislature delayed consideration of a climate study by three years.

That denial just means others will bear the costs. Those who will have to adapt to the changes no matter what—insurance companies, financial firms, and civil engineers—are trying to plan for what’s to come. “Every state Department of Transportation recognizes that climate change is a big threat to their customers, but there are a lot of states where there is skepticism about climate change,” says economist Cynthia Burbank, vice president at the engineering firm Parsons Brinckerhoff, who served for 31 years at the U.S. DOT. “And that makes it really hard for public-sector transportation agencies. Some of them have to do adaptation work under the radar and refer to it as ‘extreme weather’ rather than ‘climate change.’ ”

Adds Norfolk’s Mayor Fraim: “As soon as you get caught up in a discussion about climate change, people start going to various corners of that debate, and their willingness to work with you slows down. At the state level, when we talk about flooding, people say, ‘Sure, we’ll help.’ When we talk about climate change—people don’t want to talk about it.”

Spending more and more money without planning for what lies ahead drives a soft-spoken numbers guy like Jimmy Strickland to the edge of his patience. “It’s foolish to put our heads in the sand and think it’s not going to occur again,” he says. “Because it is.”

View Comments (2)