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Reviews |  The heat is already on

Last week, Stuart Kirk, head of responsible investing (!) for HSBC’s asset management division, gave a talk titled “Why Investors Don’t Need to Worry About Climate Risk”, in which he said it was no big deal: “Who cares if Miami is six meters under water in 100 years? Amsterdam has been six meters under water for ages, and that’s a very nice place. We will deal with it.”

Kirk was reportedly suspended, although the Financial Times also reports that his theme and content were “approved internally” ahead of the conference. Yet his self-immolation can serve as a crucial counterpoint: Investors — and, more importantly, human beings — need to be concerned about climate risks now. Because climate change is not something that will happen in the coming decades; its effects are happening as you read this. And even if we can “deal with it” for a while, there will come a time when we can’t – and the scale of the disaster will be immense.

There are several forms of climate denial. Kirk simply offered a version – always unforgivable from someone who is supposed to be a risk manager – that says, “Hey, what’s the problem if the planet warms up a degree or two?

With my apologies to the climatologists, who know I’m about to commit a vast oversimplification, and my further apologies for my DIY artwork, I present a schematic explanation of why this argument is wrong.

The weather fluctuates and extreme weather events have occurred even before mankind started burning large amounts of fossil fuels. For a particular location, say northern India, the temperature distribution might have looked like this:

I assume – again, a huge oversimplification – that there is a critical temperature that represents a point of danger. The shaded area represents how often this threshold would have been exceeded before the fossil fuel era.

Now imagine that a buildup of greenhouse gases increases average temperatures, shifting the probability distribution to the right. Even if the average temperature – the peak of the bell-shaped curve – remains below the danger level, the frequency of dangerously high temperature episodes can increase significantly:

It’s not just the temperature, of course; these are all side effects of temperature rise. Climate change is increasing the frequency of destructive storm surges, severe droughts and more.

Once you understand this point, you realize that the effects of climate change are all around us. Last week, for example, an extraordinary heat wave hit much of southern Europe, thankfully after my cycling trip to Portugal:

Such heat waves have happened before, but climate change has made them increasingly common. By one estimate, the record-breaking heat wave that hit India and Pakistan this spring was 30 times more likely than it would have been without human-caused climate change.

Or consider the mega-drought currently afflicting the western United States:

There have always been western droughts. But this one, which has now lasted for more than two decades and has reduced water levels in major reservoirs to record lows, is the worst in at least 1,200 years.

Climate change is therefore not a problem for the distant future. Its effects are already happening, although there is surely much worse to come.

But will we, as HSBC’s Kirk put it, “deal with it”? For a while, yes.

Modern societies – certainly high-income countries like America, and even lower-middle-income countries like India – have much more capacity to deal with problems than pre-industrial societies. They can help hard-hit areas; they can adapt their agriculture and living conditions to climate change; they can probably maintain the appearance of a more or less normal life for years to come.

But there is a well-known proposition in my home academic field, international economics, known as Dornbusch’s Law, named after Massachusetts Institute of Technology economist (and my mentor) Rudiger Dornbusch: ” The crisis takes much longer to come than you think, and then it happens much faster than you would have thought.Rudi was talking about currency crises, but his rule applies to other crises as well.

What I fear – and, alas, expect – is that for years, if not decades, we will avoid the worst climate catastrophe scenarios. Famines can kill millions of people, but not tens of millions, because food will arrive urgently when harvests fail. Incidents in which wet bulb temperatures, a measure of combined heat and humidity, exceed the limits of human endurance will remain rare for some time. Residents of towns overwhelmed by storm surges will be rescued.

Through human ingenuity, we will get through this—until we fail, because the scale of the crisis will exceed even the capacity of modern society to adapt. I think our response to climate change is like a rubber band that can be stretched a long distance until it suddenly breaks. And then the megadeaths will begin.

I’d like to be hyperbolic, but I think I’m just being realistic.

The tragedy here is that the climate crisis is perfectly solvable. Among other things, progress in renewable energy has been so dramatic that even a fairly modest policy push could still lead to a significant reduction in greenhouse gas emissions.

But none of this can happen without the participation of the United States, and sound climate policy in what is still the world’s essential nation is being held hostage by people more concerned with the imaginary threats of critical climate theory. race and swarm of immigrants than by the rapidly changing fate of the planet.

About renewable energy.

Sigh. No Build Back Better, which would have addressed climate change, would not have been inflationary.

Even if Jeff Bezos claims otherwise.

A blast from my own past: My first major published article focused on Dornbusch’s law.

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