The Real Costs of Global Warming

It doesn’t shock me that people don’t believe in global warming.  First and most simply, it’s easier not to!  The evidence for it is somewhat fragmentary and second-order, and it’s not as if one can point at a single event or datapoint to settle the issue.  Even beyond that, there’s what is called the “backfire effect”, coined by Brendan Nyhan.  That’s when a correction actually enhances prior beliefs.  Perhaps, say, when a scientist or a snotty ex-vice president says that actually climate change is totally real.

Conservative voters may not believe in global warming, but big business definitely does.  The Miami Herald has a nice story on how real estate investors are starting to get a little antsy about Florida real estate. It’s pretty hard to amortize investments on a 40-year timeline if the asset’s underwater.   And from my days in the consulting industry, I learned that large insurers are taking the threat of climate change extremely seriously.

It seems like the market might do the ultimate job of getting across the danger of climate change.  As financing costs for coastal real estate climb, and customers are flatly told that they it will be hard to finance a house in an area subject to sea level rise, maybe the message will sink in.  This is the market optimist take on global warming – that insurance is playing a key role here.  If the people assuming financial risk are actually wise to it and are realistically evaluating it, that will handle a large part of the dislocation involved in adjustment.

Still doesn’t solve the question of what to do with Miami, though…or New York City, for that matter.  The role for financiers is mainly on the margin, affecting the incentives around new development.  The risk that the government will poorly handle the new reality should be much more concerning.


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