Senate Committee Reveals Climate Change Danger to Financial System

A Senate Budget Committee report shows how dangerous climate change is to the nation’s financial system as well as how bad it could be for homeowners seeking affordable insurance.

A Senate Budget Committee Staff report out this month, Uncovering the Economic Costs of Climate Change, details findings from more than a dozen committee hearings with witnesses that included economists, bankers, insurance industry analysts, scientists and others.

The report asserts that economic damages from climate change are already occurring, and it features witness testimony that systemic risks threaten the U.S. economy, including more than $1 trillion in coastal real estate that could become uninsurable.

Climate change also poses great risks to agriculture and supply chains around the world, while extreme weather is wreaking havoc on infrastructure, according to the report.

“From rising temperatures to extreme weather events, climate change is altering natural landscapes and threatening a range of industries that depend on healthy and stable natural systems,” the report states. “Witnesses testified that climate-related droughts, rising temperatures, and severe weather events are harming crop yields and food production; and that climate change is damaging outdoor recreation and ocean-based economies. The results of these disruptions are lost jobs, damaged local economies, and higher prices for consumers in grocery stores.”

AI and Climate Change

Generative artificial intelligence and climate change are on a collision course, according to an article in Wired.

The pursuit of bigger, more powerful large language models comes with significant costs to the environment: from generating enormous amounts of energy to power data centers that run like ChatGPT to millions of gallons of freshwater required so all the gizmos in data centers don’t overheat to the tons of rare earth metals to build all the hardware.

Data centers already use 2% of electricity globally. In Ireland, that figure amounts to one-fifth of the electricity generated, leading the Irish government to declare a moratorium on new data centers until 2028, according to the article.

Much of this energy is officially termed “carbon-neutral,” but some of the term is true only because the companies behind the center rely on renewable energy credits.

“Places like Data Center Alley’ in Virginia are mostly powered by nonrenewable energy sources such as natural gas, and energy providers are delaying the retirement of coal power plants to keep up with the increased demands of technologies like AI,” the article states. “Data centers are slurping up huge amounts of freshwater from scarce aquifers, pitting local communities against data center providers in places ranging from Arizona to Spain.”

European Weather Plan

Plans to beef up insurance coverage for natural catastrophes and extreme weather increasingly being fueled by climate change are being proposed by the European Central Bank and the region’s insurance authority.

The two-part plan involves a voluntary public-private reinsurance mechanism to pool private risks across to help backstop weather-related losses, and a mandatory European Union fund to pay reconstruction costs when high-loss natural disasters occur, according to a Bloomberg article on Claims Journal.

Europe has been hit by rising extreme-weather losses over the past 15 years: between 1981 and 2023, natural catastrophes caused $954 billion of direct economic losses within the EU, with one-fifth of those losses occurring in the past three years, according to the article.

The article cites a paper published last year showing that roughly 75% of those losses weren’t insured.

Weather in Europe was much in the news this year, and regulators in European countries have been moving to deal with the prevalence of extreme weather.

Italian companies must soon comply with a requirement to take out natural disaster insurance. Many small to mi-sized firms have traditionally relied on government support to weather increasingly frequent climate-related disasters. Italy spends around 4-5 billion euros a year on compensation for natural disasters, figures from insurance watchdog IVASS show, around 0.25% of gross domestic product, Reuters reported.

Past columns:

• UCLA and NOAA: Climate Change Baked Western US Despite the Rainfall
• Report: Climate Risks Increasing Insurance Rates and Hurting CRE Returns
• Group of Scientists Say Climate Change Drove Helene Impacts
• Climate Change and Rising US Insurance Rates
• ‘Impossible’ Weather Increasingly Blamed on Climate Change