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Today’s episode is about the money of climate change. When people talk about how much it costs to stop climate change, what are we paying for? And who’s paying, exactly? And if we don’t pay to stop climate change – how much will that cost us? To answer these questions, we spoke with Dr. Barbara Buchner from the Climate Policy Initiative.
Dr. Barbara Buchner is Global Managing Director of the Climate Policy Initiative, and also the Executive Director of its widely renowned Climate Finance program. She previously served as a Senior Energy and Environment Analyst at the International Energy Agency (IEA). She holds a PhD in Economics from the University of Graz and was a Visiting Scholar at the Massachusetts Institute of Technology (MIT).
- Laur Hesse Fisher, Host and Producer
- David Lishansky, Editor and Producer
- Aaron Krol, Associate Producer
- Ilana Hirschfeld, Production Assistant
- Sylvia Scharf, Education Specialist
- Carolyn Shea, Fact Checker
- Music by Blue Dot Sessions
- Artwork by Aaron Krol
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[00:00:00] LHF: Hi, and welcome to Today I Learned: Climate. I’m your host Laur Hesse Fisher from the MIT Environmental Solutions Initiative.
As we’re recording this, the U.S. Congress is debating a bill that includes about $500 billion in new spending on climate change—including tax credits for renewable energy, grants for states and cities to reduce climate pollution, and, well, lots of other stuff.
This episode isn't about that bill. But we are interested in that number: $500 billion, and other big numbers like it. Because we often hear about how much it’s going to cost to stop climate change—and it usually sounds like a lot.
But what are we paying for? And who’s paying, exactly? And what if we just don’t pony up – how much is that going to cost us?
To answer these questions, we brought in someone who studies the money of climate change.
[00:01:04] BB: My name is Barbara Buchner and I'm the Global Managing Director of Climate Policy Initiative. What we do is we work with governments, with financial institutions and businesses to really drive economic growth while addressing climate change.
[00:01:19] LHF: Yeah, Dr. Buchner looks at how investments in stopping climate change can actually help grow the economy. But let’s start here: when we talk about paying for climate change, what kinds of costs are we counting?
[00:01:33] BB: Basically all investments going to either reduce greenhouse gas emissions, or that increase the resilience of our ecosystems, like building seawalls, or similar things.
[00:01:47] LHF: As an example, let's zero in on one type of spending we've talked a lot about on this show: energy. How much would it cost us to clean up our whole energy system, worldwide, so it doesn't contribute to climate change? Like, zero climate pollution from generating energy?
[00:02:08] BB: We at the moment see around $300 billion U.S. dollars globally being invested in climate-compatible energy investments. We see a need for about $3 trillion U.S. dollars in order to make the energy sector low carbon.
[00:02:27] LHF: What Dr. Buchner said is that the world is already spending $300 billion a year to clean up the energy system, but that there’s a need for $3 trillion a year… Is that all supposed to come from our tax dollars? Is that government spending?
[00:02:47] BB: It actually reflects increased action across investor types, from the public sector, finance institutions, such as the World Bank, or like national development banks, but it also includes action from private investors, which are commercial banks, even institutional investors, such as pension funds. But it also includes investments by us all, by households, basically. You know, you buy an electric car, you buy maybe appliances that are more, efficient — energy efficient — than they were in the past.
[00:03:19] LHF: So when we see these big estimates of what climate action will cost us, governments – or said another way, taxpayers – aren’t the only ones paying. In fact, they might not even be the main ones.
[00:03:32] BB: The government's role is not to pay for the entire cost of climate change, but its role is to create the platforms that optimizes private sector opportunity. And in this way, it basically enables the private sector to come in and really transform the market even more.
[00:03:48] LHF: Let’s look at an example of how this has played out. Dr. Buchner mentioned electric cars: right now, the U.S. government offers a tax credit up to $7500 to buy an electric car. That's money the government spends to encourage people to move away from gas-powered cars. If that $7500 sounds like a good deal to you it might convince you to buy an electric car. [But of course, you'll still pay most of the cost of the car. That is private spending.]
This tax credit for electric cars was first passed in 2009. Since then, many more electric cars have been sold, manufacturers have gotten better at making them, and the price has gone way down. Meaning more people can afford to buy them. This is what Dr. Buchner means by government creating a platform for private investment.
And this also works at levels way bigger than you and I at home: like with utilities deciding what power sources to build, and private investors deciding what new startups are a good investment. In the 1990s the federal government started offering tax credits for wind and solar power development, and that had a huge impact on which energy technologies became cheaper.
[00:05:09] BB: The energy sector certainly has been a success story because we have seen basically the private sector being the dominant investors in the new kind of sustainable energy, including renewable technologies. Why is that so? It's because the renewable energy technologies have become really competitive with some of the traditional fossil fuel-based technologies. The costs really have declined a lot.
[00:05:36] LHF: And so many people are hoping that governments at different levels can repeat this pattern in other sectors: essentially planting the seeds for new industries to take root.
[00:05:48] BB: I'm talking about the harder sectors like manufacturing, transportation, and agriculture where there is still a need for better technologies.
[00:05:58] LHF: By the way, tax credits and subsidies aren't the only way to kickstart this kind of innovation—you can check out our episode on carbon pricing for a very different way of paying for climate action.
But… what if these big investments to stop climate change don’t happen? Well, that’s going to cost us too.
BB: It's a complicated issue to measure the true cost of not adapting to climate change. But there are a number of categories that we can measure very well. The more expensive aspects of climate change are likely, you know, property damages that are caused by extreme weather events, including sea level rise. And this is already today costing us in excess of hundred billion dollars a year in the U.S. and with the cost rising.
We calculate that by looking at data from insurance companies, you know, that give you very good information on basically what's being lost in property damages.
LHF: So let’s look at a couple examples of recent major weather events.
[00:07:03] Clip: Tonight, Hurricane Ida slamming into Louisiana as a powerful category 4 storm. Sending fierce winds of up to 150mph and surging waters. The life-threatening system carving a path of destruction over several hours.
[00:07:21] LHF: Hurricanes do a lot of property damage. For this one, in late summer 2021, banks and firms have estimated that it caused perhaps upwards of $44 billion in insured losses—that's damage for things like homes and cars that were insured. But for most weather events, there are other economic costs, too.
[00:07:45] BB: If you look at the winter storm in February, 2021, in Texas — that cost over 50 billion U.S. dollars in increased emergency rate energy costs. In addition to the property damages.
[00:07:57] LHF: You might remember this storm, it was huge news—in part because Texas never sees weather like this.
[00:08:05] Clip 1: Nearly 3 million customers without power this morning. The temperature is the lowest they've seen in decades.
[00:08:26] Clip 2: This is incredible. For Houston, nowhere are we used to this, nowhere did I ever think I would be forecasting weather this cold or forecasting this much snow to happen in an overnight period. But here we are.
[00:08:26] LHF: Scientists think that these kind of extreme cold events might actually be related to climate change, and happen more frequently as the Arctic warms.
And if we look at this storm, we can learn a lot about who pays the price for the price of climate change, and how. The storm caused property damage, like people’s pipes burst when their water froze. Insurance may have paid for a lot of that, but then, of course, insurance rates could and have gone up.
But the storm also knocked out a lot of Texas’ power infrastructure. With less energy available, many people couldn’t get light and heat their homes—and the ones who could, had to pay a lot more for that power.
And as we’ve seen with hurricanes especially, sometimes the government steps in to help with disaster recovery. Of course, as taxpayers, we ultimately pay for that, too.
And finally, businesses might lose property, or see their expenses go up—and some of those costs we might see in the form of higher prices down the line.
[00:09:28] BB: So, you know, there's different types of economic costs that you need to take into account. If you look back in 2018, there was Hurricane Florence that cost a billion dollars in combined crop and livestock losses. But also like, you know, $50 million in forestry losses and $13.5 million in commercial fishing and aquaculture losses just in North Carolina. But there's a lot of other high costs that are much more difficult to quantify. You know … how can we measure the loss of human lives?
I live in Northern California, which has been plagued by, you know, increasingly destructive wildfires recently. And the exposure to wildfire smoke is one of the most dangerous air pollutants to human health.
So I think there is a number of areas we can measure well, but we also know that what we can measure today is basically the lower bound of the actual true costs of climate impacts.
[00:10:28] LHF: So how does this all add up? People want a number, and rightly so—even if, clearly, there’s going to be a lot of uncertainty. Because if we – as individuals or taxpayers or business owners – are being asked to make big investments in stopping climate change, we all want to know what the alternative is—the true cost of doing nothing.
[00:10:53] BB: How much money are we talking about? As I said before, I think it's impossible to just put a clear price tag on it right now. But globally speaking, we're starting to develop some ranges, which are on the conservative side, more in, in, in the lost trillions of dollars per year, globally.
[00:11:10] LHF: That’s thousands of billions of dollars, every year. And we all pay it. We’ve started paying for it already.
Which is something for us to keep in mind the next time we hear about the costs of taking action on climate change. Sadly, there is no option here to pay nothing—there’s just a balancing act, between how much we pay to stop climate change from getting worse, and how much we pay when we let climate change run loose.
[00:11:38] BB: We need to better understand the opportunities of a change that we make today, to transform and transition all the different economic sectors towards a future in which we avoid dangerous climate change. I think there is a lot of focus just on the costs and on the burden. And I think we just have not been very good in communicating that it's not more expensive. It's not more burdensome. I think there's a real need to change the narrative from it being a burden, to being a real opportunity that actually makes business sense, and it’s good for the people and for the planet.
[00:12:19] LHF: Thanks to Dr. Buchner for joining us today. This episode is the last of our third season, but TILclimate is not going anywhere, so please follow us on Spotify or Apple or wherever you get your podcasts and look out for an announcement about season four. The Educator Guide for this episode includes student-level data for investigating climate costs. And so if you’re an educator or know one, check it out at tilclimate.mit.edu. And in the meantime, we’d love to hear from you—what climate topics would you love to learn more about? What questions can we answer? Email us at email@example.com, or find us on Twitter @tilclimate.
TILclimate is produced by the MIT Environmental Solutions Initiative
David Lishansky, Editor and Producer
Aaron Krol, Associate Producer
Ilana Hirschfeld, Production Assistant
Robin Palmer & Carolyn Shea, Fact Checker
Sylvia Scharf, Education Specialist
Music by Blue Dot Sessions
Artwork by Aaron Krol
And until season four, thank you for listening.
- To read more about Dr. Buchner, visit: https://www.climatepolicyinitiative.org/people/barbara-buchner/. To learn more about the Climate Policy Initiative visit: https://www.climatepolicyinitiative.org/
- If you’re curious to learn more about how we pay for climate change, this introduction to climate finance by UN Climate Change breaks it down.
- Electric vehicles are an example of a clean energy technology that took off due to a tax credit given by the federal and state governments. The Bureau of Transportation Statistics shows the increase in electric vehicle usage over the last two decades.
- According to Dr. Buchner, the more expensive aspects of climate change are caused by extreme weather events, including sea level rise. Extreme events already cost an excess of hundreds of billions dollars a year in the U.S. This website by the National Oceanographic and Atmospheric Administration (NOAA) shows the weather and climate disasters since 1980 where overall damages/costs reached or exceeded $1 billion.
- Without an investment in climate change, we will see a loss of trillions of dollars per year, globally. We need to better understand the opportunities of a change that we make today, to transform and transition all the different economic sectors towards a future in which we avoid dangerous climate change. This COP26 Brief on Scaling Finance for Transformational Climate Projects explains what is needed of the public and private sector in order to appropriately pay for climate change.
- For an overview of climate change, check out our climate primer: Climate Science and Climate Risk (by Prof. Kerry Emanuel and the MIT Environmental Solutions Initiative).
- Our educator guides that go along with each of our episodes make it easier to teach climate change, earth science, and energy topics in the classroom. Take a look at our newest educator guide on what it costs
- For more episodes of TILclimate by the MIT Environmental Solutions Initiative, visit tilclimate.mit.edu.
We fact-check our episodes. Click here to download our list of sources
As discussed in the podcast episode, financial investments are needed to both slow down climate change and prepare for climate impacts. Students investigate projects and data to learn about the opportunities of multisolving to make smart decisions for our future.