Putting a dollar amount on the effects of climate change means figuring out how to measure it first and incorporate the cost of the changes that lie ahead. Economists and analysts warn that this statistical foundation is increasingly at risk of distortion.
With President Joe Biden’s push to make climate change a priority in corner offices and on trading floors, the administration is arguing that climate change and extreme weather are incurring real — if not always well-quantified — economic cost. A big part of the problem, experts say, is that the very factors contributing to effects like a drier West and a soggier South also interfere with data scientists’ ability to put a price tag on environmental impact.
While it is far from the only economic sector affected, the insurance industry has been on the front lines of trying to price the risk not only of natural disasters as they occur, but also of the creeping, long-term ramifications of outcomes like drier farmland and higher water tables over time. Jared Dubrowsky, the vice president of the environmental practice at NFP, an insurance brokerage and consulting company, said, “We’re seeing more indirect things that pop up.”
In trying to predict the future, organizations concentrate on three categories, said Mark Zandi, the chief economist at Moody’s Analytics: acute physical risk, such as flooding and power outages from hurricanes; chronic risk, such as land’s growing less arable over time; and transition risk, or how policy dictates the actions companies take and the costs those actions incur.
Mark Hamrick, the chief financial analyst at Bankrate, said, “What we can assume, reasonably, is that climate change is impacting business operations.”
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