On Tuesday, President Trump called himself “the great environmentalist,” a claim undermined by his administration’s decision, implemented last Tuesday, to allow coal companies to more easily pollute nearby waterways with potentially cancerous byproducts. But a new report from the president’s Commodity Futures Trading Commission could possibly — but not likely — change the perspective of some members of his party concerned with the economy, if not the environment. In “Managing Climate Risk in the Financial System,” the authors forecast that business-as-usual emissions will cause immense chaos in U.S. financial markets.
The report, obtained by the New York Times and expected to be released on Wednesday, determines that “a world wracked by frequent and devastating shocks from climate change cannot sustain the fundamental conditions supporting our financial system.” This assessment is hardly new: Anyone with a basic understanding of the 2008 financial crisis could anticipate what might happen if a significant chunk of the $1 trillion coastal property bubble rapidly loses value due to more frequent flooding and storm surges. But as the Times notes, the report carries “new weight coming with the imprimatur of the regulator of complex financial instruments like futures, swaps, and other derivatives that help fix the price of commodities like corn, oil, and wheat.”
“This is the first time a government entity has looked at the impacts of climate change on financial markets in the U.S.,” Robert Litterman, an investment adviser and the chairman of the panel that produced the report, told the Times. “Rather than saying, ‘What’s the science?’ this is saying, ‘What’s the financial risk?’”
The authors of the report — which include representatives from Morgan Stanley, the agricultural trader Cargill, and the oil companies BP and ConocoPhillips — also addressed the similarity between the 2008 financial crisis and climate-related volatility. However, they noted that financial challenges stemming from a more chaotic planet would not hit simultaneously. It’s an assessment that would provide little relief to those managing regional crises, as homeowners struggle to find insurance in fire-prone markets in California or banks limit loans to farmers in the Midwest during droughts.
To help prepare for the risk, the report from the commission recommends that the Financial Stability Oversight Council, created by the Treasury Department after the 2008 crisis, includes climate risk in its annual assessment. It also recommends that the Federal Reserve supports international coalitions that handle climate threats, and calls for the Labor Department to revoke a proposed rule that would block retirement investment managers from weighing out environmental risks in their recommendations. It also stresses the importance of a carbon pricing by taxing emissions or establishing a cap-and-trade system. However, according to the Times, some of the authors have taken a realist perspective, acknowledging that if Trump wins in November, “his administration is all but certain to ignore the report and its recommendations.”
This post has been updated to reflect that the report from the Commodity Futures Trading Commission did not explicitly state that President Trump would most likely ignore its recommendations if he is reelected.
