Point Person: Henry M. Paulson talks about the business of climate changeThe Honorable Henry M. Paulson, Jr.
(The Dallas Morning News) – Henry M. Paulson, former treasury secretary under President George W. Bush and devoted Republican, is co-chairing a project focused on quantifying and publicizing the economic risks of climate change. Last week, the project issued a sobering report showing the devastating effects climate change could wreak on the U.S. economy.
Henry M. Paulson doesn’t fit the profile of the typical person raising alarm about climate change. The former treasury secretary under President George W. Bush is a devoted Republican and one-time chairman and chief executive of Goldman Sachs. After a life in high finance, he is now chairman of the Paulson Institute at the University of Chicago. Alongside former New York Mayor Michael Bloomberg and hedge fund manager Tom Steyer, Paulson is co-chairing Risky Business, a project focused on quantifying and publicizing the economic risks of climate change. Last week, the project issued a sobering report showing the devastating effects climate change could wreak on the U.S. economy.
The report from Risky Business is grim, looking at the impact of global climate change through 2100. What does it tell us about the economic and social effect of warming?
It’s going to change life in America as we know it in fundamental ways. Let’s just focus on the Southeast. The Southeast is ground zero for climate change because you’ve got the heat and the sea rise on the gulf. People have read some of this, but to understand what it means from an economic perspective is startling. Look at agriculture and yields on corn production going down more than 40 percent by midcentury or soybeans going down a third. We’re not going to be able to avoid the worst outcomes unless government acts. But to protect ourselves against these changes, it’s very important that business take the appropriate action. Otherwise you’re going to find plants or facilities that are underwater or just can’t operate efficiently. What we’re finding is many businesses are making investments in energy efficiency. Many others are beginning to be smarter about the way they examine their supply chain. Others are prepared to relocate facilities and begin to think about their business processes differently. If they don’t take action, the costs are going to be even greater.
We have three goals. First, the most modest goal is for businesses to start to incorporate climate risk into their basic decision making processes. If you run a business, you’re focused on risk. Climate change is a very real risk, and it’s quantifiable. That’s why people take out insurance. We’re finding as we talk to businesses, they’re listening very carefully.
No. 2, we want businesses, when they are talking to their political representatives, to say we care about this. We want them to lobby.
Thirdly, we want businesses to make disclosures. The SEC (Securities and Exchange Commission) requires they disclose quantifiable risk. Rating agencies, bond insurance agencies and businesses should start to disclose climate change risks. There are risks at the basic level of stranded assets that could be underwater or uneconomical or, 10 to 15 years down the road, could be made obsolete by regulations.
You are Republican. But your party’s leaders and many of its primary voters won’t acknowledge global warming and its connection to human activity. How can you convince them that this is not only real, it’s a crisis that demands serious government intervention?
This report isn’t aimed at politicians. This report is aimed at business. This is chaired by Mike Bloomberg, me and Tom Steyer — and all of us have different political philosophies. We’re meeting people in the middle. I’ve talked to many, many businesses and to people that have different views on what the role is of government. When you lay this out for them and say here is scientific information and we’ve overlaid this with economic risk analysis and say here is a range of possibilities, I don’t have anyone say these risks are wrong.
The key here is an education process and public perception. There are two reasons for getting to the business community. It is important to our economic security and to theirs. Second, I believe politicians listen to business.
A solution you have personally proposed is a carbon tax. How would it work and what’s a political path to see it realized?
The reason for the great success of the Risky Business project is that we have not taken on the policy response as a group. If we had said we “know the right policy answer,” a lot of people would have tuned out. Instead, we use business analysis to help people understand the seriousness of the economic risk.
This is because there are plenty of things that can be done by business to protect our economic security. If business incorporates climate change risk analysis into their business processes, they can make a difference. For example, making investments in energy efficiency or investments in what I call resilience. Con Ed is upgrading its power generation and transmission infrastructure to make it more resilient to extreme weather. A big dairy farm in Illinois recently built a barn for the cows and milking facilities to withstand temperatures of 5 to 10 degrees more. Colgate relocated 60 facilities based on what they thought their risk was for weather related events. You have a whole range of companies making changes in their supply chain.
Talk about China’s role in this.
The Chinese are taking their major air pollution problem and climate change very seriously. We cannot solve the worst outcomes associated with climate change unless we get the adoption of clean technology on a massive scale, particularly in the developing world. There is no doubt about that, and China is by far the biggest and fastest growing emitter of carbon. If we are going to get global action, it’s hard to imagine we are going to get it without the U.S. and China as the two largest economies in the world — one the biggest most advanced economy and the other the biggest developing economy — leading the way. I view the U.S.-China agreement on climate change that the Obama administration came to late last year as a historic breakthrough. Dirty, polluted air in China, which is currently reliant on coal for almost 70 percent of its energy needs, is killing people. The government is placing a large priority on cleaning the air and much of what they need to do to accomplish that also reduces carbon emissions. There is a big opportunity to make a real difference.
Are the problems we’ve created irreversible?
Much is irreversible, but the important point is that if we act soon we can avoid the worst outcomes. That is hugely important for everyone to understand. Why is there is so much resistance to acknowledging the seriousness of the climate change risk and acting now? I would say part of it is ignorance, part of it is distrust of big government and part of it is people view the problem as insurmountable and there is a sense of hopelessness. It is not too late to act, but it is important to act very quickly. Doing nothing is radical risk taking, and it’s the height of irresponsibility.