Climate change is already having a major economic and financial impact on the United States and may trigger asset value losses in coming years that could cascade through the U.S. financial system, Treasury Secretary Janet Yellen will warn on Tuesday.
Yellen will tell a new advisory board of academics, private sector experts and non-profits there has been a five-fold increase in the annual number of billion-dollar disasters over the past five years, compared to the 1980s, even after taking into account inflation.
“As climate change intensifies, natural disasters and warming temperatures can lead to declines in asset values that could cascade through the financial system. And a delayed and disorderly transition to a net-zero economy can lead to shocks to the financial system as well,” she said in remarks prepared for delivery at the advisory board’s first meeting.
She said severe storms and wildfires in states like California, Florida, and Louisiana, tornadoes across the South and intensifying storms on the West Coast show how climate change is accelerating.
The U.S. government in January reported that 2022 tied 2017 and 2011 for the third highest number of billion-dollar disasters, with a total price tag of at least $165 billion.
There were 18 weather and climate disasters each costing at least $1 billion in the year, including two tornado outbreaks in the south and southeast in March and April, and massive wildfires across the west.
Yellen said the new Climate-related Financial Risk Advisory Committee, set up last October by the Financial Stability Oversight Council (FSOC), would boost U.S. efforts to mitigate the risks that climate change poses to financial stability.
The meeting comes amid a slew of new regulations on climate-related risk management issued by the Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corp (FDIC) and the Federal Reserve after FSOC, a top U.S. regulatory panel, first identified climate change as an “emerging threat” to U.S. financial stability in October 2021.
The Federal Insurance Office has also issued a proposal to collect data from insurers to assess climate risk, and the Fed in January said it would conduct a pilot climate scenario analysis to study the bank’s climate risk-management practices.
And in April the U.S. Securities and Exchange Commission is due to release a new rule on companies’ climate-related disclosures.
But the Biden administration is facing stiff challenges from Republicans, who say the agencies have written rules outside of the legal process. Republican leaders want to use their slim control of the U.S. House of Representatives to constrain administrative oversight of climate rules and other issues.
Yellen said climate-related events had already prompted insurers to raise rates or stop providing insurance in high-risk areas, which could have devastating consequences for homeowners and their property values. That in turn could spill over to other parts of the financial system, she said.
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