Paulson: Climate change is the biggest risk to the global economy

For years, we watched on the sidelines while excesses built up in our financial markets — and that led to a devastating crash. We are doing the same thing on climate change, said former U.S. Secretary of the Treasury Henry M. Paulson Jr.

At last week's 2014 Clinton Global Initiative, Paulson spoke on the panel "Confronting Climate Change Is Good Economics," along with Helle Thorning-Schmidt, prime minister of Denmark. Judith Rodin, president of The Rockefeller Foundation, served as moderator.

The essence of his message is, "Climate change is the single biggest risk to the global economy today." The solution he said once again, is to put a price on carbon.

Why? Because fundamental changes in U.S. policy are necessary and a tax is an effective way to reshape the economics that surround climate change, he said.

Excerpts from the panel

Journalist Karen Rubin shared these notes from the "Confronting Climate Change Is Good Economics" panel.

"Businesses and investors should look at the issue of climate change through an economic lens: What are the economic risks of doing nothing?" asked Paulson. "What are benefits if we factor climate change into decision-making and actions?"

As part of the nonprofit Risky Business, Paulson took a "granular look" at the U.S. by region and industrial sector, and concluded that the likely scenario for coastal areas in the next 15 years is "damages from storm surges will increase by one-third; crop yields in states like Illinois and Indiana decline by 50 to 70 percent, high temperatures make it difficult to work outdoors. ..."

Businesses need to incorporate assessments like this these into their decision making, thinking long-term: "If they don't invest properly, there will be huge costs for shareholders to pay." He also noted, "Businesses need to be careful where they build and buildings need to be hardened to withstand storms."

"Investors will increasingly demand disclosures, and businesses need to get ahead of this. Their job is to analyze risk regarding not just where they are today, but what they might face in the future and what public policy will be — otherwise they could find themselves with stranded assets," he said.

Paulson pointed to signs that businesses are beginning to take climate change into account. The New York utility Con Edison, for example, plans to spend up to $5 billion to harden power lines and infrastructure, and Colgate already has relocated 30 plants that were vulnerable to damage.

There are plenty of examples of businesses making investments in efficiency, green buildings, more efficient fleets — but they won't go far enough without policies that provide stable, predictable incentives, he said.

Indeed, "Short-term thinking is the enemy. I want to scream out 'bulls----' to people who question if it makes economic sense to plan based on climate. ... I heard the same about the Clean Air Act. People need to realize that the only way to build long term prosperity and competitiveness is by taking a longer-term approach. Short-term is the enemy."

From his time in Washington, Paulson found that government does a poor job of focusing on difficult, complex issues if they are longer term in nature. It has to be a full-blown crisis to get serious attention.

It's been said many times now, but Paulson called for it again: "We need a national policy to unleash the markets, unleash innovation, that will lead to new technologies and change behavior — business and consumer behavior. The only way, and the best way to get there, is by putting a price on carbon," he said to applause. "We can debate how to do it — how to structure it, price it, what to do with the revenues, but we must get on with it."

At the concurrent U.N. Climate Summit, the U.S. did not join the 73 countries, 22 states, provinces and cities who signed a declaration calling for an international price on carbon, either through a tax or cap-and-trade program. Over 1,000 businesses and investors also signed. And 340 of the biggest investment managers issued their own statement.

Top portrait of Henry M. Paulson Jr (detail) by Aaron Shikler via U.S. Department of the Treasury. This article first appeared at SustainableBusiness.com.