The Elements of Risk in the Era of Carbon Shock


This article is adapted from Carbon Shock: A Tale of Risk and Calculus on the Front Lines of the Disrupted Global Economy (Chelsea Green). In this book, Schapiro examines the disruption climate change is causing across the globe, politically and financially, and changing the cost of everything – from food and air travel to crop insurance and disaster cleanup funds. At the heart of this disruption, questions swirl around how to establish a price for carbon—likely a key topic at the global climate talks next year in Paris.

When it comes to risk, our brains are generally wired to see those right in front of us; we perceive patterns of threat that spur the fight-or-flight instinct. But the threat from climate change is of a different order—occurring in different forms, some dramatic and some subtle, all over the earth simultaneously. “Our risk management patterns are still wired to search for lions in the Serengeti,” commented Mark Trexler, CEO of The Climatographers, a consulting firm advising businesses on how to adapt to environmental risks. “See lion—run. That’s what we’re still doing in the climate space.”

But lions in the desert are not the threat. The Serengeti itself, that seat of human life that is a stand-in for the planet, is being transformed. The patterns we are now living through have never been seen before—they are the patterns of departing from previous patterns.

Into this world in flux we will travel in search of the price of carbon. Each of us contributes to blowing some portion of those gases into those balloons filled mostly by emissions from the United States, China, and Europe. We’ll follow a trail that will take us deep into the backstory of our carbon footprints, largely hidden from public view, and go behind the scenes into life’s most common activities: we travel; we drive; we eat; we buy goods that make our lives more comfortable and amusing; we inhale the same oxygen that comes from trees, which inhale carbon dioxide, and release it when they’re burned or cut down.

Unlike other such trails, though, ours won’t lead necessarily to who’s spending money on which politician or interest group; that has been done, to great effect, by others (and most of those trails lead—surprise!—to oil companies and fossil-fuel-reliant manufacturers). Instead, we will travel into an ever-widening circle of people and places where the costs of climate change are already being acutely felt. Our journey will land us in the midst of some of the most powerful interests of our time—some of which are trying to move forward while others are trying to block the transformation to a twenty-first-century economy that delivers far less collateral damage. All are maneuvering for position while climate change shifts the conditions around them—and while the risks from the status quo grow.

One way to think about carbon footprints is as the embodiment of financial risk. If companies do not yet see the risks, their insurers certainly do. “We foresee,” concluded Lloyd’s of London, the scion of global insurance companies, “an increasing possibility of attributing weather-related losses to man-made climate change factors. This opens the possibility of courts assigning liability and compensation for claims of damage.” Add to that the potential disruption of production and supply chains; the reputational consequences of consumers and investors becoming more aware of the environmental underside of their favorite products; and regulatory moves by governments, which are fitfully but increasingly instituting penalties on the emission of greenhouse gases—and the risks mount. Few of these looming triggers, however, are required to be reported to potential investors—though any one of them could seriously undermine the financial value of companies reliant on fossil fuels.

For almost two decades, negotiators have attempted to redress the imbalance between who creates the risk and who pays for it, to forge a price for carbon that reflects the vast differences in responsibility for our situation and that is steep enough to trigger a shift away from greenhouse-gas-producing energy. Cap and trade—a system by which major greenhouse gas emitters were given emission caps, and could buy, or “trade,” allowances if they emitted more than their allotment—was the first effort to try jump-starting a new way to value pollution. Polluters would pay for their contribution to climate change up front by subjecting carbon to the supply-and-demand forces of the market. This was a way “of assigning monetary value to the earth’s shared atmosphere,” declared the United Nations, “something that has been missing up to now.”

First proposed by the United States in 1997 during the negotiations in Kyoto, Japan, this was also the preferred option of industries that perceived it as the least expensive method for dealing with their greenhouse gases. Then it was cut loose back in 2001when the Bush administration withdrew the United States from ratification of the Kyoto Protocol. “Kyoto is dead!” famously proclaimed the then national security adviser Condoleezza Rice.

But Kyoto did not die. Europeans were left to implement a program designed largely by Americans. The strategy has had a troubled history, but one thing it clearly accomplished was to create a new set of global fault lines between countries that have at least a minimal price for carbon and those that do not and which are subject to few carbon constraints. So instead of one price, which had been the intent in Kyoto, we’ve got wild variation and huge rifts—divisions that hinder the search for global climate solutions.

“We are trying to prevent murder in the future” was how M. C. van Leeuwen, an agent with the Organisation of the Dutch National Police, described to me his job fighting environmental crimes when we met at a conference of environmental police sponsored by Interpol. He was taking poetic liberty with the term murder, referring to the difference between investigating a traditional homicide and the evidentiary trail behind the slow, steady wounding of ourselves that results from humankind’s erosion of life-sustaining forces on the planet. Van Leeuwen saw environmental crimes as their own form of murder, of the web of living and natural forces that give us a hold on the future. Tracing back the fingerprints, we know who’s behind them. Just ninety companies, according to a peer-reviewed study in the journal Climatic Change,8 are responsible for two-thirds of greenhouse gas emissions.

I set off on the trail of the financial crime that lies behind those emissions—amount to a theft from all of us—and to the places where the struggle to create a new economic order, one based on an honest accounting of fossil fuels’ actual costs, is underway. 

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