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(CNN Business) ––
The far-reaching consequences of climate change have the ability to create chaos in the financial system and affect the US economy, according to a federal report released Wednesday.
The report, the first of its kind to be produced by a US government entity, calls on Congress to quickly impose a cost on carbon and urges financial regulators to work "more urgently and decisively" to understand and mitigate the looming economic damage due to climate change.
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"Climate change poses a great risk to the stability of the US financial system and its ability to sustain the US economy," wrote the climate subcommittee of the Commodity Futures Trading Commission (CFTC). in English. )
The CFTC, which regulates some financial markets, is made up of three Republican commissioners and two Democrats.
The advisory committee on climate change, launched by Rostin Behnam, a Democratic commissioner, includes representatives from banks, environmental groups, investors and a major oil company.
A clarification in the report emphasizes that its conclusions do not necessarily reflect the views of the CFTC or the United States government.
Scientists have already pinned climate change to blame for destructive weather events in the United States, including wildfires, severe flooding, and massive hurricanes.
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The report stands out, in part, because it directly contradicts the position of President Donald Trump and other Republicans who downplay the consequences of climate change.
The president has called climate change a "fraud", revoked environmental regulations and even falsely claimed that windmills can cause cancer.
Behnam, the Democratic CFTC commissioner, hopes the broad industry involvement in Wednesday's report will change the tone of the government.
"It is incumbent upon public policy makers, elected officials and regulators to begin setting rules on climate resilience so that we do not suffer these dramatic weather events in the long term," Behnam told CNN Business on Wednesday.
"These are real-world weather events that occur more frequently and in a more extreme way."
Jobs, income and opportunities are at risk
The report warns of a potential "financial system stress" that could affect the economy by limiting access to credit.
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"Over time, if significant measures are not taken to control the rise in average global temperatures," the report reads, "the impacts of climate change could damage the productive capacity of the economy and undermine its ability to generate employment. income and opportunities ”.
Environmental groups involved in the report emphasized the urgent need for action.
“The fact that such a politically and sectorally diverse group is issuing such a strong call for regulatory action bears witness to how serious the systemic financial threat climate change poses to US capital markets, and how concerned they are stakeholders across the political spectrum, "Mindy Lubber, CEO of Ceres, a non-profit sustainability organization, said in a statement.
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However, CFTC Chairman Republican Heath Tarbert raised a different tone on the report, emphasizing the possible disruption caused by the shift to cleaner energy.
'The subcommittee report recognizes that' transition risks' to a green economy could be as damaging to our financial system as the possible physical manifestations of climate change, and that acting too quickly and too soon could cause as much disruption as doing too much little too late, "Tarbert said in a statement.
The climate crisis could turn into a financial one
The report suggests that the climate crisis could ultimately turn into a financial crisis.
"Climate change could present systemic risks to the US financial system," the report said.
This could happen through "haphazardly setting new asset prices" that has "cascading effects" on investment portfolios and balance sheets.
And those shocks could be amplified by the fact that the corporate world in the US has record amounts of debt, which could leave some industries vulnerable to a shock.
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Another risk is that climate change will cause "subsystemic shocks," according to the report, affecting specific sectors and geographic regions.
Other reports outside the federal government have similarly warned of the dire economic consequences of climate change.
In December, Principles for Responsible Investment warned that climate change, and policies designed to combat it, could wipe out $ 2.3 billion of value in global stocks.
Last year, researchers from Stanford University found that climate change impoverishes poor countries and widens global inequality.
The CFTC's climate subcommittee presented 53 recommendations to address climate risk, including requiring companies to disclose details about greenhouse gas emissions, piloting climate stress, and forcing banks to address financial risks. of climate change.
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The report also urged regulators to incorporate climate risks into their mandates, including the Financial Stability Oversight Board, tasked with identifying emerging threats to financial stability.
Markets are not prepared for climate risk
But the CFTC's climate subcommittee stressed that the "most important step in managing climate risk" is for the United States to set a "fair, efficient and economy-wide" carbon price.
The objective would be to direct capital towards clean energy and ensure that markets set prices appropriately in the face of disruptions caused by climate change.
Lawmakers and industry leaders have debated a carbon price, like a carbon tax, for decades.
Even some large fossil fuel companies, such as ExxonMobil, support such a tax in hopes of clarifying the uncertain regulatory landscape.
“Today's financial markets are not putting a price on climate risk.
Financial markets cannot do that on their own, ”said Bob Litterman, chairman of the CFTC subcommittee, in the report.
"Until this fundamental flaw is fixed, capital will flow in the wrong direction."
The report called on Congress to impose a price on carbon and create other appropriate incentives to combat the climate crisis.
"Only then can the awesome power of the financial system address this existential threat at scale," Litterman said.
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