Climate Adaptation will mean the Nationalization of Climate Costs.

Two recent open-access papers in Nature magazine point to staggering future costs from climate change. As our current collective action on mitigation undershoots what is needed, the future costs keep rising.

Nature Article 1 and Article 2

Government finances worldwide are so fragile that massive government spending on climate change is implausible, and deficit-increasing examples like the Inflation Reduction Act in the USA will be rare. Democracy is weak when benefits don't come in the same electoral cycle as costs.

The only credible way of accessing the funding required for climate mitigation is to go right to the source of the emissions: the corporate world. The Science Based Target initiative (SBTi) is thankfully moving towards the use of carbon offsets to eliminate Scope 3 emissions as part of a Net Zero strategy. The Financial Times reported that this change came after significant lobbying from the US Taskforce on Climate Change, the Bezos Foundation and other bodies. Ideally, the work of SBTi, VCMI, and ICVCM is eventually implemented with the force of law through one route or another.  

If governments don't work to compel corporate climate mitigations, then the government will end up paying for climate adaptation.

A climate adaptation focus certainly accepts climate change as real. Still, rather than trying to mitigate climate dangers, it calls for focusing on dealing with climate problems as they arise. Some aspects are eminently wise, such as investing in coastal flooding protections such as mangroves and their higher-tech alternatives. Critics of an overreliance on adaptation, such as me, point out that it is like a society increasing its spending on hospitals and morgues over imposing vehicle speed limits and safety belt mandates. For more on climate adaptation, see books by B Lomborg and S Koonin.

Climate mitigation paid by the corporate world would place the cost of emissions back on those firms. If we don't require action from the corporate world, there will be a greater need for climate adaptation, which would see the costs nationalized and paid by the government. This has already started.

Flood Re is a government-run flood insurance company that started in 2016 in the UK. Flood Re offers below-market price flood insurance to 256,000 UK households as of the end of 2023, with a target on households unable to get insurance with private companies due to their high risks. In 2023, Flood Re took in GBP53m in premiums, paid GBP77m to reinsure itself, and paid GBP25m in net claims. This is a running loss of GBP49m. This can continue because Flood Re receives a levy from the public, currently GBP135m; click here for details. This scheme is as good proof as one would need to show that the UK will nationalize climate adaptation costs as they rise. Flood Re's charter expires in 2039, but remember, the introduction of UK income tax in 1745 was also described as temporary.

In the USA, the government is now the largest provider of flood insurance, click here for more. The private sector continues to insure flood risk in low-flood-risk areas profitably. In states like Florida, the National Flood Insurance Program (NFIP) run by the Federal Emergency Management Agency (FEMA) is the only provider for a significant portion of the state. NFIP now insures over 5 million households against flooding in the highest-risk flooding zones and has written $1.3 trillion in policies. NFIP offers below market insurance, loses money each year, and is allowed to borrow from the US Treasury to make up for the shortfall. The current debt to the US Treasury is $20.5 billion, click here for more. This is separate from the hundreds of billions the US government spends on hurricane relief.

The state FAIR plan insures 350,000 households against fire risk in California as private sector insurance becomes unaffordable due to climate change. For more, click here. This scheme is similar to the UK scheme with a levy on the population, so they don’t call it a tax, but if you are compelled by law to pay it, I see that as a tax.

The nationalization of losses and privatization of profits is certainly not new. As if we needed reminding, events at Silicon Valley Bank last year showed us there are no libertarians in a bank run. Prioritizing climate adaptation lays the groundwork for government bailouts in rich countries and the World Bank, IMF and other multilateral organizations funded by wealthy nations' middle classes through taxation bailing out countries that can't afford it themselves.

One hopes governments realize the climate change costs are real, and the only decision is to either make emitters pay now or make taxpayers pay soon.

What to do?

• Applaud the actions of companies who reduce their emissions and offset the balance.
• Support regulatory moves advancing carbon accounting, carbon reporting, and carbon offsetting.
• Support making emitters pay, if they don’t, you will pay (in higher taxation)

Feel free to share views on better presenting corporate climate action's urgency, plus emission reductions and offset programs.  What are our best hopes for making carbon neutral a regulatory requirement? Don't hesitate to tag in your posts or comment below.

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