California Climate Risk and Response

November 1, 2008
David Roland-Holst and Fredrich Kahrl, UC Berkeley

This report provides for the first time a comprehensive examination of the economic impacts of climate change and adaptation in California. In conducting this multi-sector assessment, we compile the most recent available science on climate damage, assess its economic implications, and examine alternative strategies for adaptation.

Taken together, real estate and insurance represent the largest economic climate risk for California, yet they are the least studied to date.  The report finds that the state has $4 trillion in real estate assets, of which $2.5 trillion are at risk from extreme weather events, sea level rise, and wildfires, with a projected annual price tag of $300 million to $3.9 billion over this century, depending on how warm the world gets. If no action is taken in the face of rising temperatures, six additional sectors, including water, energy, transportation, tourism and recreation, agriculture, and public health, would together incur tens of billions per year in direct costs, even higher indirect costs, and expose trillions of dollars of assets to collateral risk.

Economic Damage and Asset Risk Estimates for California

2006 USD Billions Damage Cost/Year  
  Low High Assets
at Risk
Water  NA  0.6 5  
Energy  2.7  6.3  21  
Tourism and Recreation  0.2  7.5  98  
Real Estate  0.2  1.4 900 Water
 0.1  2.5  1,600 Fire
Agriculture, Forestry, Fisheries  0.3  4.3 113  
Transportation  NA  NA 500  
Public Health  3.8 24.0  NA  
Total  7.3 46.6    

Note: Please see the Executive Summary for detailed notes and source documentation.

Climate response – mitigation to prevent the worst impacts and adaptation to climate change that is unavoidable -- on the other hand, can be executed for a fraction of these net costs by strategic deployment of existing resources for infrastructure renewal/replacement and significant private investments that would enhance both employment and productivity.

At the sector level, there will be some very significant adjustment challenges, requiring as much foresight and policy discipline as the state can mobilize. In this context, the political challenges may be much greater than the economic ones. The state’s adaptation capacity depends upon flexibility, but divergence between public and private interests may limit this flexibility. As in the current financial dilemma, resolving this will require determined leadership.

Despite the extent and high quality of existing climate research reviewed in this document, the degree of uncertainty regarding many important adjustment challenges remains very high. This uncertainly is costly, increasing the risk of both public and private mistakes and the deferral of necessary adaptation decisions. The process of improving research and understanding of climate effects may itself be costly and difficult, but policymakers must have better visibility regarding climate risk and response options.

"As we learned in New Orleans, turning your back on the threat of natural disaster doesn’t make it go away. We also know from history that decisive policy can turn adversity into economic renewal. WPA, the Marshall Plan, the Space Race, and even Homeland Security transformed threats into employment and growth. We can ignore change that is already happening or we can turn the threat of climate damage into a dynamic opportunity for change, renewal, and growth," commented UCB Adjunct Professor David Roland-Holst.

"The scale of climate risk over the coming decades dwarfs today’s financial crisis and will long outlive it.  As the current market turmoil proves – markets may deliver profits, but not sustainability.  It is up to responsible leadership to protect the public interest," commented F. Noel Perry, Founder of Next 10.   

"We are already seeing the impacts of rising temperatures,“ concluded Professor Roland-Holst. “Not only governments, but every enterprise and household needs to evaluate their economic vulnerability and begin adaptation now.  As Charles Darwin said, “It is not the strongest of the species that survives, nor the most intelligent, but the one most responsive to change."