ECONOMICS

Climate change imposes large and growing economic costs through direct damages (e.g. extreme weather events, sea-level rise, wildfires), indirect impacts (health, productivity, supply chains), and long-term systemic risks (migration, conflicts over resources, biodiversity loss). Investments to reduce emissions and to make adaptations can lower the overall costs of climate change and create economic opportunities for businesses.

The vast economic implications of climate change are explored here as we acknowledge the interrelationships of economic and financial risk that are associated with our changing climate. For example, weather-related property destruction can lead to bank losses, resulting in less lending, reduced investments, etc. 

We have been watching the federal reserve closely as they monitor these connections – as well as the actions of international organizations, governments and businesses. In October of 2025, federal regulators rescinded a requirement that the nation’s largest financial institutions factor climate risks into their long-term planning, a policy dating from the Biden administration that Republicans have labeled overreach. The Fed and the F.D.I.C. joined the Office of the Comptroller of the Currency, another banking regulator within the U.S. Treasury Department, in jettisoning the rule. 

We are also gathering information which can, in turn, wield influence and encourage action by individuals, communities, financial organizations (such as pension funds), insurance carriers, corporations and governments. Each member of the economy can influence change within their area of influence if they realize the extent of their power and wish to exercise it.

This section contains the following subsections:

SOCIAL COST OF CARBON (SCC)

• The social cost of carbon (SCC), also known as SC-GHG, represents the estimated dollar value of the damage caused by each additional ton of carbon emissions, as well as the benefit of actions that reduce a ton of carbon emissions. It is a key metric for assessing the economic benefits of mitigating climate change, used to compare the value of reducing emissions (the benefit of avoiding damage) with the costs of implementing solutions, such as regulations, new technologies, and transitioning to renewable energy sources. 
• SCC can be used to set efficient carbon prices and evaluate policies. Policy’s role: is to set carbon taxes, perform benefit/cost analysis of regulations, and climate-related litigation.

COSTS

• Rising frequency and severity of storms, floods, heatwaves and wildfires increases insured and uninsured losses.
• Since 1980, the U.S. has sustained 403 weather and climate disasters for which the individual damage costs reached or exceeded $1 billion. The cumulative cost for these 403 events exceeds $2.915 trillionand that is not taking into consideration lost output, health costs, and disrupted services.
• Economic experts and climate insurers have warned that if climate change continues unmitigated, the world economy (particularly in developing countries) is already committedto income reduction of 19%.
• Distribution: Low and middle-income countries suffer proportionally larger welfare losses even if absolute dollar losses are higher in rich countries.

JOBS IN CLEAN ENERGY

• Our future economic health will be heavily impacted by the jobs a clean energy future can deliver. We focus on where the green jobs are growing.
• The transition away from fossil fuels creates jobs in renewables, energy efficiency, electric vehicles, retrofitting and restoration. Job losses will occur in fossil fuel extraction, refining and related manufacturing.
• Quality and geography: climate-related jobs can require higher-skill levels. Policy (retraining, local investments) determines transition fairness.

INVESTMENTS AND DIVESTMENTS

• As individual shareholders, we can take advantage of ESG (Energy, Sustainability, and Governance) investingand funnel our dollars to organizations, corporations and ideologies that are fighting against climate change. We can also divest from fossil fuel corporations as can universities, government and union pension funds. This is also a section where we can learn where investments and divestments are being made. 
• Private finance: Flows into green assets are growing. ESG investing is an approach that factors into financial analysis and decision-making to identify opportunities, manage risks and generate long-term financial returns while contributing to positive societal outcomes.  
• Investment needs: Large-scale capital required for low-carbon infrastructure, grid modernization, electrification and adaptation. Trillions of dollars globally each year are needed to meet net-zero and resilience goals.
• Divestment and stranded assets: Fossil-fuel assets risk becoming stranded as energy demands switch to renewables.

INSURANCE

• Insurance companies are in the business of predicting future losses, so must ensure that they reserve funds for such events. What happens when history is no longer a reliable guide for predicting the future? Going forward, insurance companies may have a heavier handin shaping human behavior. It’s unlikely that homebuyers would purchase (or be able to purchase) a house in uninsurable areas, for example.
• Premiums are rising and insurers are leaving high risk areas prone to wildfires or vulnerable to severe weather events/sea level rise. Increased uninsured losses shift the risks to households and governments.
• TCFD disclosure refers to the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD)for companies to report on the financial implications of climate change.  
• Systemic risk: Large correlated losses (e.g. multiple major disasters) can stress reinsurance markets and public budgets.

HOUSING

• Extreme weather events have caused (and continue to cause) the burning and flooding of thousands of homes. They have destroyed power infrastructure across the country. They have disproportionately harmed the poor who have fewer resources to move. We have numerous mitigation and adaptation measures to explore.
• Physical risk: Property values decline in flood-prone, fire-prone or other areas vulnerable to climate-related risks. Costly retrofits and/or relocations may be necessary.
• Mortgage and market impacts: Lenders face higher default risks where properties lose value or become uninsurable.
• Adaptation costs: Investments in flood defenses, resilient building codes, and managed retreat create large local and national fiscal needs.

THE CIRCULAR ECONOMY

• Eliminating waste and pollution, a circular economy is a closed-loop systememphasizing reuse, recycling, sharing and repair. Waste and pollution are cut out of the equation in the design phase, so that products and materials remain in use. 
• Economic benefits: Reducing material use, improving recycling, and designing longer-lived products lowers emissions and resource costs, creates local manufacturing and repair jobs, and reduces waste-management expenditures.
• Business models: Product-as-a-service, remanufacturing, and reuse can generate value while cutting emissions and supply-chain exposure.

CARBON PRICING

Burning fossil fuels is by far the greatest source of greenhouse gases causing climate change. However, the full cost of fossil fuel energy is not included in the price of the fuel. We pay for that later when we deal with the consequences of global warming. Using a car to illustrate this point, “We pay for the gas, we pay for the car, and we pay for the insurance, but we don’t pay for the pollution that comes out of the tail pipe.” This page appears again in our POLITICS section. There are also two subsections which explore different carbon pricing solutions: CARBON OFFSETS and CARBOX TAX/CAP-IN-TRADE.

CORONAVIRUS

As a result of the pandemic, global emissions dropped in 2020 but the decline wasn’t nearly enough to halt the buildup of greenhouse gases in the atmosphere. This page also appears in our HEALTH section.

• Economic shock: COVID‑19 caused sharp, short-term GDP declines, labor-market disruptions, and fiscal expansions. Recovery packages influenced emissions trajectories depending on stimulus composition.
• Interaction with climate: Pandemics and climate risks can be compounding (e.g., strained health systems, disrupted supply chains, and delayed adaptation projects). Conversely, recovery policies present opportunities to accelerate green investment (green stimulus).

CONCLUSION

Climate change represents major economic challenges and opportunities. Timely mitigation and adaptation investments guided by the Social Cost of Carbon, effective carbon pricing, financial alignment, and equitable transition policies reduce long-term costs, and create jobs in sustainable and regenerative industries.