- No one likes paying higher prices,
which is why for most of 2022
inflation has been one of the biggest issues
on Americans' minds.
- This historic bout of inflation is primarily the result
of how the COVID-19 pandemic upset the global economy,
exacerbated by the war in Ukraine.
The Fed has been raising interest rates
in an effort to pump the brakes on rising prices.
And if it works, we should finally see the economic legacy
of COVID fade into the past.
- However, there's something else driving price hikes
that's far beyond the reach of the central bank to solve,
climate change.
I'm sure you've heard plenty about how a warming planet
will hurt polar bears and coral reefs,
and beach houses on the Florida coast,
but the economic impacts of climate change
will trickle down to everyone.
Even if you don't live in a flood zone
your pocketbook will get soaked.
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- There are three main categories of costs
that climate change will affect, and the first is energy.
Here in Texas, air conditioning is ubiquitous
and it's pretty much a given
that you'll be running it nonstop
from May to September.
But as global temperatures rise,
many other regions and cities
that don't normally rely so heavily on AC
will start using more and more electricity
to cool their homes.
This will be offset somewhat
by less demand for heating fuels like oil
and natural gas in the wintertime,
but the net effect will be an increase
in most Americans' energy bills.
- In fact, it's already happening.
The average monthly electric bill in the US
increased by around 10% in the last 10 years.
Over the same time period,
average monthly consumption fell by 2.3%,
probably due to the growing popularity
of energy-saving appliances and lighting.
So if it wasn't for green tech,
the increase would've been even greater.
- Unfortunately, many economists expect energy prices
to rise even higher than market forces would predict
for two reasons.
One, increasing energy production
doesn't mean just turning up a dial.
Much of our energy infrastructure was built decades ago
with specific limits on capacity.
To meet increasing demand,
providers will have to renovate existing structures,
build new plants, and lay new cables and pipelines.
All of this costs money,
which they will pass on to the consumers
in the form of higher prices.
- The second reason is that most existing power plants
use water for cooling.
Higher temperatures means more evaporation
which means less water and warmer water.
And pumping water in from other regions
requires, you guessed it, energy,
increasing demand even further.
So these plants will likely run at a lower efficiency
than they did in the past, especially in the very places
where demand for electricity will be highest.
- The upshot is that you can expect to pay more
to power your home in the future.
Technology built around sustainable energy like solar panels
won't get you completely off the grid anytime soon,
but it will start making economic sense
to more and more households, especially if a federal subsidy
can help with those installation costs.
- The next sector of the economy
that will see significant price hikes
thanks to climate change is food.
Most of that is due to extreme weather.
Even before the war in Ukraine
upset that country's grain exports,
the price of wheat had surged
to its highest level in eight years,
mainly the result of high temperatures in the US and Canada.
In fact, as of the summer of 2022,
more than 95% of the Western US is in some level of drought.
In 2021, drought and high temperatures
caused 93% of wheat produced in Washington state
to be in poor or very poor condition.
- To make matters worse, price hikes caused by drought
can often be self-exacerbating.
For example, when water is scarce in California,
it drives up the price of thirsty crops,
like almonds and pistachios.
Perversely, this makes those crops more lucrative,
motivating farmers to grow more of them
and further depleting the water supply.
Economists call this unfortunate phenomenon
the tragedy of the commons.
- But it's not just droughts.
In 2021, less than a year after coffee prices had recovered
from a drought in Brazil, they rose again,
this time because it extreme frost.
Here in Texas, in that same year,
a deep freeze caused at least
$600 million in agricultural losses,
and other extreme weather events like floods and hurricanes
can increase the cost of transporting food
from the farm to your table.
- Of course, as long as there's been agriculture,
humans have been dealing with inclement weather.
If one food source had a bad year,
consumers could supplement with another.
What makes this period so unprecedented
is that so many crops are in crisis simultaneously.
That makes it much harder for the average person
to escape the economic effects.
- The third sector of the economy
that climate change will upend is insurance,
particularly in property and casualty insurance
which protects homes, cars, and personal belongings.
This sector took in around $1.6 trillion
in premium payments in 2020 alone.
- Insurance is supposed to function as a safety net.
If calamity befalls one person,
the collected payments of everyone else
can save them from financial ruin.
But as floods, hurricanes, and wildfires become more common
it's changing the math.
Insured losses from natural disasters in 2021
reached $130 billion,
almost twice the yearly average.
Insurers are responding by raising their premiums,
with the average US homeowner insurance payment
increasing by 11.4% since 2017.
- But if you live near a coast or in a floodplain,
you might see a much steeper premium hike.
Since 1968,
the federal government has been subsidizing flood insurance
through the National Flood Insurance Program,
which allows homeowners in flood-prone areas
to buy insurance at far lower rates
than what a traditional insurance company would charge.
In 2019, FEMA announced
that they would reprice these policies
to more accurately reflect the risks.
- This is meant to keep the program solvent
and discourage new building
in areas threatened by climate change,
but it's also a question of fairness.
For decades, middle and low-income families who live inland
have been paying more for their insurance
so that wealthy people can pay less
for their mansions on the coast.
How much less?
According to the New York Times,
some Florida homeowners may eventually pay
up to 10 times more for their flood insurance
once the price change takes effect.
Yowza!
- Whether it's energy, food, or insurance,
how much more you'll pay in the future
depends a lot on where you live,
but virtually no one will get away scot-free.
The global economy is remarkably versatile and resilient.
But if the pandemic taught us anything,
it's that when a crisis hits many different sectors
and economy simultaneously,
that's when things can get really bad.
And that's exactly what climate change is poised to do.
- But it's not entirely bleak.
If governments and industries around the world
can respond with policies that cut carbon emissions
and develop new, more efficient technologies
we can still avoid the worst-case scenario.
- For decades, some have argued
that fighting climate change is too expensive,
but that's like deciding not to spend the money
to fix a leak in your roof.
Eventually, when the roof caves in,
the damage will cost far more than the fix.
- I guess the difference is that if your house is destroyed
you can still move to another one.
That's not quite the case with planet Earth.
- [Both] And that's our two cents.
- Thanks to our patrons
for keeping Two Cents financially healthy.
Click the link in the description
to become a Two Cents patron.
(bright upbeat music)
To find out how you can offset the costs
of climate change in your own house, check out our video,
"Can You Really Save Money by Going Green?"