"Is Climate Variance a Financial Peril?"

Thaddeus Cummins
Feb 22, 2021
3 min read

Today's Takeaway: The law of large numbers behind global carbon pricing will create sentiment and technical currency swings in the Yen Index (EUR, USD, GBP / JPY). Watch which central banks start talking about carbon pricing policies as an early signal for currency swings. The European Central Bank (ECB) appears to be leading this charge.

A freezing cold this February 2021 is requiring refineries to flare carbon gases over unsuspecting communities in Texas. As if power outages during the freezing cold were not enough, water lines failed at multiple points leaving some residents without water and heat. The peril to life and limb started with 10 confirmed deaths. To add insult to injury one Texas elected official proposed citizens should "man up and find a way to survive." Constituents were not pleased.

Increasing climate variability appears to be washing up against the rocky shores of polarized America. If climate variance continues to generate climate perils with loss of life and property damage, central banks will likely move ahead and start pricing in the cost of carbon.

And what about carbon gasses released in unsuspecting residential neighborhoods last week? Central banks have started researching the costs of toxic carbon releases, building on legal casework which goes back to US constitutional law and the nuclear test trials of the 20th century.

The Bank of England assumes inaction on global climate change. Therefore, the Bank of England has started researching the estimated climate resiliency cost as; the expenditures needed to defend the British Islands from rising tides, health impacts and more violent storm damage to property.

The Bank of England has estimated climate resiliency costs for the island nation at $8 trillion USD. The U.K. GDP is $2.93 trillion USD. This leaves a cost resiliency ratio of (Resiliency Cost/GDP) somewhere in the neighborhood of 2.5 times U.K. GDP or 5.6 trillion GBP . Extrapolating out to the other "Yen Index" members the US carbon resiliency estimate is $56 trillion USD. Japan carbon resilience count is $13 trillion USD or 1,365 Yen. Europe is $48 trillion USD or 39 trillion Euros. (ceteris paribus)

With US unemployment (U-6) north of 10 percent plenty of Americans are ready to start the clean up crews and engineering work needed to move away from carbon bonds as the European Central Bank has signaled.

The Guardian reported, "Texas shutdowns from extreme climate variance have led to refineries burning and releasing toxic gases to prevent damage to processing units. That flaring darkened the skies in eastern Texas, with smoke visible for miles.[1]"

The carbon based smoke is a "spillover effect" of the carbon industry. From a supply and demand point of view, "spillover effects" occur when one business harms another business. For example, a paint factory moves in next to a laundry service. When the paint factory makes paint the smoke travels into the laundry and soils the clean laundry costing the laundry time and money for a rewash cycle.

In summary, the release of carbon due to climate variance suggests growing financial threats. The price of carbon can be estimated when the value of public goods is used in a top down bottom up accounting including carbon spillovers costs.