WASHINGTON, DC—Resources for the Future (RFF) today released a new installment of Resources Radio: “Pricing Climate Risk in the Markets, with Robert Litterman.”
In this episode, host Daniel Raimi talks with Robert Litterman, a founding partner at Kepos Capital, a board member at RFF, and chair of the Commodity Futures Trading Commission’s Climate-Related Market Risk Subcommittee. Raimi and Litterman explore the uncertain but potentially seismic impacts of climate change on coastal real estate, electric utilities, and entire financial markets. In their discussion about how policy instruments can reduce fossil fuel use, Litterman mentions a paper he recently coauthored, which presents the unexpected outcome of their carbon pricing model.
Notable quotes from the podcast:
- Financial risks of climate change: “You saw what happened to PG&E last year from the wildfires—so we’ve already seen a major bankruptcy associated with a climate-related event. And you could have significant depreciation of real estate along the coasts or in other flood-prone areas. So these risks are being realized, and they’re expected to get worse in the decades ahead.”—Robert Litterman (12:36)
- Policy solutions for reducing fossil fuel use: “The heart of the policy response [to climate change] are the incentives that we as a society provide to reduce emissions, and right now, those incentives go the wrong way. Governments around the world are subsidizing the production and consumption of fossil fuels … That can’t last forever.”—Robert Litterman (13:22)
- Addressing risks though carbon pricing policy: “We have to create strong incentives now to reduce emissions … The cost of delay is quite large and is growing larger every day that we delay. So my expectation is at some point soon we’re going to price the risk [of emissions], and that will be a big change … When we price that risk, it’s going to have potentially significant costs in terms of jobs lost in the fossil fuel industry and potentially changes in asset valuations.”—Robert Litterman (14:29)
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