- 2 years ago
In remarks on the Senate floor, Sen. Sheldon Whitehouse (D-RI) raised concerns over the US housing market and insurance markets amidst growing climate related threats.
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NewsTranscript
00:00Senator from Rhode Island. I'm back with my trusty battered time to wake up chart
00:07and the last time I spoke on the Senate floor on this subject I reviewed some
00:14recent warnings from The Economist magazine, from the Potsdam Institute, and
00:24from the consulting firm Deloitte that climate change is poised to cause tens
00:31of trillions of dollars in damage around the world. Tens of trillions of dollars.
00:40Much of it, of course, right here in the United States. Well, not surprisingly, the
00:49insurance industry has concern about forecasts of damage in the tens of
00:56trillions. The Senate Budget Committee recently held a hearing examining
01:02insurance, property, and mortgage markets in Florida, a state that is on the
01:09leading edge of climate-related risk. Insurance, property, and mortgage markets
01:18are intertwined. To buy property, most people need a mortgage. To get a mortgage,
01:23you need insurance. In our hearing, Dr. Ishida Sen, a professor of finance at
01:31the Harvard Business School, told about the danger to Fannie Mae and Freddie Mac,
01:36our federal mortgage giants. They require insurance from insurers that have a
01:46financial strength rating from a ratings agency to assure that the mortgages they
01:52purchase are protected by reputable, financially solid insurers. Bad
01:58insurance increases their risk of homeowner default, as homeowners are way
02:08more likely to walk away from properties if their insurance company can't pay
02:12claims or won't pay quickly. Dr. Sen's research in Florida found several
02:20disturbing things. First, she found that larger, stronger insurers are exiting
02:28Florida and being replaced by smaller, less financially sound companies and by
02:36citizens' property insurance, the state-backed insurer of last resort.
02:42Second, she found that these smaller private insurance companies were all
02:48receiving their financial ratings required by Fannie and Freddie from the
02:53same ratings agency, known as Demotech. If you haven't heard of it, it's because
03:01it hasn't been around long. Third, she found that Demotech ratings appeared to
03:10systematically overestimate the financial strength of the
03:17rated insurers. Nineteen percent, nearly one in five, of Demotech rated insurers
03:26in Florida became insolvent between 2009 and 2022. Fourth, she found that
03:38mortgage lenders were loading up those mortgages insured by Demotech rated
03:44insurers to Fannie and Freddie, compared to properties with insurers using other
03:51rating agencies. What does that mean? It means Florida mortgage risk is being
03:58transferred to the taxpayer and to pension funds for millions of Americans
04:05that commonly purchase mortgage-backed securities. All of this should ring a
04:12bell, a hell of a bell. Remember the 2008 financial crisis. It, too, began in the
04:22residential real estate and mortgage markets. It, too, had Florida as its
04:28epicenter. It, too, involved ratings agencies handing out inflated ratings. It,
04:36too, involved mortgage-backed securities, securitized by Fannie and Freddie and
04:41sold around the world. That 2008 financial crisis led to the Great
04:49Recession, in which millions of Americans lost their jobs, their homes, and much of
04:55their household wealth. Unemployment topped 10 percent. Five trillion dollars
05:02was piled on our national debt. So, when we start seeing parallels to things that
05:10went awry back then, we should wake up and take them seriously. Dr. Sands said
05:19this about the climate risk we face, quoting her here,
05:27not only do we need to harden our homes, but we need to harden our financial
05:35institutions, our banks, and our insurance companies in order to make them withstand
05:44really large climate shocks that are for sure coming their way.
05:53Well, when she talks about really large climate shocks that are for sure coming
06:01their way, that means they're for sure coming our way. Because, just like 2008,
06:11if this goes down, everyone suffers. At this point, we have dawdled on climate
06:19for far too long. We have let the fossil fuel industry for decades obstruct action
06:25on climate change. Now, with financial warnings in the trillions, the Deloitte
06:33report said, quoting here, the global economy needs to execute a rapid,
06:39coordinated, and sequenced energy and industrial transition, end quote. Well, I
06:46promised in my last Time to Wake Up speech that I'd discuss how best to
06:52execute that rapid transition. So, let me turn to that. I'll begin by acknowledging
07:00that Democrats took the first serious legislative step on climate in 2022 with
07:07the Inflation Reduction Act, the IRA. The IRA was modeled to reduce emissions by
07:15around 40% by 2030 compared to a 2005 baseline, which is great, but we need to
07:28reduce emissions not by 40%, but by 50% by 2030, and to get to net-zero emissions
07:38by 2050, if we're going to hold warming to 1.5 degrees Celsius. Even if we do
07:49that, the climate havoc we're already seeing will get worse. Climate havoc
07:54we're already seeing at about 1.2 degrees Celsius. So, what more do we need
08:02to find a pathway to climate safety? And how do we do it globally, knowing that
08:09the U.S. only now accounts for about 12% of total greenhouse gas emissions? Well,
08:17for years now, my team and I have been in constant communication with economists
08:21and other climate modelers who specialize in predicting the effect of
08:26various emissions reduction policies. Study after study, group after group,
08:34expert after expert, have said the same thing. An economy-wide carbon price will
08:43drive the deepest emissions reductions, which makes sense. The cost of a product's
08:52harms under economic principles should be reflected in the price of the product.
08:59When they're not, it's a subsidy. And fossil fuel floats on the fattest
09:07subsidy in human history, now clocked at over $700 billion a year in the U.S.
09:17alone. Put a price on that free pollution, and markets emerge to reduce
09:28emissions in the most efficient way, whether by fuel type, new technology,
09:35efficiency measures, or preventing or capturing emissions. Here is an example
09:44of how that works. This graph from 2021, before the passage of the IRA, examines
09:56emissions trajectories in a variety of policy scenarios. The green line here at
10:04the top is business as usual then, which assumed no new emissions reducing
10:12policies, and of course had virtually no effect. Drop down to this orange line.
10:20It's a package of clean energy tax credits, very similar to what was ultimately
10:25included in the IRA. As you can see, those tax credits result in substantial,
10:31though insufficient, emission reductions through 2030, which is here. And then they
10:39more or less flatline. The gray line below it here is a clean electricity
10:47standard, which would have incentivized cleaner electricity generation and
10:52penalized dirtier generation in the power sector. It does slightly better
10:58than the tax credits, but it also wanes in efficacy after 2030. The yellow line
11:06just below it is those tax credits plus that clean electricity standard. It's a
11:12bit better, but it's still pretty impotent after 2030. Then you have this
11:20light blue line, which represents a relatively modest carbon fee, starting at
11:27around $15 per ton of emissions and remaining relatively low for the first
11:33six years, and then ramping up in out years to roughly $80 per ton. This model
11:41actually exempts unleaded gasoline. Yet even with that exemption, it drives
11:47dramatically deeper emissions reductions, particularly after 2030. Indeed, by 2040,
12:00it almost doubles the emissions reductions of the other two policies
12:06combined. And the lowest line, this dark blue line, represents doing it all. And
12:13the anchor of that outcome is that modest carbon price, which is ultimately
12:22far more potent at driving emissions reductions than all other policies.
12:30Here's another study. This one was done this year, after the IRA was passed, and
12:48it reaches similar conclusions. This top yellow line, which doesn't come close to
12:54our targets, represents what would happen if, as our Republican friends have
12:59threatened, the IRA were to be repealed and EPA's recently finalized emissions
13:05rules for power plants, cars, and trucks were struck down or rescinded. As you can
13:11see, emissions very slowly trend down, due largely to continued deployment of
13:17wind and solar, which are now the cheapest forms of energy, and to
13:22different states' decarbonization policies. This next line, which gets to
13:28our targets around 2040, represents a scenario in which the Inflation
13:33Reduction Act stays, but the EPA rules are voided or rescinded. Again, we don't
13:40hit our targets for 2030 until 2040, a very dangerous decade to miss. The next
13:47line, the red line, is essentially our new business as usual. It's the IRA and the
13:53EPA rules remaining in force, and there we hit our decarbonization targets
13:59around 2037, still off by seven years. This light green and light blue line,
14:07which are very hard to distinguish, respectively increase the value of the
14:12IRA power sector clean energy tax credits by 50% and add a clean
14:18electricity standard. Both results in delays hitting our 2030 target until
14:252035. This purplish line here adds carbon pricing, similar to the one I just
14:35discussed, with repeal of the non-power sector tax credits in the IRA. So even
14:44with repeal of some of the IRA clean energy tax credits, adding a modest
14:50carbon fee results in emissions reductions that are the best in class so
14:58far, hitting our 2030 targets as early as 2033. And the dark green line, that
15:07just adds the carbon price. It nearly hits our 2030 target, very close, and it
15:16drives by 2040 an additional billion metric tons over the emissions
15:23reductions expected from the IRA and EPA's rules. Now let me show you one more
15:31chart. This one here was from Brookings. This one here is from the Potsdam
15:39Institute. Together with the Washington Post, Potsdam Institute looked at over
15:481,200 climate policy scenarios that have been run in recent years. And they
15:58found that of 1,200 policy scenarios that experts have run, there are only 11
16:06left. Only 11 left that allow us to hit our 1.5 degrees Celsius target. And of
16:18those 11, every one requires a price on carbon pollution. So the upshot of all of
16:32this is that you simply cannot continue allowing polluters to pollute for free.
16:36Not if you want to find a pathway to climate safety. All of those other
16:42pathways without a carbon price have been foreclosed by our dawdling and our
16:48indolence and the pressure from the fossil fuel industry to do nothing. One
16:54other point, as you can see, almost all of them overshoot. So if you want to get
17:04back to safe climate levels, you absolutely are going to need carbon
17:11capture technology and direct air capture to be specific. Because you're
17:19going to have to claw back excess emissions. At this point it's not enough
17:23just to stop. Happily, a carbon price gives carbon capture a revenue
17:31proposition. So it will dramatically encourage that technology. Here's the
17:39other huge advantage of a carbon price. We can export it via carbon border
17:48adjustment. The European Union has just launched its carbon border adjustment
17:55mechanism, called it CBAM, carbon border adjustment mechanism, CBAM. And it's
18:02about to be joined by the UK as well. And they will assess a carbon tariff on
18:11imported goods to the EU and the UK. Less carbon-intensive goods will pay a lower
18:19carbon levy. More carbon-intensive goods will pay a higher levy. And that levy
18:26creates a powerful global incentive for clean manufacturing, wherever products
18:34are made for export to EU and UK markets. If we joined in, if the United
18:43States of America joined in and implemented a similar policy here at
18:48home, the downward pressure on global emissions, particularly Chinese emissions,
18:55which currently represent roughly a third of global emissions, would be even
19:01more powerful. A carbon border adjustment would be a big win for
19:06cleaner American manufacturing. On average, the Chinese economy is about
19:11three times more carbon-intensive than the U.S. economy. So if a domestically
19:16produced good paid a $1 carbon levy, the equivalent good imported from China
19:22would pay on average a $3 carbon levy, which would help to reshore to the U.S.
19:28steel, aluminum, and chemical production and all the well-paid manufacturing jobs
19:34that they generate. Now the fossil fuel industry, of course, complains that such
19:39a policy would harm consumers. The same consumers they happily gouge, but when it
19:45comes to remedying climate, suddenly they're interested in consumers. Well, A,
19:50these companies already make so much profit that they could absorb the
19:55tariffs for their customers, and B, we can spend tariff revenues in ways that
20:01boost consumers. For instance, return revenues earned from polluters to
20:08consumers as dividends, as Chairman Cantwell has proposed, for consumers to
20:14spend how they please. Indeed, I've got a bill that would do just that. One of the
20:20big lies of the fossil fuel industry is to pretend the costs their pollution
20:25foist on the American public don't exist. In fact, Americans are already paying for
20:32the polluters' pollution and for their obstruction of climate action. We pay in
20:38higher home and auto insurance premiums, now exploding through Florida, higher
20:44grocery bills, higher home prices due to lumber shortages, higher prices for goods,
20:50tangled in climate-related supply chain snarls. Americans are already paying the
20:57climate pollution price. It's just a very dumb one that does nothing to reduce the
21:04pollution and shift the burden of harm from polluters to everyday Americans. A
21:11carbon price would send a correct price signal into markets. It would reward
21:19innovators and innovation. It would rectify the fundamentally unfair
21:25situation of an industry passing the cost of its pollution on to ordinary
21:30Americans. And, as these various graphs all show, it would actually work at
21:38providing a pathway to global climate safety. Opportunities are coming. Next
21:45year, a large swath of the Trump tax cuts, which were disproportionately skewed
21:50towards large corporations and the very wealthy, will expire. And good riddance.
21:56This gives us an opportunity to make the tax code more fair, to reduce income
22:02inequality, and to use revenues from big polluters to reinstate, for instance, the
22:10child tax credit to do good things. Taxing polluters could also help to
22:16improve the nation's fiscal position. And another reconciliation bill is possible
22:22if voters take climate risk seriously and don't put fossil fuel flunkies in
22:27charge of their government. In short, carbon pricing makes sense from all
22:34angles. It is the single most effective policy at reducing carbon pollution and
22:40heading off the massive, looming, tens of trillion dollar financial risk that we
22:48see coming from climate change. As Dr. Sen said, that are for sure coming our
22:54way. It provides a tool to help us tackle global emissions that will also spur
23:00domestic manufacturing and jobs. It raises real revenue to help Americans
23:07shoulder the burden we carry as a result of decades of fossil fuel industry
23:11pollution, denial, and obstruction. And it could even help reduce the budget
23:18deficit. We've got no time left to waste, Madam President. In the next Congress, you
23:23can be sure that I will do everything in my power to make sure that we finally
23:28embrace the winning policy that we should have implemented decades ago, back
23:34when we were first warned about the costs and dangers associated with carbon
23:39pollution. It is well past time to make fossil fuel polluters pay for the harms
23:45they cause, and it is well past time for Congress to wake up. I yield the floor.
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