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California Climate Risk and Response

By David Roland-Holst and Fredrich Kahrl, UC Berkeley, November 2008

This report provides for the first time a comprehensive examination of the economic impacts of climate change and adaptation in California. In conducting this multi-sector assessment, we compile the most recent available science on climate damage, assess its economic implications, and examine alternative strategies for adaptation.

Taken together, real estate and insurance represent the largest economic climate risk for California, yet they are the least studied to date. The report finds that the state has $4 trillion in real estate assets, of which $2.5 trillion are at risk from extreme weather events, sea level rise, and wildfires, with a projected annual price tag of $300 million to $3.9 billion over this century, depending on how warm the world gets. If no action is taken in the face of rising temperatures, six additional sectors, including water, energy, transportation, tourism and recreation, agriculture, and public health, would together incur tens of billions per year in direct costs, even higher indirect costs, and expose trillions of dollars of assets to collateral risk.

Climate response – mitigation to prevent the worst impacts and adaptation to climate change that is unavoidable -- on the other hand, can be executed for a fraction of these net costs by strategic deployment of existing resources for infrastructure renewal/replacement and significant private investments that would enhance both employment and productivity.

At the sector level, there will be some very significant adjustment challenges, requiring as much foresight and policy discipline as the state can mobilize. In this context, the political challenges may be much greater than the economic ones. The state’s adaptation capacity depends upon flexibility, but divergence between public and private interests may limit this flexibility. As in the current financial dilemma, resolving this will require determined leadership.

Despite the extent and high quality of existing climate research reviewed in this document, the degree of uncertainty regarding many important adjustment challenges remains very high. This uncertainly is costly, increasing the risk of both public and private mistakes and the deferral of necessary adaptation decisions. The process of improving research and understanding of climate effects may itself be costly and difficult, but policymakers must have better visibility regarding climate risk and response options.

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