By Bill Chaisson
If you are an investor or a developer with an interest in coastal properties, you are being presented — in an ever more blunt and certain manner — with evidence of climate change in the form of sea level rise and its consequences. A recent paper¹ by Geoffrey Heal, a professor of social enterprise at Columbia Business School, and Marco Tedesco, a research professor at Lamont-Doherty Earth Observatory, states that sea level may rise as much as 15 feet by the end of this century. “Even the lower end of the wide range of possibilities, two feet, is sufficient to alter coastlines substantially: an outcome at the upper end of the range would be totally transformative of the U.S.’s coastline, with massive implications for coastal property and infrastructure.”
In the academic community, many interested in the business of coastal development have begun to take into account information from climate scientists and have expressed frustration that government regulators are not doing so.
At a May 4 meeting held in midtown Manhattan, members of the business community listened to their peers, Columbia Business School faculty, and climate scientists speak about sea level rise. The questions that followed each presentation indicated that the scientific information was new to some in the room, but the questions showed minds at work, looking for a new way forward.
After Lamont-Doherty scientists Robin Bell and Tedesco tersely laid out the evidence for accelerating rates of sea level rise, a member of the audience asked, “How much lead time do we have to react to this?” “We should have started 10 years ago,” said Peter deMenocal, director of the Center for Climate and Life at Lamont-Doherty Earth Observatory and a co-host of the conference. “The next 30 to 50 years of sea level rise are inevitable.”
Heal, who spoke at the May 4 conference, was originally educated in physics, and he follows the arguments of climate science more naturally than some non-scientists. He has been generally aware of the consequences of climate change since the 1980s. “Back then the amount of sea level rise was thought to be small,” he said in a June interview, “but in the last eight or nine years people have been making more aggressive forecasts, and these are credible people.”
As these forecasts of risk grow more detailed and more certain, and the predicted rate of sea level rise accelerates, their influence will be found relevant through more sectors of the development community. In strictly commercial ventures, said Heal, investors want their money back in 5 to 10 years. In mixed public-private projects investors expect a return by the middle of the century. Strictly public projects – which includes most infrastructure – are supposed to last essentially forever; no one anticipates replacing them. It is now predicted that some coastal areas will come to grief within 5 to 10 years, as they are already affected by flooding.
“Even the lower end of the wide range of possibilities, two feet, is sufficient to alter coastlines substantially: an outcome at the upper end of the range would be totally transformative of the U.S.’s coastline, with massive implications for coastal property and infrastructure.
Heal would like to move the focus away from preserving buildings and toward a concentration on public infrastructure – roads, railroads, tunnels, airports, utilities – because buildings are worth little if the infrastructure that serves them is damaged or destroyed. “LaGuardia Airport is only five or six feet above sea level,” he noted, “and it is now being renovated at a cost of $40 billion. If they thought that through before starting, they might have had second thoughts.” Where though, he asked, do you move an airport? Or a railroad?
The hurricanes of the last decade have precipitated infrastructure catastrophes, but Heal is at pains to point out the cost of nuisance or “sunny day” flooding, as it is called in Miami. The steady centimeter-scale encroachment causes high tides and strong winds to push the ocean into coastal neighborhoods with increasing frequency in regions where elevations barely rise away from the shoreline. Historically, in places like Miami and Charleston, South Carolina, where these events have occurred three to four times per year, they are projected to occur 100 to 200 times per year by 2050.² Events like these do not destroy infrastructure but they damage it and impede commerce.
When investors and developers confront the new facts of sea level rise, they are facing unfamiliar forms of uncertainty. As noted, a range of predictions exist. In addition, different regions have varying vulnerabilities as a function of their geography for reasons that may strike a layperson as improbable. Bell pointed out that, at present, thermal expansion of the warming ocean is the largest contributor to sea level change and is most manifest in the tropics, where solar input is greatest.
By the end of the century, Tedesco said, land-based polar ice will be the primary contributor, and not simply because its melting adds to ocean volume. Heal said he was fascinated to learn that land-based polar ice-sheets have significant gravitational fields and draw the ocean toward them “like small moons.” According to Tedesco, sea level along the coast of northeastern North America will rise as the ice mass of Greenland shrinks and the surface of the North Atlantic levels out.
Christopher Mayer, a professor of real estate at Columbia Business School, said Hurricane Katrina initially opened his eyes to the consequences of climate change, and a decade later Superstorm Sandy literally brought it home. He also saw that many developers were still not taking sea level rise into account, offering as an example the recent construction along the Boston waterfront, where nuisance flooding is already routine. “They’re not adapting politically,” he said of developers. “They just build and sell.” An MSNBC video that Mayer shared showed a developer lifting his building and armoring the exterior, but not taking infrastructure into account. Mayer did note, however, national studies that show declines in the value of existing real estate where risk of flooding is shown to be greater.
The way markets operate, Mayer said, is to believe that they can easily and efficiently incorporate information, but the facts of sea level rise resist this approach because they are without precedent. Furthermore, markets react to catastrophes and therefore respond in fits and starts. Nuisance flooding affects local markets where effects are felt directly, he said, but it does not serve as a proactive guiding principle elsewhere.
Mayer said that the insurance industry may be the factor that makes the financial markets recognize the losses associated with sea level rise. The cost of insuring threatened properties will increase the price of construction. But government action can impede this communication of cause and effect. “FEMA redrew the floodplain maps in New York,” he said. “The city complained and the maps were put on hold.” For the first time, FEMA had incorporated estimates of future flood risk. Civil servants created documents, and then elected and appointed public officials shelved them.
At the May 4 conference, Marla Schwartz, atmospheric perils specialist at Swiss RE, announced the return of private insurers to the flood insurance market. “It will be interesting to see what they come up with,” Mayer said, “when the goal is economics and not politics.” The downside, he said, is that private insurers will offer coverage only where the government is overpricing it. In the riskiest places, only government insurance will remain available.
“The problem is that government is not stepping in, and that’s not going to change any time soon, particularly in the U.S., but also globally. So, we need to change how science speaks to policymakers. We need for science to talk directly to business.
Recall Heal’s timetable of return on investment. In this light, bond ratings, like insurance, may serve as a mechanism that forces investors and developers to take sea level rise into account. Michael Wertz, vice president and senior analyst at Moody’s, told the May 4 audience that since 2015 climate change has been incorporated into assessments of a government’s ability to repay loans. If their publicly-funded projects are seen by Moody’s to be at risk from flooding, that municipality will have difficulty issuing bonds.
Business-community thinkers who have accepted climate change make it clear that scientists are now being heard and heeded in some quarters. Information technologists like Rich Sorkin’s Jupiter Intelligence are linking Bell and Tedesco’s climate research data with commercial computing power and efficiency to supply investors and developers with climate predictions they can use. Schwartz of Swiss Re and Wertz of Moody’s show that insurance availability and bond ratings informed by climate data controls investment in areas at risk of inundation, now and in the future. But Heal and Mayer – in their points about infrastructure and FEMA maps – make clear that the government cannot be expected to be any help at all.
“The problem is that government is not stepping in” said Bruce Usher, co-director of the Tamer Center for Social Enterprise at Columbia Business School, in his wrap-up of the conference, “and that’s not going to change any time soon, particularly in the U.S., but also globally. So, we need to change how science speaks to policymakers. We need for science to talk directly to business.”
1“Rising Oceans: Economics and Science” [Geoffrey Heal and Marco Tedesco]
2USGCRP, 2017: Climate Science Special Report: Fourth National Climate Assessment, Volume I [Wuebbles, D.J., D.W. Fahey, K.A. Hibbard, D.J. Dokken, B.C. Stewart, and T.K. Maycock (eds.)]. U.S. Global Change Research Program, Washington, DC, USA, 470 pp.