Treasury Secretary Janet Yellen on Tuesday warned that climate change is already taking a significant economic toll and could cause extensive losses to the U.S. financial system in the coming years.
Yellen made the remarks during the first meeting with the Climate-related Financial Risk Advisory Committee (CFRAC), an advisory board that was set up last year by the Financial Stability Oversight Council in an effort to bolster U.S. action to minimize climate risk to the economy.
"As climate change intensifies, natural disasters and warming temperatures can lead to declines in asset values that could cascade through the financial system," she said during the meeting. "A delayed and disorderly transition to a net-zero economy can lead to shocks to the financial system as well."
Climate-related disasters have caused economic losses through infrastructure damage, disruptions in critical services and losses in property values, according to a federal government report released last year. The U.S. experienced an average of nearly eight $1 billion disasters every year over the past four decades. In the past five years, that number has jumped to nearly 18 events annually.
"These impacts are not hypothetical," Yellen said. "They are already playing out."
Yellen said states like California, Florida and Louisiana have recently endured especially severe storms and wildfires, and she noted how tornadoes across the South and intensifying storms on the West Coast indicate that climate change is accelerating.
She said some insurers are raising rates or even pulling back from high-risk areas in response to rising losses.
"This has potentially devastating consequences for homeowners and their property values," Yellen said. "Developments like these can spill over to other parts of our interconnected financial system."
The Biden administration has taken executive actions to address climate risk to the economy, including an impending Securities and Exchange Commission measure that will require publicly traded companies to disclose their greenhouse gas emissions. The agency is now considering scaling back its proposed climate-disclosure rule.
Yellen has previously promoted the historic climate investments in President Biden's Inflation Reduction Act, specifically touting the legislation's tax credits and other private sector incentives aimed at lowering both energy costs for consumers and greenhouse gas emissions.
