Friday, October 22, 2021

Catastrophic Inequality in a Climate-changed Future

Climate change has consistently proven to be more extreme than climate models have projected. If this trend towards extremely unpleasant surprises holds, more drastic adaptive responses will be required. Climate change poses an existential threat to human societies because it disrupts the supply of natural resources that provide basic life necessities such as water, food, energy, and housing. At least in affluent countries, these necessities are abundant enough to be readily available for a vast majority of their populations. But in a climate-changed future, with floods, droughts, hurricanes, wildfires, and extreme heat disrupting the supply and production of life necessities, availability could become sporadic and uncertain. Wildfires, drought, and extreme heat could combine to significantly suppress California agricultural production, which accounts for one-seventh (by value) of all American agricultural products. Unfortunately, demand for life necessities is very strong at low quantities – they are necessities, after all. Shortages will drive up prices sharply, posing hardships for many and posing severe hardships for poor households. With inequality measured less by wealth and more by probabilities of survival, unrest will follow.

Governments can avert this kind of catastrophic inequality by proactively developing a capacity to be a supplier of last resort for basic life necessities. It can do this by creating a trust instrument with the ability to step in to produce or supply basic life necessities should shortages occur. Importantly, such an instrument, which I have dubbed a "Resources Trust," should not normally interfere with ongoing market or administrative processes that supply life necessities; only when certain signs of shortage appear, should a Resources Trust spring into action and inject some emergency supply. Also importantly, the amount supplied need not be very large. A Resources Trust need not make up every shortfall; it need only inject enough supplemental supply to lower the prices of life necessities to nearly normal levels. The demand for life necessities flattens out quickly once basic needs are met.

A Resources Trust is essentially an emergency stand-by supply of vital life necessities, an effective reserve for the growing number of emergencies in a climate-changed future. It is a tricky proposition to be able to produce, but to minimize interference with existing markets. But it can be accomplished by an astute collection of rights, options, and technologies. For example, a Resources Trust can assemble a portfolio of water options, which can be exercised in shortage situations. Or, a Resources Trust could do what some billionaire investors are already doing: buy land with appurtenant water rights for production or for speculative purposes, so as to be able to maintain some capacity for extracting water or growing food. Alternatively, a Resources Trust can also develop and deploy some backstop technologies that only become economical at higher prices. Fortunately, that is what a Resources Trust is supposed to do: spring into action only when shortages have driven up prices, threatening the budgets of many households, but especially poor ones. One backstop technology that could be deployed to address potential water shortages is desalination: while typically more expensive than traditional means of supplying water, in a shortage situation with high prices for water, it can mean the difference between life and death. This is how climate change will be a great un-equalizer for even affluent countries.

A Resources Trust might also adopt the backstop technology of greenhouse agriculture, a seemingly simple technology, but in a modern society, a source of innovation and productivity gains over conventional technology. Greenhouse agriculture has enabled the tiny country of the Netherlands to be a world food export juggernaut, a fairly close second to the United States. Having a low footprint and low maintenance needs, greenhouse agriculture is capable of operating at low production levels until it is needed to ramp up quickly and produce at high quantities.

Another backstop technology that a Resources Trust might employ to be a supplemental energy supplier is the wide-scale adoption of energy storage, or batteries. Wind and solar energy are abundantly available, and if excess wind- or solar-generated electricity can be stored, they can provide a crucial reserve for emergencies during climate events such as hurricanes, wildfires, floods, or extreme heat, in which electricity shortages might occur. Fortunately, energy storage technologies are advancing rapidly, so batteries might be situated in enough places to overcome transmission problems. A Resources Trust could, at reasonable cost, maintain significant reserves of electricity in a multitude of locations for use in times of shortage. Batteries could be installed in certain locations to guard against the common occurrence of electricity blackouts disproportionately affecting vulnerable populations.

Housing presents unique issues for a Resources Trust, as the history of government-subsidized housing is, on balance, disappointing. However, climate change is a uniquely existential threat, and shelter is such a basic human need that governments cannot shrink from being a provider of last resort. If, as expected, extreme weather, floods, wildfires, and other climate events become more frequent and more severe in the future, they may increase losses of housing by sufficient amounts to necessitate some response from a Resources Trust. It is worth keeping in mind that disaster responses have always involved the provision of some shelter, whether it be massive cooling stations, temporary shelters, or more ignominiously, the Louisiana Superdome. Resources-Trust provision of housing is just a difference in degree and, hopefully, in quality.

A Resources Trust appears to be a foreign concept, but it is really only different in degree from other government instruments intended to provide in times of need. The Strategic Petroleum Reserve is one analogous instrument. If it weren't so ironic, the Strategic Petroleum Reserve could be considered an emergency source of energy for times of climate crisis. Sovereign wealth provides another analogy, collecting excise taxes in small amounts and investing them in accordance with a charter setting forth some future, provisional purpose. A Resources Trust is just an extension of the sovereign wealth concept, albeit one with complications extending beyond financial investments. However, governments must be able to respond to the existential threats posed by climate change. Climate change threatens to impose vast harms upon everybody, but the most immediate and existential threats are borne by the most vulnerable. If government cannot ensure the availability of basic life necessities to its citizens, rich or poor, it becomes a failed state. Inequality of wealth is one thing; inequality of survival prospects is wholly another. Unrest will follow.

- Shi-Ling Hsu, D'Alemberte Professor of Law, Florida State University College of Law.

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