How Climate Shocks Could Break the Economy | Edmond Rhys Jones | TED

Overview

Edmond Rhys Jones explores the disconnect between climate science and economic modeling, emphasizing the need for innovative tools to better predict and manage the economic turbulence caused by climate change. He highlights the cascading effects of natural disasters on financial systems and advocates for adopting complexity economics and simulations to build resilience and mitigate risks.

Notable Quotes

- The science tells us that we're leaving 12,000 years of climate stability behind us. – Edmond Rhys Jones, on the gravity of the climate crisis.

- This isn't the normal, you know, boom and bust cycle. This is just bust, bust, broken. – Edmond Rhys Jones, on the potential collapse of financial systems under climate stress.

- We need models that surprise us before the future does. – Edmond Rhys Jones, on the importance of innovative simulations to anticipate climate-driven economic shocks.

🌍 The Disconnect Between Climate Science and Economics

- Climate science paints a dire picture of increasing natural disasters, crop failures, and ecosystem collapses, but economic models fail to capture the real-world turbulence these events cause.

- Economic graphs often oversimplify the impact of climate change, showing smooth curves that don't reflect the chaotic disruptions businesses and households face.

- The speaker emphasizes the need for economic tools that translate scientific insights into actionable strategies for businesses and policymakers.

🌪️ The Ripple Effects of Natural Disasters on Financial Systems

- Natural disasters cause $200–300 billion in direct damages annually, but indirect impacts, such as lost revenues and income, are often overlooked.

- Examples include:

- Hurricanes in the U.S. Southeast leading to rising insurance premiums, mortgage defaults, and credit card delinquencies.

- A 2021 frost and drought in Brazil reducing coffee production by 20%, triggering a 30% price spike due to broken financial contracts and market instability.

- These events highlight how climate shocks reverberate through financial systems, amplifying economic disruption.

📉 The Risk of Financial Infrastructure Collapse

- Increasing frequency and intensity of climate shocks could overwhelm financial systems, leading to tipping points where risks become unmanageable.

- Examples of early warning signs:

- Insurers withdrawing from Florida, leaving the state as the largest home insurance provider.

- Rising borrowing costs for California municipalities due to climate risks.

- The speaker warns of a future where uninsurable assets and financial instability create widespread economic paralysis.

🧪 Leveraging Complexity Economics and Simulations

- Traditional economic tools rely on historical data and fail to anticipate the dynamic, non-linear impacts of climate change.

- Complexity economics borrows methods from fields like evolutionary biology and thermodynamics to model interconnected systems.

- Simulations, or digital twins, allow for testing scenarios and predicting unexpected outcomes, such as the collapse of fish stocks despite quotas or the counterintuitive benefits of demolishing roads.

💡 Innovations for Building Resilience

- Parametric insurance, which pays farmers immediately after natural disasters, is an example of a product that could mitigate economic shocks but requires scaling through advanced modeling.

- Simulations of industries like coffee can help design resilient financial systems by testing responses to past and future shocks.

- The speaker calls for collaboration among systems thinkers, risk modelers, and data scientists to develop tools that transform uncertainty into opportunity.