The Cost of Climate Change: Who Should Pay?

From tornadoes battering midwestern American suburbs to tennis-ball-size hailstones smashing the roofs of Italian villas, the severe weather brought about by greenhouse-gas emissions is shaking the foundations of the world’s most important asset class. The potential costs stem from policies designed to reduce the emissions of houses as well as from climate-related damage.

By one estimate, climate change and the fight against it could wipe out 9% of the value of the world’s housing by 2050—which amounts to $25trn, not much less than America’s annual. It is a huge bill hanging over people’s lives and the global financial system. And it looks destined to trigger an almighty fight over who should pay up. Homeowners are one candidate. But if you look at property markets today, they do not seem to be bearing the costs. House prices show little sign of adjusting to climate risk. In Miami, the subject of much worrying about rising sea levels, they have increased by four-fifths this decade, much more than the American average. Moreover, because the impact of climate change is still uncertain, many owners may not have known how much of a risk they were taking when they bought their homes. Yet if taxpayers cough up instead, they will bail out well-heeled owners and blunt helpful incentives to adapt to the looming threat. Apportioning the costs will be hard for governments, not least because they know voters care so much about the value of their homes

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