Many of the other respondents here make a clear case that it is appropriate to consider climate change a risk. This is true especially in light of other possible formulations that DOD and the SEC could have chosen. Other options would be to characterize climate change as a threat, a driver, a trend – or not at all. Given that the most important concerns for DOD may be how the effects of climate change will alter the operating environment and interact with social or economic trends, considering climate change as any of these singular entities would be less helpful than examining the range of potential effects in terms of what is more and less likely to affect business as usual.

The biggest advantage – and the best way to test whether climate change as a “risk” is the appropriate framing – is that it clarifies for the Department of Defense and other entities what actions should follow, and what potential solutions may be. Not every effect of climate change – not even every negative effect – will necessarily have an impact on U.S. national security interests. As budgets are likely to tighten in the future, it is all the more important that DOD have a systematic approach to determining in what ways climate change will be most problematic, in what ways it will not, and where to focus time and money based on the most current scientific projections available. Considering climate change as a threat or driver would likely not provide this level of fidelity to the problem.

And indeed, the QDR states just that – but there is also another half to this equation. In line with Mindy Lubber’s point on this thread that “climate change also represents exciting and very real opportunities” for businesses, the Quadrennial Defense Review states: “As climate science advances, the Department will regularly reevaluate climate change risks and opportunities in order to develop policies and plans to manage its effects on the Department’s operating environment, missions, and facilities” (emphasis mine).

For the Department of Defense, this regular reevaluation began with the QDR process itself, which led individuals in OSD, the services, and the Combatant Commands to collaborate with scientists, NGOs, and academics to dig deeper into the current climate science and analyze which projected effects could be problematic and where opportunities might lie. Based on this extensive analysis, the QDR determines, for example, that changes in the Arctic may provide a source of cooperation between the United States and NATO allies, Canada, and even Russia.

Taking advantage of such opportunities, and hedging against and managing challenges stemming from climate change, would be impossible without first determining the exact nature of this problem for DOD and U.S. security interests. Framing climate change as a risk with potential opportunities will provide the appropriate tools of analysis to do just that.

The unavoidable uncertainties about the details of climate disruption is cited by the head in the sand faction -- CATO, George Marshall, etc. -- as a reason for ignoring the risks posed by a destabilized climate. The reality, of course, is the opposite -- if climate models could tell us precisely what will happen in each region and when, our challenge would be preparation for the new climate state. It is the scary fact that we don't know what will happen, when, and that we suspect that the new climate will be less stable and predictable than the one which has supported human civilization for 10,000 years that makes this such a huge risk.

Surely economically savvy players like CEI know that uncertainty is a good synonym for risk -- not its opposite. They just want to pretend otherwise to avoid the emergence of a "safety first" coalition on climate.

The SEC and the Pentagon are not only right to include climate change among the risks that publically-held companies and defense planners should consider, and in a transparent manner; they have a positive responsibility to require that consideration. Climate science has established that the risks are real, and a moment’s reflection shows that the economic and security risks could be very large. The downside could be huge, for example, for agribusinesses invested in regions where weather pattern change or for investors in areas that may find themselves flooded. Similarly, climate changes that disrupt agriculture or flood coastal areas clearly could destabilize governments and entire societies in regions critical to American security. The hitch is that today’s climate science cannot tell us the precise nature, location or timing of the weather shifts which inevitably will accompany climate change. But that doesn’t preclude serious and vital analysis of those risks. For now, Pentagon and corporate analysts will have to adopt the approach used routinely by financial institutions, assigning a range of probabilities to a range of outcomes.

Moreover, serious analysis of the risks of climate by serious people on a regular basis should, over time, measurably increase our understanding of those risks. And it seems virtually certain that greater public understanding of the economic and security risks posed by climate change will facilitate the adoption of a comprehensive program to reduce the greenhouse gas emissions driving those risks.

The Pentagon is perhaps the most influential lobbyist on Capitol Hill and has the respect of many on the center-right who would never give Greenpeace the time of day. The SEC regulates every publicly traded company, including how firms communicate with their shareholders. So it’s not surprising that global warming activists for years have sought to institutionalize climate change concerns in DOD planning and budgeting and use the SEC to align corporate America with the alleged “scientific consensus” in favor of “urgent action.”

It appears the activists are succeeding – even as Climategate and other scandals raise new and fundamental doubts about the scientific basis of their agenda. SEC’s Guidance Regarding Disclosure Related to Climate Change requires companies to disclose climate-related risks. DOD’s Quadrennial Defense Review Report (QDR) calls climate change a “key issue” that will play a “significant role in shaping the future security environment.”

The central issue raised by these publications is balance. There are economic and security risks associated with climate change but also with climate change policy. One-sided risk assessments are misleading and even dangerous.

SEC Guidance Is Less Unbalanced

Maybe it’s because those pushing for SEC disclosure of climate risk want to drive capital investment out of fossil-intensive industries, but the SEC leaves no doubt that cap-and-trade legislation will harm some companies, forcing them to buy new equipment, purchase emission allowances, or charge less competitive prices for their goods and services.

The SEC guidance also notes that climate policy may benefit firms that gain the opportunity to sell carbon credits or new products and technologies. Fair enough. However, the SEC instructs firms to report “specific risks they face as a result of climate change legislation or regulation and avoid generic risk factor disclosure that could apply to any company.” This admonition precludes reporting on the economy-wide impacts of climate policy. Yet a policy-induced recession can harm or destroy firms even if they face no specific regulatory risks.

Threat Multiplier Hype

DOD’s QDR offers the typically lopsided view of climate-related risk. DOD views climate change as an “accelerant of instability or conflict,” a threat-multiplier that can weaken fragile governments by increasing the frequency and severity of environmental stresses such as droughts, floods, and disease. This is quite dubious.

Consider the most pessimistic economic damage estimates from the high-end IPCC warming scenario – the Stern Review. Economist Indur Goklany shows that even if we assume the Stern Review’s 95th percentile loss estimate under the warmest IPCC scenario, developing countries’ net welfare (after accounting for climate change) would increase from $900 per capita in 1990 to $61,500 in 2100 and $86,200 in 2200 (all in 1990 U.S.$). For perspective, Goklany notes that, in 2006, GDP per capita was $19,300 for industrialized countries, $30,100 for the United States, and $1,500 for developing countries. In other words, regardless of climate change, global welfare will improve dramatically over the next two centuries, and developing country adaptive capacity will far surpass that of industrial countries today. Implication: Climate change will become a decreasingly important “conflict accelerant” in the decades ahead.

National Security Risks of Climate Policy

The QDR completely ignores the policy side of the risk ledger. Here are a few obvious points that should have been considered.

(1) Money is the Sinew of War. Economic strength is the foundation of military strength, and affordable energy is vital to economic growth. Because cap-and-trade policies are designed to make energy more costly (see former CBO Director Peter Orszag’s April 24, 2008 congressional testimony), they can chill job creation and growth. For example, the National Association of Manufacturers/American Council for Capital Formation estimates that, in 2030, Waxman-Markey would lower annual GDP by $419 billion to $571 billion and reduce net employment by 1.79 million to 2.44 million.

Litigation-driven CO2 regulation under the Clean Air Act (CAA) poses its own set of risks. As EPA’s Tailoring Rule acknowledges, regulating CO2 from new motor vehicles under CAA Sec. 202 could compel EPA to impose preconstruction permitting requirements on tens of thousands of previously non-regulated small businesses, and operating permit requirements on millions. This could have a chilling effect on construction activity and business investment generally.

Worse, the endangerment finding that compels EPA to regulate vehicular CO2 emissions logically commits the Agency to establish National Ambient Air Quality Standards (NAAQS) for CO2 set below current atmospheric levels. Not even a global depression lasting many decades would be sufficient to attain such a NAAQS, yet the CAA requires states to attain “primary” or health-based NAAQS within five or at most 10 years, or face sanctions such as the loss of highway funds. Applying NAAQS to CO2 is a recipe for economic disaster – and, hence, military weakness.

(2) A Real Threat Multiplier. The global warming movement’s top priority is to stop construction of new coal-fired power plants in order to reduce global emissions 50% or more by 2050. Yet, banning new coal plants in developing countries could condemn large segments of humanity – the 1.6 billion people who have never flipped a light switch – to decades of deadly energy poverty.

Approximately 90% of the growth in global emissions in the remainder of this century is projected to occur in developing (“Non-Annex I”) countries. Absent breakthroughs that dramatically lower the cost of zero-emission energy, there is no way to achieve the 50% global emissions reduction target without suppressing energy consumption and economic growth in the world’s poorest countries. Thwarting developing countries’ aspirations for a better life would not promote stability and peace!

(3) Trade war, U.S-China conflict. China, India, and other developing countries reject binding limits on their emissions. What kinds of inducements would be required to make them join the club of the carbon-constrained?

One option is bribery. At Copenhagen, President Obama pledged to work with other industrial countries to provide $100 billion in climate assistance to developing countries by 2020. But U.S. taxpayers may take a dim view of subsidizing Chinese industry in order to send yet more jobs to China. Besides, although China and India would be only too happy to take our money, they have not indicated they would return the favor by capping their emissions.

If carrots don’t work, the other option is sticks. Ten U.S. Senators, French President Sarkozy, and others advocate carbon tariffs against major developing countries that refuse to curb emissions. If we go down that path, however, we will continually butt heads with China and other important trade partners. Beijing has already threatened to retaliate against carbon tariffs with trade sanctions of its own. In all likelihood we would get trade war, not compliance.

Trade wars do not usually lead to shooting wars, but an era of trade conflict with China would not be in the U.S. national interest. China, for example, could become less amenable (or more obstructionist) in areas where we seek their cooperation, such as sharing intelligence on terrorist activities and restraining North Korea and Iran’s nuclear ambitions.

Predictably, the QDR says nothing about the security risks associated with climate-related trade policies.

(4) Nuclear proliferation. If developing countries are denied access to coal-fired power plants, what are they going to use to generate base-load electricity? It is difficult to imagine developing countries consenting to a moratorium on new coal power plants unless industrial countries agree to share nuclear technology with them, and pay for it to boot. At a minimum, DOD should acknowledge that increased proliferation risk is a potential consequence of the global warming crusade. Of course, the QDR says not a peep about this.

(5) Europe’s Dependence on Russian Gas. In January 2009, in the midst of a very cold winter, Russia halted gas exports to Ukraine, thereby cutting off nearly all Russian gas shipments to Europe. Although Russia claimed it was simply trying to resolve a longstanding dispute with Ukraine over gas prices and debts, the cutoff may also have been punishment for Ukraine’s pursuit of NATO membership, and a warning to Europe not to admit Ukraine into NATO.

Europe’s dependence on Russian gas partly stems from EU global warming policy. Notes the U.S. Energy Information Administration (EIA): “Many nations in OECD Europe have made commitments to reduce carbon dioxide emissions, bolstering the incentive for governments to encourage natural gas use in place of other fossil fuels.” If Europe’s deeds ever match its rhetoric, and European countries ban new coal plants instead of building them, they will become even more dependent on Moscow to keep their lights on and their houses warm.

Russia’s security interests in Europe are not identical to ours. Indeed, in 2008, a Russian general threatened to nuke Poland, if Warsaw participates in a U.S. missile defense system designed to block attacks by rogue nations like Iran. Do Pentagon bigwigs ever think about the role of climate policy in fostering Europe’s vulnerability to energy extortion? The QDR provides no clue.

(7) Biofueling Disaster. The QDR reports that the Navy plans to deploy a new “green strike force” powered partly by biofuels. Yet biofuel subsidies and mandates contributed to surging grain prices and hunger in developing countries in 2008. Food riots broke out in more than a dozen countries and toppled the government in Haiti — the very sort of instability we’re supposed to fear from climate change.

In a widely cited paper, Princeton researchers Stephen Pacala and Robert Socolow, assuming (incorrectly) that ethanol is a net CO2 reducer, estimate that the world would have to consume 34 million barrels a day of ethanol instead of gasoline to avoid 1 gigaton of CO2 emissions per year. They further estimate that producing that much ethanol would require 250 million hectares of high-yield plantations by 2054, “an area equal to about one-sixth of the world’s current cropland.” One-sixth of the world’s current crop land!

It doesn’t take military intelligence to see that “saving the planet” with biofuel could significantly reduce the land area available for food crop production. The world is not well fed now, and the food and feed demands on farmlands are expected to more than double by 2050. The potential for disaster is obvious.

Conclusion

There’s hardly an advertisement on television for any prescription medicine — anti-depressants, asthma inhalers, birth control pills, Viagra, you name it — that does not warn of potentially serious side-effects. Is it too much to ask DOD to speak with as much candor as our drug companies do? The SEC guidance at least acknowledges some of the risks businesses face from climate regulations. And who knows, if companies report those risks, their shareholders might be quicker to demand that Congress reject such policies and stop EPA from imposing them.

The following comments are from William Yeatman, energy policy analyst at the Competitive Enterprise Institute.

Should climate change be considered a risk? Perhaps, but only a small one. According to research by the Cato Institute’s Indur Goklany, climate change won’t even be the biggest environmental threat to humankind through 2100. That dubious distinction instead goes to problems like dirty drinking water and indoor particulate emissions from using wood and dung for cooking and space heating. These environmental risks already kill millions of human beings every year.

While climate change presents little risk, climate change policies are a clear and present danger. Consider biofuels, motor fuels distilled from crops that environmentalists once touted as a “green” alternative to oil. Despite the best of intentions, the United States and the Europe Union started burning so much food as fuel that they sent the price of food through the roof. A recent report commissioned by the World Bank estimated that global biofuel demand accounted for 75% of the record-high price spike in wheat, corn, rice, and soy during the summer of 2008. At the time, hunger riots broke out in Indonesia, Egypt, and Mexico. In this manner, climate change policy already has destabilized developing nations.

More ominously, both the U.S. and the E.U. risk provoking China with short-sighted climate policies. The cap-and-trade scheme passed by the U.S. House of Representatives last June authorizes the President to engage in climate trade protectionism on behalf of domestic manufacturers that otherwise would be at a competitive disadvantage to foreign companies that are unencumbered by onerous carbon controls. French President Nicolas Sarkozy is pushing ardently for a similar policy in the E.U., and he seems to have the support of German leadership.

These measures are a serious threat to China’s economy, which would get hammered if its biggest exports markets, the U.S. and the E.U., erected tariffs on the carbon content of Chinese imports. The ruling Chinese Communist Party considers economic growth to be essential for the maintenance of social stability—and therefore its grip on power. That is, “green” trade protectionism is an existential threat. This summer, a Chinese official strongly warned against carbon tariffs after U.S. Energy Secretary Steven Chu endorsed them as a viable climate strategy. At best, China would respond in-kind, and thereby start a trade war, which would suffocate the global economy. At worst, China might start rattling its saber, which would be a geopolitical nightmare.

A cool-headed look at the evidence suggests climate change policies are much more dangerous than rising temperatures.

Unchecked climate change could be the biggest long-term risk that corporations, financial investors and military planners face. Transitioning to a clean energy economy would help reduce this threat, as well as provide U.S. companies a wide range of business opportunities.

Investors should welcome the fact that the Securities and Exchange Commission (SEC) has finally issued clear guidelines that recognize the financial risk posed by climate change and require publicly traded companies to disclose their likely exposure to these risks. We already are seeing the damaging effects of climate change -- we’ve just experienced the hottest decade on record and sea levels are rising faster than expected -- and it only will get worse if we fail to take action.

The new SEC guidelines will require companies to disclose what they are doing to manage carbon emissions and how global warming might affect their business. This new disclosure requirement will enable investment funds of all kinds -- including pension funds, money markets, retirement funds, and college savings funds -- to reduce the climate risks of their investments.

The departments of Defense (DOD) and Homeland Security understand that unchecked climate change has the potential to produce serious threats to national security. It could endanger global water and food supplies, for example, and flood coasts with rising seas, which then could trigger mass migrations and violent conflicts. Weakened and failed states could be the most vulnerable. Therefore, climate change could exacerbate the conditions that foster violent extremism.

Ideally, CEOs and generals make decisions based on hard-headed, rational assessments of relevant risks. That’s why over the past few years they have joined scientists to warn our political leaders that we as a nation must address climate change. The House has done its part, but the Senate still needs to take action -- instead of engaging in specious arguments about whether or not a single snowstorm invalidates global warming.

The risks from climate change have a lot of variance and uncertainty associated with them. If you were to follow the connections between CO2, temperature rise, sea levels, ocean currents, weather patterns, and more you would see the complexities of these inherently recursive systems with complex feedback systems. If anyone tells you they know what the results would be of climate change in one area or another with certainty they are either trying to fool you or trying to fool themselves.

Given this, it is important for these agencies and departments to seriously start developing the required tasks of connecting up with the scientific, economic, political, diplomatic and military research and efforts that have been occurring and will occur. It is important that they have some very high quality people who are dedicated to these issues in order to follow the research and other findings, and to report back to decision makers and leadership about what they have found.

DOD and DHS work on some of the most vital security issues we face. It is vital that they gain a clear understanding of the complexities of climate change and its results. Without this understanding they may be missing one of the more important risks we and the rest of the world may be facing in the medium to long runs.

One of the better discussions I have seen and heard on the DOD aspects of this issue is from a meeting of a group of former senior generals and admirals who go together via the efforts of the Center for Naval Analysis to look into these issues. The video can be found at: http://securityandclimate.cna.org/video/ . When you hear very smart people who have had their intellectual powers honed by extensive real world experience, like General Zinni, talk about these issues with seriousness and purpose then maybe you can see how some people in the Pentagon are thinking about these issues. This has been taken seriously by the military and others for some time: http://www.pewclimate.org/federal/memo/national-security-implications . The potential security implications of climate change could be vast and quite costly. They could also be more of a threat to our national security if we do not start to look into them now and keep an eye on trends and changes. The CIA is also looking into climate issues with its new Center for Climate Change and National Security: https://www.cia.gov/news-information/press-releases-statements/center-on-climate-change-and-national-security.html .

DHS needs to look at these risks given that climate change could produce some natural threats (floods, storms, droughts, etc.) to the US and other places. Climate change may be a risk multiplier by causing more resource and economic stress in many parts of the world. This resource and economic stress could lead to civil unrest, increased terrorist threats, increased piracy and increased organized crime activities, just to name a few potential issues that might arise.

The risks that may occur from climate change could also have significant effects on the business viability of some companies. However, we need to be careful on this. We cannot expect companies to give clear cut business risk analysis based on climate change, which is inherently an uncertain and highly variant process with uncertain and highly variant potential results. The best we could ask is that they point toward some aspects of their supply chains and markets that could be affected by climate change.

As things become clearer then they could present more on these issues. However, we should be careful not to put the viability of businesses at risk, most particularly their chances or raising capital for investments, at unnecessary risk due to improper overestimation of certain risks over time and within certain places. It could be that many climate change results could be long tail events and that there could be lots of unexpected events. We should not rely on bell curve decision making, which most MBAs are taught and indoctrinated on, to decide on what to do about these long tail events in hyper complex environments. Also, most business decisions are made for the relatively short run. Climate change is a long term rolling event.

Climate change is systematically connected with energy systems. Two of the major sources of CO2 can be found in electricity production and transportation. Climate change is also connected with agriculture and land use. So DHS, DOD, and the SEC will need to coordinate it actions and activities, optimally, with DOE, DOT, and the Department of Agriculture. Climate change is also a global issue. So the Department of State will also need to be involved.

So where is this all going? If we are going to get serious about understanding climate change risks and trying to do something about, it this is going to be very expensive and complex and will require an interagency coordination we have yet to develop on other issues. Again, we need to be careful about how we use out resources and funds, people and products, across and within agencies and departments. All of these projects to look at the risks of climate change will necessarily take people and funds away from other projects. This is especially so given that we have a massive and growing national debt and ballooning deficits. We also have the Medicare and Social Security financial time bombs looming.

We cannot look at how DOD, DHS, and the SEC will handle these issues independently of how other agencies and departments will handle these issues. We also cannot look at all of this independent of the financial and budgetary crises that we face. We need to be even more careful than ever before how we spend the taxpayers’ monies. Our stewardship responsibilities have increased vastly.

We also need to consider the problem of time discounting. Climate change is something that may play out in many different possible ways in the medium to long runs. How many of you think about your great-great-great-great-great grandchildren? My guess is that very few of you do. People usually discount what is going to happen in the future. This makes decisions, funding and other aspects of developing policies and programs related to climate change to be all the more difficult compared to more immediate issues. Most politicians think in 2, 4, and 6 year cycles. Most businesses think in quarterly report terms. Most persons do not think in 20-100 year terms. We need to start thinking in more long term ways on many levels, but I doubt that will happen any time soon. Maybe the planning and thinking in DOD, DHS and The White House may bring in some longer term thinking, but then what happens in the next political cycle? And what happens if the legislative branch remains dysfunctional even on more immediate issues, such as health care and a jobs program? And what if the skepticism about climate change takes even more hold on the public’s views of these potential economic and national security issues?

This question about whether DOD, DHS, and the SEC should look at risk from climate change brings to light the much larger question: should we as a nation begin looking more carefully at the risks of climate change? Also, I wonder whether we ever will given the great capacity of certain thought and political leaders to expertly continue to kick the can down the road to nowhere on so many issues.

It doesn’t just make sense for these agencies to consider the risks of climate change, it’s central to fulfilling their mandates.

The Securities and Exchange Commission's charge is protecting investors. And its action, it should be noted, was a direct response to formal requests by investors representing trillions of dollars in assets for exactly this kind of guidance.

These investors aren’t interested in debating climate science, but they do have a strong interest in business trends that will affect companies in their portfolios. Climate change is such a trend. It’s already triggering hundreds of government policies around the world aimed at reducing greenhouse gas emissions. It's also sparking unprecedented investment in wind, solar and other forms of clean energy - nearly $150 billion globally in 2009 alone.

Yet, analyses of the financial filings investors depend on to warn them of material corporate risks have repeatedly revealed widespread deficiencies when it comes to climate-related risk disclosure.

Those deficiencies represent what investors dread most: hidden risks like the ones embedded in packages of subprime mortgages and credit default swaps that nearly took the world economy down. No investor is looking for a replay of that costly, tremendously painful implosion.

And, by the way, climate change also represents exciting and very real opportunities for businesses – opportunities that qualify as a form of “materiality” that must be disclosed under SEC rules. So the SEC is shining a light on substantial profit-making opportunities as well as real dangers with its action. Both sides of that coin are what investors need to know – and have a fundamental right to know -- in their everyday decision-making.

The Defense Department, as well, is fulfilling its core mandate of safeguarding our national security in recognizing climate risk.

The Department itself – along with highly-respected, bipartisan groups of retired senior officers and national security leaders like the Partnership for a Secure America and the Military Advisory Board – have characterized climate risk and our continued dependence on the fossil fuels that feed it as “threat multipliers” that can trigger or greatly worsen crises abroad. They see climate-driven refugee crises, failed states and other problems growing in number as climate change manifests itself in some of the world’s poorest and least-stable places.

Surely, anticipating such potentially-costly claims on American military power, lives and taxpayer-supported budgets is what our leaders are paid to do. So we must respect the tremendously-disruptive potential of hidden risk and be ever-mindful of heading it off. Which is exactly what both the SEC and Defense Department are doing by placing this very real threat on their, and our, radar screens.

Both should be applauded for exerting real leadership on a politically-contentious issue. One can only hope that the rising understanding of these threats on display here will move Congress toward final passage of comprehensive climate and clean energy legislation this year.

Climate change poses significant risks and opportunities to many companies in the U.S. and around the world. Among the key risks are direct increases in the price of energy and/or carbon that might come about through legislation or regulation, physical impacts on plant and equipment depending upon geographic location of firm’s plants, availability of supply for essential inputs, and changes in consumer demand. While these risks and opportunities are widely acknowledged, investors have inadequate information available to them to assess either the absolute or relative magnitude of these likely impacts on individual firms. The new SEC guidelines are a small but important step in the right direction to making markets more efficient through providing material information to investors.

Investors and shareholder rights advocates have been calling for increased disclosure about the impact of climate change risks for several years. For example, the Carbon Disclosure Project (“CDP”), a consortium of over 475 institutional investors managing over $50 trillion in assets, sends out annual questionnaires to large publicly traded companies asking a host of questions from carbon emissions to company policies and strategies to mitigate and adapt to climate change. It has taken several years for participation rates to reach the 80% level – and that is only for the largest global firms that are surveyed. In fact, numerous companies in the most carbon-intensive sectors still refuse to respond to the CDP survey.

While the SEC has long had disclosure requirements calling for firms to report on risks that are “material,” compliance has been virtually nonexistent to date. For example, in 2005 – several months before suffering significant hurricane damage in the Gulf Coast, Entergy disclosed on its CDP survey that climate change “poses potential long term risks to the economic viability of Entergy’s franchise territory and to its asset base, both of which are located in an area that is uniquely vulnerable to flooding and hurricanes.” Yet, the company failed to include any climate risk disclosure in its SEC filings.

More recently, the New York Attorney General settled a case against several energy companies who agreed to expand disclosure of climate change risks in future SEC 10-K filings. Among the disclosures agreed to by these firms are the analysis of financial risks from climate change regulation, legislation, litigation, and the physical impacts of climate change. In addition, these firms agreed to disclose total current carbon emissions, projected increases in carbon emissions from planned coal-fired power plants, company strategies for reducing, offsetting, limiting, or otherwise managing greenhouse gas emissions, and their corporate governance policies related to climate change.

While these developments provided investors with increased information, they still lack comprehensive information that allows for an assessment of risks across firms. The impact of the new SEC Guidelines is difficult to predict empirically. However, if firms take it seriously, it could prove to be a significant step toward making climate change risks more transparent and comparable across firms. In another context, mandatory toxic release inventory (TRI) disclosures had both a significant effect on firm stock prices as well as an impact on overall emissions. While the mechanism by which TRI disclosures led to a voluntary reduction in emissions is not fully understood, CEO’s of major TRI-emitting firms at the time have acknowledged their personal surprise and embarrassment by the amount of TRI chemicals their firms were emitting. Indeed, many of the voluntary TRI reductions came about through top-level leadership and goal setting. Thus, if new material disclosures are made as a result of this ruling, we can expect both changes in market value (as investors adjust their expectation about the future profits of firms) and changes in firm behavior (as firms taken on new initiatives to reduce the impact of climate change on their bottom line). While not a panacea, by shining light on climate risks and providing investors with material information they do not yet have at their disposal, the SEC action could help bring about both a voluntary reduction in greenhouse gas emissions and more transparent climate-related risk mitigation efforts by firms.

Should climate change be a risk? Does it make sense for the Securities and Exchange Commission and the Defense Department to consider the risks of climate change? The posing of such questions at this advanced stage in the national policy debate on climate change reveals (rather painfully) why this country is not taking decisive action to address the threat of global warming.

Climate change is all about risk—risk to our economy, risk to food and water supplies, risk of “natural” disasters, national security risks from a world destabilized by environmental refugees, risks of extending the range of pests and pathogens.

Our failure to use risk analysis to evaluate the wisdom of action to mitigate climate change has been a major barrier to making rational decisions about the steps needed to protect our common future from unconstrained greenhouse gas emissions.

Today’s situation reminds me in some ways of the early days of the effort to control toxic substances in the United States. In the late 1960s and 1970s scientists were discovering the relationship between toxic chemicals and human disease. There were, of course, deniers then, and those who argued that regulation would damage economic growth. But as we began to quantify the risks from toxic chemicals in causing cancer and birth defects, and people came to understand those risks, there were, across the country, hundreds of community meetings at which citizens who lived near contaminated sites demanded explanations of why government was not acting to protect their communities, and, particularly, their children, from harm.

Certainty was not required for people to question why the pollution was not being stopped—an expression of risk was enough.

Once the risks were acknowledged by government, there was little choice but for Congress to act or face increasing condemnation from voters and, ultimately, in the eyes of history, for having sat idly by while people suffered. Just a generation later, one cannot imagine piling leaking chemical drums over drinking water aquifers or spraying chemical wastes into rivers.

Now, virtually the entire global scientific community has defined a relationship between greenhouse gas emissions and rising global temperatures. Increasingly, specific projected temperature increases can be related to on-the-ground impacts like rising sea levels, decreasing crop production, and diminishing water supplies. While one can dispute the timing and exact accuracy of these projections, any rational person must, at least, interpret them as risks.

In this context, the current debate over the fine points of climate science discussed by Juliet Eilperin in this Monday’s Washington Post seems strange. If a panel of experienced doctors told you that the risk to your family of contracting a dreaded disease from a continuing chemical exposure were one in ten, most responsible people would take immediate action to reduce that exposure.

The risks that brought about the rigorous regulation of toxics were, in fact, far lower than this. Thus climate projections need not be viewed as a certainty for a rational society to take action particularly given the severity of the potential impacts and the difficulty of reversing those impacts once they are in motion.

So, yes, it is absolutely appropriate for the Department of Defense to view climate change as a risk in its Quadrennial Defense Review, and this should set the standard for other agencies and for Congress. When the Generals and defense planners to whom we entrust national security evaluate the scientific data and conclude that climate change is a potential threat to us, we should take the sufficient (and potentially expensive) steps to address such risks just as we take costly steps to protect ourselves from the risks of global terrorism or a nuclear strike by a rogue state. If we required certainty about the future to act to protect our children from threats to their health and welfare, as some would seem to demand in the case of climate change, we would be judged as irresponsible parents to the next generations of Americans.

In the case of the SEC the case is relatively simple. In fact, most analysts at top tier investment banking firms - JP Morgan among others -- already do consider the risks of climate change - through the emissions that a firm's product produces, for example - hen evaluating investment prospects, ranking firms as "buy" or "sell" and adapting the cost of capital to these firms accordingly. For several years this was used to evaluate the risks of automobile companies which - as we now know - have a global market to consider, they sell over 50% of their cars outside the US, and should have taken into account the possible risks to them of building and selling gas guzzlers. Therefore the public and the investors in these companies would benefit from signals provided by such risk evaluations by the SEC. It makes good business sense for the general public to be aware of the risks that a firm faces, and the cost of capital to them that goes along with those risks. There are the potential advantages to the buyers, the investors and the general public.

In sending these signals, the agencies help combat climate change Staying out of the issue is avoiding an important civic esponsibility as well as the specific task of the agency. These announcements can also help further along comprehensive climate change legislation.

With respect to the DOD -- the case has already been made by the Pentagon.

A recent Pentagon report finds that climate change over the next 20 years could result in a global catastrophe costing millions of lives in wars and natural disasters. A Task Force is being created to evaluate climate risks and their management. The following links provide details:

http://www.guardian.co.uk/environment/2004/feb/22/usnews.theobserver#att-most-commented
&&http://www.nytimes.com/2009/08/09/science/earth/09climate.html?_r=2&pagewanted=1
http://wwfblogs.org/climate/content/climate-change-climbs-ranks-pentagon-and-cia-0

Willie Sutton was asked why he robbed banks…..and (supposedly) he answered, “because that’s where the money is.” So climate change has finally gotten the attention of the one institution in our Federal Government that has real money – the Department of Defense. In the latest version of the Quadrennial Defense Review, issued in February, there is a significant section addressing the potential impact that climate change will have on stability in the world. It describes how climate change would contribute to conflict and impact our safety. But the DoD, at least in this report, is more concerned about accessing the potential impact of climate change, versus the causes. And while their interest is laudable, can they really help counter what is increasingly seen as not just a threat to our safety but our way of life?

Perhaps we ought to be grateful that this issue is finally receiving the attention it richly deserves, and for just the first time is mentioned not only in this document but in the Department of Homeland Security’s first Quadrennial Homeland Security Review (albeit briefly). Should both Departments be dedicating more assets and effort to this long-term threat? And if so, what should those assets be?

As I mentioned in my talk to opinion leaders on Capitol Hill on January 27th, the Department of Defense is the one Federal entity that has “boots on the ground” throughout the world that can best assess the impact of climate change on worldwide stability. Should we be tasking the Combatant Commanders to report on not only the impact of climate change but our dependence on fossil fuel and foreign sources for that fuel? And what more can both DoD and DHS be doing to not just access the impact but counter the causes?

What Willie Sutton really said was “go where the money is…..and go there often.” Appropriate in this circumstance?

Estimates of risk later this century are derived not from probabilities based on data but on subjective projections. Case in point: the IPCC’s apocalytic scenarios are determined by model projections of questionable validity. The threat of sea level rise is not immediate and claims of extreme weather events triggered by human activities do not withstand close scrutiny.

Those who have made serious efforts to estimate the probability of extreme climate change caused by human activity have determined such events are far outliers and, therefore, not likely. As knowledge improves so does the quality of plans and predictions. That’s why the most successful companies assess a full range of risks and plan their near term activities to help them be adaptable and resilient. These actions are reflected in ROIs and share prices. In the same vein, investors and voters are right to be skeptical of any policy requiring business to underscore one “black swan” event and exclude a host of others.

The amount of information SEC mandates companies provide investors is already mind boggling. Adding speculation about what is essentially unknowable will just confuse more and inform less. The agency already has a wealth of much more solid information on company operations and yet has demonstrated that it doesn’t know how to use it for the best interests of investors. (Mandated reporting failed to prevent the Enron and Worldcom collapses, the Bernie Madoff ponzi scheme or the Wall Street meltdown that wrecked our economy.)

The public and our economy would be better served from simplified reporting requirements that target real high-value information.

The DOD requirement illustrates another case of lopsided risk perception. Climate change is just one of countless factors that could lead to increased political and military instability and conflict. Arguments linking global warming with national security are eerily reminiscent of the resource scarcity concerns accompanying the limits to growth debate of the 1970s. Despite hyperbolic claims regarding environmental calamities and inevitable shortages of critical materials that would precipitate new international tensions, the predicted calamities never materialized and eventually receded into the background of national security discourse.

Elevating climate change impacts to a national security level is dangerous in so much as it creates a false sense of urgency, given the gaps in our state of knowledge about climate and the known flaws in the scenarios on which these security concerns are based. A thorough assessment of these climate impact claims is clearly required before making them major force structure considerations. We need to know:

• how claims regarding climate’s threat to security are derived;

• the probability of those risks;

• the likelihood of those risks relative to other security concerns; and

• the regions where climate impacts would create the greatest instability and risk of conflict.

If these PC actions did not waste resources and divert attention from more serious matters, they could be considered comical. As Will Rogers observed, “I don’t tell jokes. I just watch the government and then report the facts.” He would have had a field day with these latest “facts.”