Local weather change could pose two forms of threat to the economic system—from insurance policies and shopper preferences because the power system transitions to a decrease dependence on carbon (in different phrases, transition dangers) or from damages stemming from the direct impacts of local weather change (bodily dangers). On this submit, we observe up on our earlier submit that studied the publicity of the Federal Reserve’s Second District to bodily dangers by contemplating how transition dangers have an effect on totally different elements of the District and the way they differentially have an effect on the District relative to the nation. We discover that, relative to different areas of the U.S., the economic system of the Second District has significantly much less publicity to fossil fuels. Nevertheless, the price of lowering even this comparatively low financial dependence on carbon remains to be more likely to be appreciable.
How Uncovered Is the Second District to Fossil Fuels?
Broadly talking, “transition dangers” are these prices and impacts related to transferring an economic system away from a reliance on fossil fuels and making it resilient to the consequences of local weather change. In contrast to bodily dangers, transition dangers are a results of political or shopper actions that drive the economic system. Transition threat can entail larger power costs from retrofitting energy grids, building of latest forms of buildings, and even updates to transportation infrastructure to take care of a altering local weather, in addition to extra direct prices related to direct or oblique emissions pricing. Understanding the diploma to which the Second District is affected by potential transition dangers—particularly when in comparison with different elements of the nation—is essential to understanding the trail forward. For this evaluation, we depend on measures of carbon depth as a proxy for the diploma of change which may be obligatory.
Within the map under, we contemplate information from the Power Data Administration (EIA) on the carbon depth of the economic system in every U.S. state. This measure represents the variety of metric tons of CO2 emitted in a given state per million {dollars} of GDP produced in that state. We see that New York State requires lower than 250 metric tons of CO2 to provide 1,000,000 {dollars} of GDP—a ratio that compares favorably to states with populations bigger than New York, particularly to California, Florida, and particularly Texas, which requires round 500 metric tons of CO2 to provide 1,000,000 {dollars} of GDP. States reminiscent of West Virginia, Louisiana, and Wyoming which can be rather more reliant on power manufacturing require emitting as much as 1,000 tons of CO2 to provide 1,000,000 {dollars}’ value of output. The one space of the U.S. with an appreciably decrease carbon depth than New York State is Washington, D.C., doubtless as a result of it’s a metropolitan space with little mineral extraction. Taking a look at different elements of the Second District doesn’t change our conclusions, as Connecticut has primarily the identical carbon depth as New York, whereas New Jersey has solely a barely larger depth. (We exclude U.S. territories from our calculations for each the Second District and the U.S. given the shortage of obtainable information for this train.) Subsequently, the Second District has a a lot smaller carbon footprint relative to the dimensions of its economic system than the U.S. as a complete.
The Second District Trails the Nation in Carbon Depth
Supply: U.S. Power Data Administration (EIA).
Notice: The map depicts the quantity of CO2 required to provide $1 million of GDP, by state.
Whereas New York State imports a few of its electrical power, a lot of its domestically generated energy and the ability it imports from Canada is produced with renewable assets. In keeping with a latest report by the New York State Analysis and Growth Authority (NYSERDA), the predominant methodology of energy era within the state is hydroelectric, with nuclear making up nearly your complete remaining power manufacturing. This means that New York State’s energy era may have fewer investments than that of different states to facilitate the transition. As will be taken from the map under, elements of the Midwest and the Nice Plains states are rather more closely depending on CO2-emitting energy era.
Second District Energy Is Not Very Carbon Dependent
Supply: Calculations by Board of Governors and Federal Reserve Financial institution of New York workers.
Notice: The map exhibits the carbon depth of the ability era of U.S. states on a scale from 0 to 1.
We are able to additionally have a look at the distribution of transition dangers throughout the Second District. Whereas information on CO2 emissions by county aren’t produced, we are able to use one other metric: the fraction of the workforce in every county who’re employed within the energy-intensive sectors of mining, quarrying, extraction, and utilities, obtained from the Quarterly Census of Employment and Wages (QCEW). Throughout the U.S., the states comprising the Second District have a number of the lowest fractions of staff employed in these sectors. The map under exhibits that this fraction is actually zero in New York Metropolis, many of the Hudson Valley, massive elements of central New York and New Jersey, and in Fairfield County, Connecticut. Some counties in northern New York State and alongside the state’s border with Pennsylvania have some employment in these sectors, however it’s usually lower than 1.5 p.c of those counties’ workforce. Solely 4 counties within the Second District have a higher fraction of their workforce within the energy-intensive occupations, essentially the most reliant county having 5.3 p.c of its workforce in that sector.
Small Share of Second District Workforce Is Employed in Carbon-Intense Industries
Supply: Quarterly Census of Employment and Wages (QCEW).
Notice: The map exhibits the share of every county’s workforce employed in sectors reminiscent of mining, quarrying, extraction, and utilities.
Whereas the Second District is much less reliant on carbon than the nation as a complete, lowering carbon’s function within the District’s economic system could also be costly. A considerable part of this effort will contain retrofitting buildings to be extra power environment friendly and to launch much less greenhouse gases, a process which may be notably difficult in dense city areas reminiscent of New York Metropolis. In keeping with a latest New York Fed white paper, constructing upgrades will price New York State one-third of a p.c of GDP per yr over thirty years; whereas small, this determine nonetheless represents a big fraction of the state price range, and far of those funds will doubtless be supplied by the state authorities. Based mostly on the carbon depth of the Second District’s power manufacturing and the diploma to which the District depends on carbon to generate GDP, the direct prices related to transition are more likely to be decrease for the District than for different areas of the nation. Nevertheless, given the complexity of climate-proofing dense city areas reminiscent of New York Metropolis, the District’s particular transition plans could entail prices that exceed estimates based mostly solely on its carbon depth.
Concluding Remarks
The Second District’s publicity to carbon-intense GDP era—and subsequently its doubtless publicity to transition threat—is comparatively low. This holds particularly when in comparison with that of energy-intense states within the Midwest. Nevertheless, making older and dense city areas climate-proof may nonetheless entail vital prices that the states of the Second District could must bear. Each this submit and our earlier submit on bodily threat level to the regional heterogeneity in threat publicity throughout the US. Measuring such dangers precisely, nonetheless, could also be tough, notably if a extra granular geographical focus is employed. The subsequent submit on this collection highlights this concern by inaccuracies in flood threat maps within the Second District.
Kristian Blickle is a monetary analysis economist in Local weather Danger Research within the Federal Reserve Financial institution of New York’s Analysis and Statistics Group.
Rajashri Chakrabarti is the top of Equitable Development Research within the Federal Reserve Financial institution of New York’s Analysis and Statistics Group.
Maxim Pinkovskiy is an financial analysis advisor in Equitable Development Research within the Federal Reserve Financial institution of New York’s Analysis and Statistics Group.
Learn how to cite this submit:
Kristian Blickle, Rajashri Chakrabarti, and Maxim Pinkovskiy, “Transition Dangers within the Fed’s Second District and the Nation,” Federal Reserve Financial institution of New York Liberty Road Economics, November 9, 2023, https://libertystreeteconomics.newyorkfed.org/2023/11/transition-risks-in-the-feds-second-district-and-the-nation/.
Disclaimer
The views expressed on this submit are these of the creator(s) and don’t essentially replicate the place of the Federal Reserve Financial institution of New York or the Federal Reserve System. Any errors or omissions are the duty of the creator(s).
