an event could be $50 billion—but that’s just the To adapt, Florida will have to make hard choices. beginning. The accompanying financial effects may For example, the state could increase hurricane be even greater. and flooding protection, or it could curtail—and perhaps even abandon—development in risk-prone Real estate is both a physical and a financial areas. The Center for Climate Integrity estimates store of value for most economies. Damage, and that 9,200 miles of seawalls would be necessary the expectation of future damage, to homes and to protect Florida by 2040, at a cost of $76 billion. infrastructure could drive down the prices of Other strategies, such as improving the resilience exposed homes. The devaluation could be even of existing infrastructure and installing new green more significant if climate hazards also affect infrastructure, come with their own hefty price tags. public-infrastructure assets such as water, sewage, and transportation systems, or if homeowners Can supply chains weather climate change? increasingly factor climate risk into buying decisions. Supply chains are typically optimized for efficiency over resilience, which may make them vulnerable Lower real-estate prices could have significant to extreme climate hazards. Any interruption of knock-on effects in a state whose assets, people, global supply chains can create serious ancillary and economic activity are largely concentrated in effects. Let’s focus on two such supply chains: coastal areas. Property-tax revenue in affected semiconductors, a specialty supply chain, and heavy counties could drop 15 to 30 percent, which could rare earths, a commodity. lower municipal-bond ratings and the spending power of local governments. Among other things, The risk to each is slightly different. Key parts of that would make it harder for cities and towns to semiconductor supply chains are located invest in the infrastructure they need to combat in the Western Pacific, where the probability of climate change. a once-in-100-years hurricane occurring in any given year might double or even quadruple by The impact on insurance and mortgage financing in 2040. Such hurricanes could potentially lead to high-risk areas could also be significant. There’s a months of lost production for the directly affected duration mismatch between mortgages, which can companies. Unprepared downstream players—for be 30 years long, and insurance, which is repriced example, chipmakers without buffer inventories, every year. This mismatch means that current risk insurance, or the ability to find alternative signals from insurance premiums might not build suppliers—could see revenue in a disaster year in the expected risk over an asset’s lifetime, which drop by as much as 35 percent. could lead to insufficiently informed decisions. However, if insurance premiums do rise to account Mining heavy rare earths in southeastern China for future climate-change risk, lending activity for could be challenged by the increasing likelihood new homes could slow, and the wealth of existing of extreme rainfall. The probability of downpours homeowners could diminish. so severe that they could trigger mine and road closures is projected to rise from about 2.5 percent When home values fall steeply with little prospect of per year today to about 4.0 percent per year in 2030 recovery, even homeowners who are not financially and 6.0 percent in 2050. Given the commoditized distressed may choose to strategically default. One nature of this supply chain, the resulting production comparison point is Texas: during the first months slowdowns could result in increased prices for all after Hurricane Harvey hit Houston, in 2017, downstream players. the mortgage-delinquency rate almost doubled, from about 7 to 14 percent. Now, as mortgage Mitigation is relatively straightforward for both lenders start to recognize these risks, they could upstream and downstream players. Securing raise lending rates for risky properties. In some semiconductor plants in southeast Asia against cases, they might even stop providing 30-year hazards, for example, might add a mere 2 percent mortgages. to building costs. Downstream players in both the Confronting climate risk 99