Lack of Climate Action, puts Texas Economy at Risk

Is the Houston region doing enough to convince key stakeholders that it is taking Hurricane Harvey and more generally climate risk, seriously? In some recent meetings I Car_off_cliff_signhave attended, the answer seems to be trending to no. There is significant growing concern that the Houston region is not going to take the necessary steps to mitigate against future climate risk whether that is flooding, extreme heat and drought. Although Harris County appears to be taking some action, there has not been a lot of action taken by other jurisdictions. In some cases, it appears to be business as usual.

Houston industry has a lot to lose if it appears appropriate actions are not taken to mitigate climate risk. Highly talented individuals needed for a diverse and robust economy have choices. Will those already here choose to stay, particularly those that are tied other industries other than oil and gas? Further, will our existing companies be able to attract new talent if it is business as usual in regards to mitigating climate risk?

Not only should we be thinking about the viability of our existing businesses and economy, but we must also consider how lack of inaction impacts future investment. The question of whether Houston is doing enough is not only coming from businesses that are already located here, it is also coming from businesses and investors that consider investing in the region. Much of corporate America believes in climate change and see that real risks exist. Decisions are being made as to whether to invest in certain geographies and industries based on environmental and climate risk.

Moody’s Says Texas at Risk

The consequences of a lack of inaction became much more real in November. Inaction to mitigate climate risk for states and communities that are seen as vulnerable is getting the attention of credit rating agencies. For the last couple of years Moody’s, one of the three primary bond rating agencies, has been working on how to include climate risk vulnerability in its bond ratings for state and local governments.  In November it made an announcement that it will start taking account of climate risk in its credit ratings.

To date, climate risk had not been a factor in bond ratings. This is a little disconcerting when you are talking credit-worthiness of large, long-lived infrastructure projects whose performance is highly likely to be influenced by near-term climate shocks. With climate shocks, such as floods, droughts, extreme heat, fires, etc., communities are displaced and businesses are disrupted. If people locate elsewhere and businesses cannot operate, tax revenue goes down. At the same time, while revenue decreases need for investment to rebuild increases. Less revenue will be available to pay for existing debt service, as well as to cover new debt service for rebuild efforts. Ability to pay back existing debt decreases and creditworthiness is in the toilet. This makes it much more difficult to borrow at an affordable rate.

What Moody’s has done is a shot across the bow to four states, Texas being one of the them. It has not provided a timeframe as to when exactly climate risks will be used directly to measure credit risk. However, it is clear that climate risk is being tracked. It is likely to play a role in the very near term.

When looking at climate risk, Moody’s will focus on multiple factors including, share of economic activity in coastal areas, hurricane and extreme weather damage over the last several years, and percent of properties located in a floodplain.  These factors only cover a portion of a community’s risk, primarily short-term, high-intensity storm events. It does not take into account the risks to a community from extreme heat, long-term drought, disease vectors, etc. All of these factors impact a community’s economic productivity and infrastructure performance. They should be quantified in a manner to be included to some degree. However, it is a good step forward.

Work Being Done Along Gulf Coast

There are a growing number of initiatives in the Houston region that are pushing for change to address climate risk. My employer, HARC, is currently developing the Community Adaptation and Resilience Alliance (CARA). CARA is being developed to work toward real, region-wide efforts to mitigate climate risk, from flooding to extreme heat to drought. CARA is looking to coordinate strategy and planning efforts across the region, bring resources and build capacity.  Through this effort, we have identified a large number of efforts that are responding to Hurricane Harvey. It is key to keep this momentum moving ahead. Also, we must move the focus beyond Harvey and flooding and include a more comprehensive, holistic approach that can identify and work toward solutions to the multitude of climate threats we are currently experiencing and will encounter in the near-term. Maybe it will happen. The Sustainability Director for the City of Houston, Lara Cottingham, was on Houston Public Media, talking about a Climate Action Plan this week in reference to the Moody’s report. This is a first. Maybe we have turned a corner.

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Mitigating Climate Risk in Harris County, TX – The Problem with Being a First Mover

Harvey appears to have gotten the attention of some of our local policymakers. Harris County appears to be the first to realize that Harvey is likely not to be a once-in-a-lifetime event and significant steps should be taken to mitigate climate risk.

1200px-Fulshear_TX_Wildflowers
Fulshear, TX

There has been some question as to how our elected officials would respond to Harvey in regards to long-term rebuilding efforts and reducing the likelihood of future flooding. There had been a call by some developers, even before Hurricane Harvey was over, to keep moving down the same road with business as usual. Also, the region’s previous responses to other recent flooding events did not provide a lot of hope that much would happen in regards to land-use and development regulations.

However, on December 5th, Harris County Commissioners approved new regulations for floodplain development. The new regulations include requirements for pier and beam foundations and for homes to be built at a higher elevation in some flood-prone areas. Also, it requires that new construction is built at a 500-year standard rather than the current 100-year storm standard.  There is also a high-wind standard in place for new construction.

There are some question as to what the impact these new regulations will have. New construction in Harris County is likely to be a bit more expensive as builders build up. This could be higher development costs to build up the land in the area with fill dirt and/or to build homes to a higher elevation. All of this is cost will be passed on to the homeowners. There will be some tolerance by homeowners for this premium to have greater peace of mind, but only so much tolerance. What is also likely to happen is that some developers will choose not to build in Harris County and move on to other nearby counties. Residents will decide how far out builders can go.  Commuting time and congestion will limit the movement away.

Did Harris County Jump the Gun?

It is great to see Harris County take a leadership position and pass regulations to mitigate against flooding and wind events. However, did they get too far out ahead of the other counties and local jurisdictions? Harris County is just one part of a large region.  Will being a first mover in land-use regulations be an advantage for the County? If the surrounding counties do not take similar action, does Harris County regulatory activity push development out?  Professor Festa at the South Texas College of Law suggests that these regulations would be a disincentive to build in Harris County and would lead to urban sprawl. Should Waller, Fort Bend and Montgomery County expect a development boom?

This may be the case. Those that are typically not supportive of development regulations did not appear to push back too much. Some builders say housing costs will go up a bit to meet elevation standards and the costs will be passed on to customers. The assumption here is that customers are willing to take on some additional costs for peace of mind. However, could another reason for minimal pushback be that developers feel they can move on to these other counties with minimal risk to their business? There is a significant amount of development already happening in these surrounding counties and residents are quickly following. Fulshear is a great example. With the new expansion of  Farm-to-Market Road 1093, the infrastructure is there to move a lot of people to Fort Bend County.

Beyond the direct economic implications of losing development to surrounding counties, a second issue is that working in isolation does not solve the upstream flooding problems. If more development is pushed north and west. There will be more impermeable surfaces surrounding Harris County which may result in greater flooding risk to the county and further downstream. All of these bayous and rivers are interconnected; water flows in this region from the northwest to the southeast. Shrinking the permeable surface around Harris County is not good for Harris County. That is why there is such a push for the third reservoir and to conserve much of the remaining Katy Prairie.

I applaud Harris County for taking these steps. They have realized more quickly than the rest of the region that Harvey type flooding is not a one-off event and action must be taken.  However, they cannot be successful and our region cannot thrive if the regulatory activity takes place in isolation. Mitigating storm risk, whether it is flooding, extreme heat, hurricanes, etc, must be done at the regional scale. The interdependencies of our economic and natural systems are too great not to act together.