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Transition Dangers within the Fed’s Second District and the Nation


Nov 9, 2023


Local weather change might pose two kinds of threat to the financial system—from insurance policies and shopper preferences because the vitality 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 put up, we observe up on our earlier put up 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 components 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 financial system of the Second District has significantly much less publicity to fossil fuels. Nonetheless, the price of decreasing 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 shifting an financial system away from a reliance on fossil fuels and making it resilient to the consequences of local weather change. Not like bodily dangers, transition dangers are a results of political or shopper actions that drive the financial system. Transition threat can entail greater vitality costs from retrofitting energy grids, building of latest kinds 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 doable transition dangers—particularly when in comparison with different components 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 that could be vital.  

Within the map beneath, we take into account information from the Power Info Administration (EIA) on the carbon depth of the financial 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 supply one million {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 supply one million {dollars} of GDP. States similar to West Virginia, Louisiana, and Wyoming which might be way more reliant on vitality manufacturing require emitting as much as 1,000 tons of CO2 to supply one million {dollars}’ price 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. different components of the Second District doesn’t change our conclusions, as Connecticut has basically the identical carbon depth as New York, whereas New Jersey has solely a barely greater depth. (We exclude U.S. territories from our calculations for each the Second District and the U.S. given the dearth of obtainable information for this train.) Subsequently, the Second District has a a lot smaller carbon footprint relative to the dimensions of its financial system than the U.S. as an entire.

The Second District Trails the Nation in Carbon Depth

A map of the U.S. showing the amount of CO2 required to produce one million dollars of GDP, by state. Using data from the Energy Information Administration, it shows that the carbon intensity of the Federal Reserve’s Second District is lower than that of the rest of the nation.

Supply: U.S. Power Info Administration (EIA).
Observe: The map depicts the quantity of CO2 required to supply $1 million of GDP, by state.

Whereas New York State imports a few of its electrical vitality, a lot of its regionally generated energy and the ability it imports from Canada is produced with renewable assets. In accordance with a latest report by the New York State Analysis and Improvement Authority (NYSERDA), the predominant methodology of energy technology within the state is hydroelectric, with nuclear making up nearly your entire remaining vitality manufacturing. This means that New York State’s energy technology might have fewer investments than that of different states to facilitate the transition. As could be taken from the map beneath, components of the Midwest and the Nice Plains states are way more closely depending on CO2-emitting energy technology.

Second District Energy Is Not Very Carbon Dependent

A map of the U.S. showing the carbon intensity of power generation by state on a scale from 0 to 1. Power generation the Second District is not very carbon dependent compared to parts of the Mid-West or the Great Plain States.

Supply: Calculations by Board of Governors and Federal Reserve Financial institution of New York workers.
Observe: The map reveals the carbon depth of the ability technology 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 inside the Second District. Whereas information on CO2 emissions by county are usually not produced, we will 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). Inside the U.S., the states comprising the Second District have a number of the lowest fractions of staff employed in these sectors. The map beneath reveals that this fraction is basically zero in New York Metropolis, many of the Hudson Valley, giant components 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 typically lower than 1.5 % 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 % of its workforce in that sector.

Small Share of Second District Workforce Is Employed in Carbon-Intense Industries

A map of counties in the Second District -- New York State, southeastern Connecticut, and northern New Jersey -- showing the share of each county's workforce that is employed in sectors such as mining, quarrying, extraction. and utilities.

Supply: Quarterly Census of Employment and Wages (QCEW).
Observe: The map reveals the share of every county’s workforce employed in sectors similar to mining, quarrying, extraction, and utilities.

Whereas the Second District is much less reliant on carbon than the nation as an entire, reducing carbon’s function within the District’s financial system could also be costly. A considerable element of this effort will contain retrofitting buildings to be extra vitality environment friendly and to launch much less greenhouse gases, a process that could be notably difficult in dense city areas similar to New York Metropolis. In accordance with a latest New York Fed white paper, constructing upgrades will value New York State one-third of a % of GDP per yr over thirty years; whereas small, this determine nonetheless represents a big fraction of the state finances, and far of those funds will doubtless be offered by the state authorities. Primarily based on the carbon depth of the Second District’s vitality 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. Nonetheless, given the complexity of climate-proofing dense city areas similar to New York Metropolis, the District’s particular transition plans might entail prices that exceed estimates primarily based solely on its carbon depth.

Concluding Remarks

The Second District’s publicity to carbon-intense GDP technology—and due to this fact its doubtless publicity to transition threat—is comparatively low. This holds particularly when in comparison with that of energy-intense states within the Midwest. Nonetheless, making older and dense city areas climate-proof may nonetheless entail important prices that the states of the Second District might should bear. Each this put up and our earlier put up on bodily threat level to the regional heterogeneity in threat publicity throughout the US. Measuring such dangers precisely, nevertheless, could also be tough, notably if a extra granular geographical focus is employed. The subsequent put up on this sequence highlights this situation by taking a look at inaccuracies in flood threat maps within the Second District.

Photo: portrait of Kristian Blickle

Kristian Blickle is a monetary analysis economist in Local weather Threat Research within the Federal Reserve Financial institution of New York’s Analysis and Statistics Group.

Portrait of Rajashri Chakrabarti

Rajashri Chakrabarti is the pinnacle of Equitable Development Research within the Federal Reserve Financial institution of New York’s Analysis and Statistics Group.  

Photo: portrait of Maxim Pinkovskiy

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 put up:
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 Avenue Economics, November 9, 2023, https://libertystreeteconomics.newyorkfed.org/2023/11/transition-risks-in-the-feds-second-district-and-the-nation/.

The views expressed on this put up are these of the creator(s) and don’t essentially mirror 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).


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