In late November, one of the world’s largest credit rating agencies announced that climbing global temperatures and rising sea levels would have an economic impact on the U.S. In short, climate change could become a credit rating problem for some U.S. cities and states.
But even though Alaska is warming nearly twice as fast as the rest of the United States and dozens of towns and villages are at risk of destruction — the state’s credit might not be affected.
From rising sea levels, to droughts and flooding, to wildfires and more frequent hurricanes — Moody’s makes it clear that the changing climate can have a very real impact on a budget.
The global credit rating giant put out a climate change impact report in late November. In it, analysts say that if federal, state and local governments don’t adapt and develop strategies to cope with these changes — credit ratings could take a hit.
In Alaska, some of these changes are hugely visible. Villages like Newtok and Shishmaref are losing ground to melting permafrost and erosion. Glaciers are receding. Arctic temperatures are rising. Sea ice is melting. Gov. Bill Walker called the state ‘ground zero’ for climate change.
Moody’s report highlights that Alaska has been more affected by climate change than any other U.S. state.
But, that doesn’t mean that the state’s climate risk — is a credit risk.
Deven Mitchell is the State Investment Officer in the Department of Revenue. He handles the state’s credit rating. He said there’s a difference between an economic perspective, and a human one.
“While it’s obviously devastating if you’re living in a community that’s experiencing erosion and loss of land due to changing climate and your community is in danger of disappearing, well yeah that’s a very important issue to deal with. But from an economic perspective, we’re not generating any revenue from an economy than exists in those communities and so it doesn’t impair our state’s ability to pay its bills,” Mitchell said.
The state’s ability to pay its bills is, really, the only thing that factors into its credit rating. To be clear, Mitchell said he thinks considering the effects of climate change requires a lot of nuance. And, he isn’t weighing-in as for — or against — state or federal policy around it.
What he is saying is that the Moody’s report is looking at climate change from a purely economic perspective. And when you do that, he said Alaska is in a pretty unique situation. One where the effects of climate change are very, very obvious. But, the impact on the state’s credit rating is vague.
For instance, if the federal government steps in and helps the villages relocate, Mitchell said that’s revenue.
“If you spend $100 million to relocate Shishmaref or Newtok then that’s going to be money that goes into folks in Alaska’s pocket as they help to accomplish that work,” Mitchell said. “Which is, maybe something from a human perspective you would wish to avoid, but from an economic perspective — could be beneficial.”
There are ways that a changing climate could impact Alaska’s bottom line.
“If there was going to be something that destroyed the Trans-Alaska pipeline, that’s obviously the state’s biggest exposure from a monetary perspective,” Mitchell said.
That doesn’t mean that the state isn’t concerned about the economic impacts of climate change.
The fishing industry is the first thing that Mitchell brings up as a potentially huge problem for Alaska.
The state has the most productive fishing industry in the country. It generates nearly $6 billion in economic activity in the state, each year. That’s just commercial fishing. That doesn’t factor in guides and sport fishermen and charters.
For Alaskans living in Kodiak, Unalaska or Sitka and King Cove — warming and ocean acidification could drastically alter their traditional fisheries.
“As the ocean changes, what are those impacts going to be? The difficulty is that nobody knows right now, but being aware of it and being aware of how fisheries might evolve is obviously going to be pretty important,” Mitchell said.
Mitchell said there are some big unknowns when it comes to the changing climate. And the state could take a hit financially, but for now it’s credit rating is looking pretty safe.