Scientists Study The Financial Risks Of Solar Radiation Modification

The Urgency Of Climate Intervention

Climate scientists and policymakers have long warned that global temperatures rising more than 1.5 degrees Celsius above preindustrial averages could lead to devastating consequences. These risks include severe drought, heat waves, and catastrophic flooding. As surpassing this threshold appears increasingly inevitable, attention has turned toward geoengineering, which involves deliberate intervention in the Earth’s climate system to mitigate the harms of global warming.

One of the most studied methods is Solar Radiation Modification, or SRM. This process involves introducing sunlight-reflecting aerosols into the atmosphere to temporarily lower the planet’s temperature. While SRM has not been deployed by humans, it mimics natural occurrences. For instance, the 1991 eruption of Mount Pinatubo released massive quantities of sulfur dioxide, which is believed to have cooled the planet by approximately 0.5 degrees Celsius over the following two years.

The Controversy And Risks Of SRM

Despite its potential, SRM remains highly controversial. Some experts describe it as a brutally ugly technical fix because it only addresses the symptoms of climate change—rising temperatures—rather than the root cause, which is the emission of greenhouse gases. There are also significant, poorly understood risks associated with the practice. These include potential shifts in regional rainfall patterns and climate changes that could severely disrupt global agriculture.

Furthermore, there is a danger known as termination shock. If geoengineering were suddenly stopped due to a technical failure or geopolitical conflict, it could result in a very rapid escalation of temperatures. This risk is a critical factor when evaluating the viability of such an extreme measure.

However, the financial appeal of SRM is significant. Compared to the cost of decarbonizing the global economy, which is estimated at $1 to $4 trillion annually, SRM is remarkably cheap. Full-scale deployment might cost only $10 to $20 billion per year. For nations facing existential threats, this cost difference may make SRM an attractive option, even without international consensus.

The Human Cost And Unilateral Action

The drive toward geoengineering is fueled by the immediate threat to human life. A primary concern is the wet-bulb temperature, which combines heat and humidity. When this temperature reaches 35°C, the human body can no longer cool itself, meaning even a healthy person resting in the shade with water cannot survive for many hours. The frequency of extreme humid heat has more than doubled since 1979, with regions in South Asia and the Persian Gulf already approaching this lethal limit. For countries facing mass casualties from heat, the need for immediate cooling may outweigh any objections from neighboring nations, making unilateral deployment a realistic possibility.

Modeling The Macro-Financial Effects

While the physical risks of climate change are well-documented, the economic risks of geoengineering have remained largely unexplored. To address this gap, Kelly Shue and Samuel Hartzmark have developed a working paper modeling the macro-financial effects of SRM. Their research focuses on how such interventions would influence the valuation of different types of companies.

Specifically, the model examines the impact on brown fossil fuel firms, green firms specializing in renewable energy, and companies developing carbon dioxide removal technologies. Carbon dioxide removal is an emerging field that aims to extract carbon from the atmosphere. Although it is currently in its infancy and requires significant innovation to scale, it is considered essential for long-term climate stability.

To analyze these effects, the researchers analogized geoengineering to financial instruments. They treated it as a put option, which is a tool that limits how bad an outcome can be by paying out if another asset declines in price. By viewing geoengineering through this lens, the study aims to quantify the financial stability and market shifts that would occur if the world decided to artificially cool the planet to avoid the worst effects of global warming.