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

Local weather change could pose two forms of danger to the financial system—from insurance policies and shopper preferences because the power 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 comply with 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 completely 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. Nevertheless, the price of lowering even this comparatively low financial dependence on carbon remains to be prone to be appreciable.

How Uncovered Is the Second District to Fossil Fuels?

Broadly talking, “transition dangers” are these prices and impacts related to transferring an financial system away from a reliance on fossil fuels and making it resilient to the results of local weather change. In contrast to bodily dangers, transition dangers are a results of political or shopper actions that drive the financial system. Transition danger can entail greater power costs from retrofitting energy grids, development of latest forms of buildings, and even updates to transportation infrastructure to cope with 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 potential transition dangers—particularly when in comparison with different components of the nation—is vital to understanding the trail forward. For this evaluation, we depend on measures of carbon depth as a proxy for the diploma of change which may be crucial.  

Within the map under, we think about knowledge 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 resembling West Virginia, Louisiana, and Wyoming which might be way more reliant on power manufacturing require emitting as much as 1,000 tons of CO2 to supply one million {dollars}’ value of output. The one space of the U.S. with an appreciably decrease carbon depth than New York State is Washington, D.C., possible 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 shortage of obtainable knowledge 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 a complete.

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 power, a lot of its domestically generated energy and the ability it imports from Canada is produced with renewable assets. In response to a current report by the New York State Analysis and Improvement Authority (NYSERDA), the predominant technique of energy era within the state is hydroelectric, with nuclear making up nearly your complete remaining power manufacturing. This suggests that New York State’s energy era may have fewer investments than that of different states to facilitate the transition. As could be taken from the map under, components of the Midwest and the Nice Plains states are way more closely depending on CO2-emitting energy era.

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 exhibits the carbon depth of the ability era 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 knowledge on CO2 emissions by county are usually not produced, we are able to 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). Throughout the U.S., the states comprising the Second District have among the lowest fractions of staff employed in these sectors. The map under exhibits that this fraction is basically zero in New York Metropolis, a lot 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 usually lower than 1.5 p.c of those counties’ workforce. Solely 4 counties within the Second District have a better fraction of their workforce within the energy-intensive occupations, probably the most reliant county having 5.3 p.c 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 exhibits the share of every county’s workforce employed in sectors resembling mining, quarrying, extraction, and utilities.

Whereas the Second District is much less reliant on carbon than the nation as a complete, 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 power environment friendly and to launch much less greenhouse gases, a activity which may be significantly sophisticated in dense city areas resembling New York Metropolis. In response to a current New York Fed white paper, constructing upgrades will value New York State one-third of a p.c of GDP per 12 months over thirty years; whereas small, this determine nonetheless represents a big fraction of the state funds, and far of those funds will possible be offered by the state authorities. Primarily based on the carbon depth of the Second District’s power manufacturing and the diploma to which the District depends on carbon to generate GDP, the direct prices related to transition are prone to be decrease for the District than for different areas of the nation. Nevertheless, given the complexity of climate-proofing dense city areas resembling New York Metropolis, the District’s particular transition plans could entail prices that exceed estimates based mostly solely on its carbon depth.

Concluding Remarks

The Second District’s publicity to carbon-intense GDP era—and due to this fact its possible publicity to transition danger—is comparatively low. This holds particularly when in comparison with that of energy-intense states within the Midwest. Nevertheless, making older and dense city areas climate-proof might nonetheless entail vital prices that the states of the Second District could must bear. Each this put up and our earlier put up on bodily danger level to the regional heterogeneity in danger publicity throughout the US. Measuring such dangers precisely, nonetheless, could also be troublesome, significantly if a extra granular geographical focus is employed. The following put up on this collection highlights this subject by taking a look at inaccuracies in flood danger maps within the Second District.

Photo: portrait of Kristian Blickle

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

Portrait of Rajashri Chakrabarti

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

How one can 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 Road Economics, November 9, 2023,

The views expressed on this put up are these of the creator(s) and don’t essentially replicate the place of the Federal Reserve Financial institution of New York or the Federal Reserve System. Any errors or omissions are the accountability of the creator(s).

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