Henry M. Paulson, Jr.—who was U.S. treasury secretary during the financial crisis that hit in 2008—now works to sustain the environment as well as the economy. The Harvard-educated investment banker, 69, co-chairs the Risky Business Project, which aims to quantify the risks that climate change poses for key economic sectors in the United States.
You’ve likened the climate crisis to a financial crisis. How do the two compare?
Excesses of debt created the financial crisis; excess of CO₂ created the climate crisis. These are coupled with flawed government policies and incentives and pervasive, outsize risktaking. The difference is that last-minute government action averted economic Armageddon during the financial crisis. We don’t have that option with climate change.
What’s the economic risk in doing nothing?
If we don’t act, the risks will compound, and we’ll lose the opportunity to avoid the worst outcomes. Businesses need to factor the threats from climate change into their investment decisions and to urge local and national policy actions. When climate-related disasters strike, we all pay. We urgently need policies such as carbon pricing to incentivize behavior change and promote clean technologies.
What’s your best hope for addressing the problems of climate change?
We can still avoid the worst effects if we act now. In the U.S. we need a national policy to help reduce our use of carbon-based fuels. But ultimately the crux of the challenge lies in the developing world, especially China. To resolve the climate crisis, the U.S. and China—the world’s largest economies, energy users, and carbon emitters—must work together to deploy cost-effective new technologies in the developing world. If our countries lead, others will follow.