Energy & Environment

Moody’s Warns Of Credit Impacts To Cities That Don’t Gear Up For Climate Change

The warning comes alongside new research that found human-caused global temperature increases made Harvey’s record rainfall more likely

Hurricane Harvey dropped record rainfall on Houston neighborhoods like this one, near Addicks Reservoir.

One of the nation’s biggest credit ratings agencies is warning about the economic consequences of climate change. It’s a timely warning for Houston: new studies have found that human-caused global temperature increases made Hurricane Harvey’s record rainfall more likely.

As we’ve reported, Moody’s Investors Service is telling cities that if they don’t do enough to plan for, say, more Harvey-like storms in the future, their credit ratings could suffer. Lower credit ratings mean a city has to pay more to borrow money for things like roads and other big projects.

Moody’s doesn’t explicitly address climate change when it’s coming up with ratings, but they do consider economic factors that are tied to things like sea level rise and more extreme weather, according to Moody’s analyst Michael Wertz.

“For example, a tax base, an economy, financial position or debt profile, or an issuer’s approach to managing their physical assets,” he explained.

“Physical assets,” as Houston knows well, could be increasingly damaged by flooding. The city’s economy is vulnerable to storm impacts on the ship channel or the refining sector. But Moody’s warning isn’t just about what the ratings agency calls those climate “shocks.”

“What we’re paying attention to here is not just storm events, but any change related to climate risk, whether that be a short-term storm event or a long-term, incremental change in climate trends,” Wertz said.

He added that investors and banks are increasingly paying attention to the issue. They’re looking at recent headlines about hurricanes and wildfires and wondering if it’s smart to continue putting money into those communities, if those events are only forecast to get worse.

And they’re looking for action, said University of Houston economics professor Craig Pirrong.

“Investors are going to be interested in more than the optics,” he said.

Houston has a number of “green” initiatives meant to fight carbon emissions, from its electric city vehicle fleet to the 50 megawatts of renewable power it buys from a West Texas solar farm. Mayor Sylvester Turner is part of a national group of mayors that’s committed to the Paris Climate Agreement, even if the White House isn’t.

Those efforts show the city acknowledging that it needs to confront the problem, but Pirrong said investors and the ratings agencies are going to very particular about deciding whether it’s enough.

“They’re going to take a very sort of ‘dollars and cents’ view,” he said. “Is the city doing things or not doing things that will impact the economic vitality of the city, and thus its tax base and its ability to pay off the money it borrows?”

“You want to act as quickly as possible,” said Lara Cottingham, Deputy Assistant Director at Houston’s Administration and Regulatory Affairs Department, and head of the city’s sustainability office.

“But you also don’t want to just create a plan for a plan’s sake,” she said.

Cottingham said Harvey has made city planners feel a more urgent need to do something to address Houston’s climate resiliency. She is helping development a comprehensive new “Climate Action Plan” that she said needs to be “meaningful and thoughtful.”

“What will it take in the future for communities to remain economically viable and successful?” she said, noting some of the things planners are thinking about. “What do they need? Well, they need access to transportation. How does climate impact that?”

Houston is hopeful this kind of planning, along with its participation in sustainability reporting efforts like the “Carbon Disclosure Project,” will ease any fears from the financial sector about the city’s future.

“We are trying to do our best to benchmark, and to track, and show the improvements that we’re making,” she said.

Houston’s credit remains in good shape, and it’s not like Moody’s or any other ratings agency plans to downgrade cities based on climate risks anytime soon. In fact, even after Harvey’s devastation, Houston’s rating remained the same.

But, time is a factor: if cities like Houston don’t do more to address climate change, they run the eventual risk of slipping into a downward financial spiral, where credit reductions make it harder to borrow money to deal with the climate impacts that caused the reductions in the first place.

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Travis Bubenik

Travis Bubenik

Energy & Environment Reporter

Travis Bubenik reports on the tangled intersections of energy and the environment in Houston and across Texas. A Houston native and proud Longhorn, he returned to the Bayou City after serving as the Morning Edition Host & Reporter for Marfa Public Radio in Far West Texas. Bubenik was previously the...

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