Josh Younger on the Soaring Cost of Climate Change and Understanding the SLR

Tracy Alloway (0:10)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Tracy Alloway.

Joe Weisenthal (0:16)

And I'm Joe Weisenthal.

Tracy Alloway (0:17)

You know what you never see?

Joe Weisenthal (0:22)

Go on, that's pretty open-ended.

Tracy Alloway (0:25)

Yeah, okay, well, as a journalist, I'm told to ask open-ended questions, but you never see anyone connect climate change with real yields and secular stagnation.

Joe Weisenthal (0:38)

By and large, those are pretty separate conversations. I mean, maybe the secular stagnation part, but I definitely do not see much conversation connecting the dots between anything that's going on in interest rates or real rates or anything like that in climate.

Tracy Alloway (0:55)

Yeah, that's exactly right. So despite the fact that every bank in the world seems to be really high on ESG right now, and certainly you and I are on the receiving ends of tons of press releases about what banks are doing in the space, you actually don't see that many people talk about climate change from a market's perspective, which is kind of weird, because if you think about the battle, the climate change battle right now, so much of it is about estimating the costs and the benefits or the costs versus the benefits of actually tackling this issue. And if you think about how you calculate cost and benefit, that's basically a market question, right? Like you have to consider how the market is functioning and at what rate the market is actually rewarding action at any moment in time in order to come up with those kinds of estimates.

Joe Weisenthal (1:51)

Yeah, I think that's right. I mean, I think this is where like, I sort of like struggle with some of this. There is this widespread expectation of like ongoing environmental degradation, potentially more economic and environmental catastrophes, horrendous things that will happen that may be associated with climate change.

On the other hand, like from a market standpoint, it still seems as though for the most part, most of the things that get priced, whether we talk about priced in, are more on the sort of like regulatory side. It doesn't feel like there are many examples of the environmental risks directly themselves manifesting in price just yet more about pricing in the sort of regulatory response or policy response to this sort of ongoing threat.

Tracy Alloway (2:47)

Right, so I know I started this conversation by saying that you'd never see anyone talk about real yields and secular stagnation and climate change, but that's not strictly true because there is one person who has done it and they published a whole paper on the topic, which definitely caught my eye. But we're gonna be speaking to Josh Younger again today. He's a managing director at JPMorgan and also a multi-appearance Odd Lots guest. I think this is gonna be his fourth time on the podcast. So we're gonna get his thoughts on the climate change and the link to yields, but we're also gonna go into some of the recent drama in the treasury's market.

Joe Weisenthal (3:31)

And in addition to him is having done work on this, he's sort of the perfect person to connect all these dots because in addition to being a rate strategist, managing director at JPMorgan, he's also a trained astrophysicist.

So the perfect person to connect science and interest rates. So I'm really looking forward to this conversation.

Tracy Alloway (3:53)

Excellent.

Climate science meets interest rates. I love it. All right, Josh, welcome to Odd Lots yet again.

Josh Younger (3:59)

Yeah, thanks for having me. It's great to be back.

Tracy Alloway (4:03)

So I mentioned this idea that when we talk about climate change policy, we generally think about trade-offs between cost versus benefit. And one of the things I'm really interested in is what traditional analysis looks like when it comes to cost benefits on this topic, because I don't know, when I think about climate change, I think about the worst case scenario being that we basically all die from global warming and World War III breaks out over resources and the entire world collapses. So I've always been curious about how you put a sort of a number around those sorts of scenarios. So maybe just to begin with, walk us through how people normally do that equation. How do they come up with that cost benefit framework?

Josh Younger (4:51)

Yeah, sure. So it's a bunch of different steps and it's really about connecting a few related, but sort of institutionally separate fields of study. So on the one hand, there's the client science itself, which is doing projections of global mean temperatures and sea level rises and various other types of forecasting. And those tend to go out in 50, 100, 200 years.