Litterman testifies to Senate Budget Committee

On April 15, the United States Senate Committee on the Budget hosted a hearing to consider the cost of inaction on climate change. Bob Litterman (PhD '80) was among those called to testify. Throughout his career, Litterman has focused on managing financial risk: in 26 years at Goldman Sachs and as founding partner of Kepos Capital. In recent years, he has brought this expertise to the issue of climate change. In 2019-2020, Litterman served as chair of the Climate Related Market Risk Subcommittee of the U.S. Commodity Futures Trading Commission, a bipartisan group of 30 members representing the financial sector, agricultural and energy firms, and academic experts.

In his testimony, Litterman shared important lessons from financial risk management and how they can be applied to climate change. In particular, he summarized the need for carbon pricing, a unanimous recommendation of the CFTC subcommittee.

When the stakes are high, as they are with our planetary future, uncertainty often compels more action rather than less. And in the presence of such large risks, delay in responding is costly. We need to act—immediately and forcefully. Thankfully, the solutions we need to manage these risks are at hand; in particular, a clear, strong price signal will let markets function efficiently and effectively to reduce emissions. A carbon price can be equitable, bipartisan, and the core of effective climate response.

He further explained how a price on carbon can serve as a powerful incentive, reducing emissions and driving innovation. "A carbon price would make material improvements to our ability to manage climate risks and living without one is risky business."

Watch the video of the hearing, including opening remarks by chairman Bernie Sanders and ranking member Lindsey Graham. Testimony is given by Litterman as well as David Wallace-Wells of New York Magazine, economist Joseph Stiglitz of Columbia University, George Oliver of Johnson Controls, and Richard Powell of ClearPath Inc.

Read Litterman's full testimony.

Social Sciences
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