The US military defines a “complex catastrophe” as a “natural or man-made incident […] which results in cascading failures of multiple, interdependent, critical, life-sustaining infrastructure sectors and causes extraordinary levels of mass casualties, damage, or disruption severely affecting the population, environment, economy, public health, national morale, response efforts, and/or government functions.”1
Working with Wellington’s Climate Research Team, our Global Macro Team is studying the macro, market, and geopolitical implications of climate change. We see climate change as a complex catastrophe in the making, with the potential to exacerbate geopolitical instability and multiply threats to economic and national security. Governments, including the US, China, and European Union, are beginning to treat climate change as a structural peril. Under the Biden administration, climate change has already become integral to domestic and foreign policy narratives. Pentagon spending has started to shift, with more contracts dedicated to climate-threatened US military infrastructure globally.
Domestically, the geopolitical downsides of climate inaction are so great that bipartisan policy agreement may be possible. Outside the US, Biden’s climate strategy could lead to cooperation and conflict. The stakes are high. Figure 1 shows the US Department of Defense’s (DoD’s) projections for global climate security threats under our current pathway of a 2°C temperature rise. Not given to hyperbole, the DoD identifies “catastrophic” situations in most regions.
We have uncovered myriad macro and market implications that should continue to take shape as the world addresses climate change.
Expect increased investment in climate adaptation, as governments, businesses, and individuals spend vast sums of money to cope with negative impacts. Adaptive innovations like seawalls and other barrier infrastructure, large-scale heating and cooling, battery storage, grid and utility upgrades, resilient road- and rail-surface materials, among others, are needed. These solutions may help to reduce political stress, prevent mass climate migration or resources wars, and improve safety and living standards in communities with exposure to climate risks.
Expect robust defense spending globally. Military solutions are seen as necessary to position countries for a deteriorating geopolitical backdrop, and military installations and equipment will need to be upgraded to protect property and personnel from the physical effects of climate change. No country will want to weaken its ability to respond to these challenges. I believe spending will go to defense applications (with an emphasis on “dual-use” technologies with both military and civilian applications), and to new infrastructure spending.
Renewable energy and fossil-fuel reduction
The US military is the world’s largest petroleum consumer. Government spending on renewable energy applications to reduce fossil-fuel dependence should increase significantly. Investment in autonomous and electric vehicles across the US military’s global fleet is also expected to be an important part of the climate-adaptation strategy.
Competition over resources
While climate change is a global phenomenon, the regions 30° north and south of the equator — home to key emerging markets and geopolitical hotspots — face acute risks. Water scarcity along the India/Pakistan and China/India frontiers could escalate to conflicts over water rights. In the South China Sea, territorial disputes about resources as varied as fishing stocks and energy could prevail. Farther afield, melting sea ice in the Arctic Circle could lead to skirmishes over energy stores and trade routes.
We believe that the intersection of climate change and national security is in its early stages. Climate concerns will likely influence policy, drive defense spending, and shape the geopolitical landscape, including the great-power struggle between the US and China. We will explore that topic in future posts.
1US Department of Defense Dictionary of Military and Associated Terms.