On Climate Change, a Do-Nothing Strategy Poses The Greatest Risks

By Evan Mills, via Property Casualty 360

Whatever insurers may think about the presence or causes of climate change, one thing is certain: the business climate is changing, rapidly.

New technologies are entering the market for saving and supplying cleaner energy in buildings, transport, and industry — and insureds are adopting these “green” technologies left and right. Renewable energy investment around the world topped $257 billion in 2011 (80% of the investment in fossil fuel capacity), approaching half of all new electrical generating capacity globally. Energy efficiency and “green-buildings” have also become multi-billion-dollar markets, and growth is showing no signs of slowing.

With this comes a need to assess and manage associated emerging risks, as well as be an early mover to capture business opportunities and stay in tune with customers who are increasingly “going green.”

Read Mills’ “From Risk to Opportunity 2012: The Greening of Insurance

I have cataloged over 1100 climate-oriented activities conducted by 378 insurance entities in 51 countries. Surprisingly more are based in the U.S. than any other country, although some of the most concerted efforts are to be found elsewhere.

Care should be taken that these well-intended efforts to curb greenhouse-gas emissions don’t have inadvertent consequences. That said, some pundits have focused myopically on potential downsides, without considering the prospective co-benefits. For example, insurers have long found that facilities that institutionalize a “culture” of careful energy management experience fewer losses.

Related story: Ceres: Insurers Acknowledge Climate Change, but Are Not Prepared for Threats

New technologies, by definition, certainly lack a history of loss experience. This fact of life has been part of the insurance landscape since the times of Hammurabi. Consider the first car, the first boiler, or the first airplane. While insurers may have temporarily shied away from these new risks, doing so would clearly not have been a prudent or necessary long-term strategy. Instead, efforts were proactively made to engineer risk out of the green equation.

As a case in point, whether building structures can support and remain resistant to moisture from the increasingly popular “green” (vegetated) roofs is a fair question. FM Global has offered a level-headed response by issuing guidelines for the right way to do green roofs. This, coupled with their own green buildings insurance offering, represents a best practice with respect to mitigating climate risk without inadvertently taking on new avoidable risks. That Allstate’s headquarters has a vast green roof says it all.

Beyond mitigating climate change, green technologies can even reduce conventional risks. Many insurers note that dual-paned windows are more fire-safe than single-paned ones (failing more slowly under heat stress, thereby helping block and keep down the supply of air to the fire). Pay-as-you-drive insurance helps reduce emissions from cars by rewarding reduced driving while lowering the probability of accidents. There is a long list of similar win-win strategies.

Insurers are even finding that some strategies reduce emissions while helping directly fortify infrastructure against climate change impacts. Tokio Marine knows this, and has for over a decade been replanting mangrove forests across seven Pacific-rim countries for the dual purposes of pulling carbon-dioxide out of the atmosphere and reducing storm damages.

To do this right, insurers will want to look squarely at the whole constellation of responses to climate change and consider their comparative risks. There is a colorful cast of characters. Energy efficiency is arguably the most risk-free climate change response strategy. It doesn’t hurt that it saves money as well. It mitigates risks such as vulnerability to forced power plant shutdowns during droughts and heat waves or weapons proliferation and fuel-import vulnerabilities posed by (mostly) carbon-free nuclear power. In fact, targeted efficiency makes the electric grid more robust and helps customers weather power outages.

Sadly, as proven methods of trimming emissions are delayed, concerned scientists and policymakers are increasingly looking to more desperate approaches such as “solar radiation management” by continuously dumping dust from high-altitude jets into the atmosphere or flinging trillions of reflective Frisbees into space (I kid you not) to block incoming solar energy, or dumping megatons of iron filings into the ocean to capture carbon in massive carbon-capturing algae blooms. These strategies are feared to usher in a variety of unintended side effects such as drought — not to mention fostering complacency. It will be interesting to see whether private companies proposing to conduct this work will be successful in obtaining insurance.

With burgeoning climate risks, a do-nothing strategy is of course not risk-free. The wisest response is to “greenline” emissions-reduction technologies rather than “redlining” them.

Evan Mills is a scientist at the U.S. Department of Energy’s Lawrence Berkeley National Lab, University of California. This piece originally appeared on Property Casualty 360, and is reprinted here with permission.

6 Responses to On Climate Change, a Do-Nothing Strategy Poses The Greatest Risks

  1. Gingerbaker says:

    Renewable energy investment around the world topped $257 billion in 2011 (80% of the investment in fossil fuel capacity), approaching half of all new electrical generating capacity globally. Energy efficiency and “green-buildings” have also become multi-billion-dollar markets, and growth is showing no signs of slowing.

    You make it sound like renewable energy has been a huge success. But what you did not include is just how much of our total energy needs are met by renewables – now – in 2013.

    And, to my knowledge, the answer is that renewables only contribute a tiny percentage of our overall energy needs.

    And so, I look at your figure of $257 billion, and I wonder – is our current approach to implementing renewable energy anywhere close to being the most cost effective approach?

    It seems to me that the current approach around the world, and particularly in the U.S. is an approach which utilizes almost exclusively a reliance on encouraging renewable energy development only if it can be profitable in the free market. Installations are done, to a large extent, in a very localized manner – rooftop by rooftop, or small installations that produce only enough power for a very few homes or businesses. And, to a large extent, the financial burden of the capital costs is borne by small players – homeowners and individual businesses.

    This seems to me to be a very inefficient use of monies, completely unprogressive as far as financial burden, and more importantly, it has been demonstrated over the past thirty years, to be a nearly complete failure. One would think that after thirty years of intense effort, solar would account for more than one percent of our energy generation. But it does not. And, at this rate, our current approach will fail to preserve the environment, and fail to save the future of civilization as we know it.

    I think we need to see a financial and logistic accounting of a different approach – one involving large-scale renewable energy infrastructure installations done by Federal projects with the aim of producing expedited success at supplying a very large, if not a complete, percentage of our energy needs.

    Why will no one even investigate this approach? Why does not even one out of a thousand blog articles talk about this?

  2. Camburn says:

    It is no surprise that the US leads in energy innovation etc.

    What ever can be done to reduce an operating cost via business, home etc will be done.

  3. Evan Mills says:

    There’s no doubt that renewables, can, should, and will achieve even more impact. I agree that we shouldn’t rely solely on the free market to do that. (Lord knows, we have not done so with fossil!).

    My only point here is that, as these new technologies come into play, their associated risks (or risk-reducing attributes) will increasingly come on the radar of insurers. Same goes for other less-desirable responses to climate change, like climate engineering —

    I don’t know how many blog articles talk about public role in renewables, but I would optimistically wager that more than 1 in 1000 do so here in CP…

  4. Paul Klinkman says:

    When a massive fire rages, a green-roofed building with moist soil on its roof isn’t going to have hot embers set its roof on fire.

    Natural gas blows up. Oil burners leak oil and start fires. Passive solar doesn’t get that hot.

  5. Evan Mills says:

    Thanks for the important points…. I really believe that these kinds of observations are powerful. Taken individually, they are somewhat limited in significance, but as a group the risk-reducing “co-benefits” of sustainable energy options are remarkable and rarely considered by policymakers OR consumers. Some insurers DO get it, e.g. that pay-as-you-go car insurance reduces GHGs *and* accident rates.

    My latest piece in Science tallied 1145 “green insurance” initiatives around the world, many of which are indexed to these kinds of co-benefits.

  6. fireofenergy says:

    I believe that advanced machine automation must continually be developed to the point of making solar cheaper.
    Solar has averaged about 30% growth and as of lately, been much higher. At “just” a continued 33% growth rate, it would power the world in less than twenty years (assuming it is .025% today x 1.33 every year for thirteen years for a 2012 power requirement and 6 more such compounded growth rates to power a 5x global requirement needed to elevate 10 billion to western standards).
    Obviously, this won’t be so easy unless room for pumped hydro is allocated (barring awesome battery tech improvement) and the automation continues to improve, along with funding options (such as crowd funding?) and of course, corporations “do” solar like they do oil, “all under one roof” so to speak.

    I believe machines will also be mass produced that Convert Co2 into Calcium Carbonate via Carbon Capture Catalyst… The 7C’s. This may actually be cheaper than outright taxation on energy. Variations of these yet to be invented machines should make insulation for cheaper, as well as the coming efficiency improvements from led lighting and electric cars.