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By Simmons Buntin, June 21, 2011 12:47 pm

By Brian Thomas

People judge risk badly. We worry too much about minor hazards and are nonchalant about more serious ones. We’re especially inept at judging chronic long-term risks – like climate change.

Insurance is a major part of how we deal with risk – can it lead us to more viable ways to address climate issues? The picture is mixed.

When we manage risk by buying insurance, we endure the slow, small pain of insurance premiums in exchange for a big compensation should something ugly happen. The insurers profit from our lack of knowledge about risk. Buying insurance goes against the grain, but paying our premiums gives us a little more security against fires, earthquakes, business interruption, and the numerous other events against which we can buy an insurance product.

Insurers review their policies annually and change their terms if they see a change in the probabilities. When no major losses occur, the industry pats itself on the back for judging their risks correctly for that year. They’re happy and profitable.  If the risk landscape changes, they absorb the payouts and adjust the terms accordingly.

The optimistic point of view is that insurance can play a major role in guiding businesses and individuals toward more climate-friendly decisions. In theory, insurers study the real probabilities of known hazards, figure out a viable premium that gives themselves a profit and the policyholders the agreed upon protection against the risk. When climate change raises the risks of flooding, business interruption, and other insurance hazards, the premiums go up, which can lead their policyholders to change their behavior. Financing for a new factory can be prohibitive or even impossible to get, if insurers won’t cover it.

In practice, though, this theory is faulty for several reasons. Climate change poses special challenges to insurers, not merely because they are on the hook for many weather risks such as hurricanes.

First, to single out one kind of insurance, many factors combine in extreme weather events. A hurricane has many causes, and global warming might only be two percent part of the overall risk. If that part grows from two percent to five percent, it seems negligible, but in fact it’s quite significant. As one insurance executive said, “Even a minor increase in a risk like that can mean billions of dollars in additional losses to insurers.” If the winds are a few miles per hour stronger, and the storm takes a path through a heavily insured area, insurers can be overwhelmed.

The same is true for other climate impacts. There have always been floods, extreme weather, and times when the water cycle intensifies. But if climate change is turning up the dial, these familiar events may break out of their boundaries and become more frequent, more intense, or changed in unexpected ways.

Second, insurers are people too, and the cognitive blind spots that afflict individuals also affect the risk business. In practice, the insurance industry’s grip on certain probabilities often relies on seat-of-the-pants methods that are subjective, and whose over-optimistic assumptions are sometimes rudely corrected by ugly surprises, especially when risks are constantly changing, as they are with climate change.

Like all of us, insurers want certainty, even when they know that certainty cannot be attained. At a 2007 conference about hurricane science for an insurance audience, the world’s top climatologists discussed various topics in modeling and hurricanes. The head of underwriting at a major North American insurer snorted at the hedged, qualified way the scientists state their conclusions. The underwriter then complained, “Why don’t the scientists give us numbers we can use!  These probabilities are too nebulous for us to write business with them!”  His impatience is widely shared, but the answer is no.

Third, insurance functions well when the risks of various hazards are truly independent of each other, and truly random. One trouble with climate change is that climate instability tends to make floods, windstorms, and other extreme weather more interrelated.

One force binding all these factors together more tightly is land use, which in the US is often part of a highly entrenched political juggernaut promoting the worst possible policies, such as building heavily in flood plains, or on beaches very prone to hurricane damage.

Consider Florida, where the laws, business practices and general culture are geared to developing every square inch of land near water – oceans, certainly, but also lakes, streams, wetlands. Even in the absence of climate change, this is an obviously dangerous policy. It’s also very popular. John Coomber, former CEO of Swiss Re, once grumbled that every American wants to live on the most vulnerable beaches they can find in Florida.

Governments occasionally try to buck the pro-development tide, but the political pressure against the anti-development forces is swift and merciless. Certainly no politician can withstand it. Rather than resisting, many property and casualty insurers have pulled away from vulnerable coastal property in Florida.

In response, Florida created its own public insurance pool. Result? Development continues, and the state fund is actuarially unsound – a major storm hitting a developed area would bankrupt the fund in short order. A few more storms would bankrupt the state of Florida, which would then call on the Federal government — as the stand-in for taxpayers in all other states — to bail them out.

These three factors mean that the insurance industry is weaker than it appears when in matters of changing social and economic policies. The only way to change these entrenched policies would be for other social forces to align with the insurance point of view. That will require energetic political leadership and vigorous regulation. The market alone cannot save us.

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Brian Thomas left Swiss Re in 2006 and became a sustainability consultant with a focus on communications. He has developed green-themed projects for clients including Merill Lynch Global Markets and Investment Banking, Cofra Holding, Good Energies, Zurich Financial, Edelman, the City of Chicago, the City of New York, and others. He is currently a member of the New York City Panel on Climate Change, EnviroComm, and the Association of Green Technology Auditors, to name a few. Thomas started his blog, Carbon Based, in 2007, after requests from contributors to the Intergovernmental Panel on Climate Change (IPCC). He is the author of Climate Change Adaptation in 2010 and currently resides in West Cornwall, Connecticut, where he is an activist member of the Conservation Commission. For more information, please visit www.carbon-based-ghg.com, and his blog, http://carbon-based-ghg.blogspot.com.

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By Simmons Buntin, April 20, 2011 12:35 pm

Photo courtesy U.S. Coast Guard.

The Center for American Progress released two reports on the one-year anniversary of the BP blowout: “The Gulf One Year Later: Beyond Rhetoric?” by Michael Conathan, which discusses the Congressional response to the economic and environmental catastrophe, and “One Year Later BP Still Not ‘Making It Right’” by Jorge Madrid and Kiley Kroh, outlining the lack of accountability and responsibility on the part of BP to restore the Gulf since the Deepwater Horizon disaster.

In “The Gulf One Year Later: Beyond Rhetoric?,” Michael Conathan discusses the congressional response to the BP spill, which claimed the lives of 11 men and set off an 87-day environmental nightmare. The explosion also triggered an equally ferocious barrage of rhetoric in the nation’s capital. A frantic burst of congressional hearings emerged as the immediate oversight response. As usual, they were full of sound and fury—sadly but not surprisingly—signifying nothing. The New Orleans Times-Picayune reports that 101 oil-spill-related bills were introduced in the 111th Congress, which came to a close in 2010. Exactly zero were enacted into law. Another 15 have been introduced so far this year—none of which has been acted upon by their committee of jurisdiction. This article explores past efforts and current efforts within the legislature and the administration and why this legislation has not been promulgated a year later.

Members of Congress should work toward passing legislation that would:

• Mandate that 80 percent of BP’s Clean Water Act fines be sent directly to the Gulf Coast to repair environmental and economic damage
• Strengthen provisions ensuring local stakeholders have a voice in prioritizing the use of the funds

For the full article, click here.

“One Year Later BP Still Not ‘Making It Right’” by Jorge Madrid and Kiley Kroh outlines the lack of responsibility and accountability by BP to fully compensate for the damage done to individuals, businesses, and the fragile ecosystem of the Gulf region. Despite the administration’s insistence that BP bear the entire cost of the unprecedented cleanup, it looks like taxpayers will be picking up half the bill. The galling payouts don’t end there, either. Transocean gave its top executives safety bonuses in December 2010 and Ken Feinberg and his firm, Feinberg Rozen, which was hired by BP to manage the claims process, negotiated themselves a raise, now receiving pay of $1.25 million a month. BP has made clear that it will be ending compensation proceedings for individuals and businesses by 2013 and is exploring a loophole in the wording of the Clean Water Act that could dramatically reduce its liability for significant penalties under both the Clean Water Act and NRDA.

To provide proper oversight and strategic spending, the following steps should be taken:

• Establish an independent citizens’ advisory council to ensure the money goes to appropriate projects
• BP and other responsible parties should be required to make an immediate down payment on the NRDA process
• Responsible parties should be prevented from using the court system to further delay payment while legal challenges are pending

For the full article, click here.

To speak with CAP experts on this topic, please contact Christina DiPasquale at 202.481.8181 or cdipasquale@americanprogress.org.

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The Center for American Progress is a nonpartisan research and educational institute dedicated to promoting a strong, just and free America that ensures opportunity for all. We believe that Americans are bound together by a common commitment to these values and we aspire to ensure that our national policies reflect these values. We work to find progressive and pragmatic solutions to significant domestic and international problems and develop policy proposals that foster a government that is “of the people, by the people, and for the people.”

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By Simmons Buntin, May 10, 2010 11:16 am

Florida Keys National Marine Sanctuary. Photo courtesy NOAA.

The recent offshore British Petroleum oil rig explosion in the Gulf of Mexico poses a serious threat to the delicate coral reef ecosystems and associated coastal habitats lining South Florida and the Keys. The advancing oil plume, along with the use of equally toxic oil dispersants used during cleanup efforts, threatens to unleash further stress on an already taxed marine ecosystem left fragile from years of human encroachment.

The Gulf of Mexico is ecologically rich, yet suffers from local threats such as fishing pressures, agricultural run-off, and coastal development. These local threats are known to weaken coral reef ecosystems, making them more susceptible to environmental stress. Studies have shown that resilient reefs — reef systems where locally derived threats are measurably reduced — are better able to combat global environmental threats, such as climate change.

“Well-managed marine protected areas, as can be found in some areas of the Florida Keys National Marine Sanctuary, reduce local threats to reefs and increase their resistance to warming ocean temperatures,” said Brian Huse, Executive Director of the Coral Reef Alliance.  “The threat posed by the oil spill has the potential to wipe out decades of hard work.”

The oil spill’s potential impact on South Florida’s coral reefs will stretch far beyond the reefs themselves. Florida depends on these natural structures for coastal storm protection, sustainable food sources, and the income and employment generated from healthy fisheries and sustainable tourism. A significant portion of Florida’s $5.5 billion economy is attributable to its reefs and, globally, coral reefs add roughly $400 billion to the economy annually.

“By not investing in sustainable solutions to meet our energy needs, we are making an affirmative choice to put at risk not only our environment, but the health and economic interests of future generations,” said Huse. “We cannot continue to endanger this already fragile ecosystem with these types of extractive practices.”

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About The Coral Reef Alliance

The Coral Reef Alliance (CORAL) unites communities to save coral reefs. We provide tools, education, and inspiration to residents of coral reef destinations to support local projects that benefit both reefs and people. Originally founded in 1994 to galvanize the dive community for conservation, CORAL has grown from a small, grassroots alliance into the only international nonprofit organization that works exclusively to protect our planet’s coral reefs. Visit www.coral.org or call1-888-CORAL-REEF.

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By Simmons Buntin, October 11, 2008 4:14 pm

EarthTalk
From the Editors of E/The Environmental Magazine

Dear EarthTalk: What are these “ocean deserts” I’ve been hearing about? Also, didn’t I read that there was a huge mass of plastic bottles floating around somewhere on the ocean surface?
– Wally Mattson, Eugene, OR

So-called “ocean deserts” or “dead zones” are oxygen-starved (or “hypoxic”) areas of the ocean. They can occur naturally, or be caused by an excess of nitrogen from agricultural fertilizers, sewage effluent and/or emissions from factories, trucks and automobiles. The nitrogen acts as a nutrient that, in turn, triggers an explosion of algae or plankton, which in turn deplete the water’s oxygen.

According to the Ocean Conservancy, a dead zone in the Gulf of Mexico—where the Mississippi River dumps untold gallons of polluted water every second—has expanded to over 18,000 square kilometers in the last decade. Many other such dead zones have also undergone rapid expansion in recent years.

A recent study by German oceanographer Lothar Stramma and a team of prominent international researchers confirms this phenomenon and also points the finger at global warming. Their data show that oxygen levels hundreds of feet below the ocean surface have declined over the past 50 years around the world, most likely a result of human activity. And as ocean waters warm due to climate change, they retain less oxygen. Furthermore, warmer upper layers of water stifle the process that brings nutrients up from colder, deeper parts of the ocean to feed a wide range of surface-dwelling marine wildlife.

The expansion of these dead zones is bad news for most marine inhabitants and the ecosystems they thrive in. Thousands of different species already stressed from over fishing and other threats, now must contend with expanding hypoxic areas throughout regions that once constituted healthy habitat.

The accumulation of plastic debris and other trash in the ocean is not necessarily related to hypoxic zones, but is yet another major problem facing the world’s fragile marine ecosystems. California-based sea captain and ocean researcher Charles Moore discovered what is now known as the Eastern Garbage Patch—an aggregation of plastic and other marine debris occupying some 700,000 square kilometers in the North Pacific Ocean—during a crossing of the North Pacific in 1997. In a 2003 article in Natural History Magazine, Moore reported being astounded that he couldn’t be further from land anywhere on Earth yet he could see plastic bags and other debris coating the ocean’s surface as far as the eye could see.

Individuals can help the oceans and their inhabitants by making smart daily choices that can have collective, positive impact. Lowering your carbon footprint—driving less, biking more, donning a sweater instead of turning up the heat—is one way to help stem the spread of hypoxic zones, which is directly related to industrial activity and the amount of greenhouse gases we spew into the atmosphere.

And limiting plastic and plastic bag use is the best way to prevent such litter from ending up swirling around mid-ocean. Some countries, such as China, and many large cities—San Francisco, for example—have banned plastic grocery bags. If your city hasn’t yet taken this step, pressure them to do so—and in the meantime bring your own reusable bags to the market and avoid plastic wherever else you can.

CONTACTS: Ocean Conservancy, www.oceanconservancy.org; Natural History Magazine, www.naturalhistorymag.com.

GOT AN ENVIRONMENTAL QUESTION? Send it to: EarthTalk, c/o E/The Environmental Magazine, P.O. Box 5098, Westport, CT 06881; submit it at: www.emagazine.com/earthtalk/thisweek/, or e-mail: earthtalk@emagazine.com. Read past columns at: www.emagazine.com/earthtalk/archives.php.

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By Simmons Buntin, February 22, 2007 6:49 pm

The Acoustic Ecology Institute, http://www.acousticecology.org, has released its spotlight report, Ocean Noise: What We Learned in 2006. You can view it at http://www.acousticecology.org/spotlight_oceannoise2006.html.

According to AEI, “The oceans contain over 80% of the earth’s total volume of habitat; because of limited light penetration, many ocean species rely heavily on sound for navigation, finding food, and maintaining group relationships. For decades, human activity has been increasing the noise levels in the oceans; over the past few years, we have begun to pause and consider the effects of our sounds on ocean life. The oil and gas industry, navies of the world, and field biologists are all putting more time and money into these questions than ever before. Here’s what was learned in 2006.”

The online report of an often-overlooked environmental concern is worth investigating.