The directive includes measures for the prediction and management of floods that apply across all member–states. There are EU Action Plans on the safeguarding and restoration of biodiversity; Forest Focus programmes, which are concerned with tree stocks and soil monitoring across the EU; a forthcoming Sustainable Consumption and Production Action Plan; an Integrated Coastal Zone Management Programme; a Disaster Risk Reduction Programme; and more. The European Social Fund will be drawn upon to help raise consciousness about issues of adaptation and oversee other initiatives.
The EU is also funding adaptation policies and programmes in developing countries and has already set up partnerships with many of them. The Commission has published proposals aimed at sharing Europe’s experience in creating adaptation measures with the developing world. It is examining the possibility of building a Global Climate Change Alliance that will promote dialogue and cooperation between the EU and developing countries.
Lots of impressive-sounding programmes: will they add up to much? Many pro-Europeans hope that such initiatives, as with tackling climate change more generally, will help provide a new beginning for the EU, which of late has been foundering. The thesis that the containment of, and adaptation to, climate change for some purposes should be dealt with on a European rather than a purely national level is incontestable. Yet how effective the EU will be, as in climate change policy, will depend on how far it can bring its member–states into line.
Floods in the UK
As a type case of issues about adaptation within countries, I shall take the example of flooding, storms and coastal erosion in Britain. Flooding in the UK involves a diversity of hazards. The value of property in the London floodplain alone is some £160 billion. The Thames Barrier has proved effective protection so far, but is coming into use with increasing frequency. Most of the occasions it has had to be closed have been over the past 10 years. During the winter of 2001–2 it was closed a record 24 times, as a result of historic highs in the freshwater levels of the river. Of the total stock of domestic dwellings in the UK, 10 per cent is currently at risk of flooding. In the summer of 2007, the UK experienced the most intense rainfall known since records began, giving rise to widespread floods.
The strongest storm to hit Western Europe so far occurred in Shetland in the early 1990s. It was as violent as a category five hurricane, and continued on and off for more than three weeks. Because of the normal rigours of life in Shetland, buildings there are constructed to a higher standard than in other parts of the UK. Were such a storm to occur in densely populated areas further south, there could be massive property damage and widespread loss of life.4 Another major worry concerns dams, likely to be affected if intense downpours increase. Dam failures have become more frequent in recent years. About two million properties in the UK are potentially vulnerable to flooding alongside rivers, estuaries and coasts; and a further 80,000 from flooding resulting from heavy rains with which urban drains cannot cope.5
Recent studies have been able to demonstrate a link between increasing flooding risk in the UK and global warming.6 A group of scientists studied the floods that happened in the UK in October and November 2000. The floods damaged some 10,000 properties and created insurance liabilities of some £1.3 billion. The researchers ran several thousand computer simulation models of the weather patterns, both under normal conditions and conditions as they might have been had greenhouse gas emissions not existed. In 90 per cent of the simulations the results showed that humanly induced global warming increased the risk of floods occurring in England and Wales by more than 20 per cent, and in two out of three cases by 90 per cent. In other words, the probability is high that the floods were influenced by climate change.
For about 40 years, from 1961 onwards, the UK insurance industry had an agreement with the government that cheap flood cover would be provided for all homes without regard to risk.7 The result was large-scale moral hazard. State projects proceeded as though flood insurance could be taken for granted. Governments felt able to proceed with major building programmes in areas of flood risk – such as the Thames Gateway – without reference to insurability.
The agreement was abandoned by the insurance industry in 2002, and a new partnership between government and the industry was introduced in its stead. Private insurers agreed to provide cover to home-owners and businesses where the annual risk of flooding is put at no more than a 100:1 chance. Beyond that level, the state has to pick up the costs. The insurance companies agreed to the plan on condition that the government reciprocated by taking on board a range of preventative measures for the future. These include, for example, new investment to counter flooding, especially in areas of high vulnerability; placing restrictions on new building in areas without adequate flood protection; and improving programmes providing information to the public about local flooding hazards.
For future building to be covered under the agreement, areas vulnerable to extreme weather and rising sea levels must be avoided, or arrangements set up to incorporate insurance costs into home and business pricing. Solar panels should be installed on the roofs and façades of all new buildings, since the relative cost is insignificant. Roofs should offer a surface that gives a good reflective signal for radar satellites, allowing the buildings to be monitored for movement. A high standard of insulation for walls and roofs is necessary. Low-energy electrical fittings must be installed, which also reduce fire risk. Buildings must be constructed of materials that are robust in the face of floods and storms.8
The rise in the number and intensity of flooding incidents in the early 2000s in shoreline areas led the government to alter its pre-existing coastal management policy. A key necessity was to develop a more integrated approach to planning, since, until recently, coastal management was in the hands of a heterogeneous assortment of different authorities and groups.9 There was little coordinated thinking about what forms of coastal management would best serve current and future citizens.
A new policy was introduced which ruled that coastal protection should be guided by the relationship between risks and costs. Not everywhere can or should be protected – for instance, low-lying and sparsely populated areas will no longer necessarily be defended. The policy was introduced without consultation with local interests. Property prices immediately dropped in areas where protection was to be withdrawn. The result was huge protest in those areas. In response to these difficulties, some local authorities established funds to protect parts of the coastline under threat, even where national policy had opted for no intervention. The idea was to provide time for the local communities to develop adaptive policies of their own, or find ways of coming to terms with the fact that there would be no more state aid. Local community workshops were set up to discuss the future of the coastline.
The whole system of coastal management is in a transitional state. A number of major issues remain to be resolved.10 Even with recent changes, planning regulations are not strong enough to stop houses and business premises from being built in areas of substantial risk of coastal erosion and flooding. Buildings are still being constructed in potentially hazardous areas. Since the state no longer recognizes an obligation to defend all people and property along the coastline, some property-owners are providing their own protection, even though it might be inappropriate and out of line with wider policy – a further recipe for conflict. The situation where neither the state nor private insurance provides cover, which applies in some coastal areas, is inherently unstable.
So far, national policy is well ahead of local and regional thinking, at least on most such issues. At the same time, a new system of governance is emerging, albeit one marked by struggle and divisions of interest. Research shows a growing realization among local groups that the coastline cannot stay unchanged. It is necessary to plan ahead for a period of at least half a century, against a background of uncertainty, not just calculable risk. Neither perspective has been part of coastal policy and thinking until quite recently.
No r
isk without opportunity: this theorem applies to the evolution of coastal governance as in so many other areas. Rather than defending the status quo, it is far better to think creatively about what sustainable and resilient coastal communities should be like. The practical difficulties that stand in the way of such a transformation in outlook, however, are considerable. For instance, properties have to be protected from major flood risks in the here-and-now, even though the measures may not be sustainable in the longer term – such as building ‘hard defences’ by increasing the height of the flood walls.
Insurance, hurricanes and typhoons
Innovations in insurance are going to be of key importance as far as adaptation is concerned. These will have to span the state and the private sector, since the state’s role as insurer of last resort will come under great strain. However, once more, innovations pioneered here could prove to be of wider application than only in the field of climate change.
The most difficult forms of adaptation to manage will inevitably be those related to weather changes that take a catastrophic form. When one looks on a world level, the number of ‘natural’ catastrophes has risen significantly over the past 30 years. Most catastrophes are weather-related, implying that there is a connection between this increase and rising world temperatures. One way of indexing the increase is via levels of insurance claims.11 Such analysis suggests that a sharp increase in the number of natural catastrophes has taken place over the past 10 years in particular. Since 1970, of the largest catastrophes, 34 occurred between 1988 and 2006. For understandable reasons, the insurance industry has been very active in promoting research into such trends.
In one study, some 16,000 natural catastrophes over the period from 1980 to 2005 were analysed.12 They were grouped into six categories, depending upon the degree of insurance losses they led to. The categories were:
1 Small losses (up to $10 million).
2 Medium-sized losses ($10–$60 million).
3 Medium-sized to serious losses ($60–$200 million).
4 Serious losses ($200–$500 million).
5 Devastating losses ($500 million–$1 billion).
6 Extreme losses (more than $1 billion).
The smaller categories were fairly stable over the dates in question, but there was a steep rise in each of the three larger ones. The research showed that fully 85 per cent of claims in all categories were for weather-related natural catastrophes.
The insurance claims made in any specific year are mainly determined by the number of catastrophes that occur – those in categories 5 and 6. The record for claims thus far is 2005, the year in which three damaging hurricanes occurred: Katrina, Wilma and Rita. In terms of insurance claims, Katrina produced the highest level ever, while the others were the sixth and seventh highest recorded. Over the period 1970–88, total damage amounted to more than $10 billion in just one year. Since 1989, however, totals of more than $15 billion have been submitted in 10 separate years.
Insurance claims are skewed towards the richer countries, since the insurance industry there is more developed and hence has more liabilities. Looked at in terms of death rates, the highest levels of catastrophic damage occur in Asia, but not because of the intrinsic frequency of natural disasters; rather, because that continent has the highest number of large population centres. Between 1980 and 2005, some 800,000 people died in Asian countries as a result of such disasters, 90 per cent of them as a result of category 5 and 6 events. North America and Europe experienced more or less the same proportion of natural disasters, but the amount of damage suffered was three times as great in the former as in the latter.
The above studies do not by any means cover all insurance claims and losses. They do not include, for example, the consequences for liability insurance and life insurance; or damage to roads, railways and other forms of public infrastructure, which are hardly ever insured. Real losses more generally may be many times higher than insured losses. The insured losses in hurricane Katrina amounted to about $49 billion, compared to estimated total losses of $144 billion. The difference in the less developed parts of the world is greater, since insurance cover is nothing like so advanced. In the two major cases of flooding that happened in China in the 1990s, the cost of the damage, in one case, was 30 times higher than the sum covered by insurance and, in the other, nearly 50 times higher.
A whole range of weather-induced disasters happened around the world during the course of 2010, although there is no way of knowing how far each or any of them was influenced by climate change. They included massive floods in Pakistan, as a result of which hundreds of thousands of people were displaced from their homes; large-scale flooding in Queensland, Australia – following on from a number of years of extreme drought; unprecedented high summer temperatures and drought in Russia, which produced forest fires that the authorities struggled to bring under control; widespread flooding in parts of China, leading to landslides; and prolonged drought in the area of the Amazon in Brazil.
Weather-related risks create enormous problems both for private insurers and for the state. Progress with adaptation will depend a great deal on how far both parties can come up with feasible new policies. It is crucial that the insurance industry pioneers new ways of dealing with the rising scale and frequency of catastrophic risks, since otherwise the burden on government will be insupportable. The option that private insurers have of simply pulling back from insuring certain hazards is not available to governments, which will have to pick up the pieces. It is therefore in the interests of both parties to cooperate.
Risks associated with climate change, as I have often stressed in this book, shade so far over into uncertainty that they often cannot be calculated with any precision. A single episode can cause large-scale damage, but the extent of likely damage is not readily predictable, since so much depends upon context. The damage done by a storm or hurricane, for example, depends vitally upon the path it takes, not only on its strength. It is hard to even up premiums over a period of time, since the level of damage varies greatly from year to year.
The capital requirements are large, since, in a year of high losses, the pay-out all has to come in or close to that period. This fact means that the insurer must constantly have liquid capital to hand. The amount of money needed to cover the costs of a catastrophe can be as high as 100 times the premium income in the year in which it takes place. The insurer therefore has to look for a way of spreading risk through reinsurance – against a backdrop of the probability that natural catastrophe risks will lead to much greater damage in the future. Moreover, the reinsurers face much the same risks as the original insurers, because of the high element of uncertainty.
New thinking will be needed to push back the boundaries of insurability. Until recently, catastrophic insurance was based upon somewhat traditional models of risk management. That is to say, it depended upon calculations derived from previous catastrophic events. Such a practice was no longer possible after hurricane Andrew, the predecessor to Katrina, which caused a level of damage greater than had previously been thought conceivable.
Work has begun on the construction of sophisticated catastrophe models, with the objective of reducing areas of uncertainty. These make use of some of the same techniques of computer modelling involved in attempts to predict the likely progress of climate change. For a hurricane of a given strength, 1,000 or more different potential paths through a specific area can be mapped. The point is to make the models sufficiently detailed to distinguish probabilities and hence, again, to be able to calculate premiums.
Catastrophe bonds have also been introduced to spread risk across capital markets. They are complex financial instruments, which aim at neutralizing risk for the original insurer, but also contain safeguards for those who purchase them. Allianz issued a pioneering catastrophe bond in 2007, which provided cover against large-scale losses occurring from earthquakes in Canada and the US (although excluding California) and river flooding in Britain.
Munich Re and Swi
ss Re, two major insurance companies, have been exploring the possibility of applying catastrophe bonds to cover poor people in Bangladesh and other developing countries. The idea is to work in conjunction with foundations and NGOs to provide relevant insurance coverage. The Rockefeller Foundation is exploring this type of coverage in parts of Asia and in sub-Saharan Africa. The Bill and Melinda Gates Foundation has awarded $34 million to the International Labour Organisation of the UN to pursue a similar initiative. An adviser to the UN’s task force on disasters has rightly observed: ‘We’re trying to alert public policymakers that it’s much faster to get insurance payouts than to knock on doors for emergency donors.’13
Given that the level and extent of catastrophes will continue to mount, perhaps sharply, it is a matter of urgency to re-examine the relative roles of private insurers and the state. The cost to the US federal government of hurricane Katrina alone was in the order of $100 billion, given as direct assistance and as tax benefits. Even then, it covered no more than part of the losses incurred, especially if one includes secondary economic effects (forgone employment, for example). There is also an issue of moral hazard, when the state is known to be the insurer of last resort. Those who are vulnerable to risk have less of an incentive to deal with it themselves in advance, since they (believe they can) fall back on the state when necessary. Especial care will have to be taken to ensure that a situation does not emerge in which only the affluent can get adequate insurance cover.
The Politics of Climate Change Page 20
