Climate change threatens our homes and insurers

“An era of complacency is ending. If you decide to buy that condo where you can hear the ocean’s waves, realize that you are likely to pay more for that privilege — one way or the other.” That’s how Benjamin Keys, a professor at the University of Pennsylvania’s Wharton School, put it in a recent New York Times op-ed. “We have reached a turning point,” he wrote. “Climate risk is driving insurer decisions like never before.”

In 2021, the structural damage from wildfires, floods, and other climate-related disasters totaled $145 billion, according to the National Oceanic and Atmospheric Administration. In recent years, insurers have been paying claims for about 20 disasters a year with damages of over $1 billion, a sixfold increase from the 1980s.

Not all insurance companies can handle that level of claims. “Ten insurers have gone belly up in Florida in just the last two years,” Keys pointed out. “And in many cases, insurers are pulling back in risky areas, leaving state-backed insurance plans holding the bag. Both private and government-backed insurers are undercapitalized for dealing with the potentially massive disasters we could be facing in coming years.” 

Not surprisingly, premiums are rising even more quickly than other expenses in this country. Between 2021 and 2022, 90 percent of homeowners saw an increase in their home insurance premiums, according to a Policygenius report.

To save money, some people who are at risk of flooding do not buy flood insurance. It’s estimated, Keys wrote, that only one-third of households in flood zones have flood insurance — “with many risking financial ruin if the ‘big one’ hits.”

“Most homeowners should care about climate change and the potential impact on their families and property,” John Berkowitz told The Washington Post’s Michele Lerner. Berkowitz is the founder and CEO of OJO Labs, a real estate technology firm that owns the Movoto listing site in Austin, Texas. Lack of knowledge about climate risk makes it difficult for buyers to recognize that their home could be more costly to maintain, more expensive to insure, and more exposed to damage and possible destruction from a storm or fire, Lerner wrote.

There’s a way to estimate the environmental risks of your property: Use the Risk Factor tool created by First Street Foundation.

Of course, all of us who have insurance have a stake in this problem. As Keys explained, “To have the necessary buffer to pay out claims after catastrophic losses, insurers will need more reserves and more reinsurance, and they will pass those costs on to policyholders in the form of higher premiums. That includes policyholders who live well out of harm’s way. The year after the Marshall fire destroyed over 1,000 homes and caused over $2 billion in damage near Boulder, Colorado, average premiums rose over 17 percent statewide.”

The smartest way to reduce such risks is to reduce carbon dioxide and methane emissions–and the quickest way to do that is to put an honest price on those emissions. Please urge your senators and representative to support a carbon tax.

There's progress on curbing methane, but we need to move more quickly

In 2022, the global energy industry released into the atmosphere some 135 million tons of methane - a potent greenhouse gas responsible for roughly a third of the rise in global temperatures since the industrial revolution.

To address this huge problem, the Global Methane Pledge was launched at COP26 in November 2021. Led by the United States and the European Union, the Pledge now has 111 country participants who together are responsible for 45 percent of global human-caused methane emissions. By joining the Pledge, countries commit to work together to reduce these emissions by at least 30 percent below 2020 levels by 2030. 

Congress also took a significant step in this fight. As The Atlantic’s Emma Marris reported, the Inflation Reduction Act, which became law in August, contained one sizable stick tucked amongst a lot of carrots: a methane fee. It applies only to large oil and gas facilities with significant emissions. According to the Congressional Research Service, “This charge is the first time the federal government has directly imposed a charge, fee, or tax on [greenhouse-gas] emissions.”

Last November EPA proposed rules that agency chief Michael Regan said would reduce flaring—a technique used by gas producers to burn off excess methane from oil and natural-gas wells. Owners would be required to monitor abandoned wells for methane emissions and plug any leaks, he said.

Unfortunately, some congressional Republicans want to eliminate the tax on methane emissions. A provision doing just that is part of H.R. 1, the broad energy bill passed March 30 by the House. The legislation is not expected to win Senate approval.

Is the oil and gas industry cooperating with efforts to reduce methane emissions? The United Nations’s voluntary oil and gas reporting and mitigation program, the Oil and Gas Methane Partnership 2.0 now includes some 100 companies with assets on five continents, representing more than 35 percent of the world's oil and gas production. U.S. oil and gas companies are expressing increasing interest in mitigating methane emissions, considering it a relatively easy climate change solution and good business for making their gas cleaner to global buyers sensitive to the emissions intensity of their gas supplies. There are critics, however, who maintain that the industry is moving too slowly.

Agriculture, including livestock, is another major source of methane emissions, generating about a third of the total. Last month, the French food company Danone, owner of milk and yogurt brands like Activia and Horizon Organics, pledged to cut absolute methane emissions from its milk supply chains by 30 percent by 2030, making it the first major food company with a methane-specific emissions target. 

In Hadley, Massachusetts, Barstow’s Longview Farm is helping businesses turn food waste into clean energy through an anaerobic digester. The machine takes methane from cow manure and food waste and turns it into enough electricity to power 1,600 homes, The Boston Globe explained.

Another hopeful sign is improved tracking of emissions. The UN’s environment watchdog plans to launch a public database of global methane leaks detected by space satellites. The UN is calling it MARS or Methane Alert and Response System.

Next year, Harvard Professor Steven Wofsy, working with the Environmental Defense Fund (EDF) and others plan to launch a satellite that they say is more precise than other methane-sensing satellites. Named MethaneSAT, it will allow scientists to track emissions to their sources and provide key data for reduction efforts.

Of course, carbon dioxide emissions remain the number-one concern as we struggle to combat climate change. But reducing methane emissions is essential.

We need to manage the risks that climate change is creating

Robert Litterman, a member of our Advisory Board, testified before the Senate Budget Committee February 16 hoping to “help shed some light on the under-appreciated fact that climate change is not just an environmental problem, it is an economic and financial one as well.”

Bob is one of the giants in the field of risk management. An economist by training, he spent 23 years with Goldman Sachs, where he was a partner and head of the risk department. He then co-founded Kepos Capital, again specializing in risk management. 

In 2020, Bob chaired the Commodities Futures Trading Commission’s (CFTC) climate-related Market Risk Subcommittee, which published a unanimous and widely cited report, “Managing Climate Risk in the U.S. Financial System.” As he told the Senate Budget Committee, “[W]e came to the unambiguous conclusion that climate change poses several important risks to the American economy.” The report stated: “Climate change is expected to affect multiple sectors, geographies, and assets in the United States, sometimes simultaneously and within a relatively short timeframe…”  

Bob also cited a 2016 report by Freddie Mac, which, he testified, “estimated that the economic losses from sea level rise are ‘likely to be greater in total than those experienced in the housing crisis and Great Recession.’ And that was in 2016. Projections for sea level rise have only gotten more dire since then,” he said, “as scientists have learned more about the vulnerabilities of the Greenland ice sheet and several massive West Antarctic glaciers.” Bob was able to get a close look at the threat during a 2022 trip to Greenland with two of our co-founders (Bill Eacho and George Frampton) and two fellow members of our Advisory Board (John Englander and Julia Neshiewat). Bob is also on the boards of the Climate Leadership Council, the Niskanen Center, and other organizations.

“The physical risks of climate change,” Bob testified, “are those that stem from the disruptions it causes via rising seas, more severe storms and floods, more frequent droughts, more intense heat waves, and more destructive wildfires. Property is destroyed. Supply chains are disrupted. Crops wither. Labor productivity declines.

“The transition risks of climate change are those that stem from changes in policy, technology, and/or consumer preferences. As lower-carbon technologies become cheaper, demand for fossil fuels will decline. As more and more consumers demand sustainable products, demand for fossil fuels will decline. And as governments around the world take steps to decarbonize their economies, demand for fossil fuels will decline. 

“This process can lead to stranded assets in carbon intensive sectors. If investors have not managed this risk, it may cascade through the economy. Central banks have estimated the losses in the energy sector at up to $4 trillion in the energy sector, and up to $20 trillion in the broader economy.”

Pointing to the increasing frequency of extreme weather events, Bob testified, “100-year floods may happen every 5 or 10 years today because of the changing climate.” He stated, “Losses from billion-dollar extreme weather events totaled $165 billion last year and while it varies from year to year, it is clearly growing rapidly over time.”

Citing the agricultural sector as one example of the economic risks, Bob said, “[W]e found that climate change is likely to significantly reduce crop yields, decrease labor productivity, degrade soil and water quality, increase the range and virulence of pests, and disrupt supply chains.”

Some Americans think of climate change as a threat only to the planet, overlooking the impact on people’s health. To counter that view, Bob testified: “Climate change will also likely inflict large costs on human health, and by extension, significantly reduce labor productivity in certain sectors. Estimates of the annual monetized damages from premature deaths due to extreme heat in 2090 range from $60 to $140 billion. Lost labor hours could reach six percent in parts of Florida and Texas.”

Near the end of his statement, Bob said, “While the subject of this hearing is the economic risks and costs associated with climate change, I would be remiss if I did not mention one last thing. All of the research and analysis on this subject agrees that the sooner we act to reduce emissions, the fewer costs and risks we incur. In addition, it appears that transitioning to a low-carbon economy will actually result in substantial economic growth.” 

In our view, the most effective step our nation could take to speed that transition is to put an honest price on carbon emissions, via a carbon fee.

MED SCHOOLS STARTING TO INCORPORATE CLIMATE CHANGE INTO CURRICULUM

Evidence continues to mount about the threats that climate change poses to human health. Extreme heat, for example, increases the risk of strokes and heart attacks and exacerbates underlying health conditions such as diabetes and asthma, according to the Centers for Disease Control and Prevention (CDC).

The National Institutes of Health found that changes in air and water temperatures can increase bacteria, parasites, and chemical contaminants in food. According to research published February 7 by the United Nations Environment Program, climate change is heightening the risk posed by antibiotic-resistant viruses.

You might assume that the nation’s medical schools are on the case. Not exactly. A 2022 survey by the International Federation of Medical Students' Associations found that only 15 percent of medical schools worldwide were teaching a climate-and-health curriculum. The figures are better in this country. A 2022 study by the Association of American Medical Colleges found the percentage of medical schools covering the health effects of climate change doubled, to 55 percent in 2022 from 27 percent in 2019.

Karly Hampshire, now a fourth-year medical student at the University of California San Francisco (UCSF), is one of those who has been working hard to boost that percentage. Recalling her initial days of med school in 2018, when wildfires were raging in California, Humphrey told MedPage Today, “Even though we were walking to school every day in this awful hellscape ... our pulmonary block did not cover the health effects of air pollution,"

Hampshire and colleagues created the Planetary Health Report Card in 2019 to compile data on medical schools' climate-related offerings. The database includes information on 87 member institutions in eight countries, rating schools based on their planetary health curriculum, interdisciplinary research, institutional support for student-led projects, community engagement and advocacy efforts, and campus sustainability.

Within the next 5 or 10 years, Hampshire said, most schools will likely offer climate-and-health content. "We're already seeing the health effects of climate change play out in our immediate surroundings and immediate communities," Hampshire said. "I think medical schools will start to feel like they're lagging behind if they don't address it in the curriculum."

"This is fundamental to the mission of medicine," Renee Salas, MD, MPH, MS, an emergency medicine physician at Massachusetts General Hospital in Boston who researches climate change and health, told Amanda D’Ambroio of MedPage Today. "It is an obligation of medical schools and continuing education to ensure that we can optimally prepare individuals to practice in today's environment.”

Medical schools have taken different approaches to offering such education. Some schools offer semester-long courses on climate and health. Others choose a longitudinal approach, integrating climate change into their existing curriculum. Climate-and-health advocates have argued for an integrated approach to climate change education in medical school in order to address the concerns about taking time away from other necessary clinical topics.

Another institution moving forward on climate change is 350-year-old Harvard Medical School. Now in her third year there, Madeleine Kline was among a small group of students and faculty who helped convince school leaders to adopt the new curriculum, which was approved in January. It will include instruction on the effects of climate change on human health, the role health care systems play in contributing to climate change, and how physicians can work to be part of the solution.

As calls to include climate change in medical curriculums grow, The Boston Globe’s Zeina Mohammed reported, so do the resources available to schools interested in making changes. Last year, trainees and faculty at several U.S. universities launched the Climate Resources for Health Education, a free, digital resource bank to help guide the incorporation of climate change into medical curricula.

A dozen predictions for 2023

In the fight against climate change, 2023 will be a year unlike any other. No, the problem won’t be solved, but the range and seriousness of efforts to meet this severe challenge will enable us to make significant progress.

No one can know the future, even in the short term. That is especially true in a realm where so much is in flux–and with a European war creating unforeseen problems. Grist quizzed a wide range of experts about what lies ahead, and we are offering a dozen predictions for 2023:

A carbon border adjustment will gain momentum. European Union governments have reached a deal on the world’s first major carbon border tax, as part of an overhaul of the bloc’s flagship carbon market that aims to make its economy carbon-neutral by 2050, CNN reported. The measure will apply first to iron and steel, cement, aluminum, fertilizers, electricity production and hydrogen before being extended to other goods. How will the U.S. respond? Will Congress follow the lead of senators such as Sheldon Whitehouse (D-RI) and Mitt Romney (R-UT) and enact a carbon fee? That would make a lot of sense.

EV sales will surge–but there are obstacles that will limit that surge. The percentage of U.S. drivers who said they plan to purchase EVs is up three percentage points compared to the same point last year, a Deloitte survey found, with intent to purchase traditional ICE-powered vehicles dropping by six percentage points. Cox Automotive projects that 1 million EVs will be sold in the U.S. in 2023. Tax incentives in the Inflation Reduction Act (IRA) are helping boost demand. Obstacles to faster growth include a low supply of raw materials to make the batteries and driver skittishness about whether there will be enough charging stations.

“The real effects where these tax credits will have a big impact will be in the 2026-to-2032 period — a few years into the future — as automakers gear up and volumes increase,” said Chris Harto, a senior policy analyst for Consumer Reports magazine, told PBS.

Backers of mass transit will try to obtain a larger share of the federal funding. They maintain that U.S. car culture is a resource-intensive vision of the future, according to Politico’s Alex Daugherty. “It’s so blatant that you get tax credits for buying an electric vehicle but there’s zero dollars for buying an electric bike, zero dollars for riding public transit,” said Yonah Freemark, a researcher at the Urban Institute. “It is subsidizing car ownership more than any other mode of transportation by far.”

The trend toward electrifying American homes will ramp up sharply. Sam Calisch, head of special projects at Rewiring America, told Grist that the IRA “will provide the average American household an ‘electric bank account’ of $10,600 in incentives to electrify. This includes a first-of-its-kind electrification-rebate program with $4.5 billion to help low- and moderate-income households purchase heat pumps, induction stoves, and other electric appliances.” 

Geothermal energy will lose its low profile and attract growing interest. One of the oldest forms of clean power is ready for a comeback, Politico reported. The technology that harnesses the heat beneath the Earth’s crust is drawing fresh interest from the oil drilling sector after lawmakers boosted funding flows.

Winners of November’s state and local elections will embrace efforts to counter climate change. For example, some states will move toward cap-and-trade systems like Washington’s, where the first auction of credits is scheduled for February 28. The system makes companies pay for their emissions by buying tradable permits dubbed Washington Carbon Allowances. The pool of credits will shrink every year, encouraging companies to go green. The market is much like California’s, where the price is just over $30 a ton.

Resilience will become increasingly important as we battle climate change. Reducing greenhouse gas emissions is job one, but it’s increasingly clear that progress has been too slow, so building resilience is critical, and efforts will gain momentum. Maxwell Alejandro Frost, representative-elect for Florida’s 10th District and the first member of Gen Z elected to Congress, said, “Resiliency and infrastructure are top priorities for me. In my district in Central Florida, flooding is our biggest problem. We have to make sure that homes are more resilient to flooding and manage the flow of water. These hurricanes are becoming stronger and lasting longer. The cost of not doing anything is far greater than the cost of making bold moves right Dr now.”

IRA money will generate extraordinary investment by the private sector. “The price signal is just huge,” said PJ Deschenes, a managing director at investment bank Nomura Holdings Inc. But GOP will try to throw sand in the gears of the IRA. “It’s Solyndra on steroids,” the House Energy and Commerce Committee’s likely chairwoman, Cathy McMorris Rodgers (R-WA), said in September of the $250 billion included in the new climate law for the Department of Energy’s loan guarantee program.

Carbon capture will gain support. With the UN’s Intergovernmental Panel on Climate Change (IPCC) having concluded that the world cannot hit climate change targets without this technology, the race to scale it up will intensify. The IRA contains significant incentives. Today, there are 27 carbon-capture projects operational worldwide and 14 in the U.S., according to an October report from the Global CCS Institute. Another 108 are in development worldwide in various stages of production.

More Americans will realize the financial and health costs of climate change and will want action by governments and corporations. Over the past four decades, the United States has experienced an average of 7.7 billion-dollar disasters annually. But since 2017, the average has jumped to nearly 18 each year. So more of us are aware of the threats. Six-in-ten U.S. adults say that they are concerned that global climate change will harm them personally, according to a 2021 survey by the Pew Research Center.

Wind and solar developers will devise elaborate plans to provide round-the-clock renewable power. Since two of the main renewable energy sources generate electricity only when the wind is blowing and the sun is shining, project developers, utilities, and grid operators are trying a mix of options to overcome that challenge, including building huge amounts of renewable capacity, storing excess power on batteries, and using algorithms to make project economics work.

Federal courts could slow the transition to clean energy. Energy Wire’s Niina H. Farah wrote, “From pipeline permitting to agency rulemaking, federal courts are poised to decide a suite of legal challenges in 2023 that could set the pace of the nation’s transition away from fossil fuels. The rulings could also tee up a clash between Congress and the courts.”

Are you interested in making a profit from all this activity? On Jan. 2, Goldman Sachs chief risk officer Brian Lee listed the investment bank’s “top 20 buy-rated stock ideas,” based on “quantifiable” benefits from IRA spending.