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A CENTURY OF PROFESSIONALISM
Future risk Climate change and energy security – global challenges and implicationsCentenary Future Risk Series: Report 3
2 Future risk: Climate change and energy security – global challenges and implications
contentsContents
3 Foreword
4 1. Introduction
6 2. Executive summary
7 3. Past trends and possible futures
11 4. Future environmental risks: what the experts say
11 Energy and climate change – looking at future trends and risksDrFatihBirol,ChiefEconomistandDirector,OfficeoftheChiefEconomist,InternationalEnergyAgency
18 International impacts of climate changeProfessorSirJohnBeddington,Government’sChiefScientificAdviser
23 Climate change and extreme weather events in developing countries DrSwenjaSurminski(CentreforClimateChangeEconomicsandPolicy/GranthamResearchInstitute,LondonSchoolofEconomics)
31 Growing challenges of megacities and climate change ProfessorLordJulianHuntandDrYuliaTimoshkina(UniversityCollegeLondon)
39 Climate change and insurance adaptation ProfessorDavidCrichton,HonoraryVisitingProfessorattheAONBenfieldHazardResearchCentreatUniversityCollegeLondon
48 5. The three scenarios
49Upside
50Central
51Downside
53 6. Conclusion
3 Future risk: Climate change and energy security – global challenges and implications
foreword
ForewordThisyeartheCharteredInsuranceInstitutecelebratesitscentenaryyearasacharteredprofessional
body.Tomarkthisachievement,wearepublishingaseriesofreports,eachofwhichexploressomeof
therisksandopportunitiesthatmightfaceusinthedecadestocome,drawingontheassessmentof
commentatorsacrossvariousfieldsofexpertise.
Whilst‘futuregazing’doesn’talwaysleadtoaccuratepredictions,itisanimportantexerciseforthe
insuranceindustrytoundertakeasunderstandingandassessingpotentialrisksisattheheartofwhat
wedo.Indeed,centraltotheroleofinsuranceistheabilitytomakeinformed,professionaljudgments
abouttherelativerisksofvarioushazardsoccurringoveraparticularperiodoftime.Byplanningforthe
long-termandchallengingassumptionsaboutwhatthefuturemightlooklike,theprofessionwillbe
wellplacedtoprovideexpertiseandinsightontherisksthatlieahead.
Thisreportisthethirdwithinourseriesandfocusesonfuturerisksrelatedtoclimatechangeand
energysecurity.Fiveworldleadingexpertsinthisareadiscussthepossibleimplicationsofglobal
warming,howwecanreducetheenvironmentalimpactofenergyconsumptionandhowwecanadapt
toclimaterisks.Weconcludethereportbyreflectingonthreepossiblefuturescenariosandtheir
potentialimplicationsfortheinsurancesector.
David Williams,
Chair,CIIUnderwritingFaculty
4 Future risk: Climate change and energy security – global challenges and implications
1. introduction1. Introduction Thereareamultitudeofinterrelatedrisksassociatedwithclimatechangeandenergysecurity,
manyofwhichweredramaticallyillustratedin2011.Themegaearthquakeandtsunamithatstruck
Japandemonstratedinamosttragicwaytheextenttowhichevendevelopednationswithadvanced
infrastructurearevulnerabletoextremeweatherevents.Ifscientificconsensusistobebelieved,global
warmingislikelytoincreasetheprevalenceandseveritywithwhichsucheventsoccurinthefuture.
And,assumingthatman-madegreenhousegasemissionsaretoblameforsomeproportionofclimate
change,increasingfossilfuelconsumptionintheyearsaheadislikelytowarmtheplanetfurther
creatingamoreconduciveenvironmentfornaturalcatastrophes.
Aswellastheenvironmentalrisksassociatedwithcontinuedfossilfuelconsumptionthereis
alsoanobviouseconomiconerelatedtolimitedandconcentratedsourcesofsupply.Thepolitical
unrestemanatingfromthesocalled‘ArabSpring’of2011causedasharpriseinthepriceofoil
asaconsequenceofconcernsthatpoliticalinstabilitywouldstemtheflowofoilfromtheworld’s
mostabundantregion.Inturn,oilpriceinflationhelpedcontributetoadeclineineconomicgrowth
incountriesparticularlyreliantonimportedoil.1TheRussian-Ukrainegasdisputeof2008which
threatenedtheenergysuppliesacrossmuchofEuropeisanothercaseinpoint.
Inshortthen,manycountriesmayneedtodiversifytheirenergysources,notjusttohelpreducethe
impactofenergyconsumptionontheenvironment,butalsotolimittheireconomicvulnerabilityto
potentialsupply-sideshocks.
Makingsuchashiftinenergyusageandadaptingtotheamountofclimatechangethatisalready
‘lockedin’willnotbeeasy.2Someofthedecisionsalongthewaywillincludedifficulttrade-offswhich
potentiallynecessitatesacrificingshort-termeconomicgrowthforasustainablelong-termeconomic
future–adifficultsellpolitically.3Andthesedecisionsarenotmadeanyeasierbytheuncertainty
whichsurroundsclimatechange.Whilstconsensussuggeststhattheearthiswarmingandthatsome
ofthisisdowntohumanbeings,modellingthelikelyimpactsofclimatechangeonhumanactivityand
wellbeingisverydifficultgiventheinfinitenumberofvariablesinvolvedandthecomplexinteractions
betweenthem.
Crucially,theinsuranceandfinancialservicesindustrymustbeonestepaheadinordertoprovide
comprehensiveinsightintothechangingnatureofthesechallenges,andtorecommendcrediblecourses
ofactioninthefaceofthem.Withthisinmind,ourthirdreportwithinthecentenaryseriesprovides
theviewsoffiveworldleadingexpertsandseekstodevelopthreepossiblefuturescenariosandtheir
implicationsfortheinsuranceindustry.
1 Toreadashortanalysisontheeffectofanoilpriceriseoneconomicactivitypleaseread:TheEconomist(March2012)“Thenewgrease?Howtoassesstherisksofa2012oilshock”
2 By‘lockedin’wemeantheamountofglobalwarmingthatislikelytooccurevenwithsubstantialeffortstoshifttorenewablesourcesofenergy
3 Thereisamoralandpoliticalissueassociatedwithdemandingthatcertaincountriesreduceemissionsjustatatimewhentheyaretryingtocatch-upwithmoreadvancedeconomies.Onepotentialwayofresolvingthisistoadoptapolicyof“contractionandconvergence”.Underthisframework,developingcountrieswouldbeallowedtogrowemissionswhiledevelopedcountriescontracttheirsuntilthefiguresconverge.ForadiscussionofthisseeMeyerandCrichton(Jan2005)“WeatheringtheStorm”,articleforPostMagazine,andCIIReport(2009)“CopingwithClimateChange”
5 Future risk: Climate change and energy security – global challenges and implications
Overall approach to the Future Risk seriesInearlyFebruarywepublishedthefirstinthecentenaryseries–Future Risk: Learning from History.
ItsetthescenefortheentireCIIFutureRiskseriesbyreflectingonsomeofthemostdynamictrendsof
thepastandtheirpotentialimplicationsaswellasdiscussingsomeinitialfindingsfromaglobalsurvey
intotheriskperceptionsofmembersofthepublicfromacrosstheglobe.
Acentralpointmadebythereportwasthatinsucharapidlychanginginternationalenvironment,it
isvitallyimportanttoquestionunderlyingassumptionsabouttheworldaroundusandre-evaluate
prevailingwisdom.Wequalifiedthisstatementbynotingthatwhilstahealthylevelofscepticismabout
prevailingwisdomandfutureforecastingisagoodthing,itshouldnotpreventusfromdeveloping
somescenariosonthelong-termtohelpusprepareforsomeoftheopportunitiesandrisksthatlie
ahead.Rather,itshouldensurethatwedonotbecomeoverlyconfidentanddependentuponanysingle
narrative.Inthiscontext,thethirdinourseriesofreportslooksatsomepossibleenvironmentalfutures
andtheirimplicationsfortheinsurancesectorandsocietyasawhole.Cruciallyitalsoseekstoidentify
whatroletheindustrycanplayindeliveringamoreenvironmentallysecureworld.Ournextreportinthe
serieswilllookatfuturetechnologicalrisks.
1. introduction
6 Future risk: Climate change and energy security – global challenges and implications
2. executive summ
ary2. Executive summaryThereportbeginsbypresentinganumberofspeciallycommissionedessaysonfutureenvironmental
risksfromleadingexpertsinthefield.Theauthorsandtheirtopicsinclude:
• Dr Fatih Birol–TheChiefEconomistattheInternationalEnergyAgencydiscussesrecentenergy
trends,likelyprojectionsforfutureenergyusageandthepotentialimpactofthisonglobalwarming.
• Professor Sir John Beddington–TheGovernment’sChiefScientificAdviserconsidersthepotential
globalimplicationsofclimatechangeincludinghowitmightinteractwithotherfuturetrendslike
continuedpopulationgrowthandsustaineddevelopingworldpoverty.
• Dr Swenja SurminskioftheGranthamResearchInstitutediscussesthepotentialimpactofextreme
weathereventsondevelopingcountriesandtheroleofinsuranceinreducingrisksandspreading
awarenessofclimatechange.
• Professor Lord Julian HuntofUniversityCollegeLondon(UCL)andDr Yulia TimoshkinaHonorary
ResearchFellowatUCLexploretherelationshipbetweenclimatechange,naturalhazardsandthe
growthofmegacities.
• Professor David Crichton,Hon.VisitingProfessoratUCLandCharteredInsurancePractitioner
discussestheroleofinsuranceinadaptingtoclimateriskwithparticularemphasisonhowtocope
withfloodingacrossEurope.
Theseessaysrepresentcompellinglyarguedvisionsofthefuturewhichcanprovidethebasisforthe
constructionofthreeillustrativescenarios–allofwhichcouldhaveimportantimplications for the
insurance sector and beyond.
Inourupside scenariothereissomeglobalwarming,buttheworldisabletosufficientlyshiftto
renewableformsofenergysothattheeffectofenergyconsumptionislimited.Countriesalsotake
substantialadaptationmeasurestoensurethateventhemostvulnerableinsocietyarewellprotected
throughappropriateinfrastructureandwarningsystems.Insurersareabletosupportthis–providing
innovativesolutions,eventothoselivinginthemostvulnerableareas.Insurersarealsoabletoplaya
leadingroleininformingpolicymakersabouttherisksposedbynaturalhazards.
Inourcentral scenarioglobalwarmingissignificantlygreaterduetolimitedeffortstoshifttowards
renewablesourcesofenergy.Compoundingtheproblem,adaptationisnottakensoseriouslyleaving
somepartsoftheworldparticularlyvulnerabletoextremeweatherevents.Therewillbeafewisolated
incidencesofinsurancemarketfailureasinsurersareunabletopaysomelargeclaimsfollowing
catastrophicweatherevents.And,withweathereventsposinganincreasingrisktoinsurers’capital,
someinsurerschoosetowithdrawcoverforcertainindividualsandfirms.
Inthedownside scenariotheearthwarmsconsiderably–littleifanyeffortismadetoswitchfrom
fossilfuelstorenewablesourcesofenergy.Irreversibletippingpointsarebreachedmakingadaptation
essentialbutverycostly.Unfortunately,fewcountriestakeadaptiontoclimateriskseriouslysothey
arepowerlesstoprotecttheircitizens.Vulnerablepopulationswillfleeparticularlystrickenregions
withnegativeinternationaleconomicandpoliticalconsequences.Insurancemarketfailureiscommon
–insurersareoftenunabletocoverclaimsfromincreasinglylargelossesstemmingfromcatastrophic
weatherevents.Multipleinsolvenciesarepossibleandthoseinsurersthatdoremainareonlyableto
providecoveragainstnaturalhazardstoaminorityofthepopulation–eveninthedevelopedworld.
In summary, our report shows that insurers have a key role to playindeterminingwhichenvironmental
futuretheworldfaces.Overthecomingdecadestheindustrymustembeditselfdeeperintothe
multitudeofchannelsthroughwhichitcanhelpensurethatadaptationisproperlyconsideredand
mal-adaptationisconsistentlyavoided.Innovationwillbekeytothis–bothintermsofdevelopingnew
productsthatbuildinclimateriskaswellasthroughbetterforecastingoffutureenvironmentaltrends.
Andinsurersneedtocontinuetobeinnovativeinthewaythattheyengagewithpolicymakerstoensure
thattheiruniqueinsightsarefullyutilisedatthenationalandinternationallevel.
7 Future risk: Climate change and energy security – global challenges and implications
3. past trends and possible futures3. Past trends and possible futures: an overviewOur analysis of past trends from the first report within the centenary series identified a number of
key risks posed by changing patterns of energy consumption and global warming.4 In this opening
section, we briefly revisit some of these risks and outline the kinds of insights that our expert authors
provide. This short discussion and the essays that follow, act as the building blocks for some simple
environmental scenarios set out later in this report.
Energy consumption can drive climate changeIn our first report within the centenary series, we noted how global warming has been particularly
pronounced in the last hundred years, coinciding with substantial increases in energy consumption
and in particular greenhouse gas (GHG) emissions. There is a risk, we argued, that continuing rises in
greenhouse gases will warm the planet further with implications for the environment and ultimately the
health and wellbeing of populations.
Figure 1. Changes in temperature: 1850–2005
–0.5
0.5
0.0
13.5
14.5
14.0
Dif
fere
nce
in g
loba
l ave
rage
sur
face
tem
pera
ture
(˚C
)fr
om 1
961–
1990
1850 1900 1950 2000
Year
Source: Intergovernmental panel on climate change “Fourth Assessment Report: Climate Change” 2007
In our opening essay, Dr Fatih Birol – Chief Economist of the International Energy Agency (IEA) reflects
on the latest IEA projections for future energy consumption and how this will impact on the earth’s
climate over the next few decades.
With reference to the IEA’s central scenario, Birol describes a world where energy demand doubles
between now and 2035 as a consequence of population growth and economic expansion, particularly in
developing countries. Part of this rise in demand will be driven by an increasing desire for mobility (i.e.
access to transport) and therefore oil, which is still predominantly supplied by countries in the Middle
East and North Africa (MENA). As a consequence of such a large concentration of oil in the hands of just a
few countries, continued tensions in the MENA region are likely to have significant implications on global
oil supply and price. And whilst Birol foresees a potential “golden age” for natural gas which could
help to offset this supply problem, he emphasises that “increased use of gas in itself (without carbon
capture) will not provide the answer to climate change”.
4 For an in-depth analysis of past environmental trends please read our first centenary report, Future Risk: Learning from history, Centenary future risk series: report 1 (Feb 2012)
8 Future risk: Climate change and energy security – global challenges and implications
Birolwarnsthatduetotheprojectedincreaseinenergyconsumption,“theworldisinrealdangerof
missingthechancetoreachitslong-termtargetoflimitingtheglobalaveragetemperatureincreaseto
2degrees”.Inresponse,Birolarguesthatthereneedstobemuchgreaterfocusonenergyefficiency
–includinggreentechnologiessuchascarboncaptureandstorage.Withoutsignificantprogressin
theseareasbefore2017,hebelievesthattherewillbean“extraordinaryburdenonotherlowcarbon
technologiestodeliverloweremissions”.
The impact of climate change Inoursecondessay,theGovernment’sChiefScientificAdviser,Professor Sir John Beddington,discusses
thepotentialimplicationsofatwodegreewarmingoftheclimate.Possiblenegativeconsequences
include;ariseinsealevels,increaseinprevalenceofheatwavesandanincreaseinthenumberof
extremeweathereventssuchasstormsanddroughts.Thereisalsothepossibilityofbreachingtipping
pointsintheclimatesystemwhichifcrossedcouldresultinirreversibleclimatechange.Examplescould
includechangestolargescaleoceaniccirculatorysystemssuchastheGulfStreamorsignificantthawing
oficesheetswhichcouldbothhavesubstantialimplicationsforregionalclimates.
Beddingtonarguesthatthesocialandeconomicconsequencesofsucheventscouldbesignificant.For
example,increasedfloodingcoulddisruptglobalagricultureandfoodproductionaswellasdestroyvital
urbaninfrastructure.Andinthemostvulnerableareasoftheworld,Beddingtonbelievesthatclimate
changecould“exacerbatetensions”drivenbyalreadyprevalentissueslikefoodandwatersecurity,
energyshortagesandpoorhealth.
Inresponsetothethreatofclimatechange,BeddingtonechoesBirol’scallforimmediateaction.
Hearguesthatdecarbonisationoftheenergysectoris“probablyoneofthegreatesttechnological
challengesofthetwentyfirstcentury”.However,heimpliesthatsuchashiftinenergyinvestment
strategiesisalsoaneconomicopportunityandBeddingtonreferstoresearchbyHSBCwhichsuggests
thatthecarbonmarketcouldbeworthupto$2.2trillionby2020.
Clearlythen,whilsttoacertainextentclimatechangerepresentsaneconomicopportunity,itisforthe
mostpartadangerousriskthatposesdifferentproblemsindifferentregionsoftheworld.Thislastpoint
washighlightedinourfirstreportwithintheCentenaryseries.Weshowedwithpastdatathatextreme
weathereventscausegreaterfatalitiesinpoorurbanareasthanrichurbanonesduetothedifference
ininfrastructurebetweenthetwo.Assumingthatthereisalinkbetweenclimatechangeandincreased
catastrophicweatherevents,thenglobalwarmingislikelytoposeaparticularlysevererisktolifeacross
theurban,developingworld.
Figure 2. Distribution of fatalities and economic loss from cyclones per year
High-income nationsUpper-middleincome nations
Lower-middleincome nations
Low-income nations
People killed Economic loss
Dis
trib
utio
n of
fata
liti
es a
nd e
cono
mic
loss
0
10
20
30
40
50
60
70
80
90
100
81.3
3.1
16.4 16.8
0.95.9
1.3
74.1
Source:TheInternationalFederationofRedCrossandRedCrescentSocieties
3. past trends and possible futures
9 Future risk: Climate change and energy security – global challenges and implications
Climate change and developing countries Inourthirdessay,Dr Swenja SurminskioftheGranthamResearchInstitute(LSE)reflectsonclimate
changeandextremeweathereventsacrosslesserdevelopedcountries.Shearguesthatthesecountries
aremostatriskfromclimatechange–notjustbecauseofalackofbasicinfrastructureandrelianceon
agriculture–butalsobecauseofmanydevelopingcountriesbeinglocatedinhottropicalandsubtropical
environments.LikeBeddington,sheexpectsclimatechangeinsomepartsofthedevelopingworldto
exacerbatesocioeconomicriskdriverssuchaspoverty.
Inassessinghowgovernmentscanrespondtotheproblemofclimatechange,Surminskiassertsthat
aidisnotalwayseffective.Indeedshenotesthatthereisoftena‘moralhazard’atplay–relianceon
thisformofassistancecansometimesdetergovernmentsfromundertakingtheirownriskprevention
activitiesduetotheexpectationofpostdisasterrelief.
Inplaceofaid,Surminskifocusesontherolethatinsurancecanplayinhelpingtoadapttotherisksof
climatechange.Surminskiarguesthatwhenproperlydesigned“risktransfercanplayacosteffective
roleinacountry’seffortstoincreaseitsresilience,especiallywhencomparedtopostdisasteraid”.
Unfortunately,however,accordingtoSurminski,fewrisktransferschemes–includingmicroinsurancein
partsofAsia–haveexplicitlytakenaccountoftheimpactofclimatechangeonrisklevels.Shebelieves
thatthiswillneedtobeaddressedtoavoidmal-adaptationinthefuture.
Climate change and megacities Howclimatechangeinteractswithurbaninfrastructurewillalsobecrucialtounderstandingitsglobal
impact.Inourpenultimateessay,Professor Lord Julian HuntofUniversityCollegeLondonandDr Yulia
Timoshkina,HonoraryResearchFellowatUCLarguethattherearemanyreasonstofocusoncities;at
least60percentoftheworld’spopulationwillliveincitiesbytheendofthiscentury,citieswilldrive
globalenergydemandandtheireverincreasingsizewillsignificantlycontributetoclimatechangewhilst
remainingpronetoseriousnaturalhazardsoftheirown.
LordHuntandDrTimoshkina’scorepropositionisthattheincreasingscaleofcitiesaffectsthe
“operational,socialandeconomiccapacitiestodeal”withseverenaturalhazardslinkedtoglobal
warming.HuntandTimoshkinaarguethatinrapidlygrowingcities,infrastructuresystemslackresilience
tonaturalhazards.Withglobalwarminglikelytoincreasetheprevalenceoflargescale,longlasting
catastrophes,thisisaparticularlyseriousproblem.Ifinfrastructureisinadequatetowithstanda
disasterandcitizensarenotwarnedwellinadvanceofanevent,thenliveswillbeputatrisk.Insuch
circumstancesitmayultimatelybecomenecessaryforpopulationstoabandonsomecitiesaltogether.
Thankfullysuchascenarioisgenerallyavoidableandtheauthorssetoutspecificwaystoimprove
theabilityofcitiestoadapttoclimatechange.Measuresinclude;bettercommunicationssystemsto
forewarnendangeredareas,greaterinvestmentinmethodsofevacuationandtechnicalimprovements
inthedesignofshelters.Andperhapsmostimportantlyofall,HuntandTimoshkinastresstheneedfor
communitybuy-intowhateverplanningprocessesareputinplacetomakecitiessafer.
The role of insurance Inthelastessaywithinthisspecialreport,Professor David Crichton,HonoraryVisitingProfessoratthe
AONBenfieldHazardResearchCentreatUCL,alsoconsidersadaptationtoclimateriskwithparticular
emphasisontheroleoftheinsuranceindustryacrossEurope.Henoteshowincreasedfloodingcould
haveamajorimpactonpropertyandsocietywithparticularemphasisonthemostvulnerable–suchas
thosewithdisabilityproblemsordependentonmedicationmakingevacuationfromdisasterstricken
areasdifficult.Insurancecanhelpby1)respondingtoclaimscostsbyadjustingpremiums,2)anticipating
naturalhazardsthroughscientificmodellingand3)managingadaptationeffortsthroughlobbying,
educatingandassistingauthoritiesinimprovingclimatechangeriskmanagement.
3. past trends and possible futures
10 Future risk: Climate change and energy security – global challenges and implications
Crichtonarguesthattobesuccessfulinthefuture,insurancecompaniesneedtobemoreactiveon
thesecondandthirdtypesofadaptation.Measurescouldinclude,forexample,greaterindustry
engagementinlanduseplanningandeconomicincentivessuchasinsurancediscountsforsustainable
floodmanagement.HenotesexamplesinGermanyandSwitzerlandofnaturalfloodmanagement
techniquessuchasintroducingforestrytoreducerainfalloff.AndperhapsoneofCrichton’smost
compellingmessagesisaboutbuildinginfloodplains–whichstilltakesplaceinEnglandandTurkey
andwhichhasthepotentialtosignificantlyincreaserisktolifeandlocalbusiness.
Inshortthen,ourexpertauthorsidentifyanumberofsignificantandinterrelatedrisksassociatedwith
energyandclimatechange,whichcouldhavesubstantialimplicationsforthehealthandwellbeing
ofpeopleacrosstheworld.Allofourauthorshighlighttheimportanceoftakingactionnowinorder
toimproveourabilitytobothreducetheextentofglobalwarmingandtotakemeasurestoadaptour
buildingsandindustriessothattheyaremoreresilienttosomeofitsconsequences.Actionmustnot
bedeferred–whatpolicymakersandbusinessleadersdonowwillhaveimportantimplicationsforour
long-termfuture.Inlaterchapterswewillusethisexpertanalysistoformthebasisforsomefuture
environmentalscenariosandhowtheymightimpactupontheinsuranceindustry.
3. past trends and possible futures
11 Future risk: Climate change and energy security – global challenges and implications
4. Future environmental risks: what the experts say
Energy and climate change – looking at future trends and risks Dr Fatih Birol, Chief Economist and Director, Office of the Chief Economist, International Energy Agency, Paris, France
Theworldisperfectlyontrackforanunsustainableenergyfutureandtherearefewsignsthatthe
urgentlyneededchangeindirectionisunderway.But,ifenergyiswhatreallymakestheworldgoround,
whyarethingsheadinginthewrongdirection?In2011,eventssuchasthoseattheFukushimaDaiichi
nuclearpowerplantandtheturmoilinpartsoftheMiddleEastandNorthAfrica(MENA)castdoubts
onthereliabilityofenergysupply,whileconcernsaboutsovereignfinancialintegrityhaveshiftedthe
focusofgovernmentattentionawayfromenergypolicyandlimitedtheirmeansofpolicyintervention,
bodingillforagreedglobalclimatechangeobjectives.Buttheyhavenotchangedtheonethingofwhich
wecanbecertain:growingpopulationandprosperitywill,inthelongerterm,continuetopushupthe
world’senergyneeds.Whatislesscertainishowwillthoseneedsbemetandwhattheconsequences
ofourenergychoiceswillbe.Theenergyindustry’sabilitytoprovideclean,affordableandsecure
energytogrowingpopulationsandeconomiesisalwayscomplicatedbytheinterplayofanumberof
differentfactors,mostofwhicharehardtopredictaccurately.Buttoday,theindustryisfacingaperiod
ofunprecedenteduncertainty–overtheeconomicoutlook,overfuturepolicydirection–whichis
complicatinginvestmentdecisions.Thecriticalchallengeistomeettheexpectedincreaseindemand
inwaysthatarereliable,affordableandthatdonotcompromisetheenvironmentthatweleavefor
futuregenerations.
the one thing of which we can be certain: growing population and prosperity will, in the longer term, continue to push up the world’s energy needs.
Global energy trendsTheInternationalEnergyAgency’s(IEA)flagshippublicationtheWorldEnergyOutlook5providesa
quantitativelookattherisksandopportunitiesfacingtheglobalenergyeconomyoutto2035.Oneof
thekeyconclusionsisthathowweproduceanduseenergyinthedecadestocomedependscruciallyon
actionstakenbygovernmentsaroundtheworld,thepolicyframeworkstheyputinplace,andhowthe
energyindustryandenergyconsumersrespond.
IntheWorldEnergyOutlook’scentralscenario(theNewPoliciesScenario),worldprimaryenergy
demandisprojectedtoincreaseby40percentbetween2009and2035.Althoughoveralldemandfor
energyissettokeeponrising,therearemajordifferencesintrendsbyregionandbyfueltype.In2009,
ChinaovertooktheUnitedStatestobecometheworld’slargestenergyconsumer–ahistoricre-ordering
oftheglobalenergyhierarchy.Lookingforward,theemergingeconomieswillcontinuetobetheprimary
driversofgrowthinglobalenergydemand.Overthenexttwoandahalfdecades,countriesoutside
oftheOECD6areexpectedtoaccountfor90percentofglobalpopulationgrowth,70percentofthe
increaseineconomicoutputand90percentofthegrowthinenergydemand.ChinaandIndiaaloneare
projectedtoaccountforaroundhalfthegrowthinglobalenergydemand(seeFigure3).Thedynamicsof
energymarketswill,therefore,increasinglybedeterminedbydecisionstakeninBeijingandNewDelhi.
Bycontrast,demandforenergyscarcelygrowsinthecountriesoftheOECD,withcoalandoildemand
projectedtodeclineovertheperiod.
5 TheInternationalEnergyAgency’sWorld Energy Outlook 2011waspublishedon9November2011.Seethewebsitewww.worldenergyoutlook.orgformoredetails
6 OrganisationforEconomicCo-operationandDevelopment
4. what the experts say
12 Future risk: Climate change and energy security – global challenges and implications
Over the next two and a half decades, countries outside of the OECD7 are expected to account for 90 per cent of global population growth, 70 per cent of the increase in economic output and 90 per cent of the growth in energy demand.
Figure 3. Growth in primary energy demand by region in the New Policies Scenario (milliontonnesofoilequivalent)
Mto
e
0
500
1,000
1,500
2,000
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3,000
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4,000
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2010 2015 2020 2025 2030 2035
Rest of world OECD
China India Russia Middle EastOther developing Asia
Theageoffossilfuelsisfarfromover,buttheirdominancedeclines.Fossilfuels–oil,coalandnatural
gas–areprojectedtoremainthedominantsourcesofenergyin2035,despiteafallintheirshareof
totalenergydemandfrom81percentto75percent.Ofthosefuels,demandfornaturalgasgrowsatthe
fastestrate(seeFigure4).Oildemandgrowsmoreslowly,reaching99millionbarrelsperday(mb/d)
by2035.Ofalltheenergysources,theuseofmodernnon-hydrorenewables(excludingbiomass)grows
mostrapidlycomparedtotoday,byalmost8percentperyear,morethanquadruplingitsshareof
totalenergyusefromlessthan1percenttodaytomorethan4percentby2035.Inthepowersector,
renewableenergytechnologies,ledbyhydropowerandwind,accountforhalfofthenewcapacity
installedgloballytomeetincreasingdemand.
7 OrganisationforEconomicCo-operationandDevelopment
4. what the experts say
13 Future risk: Climate change and energy security – global challenges and implications
Figure 4. Growth in world energy supply by fuel and region in the New Policies Scenario, 2009–2035 (milliontonnesofoilequivalent)
-400
0
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800
1,200
1,600
Oil Gas Coal Nuclear Biomass Other renewables
Hydro
Mto
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OECDNon-OECD
Ever-increasingdemandformobilitywilldriveoilmarkets.RisingincomesinChina,Indiaandother
non-OECDcountrieswillresultintheownershipofvehiclessoaring–weexpecttheglobalpassenger
vehiclefleettodoubleto1.7billionby2035.Thankfully,doublingthevehiclefleetdoesnotmeanan
equivalentriseinoildemandbecausetheincreaseismoderatedbyimprovedfueleconomy,agradual
riseinalternativefuelvehiclespoweredbyelectricityornaturalgas,andincreaseduseofbiofuels.But
aslongasthereareonlylimitedpossibilitiestosubstituteforoilasatransportationfuel,thisrelentless
riseindemandformobilitywillcontinuetobeamajorfactorunderpinningglobaloilmarkets.
Rising incomes in China, India and other non-OECD countries will result in the ownership of vehicles soaring – we expect the global passenger vehicle fleet to double to 1.7 billion by 2035.
Lookingatthesupplyside,thecostofbringingoiltomarketisexpectedtoriseasoilcompaniesare
forcedtoturntomoredifficultandcostlysourcestoreplacelostcapacityandmeetrisingdemand.New
sourcesofoilarecomingfromthedeepoffshore,orthe‘lighttightoil’thatisnowbeingdevelopedin
theUnitedStates,becauseofadvanceddrillingtechniquesandhydraulicfracturing.Thesetechnologies
alsobringnewrisks–inparticularenvironmentalrisks–thattheindustryhastoaddress.Buttheworld
stillreliesontheMiddleEastandNorthAfricaforthebulkofitsadditionalsupply–theexpectedgrowth
inoutputfromthisregionto2035isequalto90percentofthegrowthinglobaloildemand.Thesupply
pictureisthereforevulnerabletoanyshortfallininvestmentinthisregion.
WhilethecriticalnatureoftheMiddleEastandNorthAfricaregionforoilsupplywillcontinue,the
focusintermsofglobaldemandforoilimportswillchange.TheUnitedStatesiscurrentlythelargest
oil-importingcountryintheworld.But,acombinationofincreasedtransportefficiencyandincreased
domesticoilsupplypromiseadrasticreductionintheUnitedStates’oilimports(seeFigure5).By2015,
oilimportstotheEuropeanUnionareprojectedtosurpassthosetotheUnitedStates,andbyaround
2020Chinabecomesthelargestsingleoilimportingcountry.TheEuropeanUnionisalreadythelargest
importerofnaturalgasintheworldandgasimportstoChinaandotherfast-growingAsianeconomies
arealsorisingrapidly.Thesechangingpatternsofglobaltradeimplyshiftingconcernsaboutthecostof
importsandaboutoilandgassecurity,andafurthersea-changeinthegeopoliticsofenergy.
4. what the experts say
14 Future risk: Climate change and energy security – global challenges and implications
Figure 5. Net imports of oil in selected countries in the New Policies Scenario (millionbarrelsperday)
mb/
d
20102000 2035
0
2
4
6
8
10
12
14
China India European
Union
United
States
Japan
Therearegoodreasonsbothonthedemandandthesupplysidestoforeseeabrightfuture,evena
goldenage,fornaturalgas.Weexpectthatglobaldemandfornaturalgasissettocatchupwiththat
ofcoalby2035,withmostoftheadditionaldemandcomingfromcountriesoutsidetheOECD,notably
China,IndiaandcountriesacrosstheMiddleEast.Naturalgasisaparticularlyattractivefuelfor
countriesthatareseekingtosatisfyrapidenergydemandgrowthinfast-growingcities.Onthesupply
side,unconventionalgasnowaccountsforhalfoftheestimatedresourcebaseanditismorewidely
dispersedgeographicallythanconventionalresources,afactthathaspositiveimplicationsforenergy
security.Unconventionalproductionisexpectedtorisetoaccountforone-fifthoftotaloutputby2035,
althoughthepaceofunconventionaldevelopmentvariesconsiderablybyregionwiththeUnitedStates,
ChinaandAustraliatakingthelead.Naturalgasisthecleanestofthefossilfuelsandsocanplayan
importantroleinthetransitiontoalow-carbonenergyfuture.However,increaseduseofgasinitself
(withoutcarboncaptureandstorage)doesnotprovidetheanswertothechallengeofclimatechange.
Natural gas is a particularly attractive fuel for countries that are seeking to satisfy rapid energy demand growth in fast-growing cities.
Coalwasthebigwinneroftheenergyraceoverthelastdecade,butthefutureislesscertain.Coal
accountedfornearlyhalfoftheincreaseinglobalenergyuseoverthelastdecade,withthebulkofthis
increasemeetingdemandforelectricityinemergingeconomies.Theinternationalcoalmarketisvery
sensitivetodevelopmentsinChina,whichaccountsforalmosthalfofglobalproductionanddemand,
andincreasinglyalsotoIndia,whichisexpectedtoovertaketheUnitedStatesastheworld’ssecond-
largestcoalconsumerinthe2020s.Widespreaddeploymentofmoreefficientcoalfiredpowerplants
andcarboncaptureandstorage(CCS)technologycouldboostthelong-termprospectsforcoal,butthere
arestillconsiderablehurdles.
4. what the experts say
15 Future risk: Climate change and energy security – global challenges and implications
Anexpansionofnuclearpowerpost-Fukushimaisstillonthecardsastherehasbeennochangeof
policyinthekeycountriesdrivingtheexpansionofthenuclearindustry,suchasChina,India,Russia
andKorea.Whatismore,renewablesaresettocomeofage,underpinnedbycontinuedgovernment
subsidies.Thesubsidycostperunitofrenewableenergydeclinesascostsarereducedandinsome
casesrenewabletechnologiesbecomingcompetitivewithoutsupport.Butinmostcases,renewable
energyrequirescontinuedsubsidies:theglobalcostofsubsidiesisexpectedtorisefrom$66billionin
2010to$250billionby2035assupplygrowsfromrenewablesources.Thisdeliverslastingbenefits,
suchasamorediverseelectricitymixandareductioninemissionsofgreenhousegases.TheEuropean
UnionandChinaareexpectedtotaketheleadinpushingtheintroductionofgreentechnologies.
Global investment in energy supply infrastructure of $38 trillion is required over the period to 2035, and almost two-thirds of the total is in countries outside of the OECD.
Globalinvestmentinenergysupplyinfrastructureof$38trillionisrequiredovertheperiodto2035,
andalmosttwo-thirdsofthetotalisincountriesoutsideoftheOECD.Oilandgascollectivelyaccount
foralmost$20trillion,asboththeneedforupstreaminvestmentandtheassociatedcostriseinthe
medium-andlong-term.Thepowersectorclaimsmostoftheremainder,withover40percentofthis
beingfortransmissionanddistributionnetworks.
Global climate outlookOverall,thereismuchmoretobedonetoputtheworldonthepathtowardsamorereliableand
sustainableenergyfuture.AccordingtoouranalysisintheWorldEnergyOutlook,theworldisinreal
dangerofmissingthechancetoreachitslong-termtargetoflimitingtheglobalaveragetemperature
increaseto2degreesCelsius.Ifstringentadditionalactionisnotforthcomingby2017,thentheworld’s
existingcapitalstock–itspowerplants,buildings,factoriesandsoon–willgeneratealloftheCO2
emissionspermittedupto2035undera2degreeCelsiusscenario,leavingnoroomforadditionalpower
plants,factoriesandotherinfrastructureunlesstheyarezero-carbon,whichwouldbeextremelycostly.
A much greater focus on energy efficiency is vital – a real transformation in the way that we produce and use energy. Green technologies, nuclear power and technologies such as carbon capture and storage all have important roles to play as well.
Themostimportantcontributiontoreachingglobalclimatechangeobjectivescomesfromtheenergy
thatwedonotconsume(seeFigure6).Amuchgreaterfocusonenergyefficiencyisvital–areal
transformationinthewaythatweproduceanduseenergy.Greentechnologies,nuclearpowerand
technologiessuchascarboncaptureandstorageallhaveimportantrolestoplayaswell.Ifthereisa
substantialglobalshiftawayfromnuclearpower,orifcarboncaptureandstoragetechnologyisnot
widelydeployedalreadyinthe2020s,thiswouldmakeitharderandmoreexpensivetocombatclimate
changeandputanextraordinaryburdenonotherlow-carbontechnologiestodeliverloweremissions.
4. what the experts say
16 Future risk: Climate change and energy security – global challenges and implications
Figure 6: World energy-related CO2 emissions in the 2 degrees Celsius climate scenario relative to the New Policies Scenario (gigatonnes)
Gt
Abatement
2020 2035
Total (Gt CO2) 2.5 14.8
Efficiency 72% 44%
Renewables 17% 21%
Biofuels 2% 4%
Nuclear 5% 9%
CCS 3% 22%
20
22
24
26
28
30
32
34
36
38
2010 2015 2020 2025 2030 2035
New Policies Scenario
2°C trajectory
Note:ThecentralscenarioinWorldEnergyOutlook2011istheNewPoliciesScenario.The2°Ctrajectory
scenario(calledthe450ScenariointheWorldEnergyOutlook)worksbackfromtheinternationalgoal
oflimitingthelong-termincreaseinthemeanglobaltemperatureto2°Cabovepre-industriallevels,in
ordertotraceaplausiblepathwaytothisgoal.
4. what the experts say
17 Future risk: Climate change and energy security – global challenges and implications
Risks to the global energy economySowhatdoesthisanalysistellus?Inshort,itsaysthat,despitetheprospectofgreaterrelianceon
low-carbonenergysourcesandmoreefficientenergyusingtechnologies,thepaceofchangethatis
impliedbyourcentralscenariowillnotbeanywherenearfastenoughtoalleviatethreatstoourglobal
energysecurityandtoavertirreversibleclimatechange.Short-termeconomicandgeopoliticalrisks
arenotexpectedtochangethelong-termpictureofincreasingglobaldemandforenergy.Developing
countriesoutsideoftheOECDare,andwillcontinuetobe,responsibleformuchofthechangeinthe
globalenergylandscape.Manyoil-andgas-importingregionswillseeasignificantincreaseintheir
importdependence,withagrowingshareofthoseimportscomingfromtheMiddleEastandNorth
Africa.Coalhasplayedamuchlargerroleinsupportingtheeconomicgrowthindevelopingcountries
thanmanypeoplerealise,andtheextenttowhichthiscontinuestobetrueinthefuturewillbeacritical
question.Naturalgashasapotentiallygoldenfuturebutkeytoitsoutlookistheneedforgovernments
andindustrytobedeterminedintheirenforcementofbestpracticeproductionofunconventionalgas,
sominimisingtheenvironmentalrisks.Theclimatetrajectoryofthecentralscenarioisconsistentwitha
long-termincreaseintheaverageglobaltemperatureof3.5degreesCelsius,ratherthanthe2degrees
Celsiustargeted.Actiontoincreaseenergyefficiencyisthemostimportantsinglesteptotackling
climatechange,butnotenoughisbeingdone.Alongsidethis,governmentsupportforrenewableenergy
mustbeprotectedandexpanded,eveninthecontextofachallengingeconomicclimate.
Action to increase energy efficiency is the most important single step to tackling climate change, but not enough is being done. Alongside this, government support for renewable energy must be protected and expanded, even in the context of a challenging economic climate.
Itisthereforeclearthatpolicymakersandindustryleadersmustredoubletheireffortstoovercome
theenergychallengesthattheyshare,tacklingtheserisksandminimisingthepossibilitythatthe
nextglobalcrisisisanenergyone.Attheheartofpolicymakingwillbethedifficulttaskofbalancing
thesometimesconflictinggoalsofenergysecurity,climateprotection,energyaccessandeconomic
competitiveness,whileprovidingtheenergyindustrywiththelong-termandstableframeworkthatit
needstoconfidentlymoveaheadwiththehugeinvestmentsthatcantransformourenergyfuture.
Author’s biography
Dr Fatih Birol is the Chief Economist and Director of the Office of the Chief Economist of the
International Energy Agency. He oversees the annual World Energy Outlook which is the flagship
publication of the IEA and is recognised as the most authoritative source for energy analysis and
projections. He is also the founder and chair of the IEA Energy Business Council which brings
together leaders of some of the world’s largest energy companies and policymakers to seek
solutions to global energy challenges.
Dr Birol has been named by Forbes Magazine as among the most powerful people in terms of
influence on the world’s energy scene. He is a member of the UN Secretary-General’s ‘High-level
Group on Sustainable Energy for All’ and the Chairman of the World Economic Forum’s (Davos)
Energy Advisory Board. Throughout his career, he has been awarded from many governments and
institutions for his outstanding contribution to the profession.
4. what the experts say
18 Future risk: Climate change and energy security – global challenges and implications
Climate Change: implications for the UK and the rest of the world
Professor Sir John Beddington, Government’s Chief Scientific Adviser
Scientificevidencesuggeststhatourclimateischanging,mainlyasaresultofhumanactivity.Over
thecourseofthelastcenturyglobalaveragetemperatureincreasedby0.74°C.8Eachofthelastthree
decadeshas,onaverage,beenwarmerthantheprecedingone,andeachhassetanewandstatistically
significantrecord;withthe2000sthewarmestdecadeofall.9Continuingthiswarmingtrendhas
profoundimplicationsforoursocietiesandeconomies.
GreenhousegasestraptheenergywereceivefromtheSunandre-radiateitbacktoearth,warming
ouratmosphere.Thisnaturalgreenhouseeffectkeepstheearth’satmospherewarmenoughtosustain
life,butthehighertheconcentrationofgreenhousegasesintheatmosphere,themoreenergyis
trappedandthemoreouratmospherewarms.Sincetheindustrialrevolution,throughtheburningof
fossilfuels,agriculturalpracticesandlandusechanges,thelevelsofgreenhousegasesintheearth’s
atmospherehaverisen.Icecorerecordsshowatmosphericconcentrationsofcarbondioxide(CO2)are
attheirhighestlevelfor800,000years10andtherateofemissionscontinues;with2011seeingarecord
riseinglobalCO2emissionsfromfossilfuelcombustion.11Howmuchourclimatechangesinthefuture
dependsonwhetherthisrateofemissionscanbeconstrainedandreversed.
Wearealreadycommittedtoacertainamountofclimatechange:Evenifglobalgreenhousegas
emissionsweretodramaticallyreducetomorrowthewarmingtrendwillcontinueforseveraldecades
astheclimatesystemslowlyrespondstopastandcurrentemissions.Howseverethechangesto
ourclimateareoverlongertimescalesdependsonhoweffectivelymitigationactionistakenbythe
globalcommunity.
Even if global greenhouse gas emissions were to dramatically reduce tomorrow the warming trend will continue for several decades as the climate system slowly responds to past and current emissions.
Scenariosdescribingpotentialglobalemissionstrajectoriesfordifferenteconomic,demographicand
technologicalfuturesarewidelyusedinassessmentsofpossiblefutureclimatechange.12Climate
projectionsforarangeofscenariostendstoshowbroadlyconsistentlevelsofwarmingouttothemiddle
ofthiscenturybetweenscenariosinwhichemissionsareconstrainedandthoseinwhichtheyarenot,
duetothedominantroleofpastemissions.Aroundthemiddleofthecenturywarmingtrajectoriesstart
todiverge:Scenariosinwhichemissionsareconstrainedshowaslowingdownandgraduallevelling
offofglobalwarming,whereashighemissionstrajectoriesshowthemeanannualglobaltemperature
continuingtoincrease,wellbeyond2°Cofwarming.
Likeanyassessmentofthefuture,projectionsofthefutureimpactsofclimatechangewillalwaysbe
uncertaintosomedegree.Thisisinpartduetouncertaintyovertheleveloffuturegreenhousegas
emissions,butalsolimitationstoourscientificunderstandingofsomeaspectsofclimatechange,and
totheextenttowhichweareabletorepresentasystemascomplexastheclimatesysteminclimate
models.Thisuncertaintyoverthefutureisnotsomethingwhichshouldparalysedecision-making.The
uncertaintyisnotwhethertheworldwillexperienceclimatechangebuthowitsimpactswillbefelt,and
aworldwhichhaswarmedbymorethan2°Cislikelytoexperiencesomeverysignificantimpacts.
8 Trenberth,K.E.,Jones,P.D.,Ambenje,P.,Bojariu,R.,Easterling,D.,KleinTank,A.,Parker,D.,Rahimzadeh,F.,Renwick,J.A.,Rusticucci,M.,Soden,B.&Zhai,P.(2007)Observations:SurfaceandAtmosphericClimateChangeIn:ClimateChange2007:ThePhysicalScienceBasis.ContributionofWorkingGroupItotheFourthAssessmentReportoftheIntergovernmentalPanelonClimateChangeCambridgeUniversityPress
9 Arndt,D.S.,Baringer,M.O.andJohnson,M.R.Eds.(2010)StateoftheClimatein2009.Bull.Amer.Meteor.Soc.,91(7),S1–S224
10 Luthi,D.etal(2008)High-resolutioncarbondioxiderecord650,000–800,000beforepresentNature453:379-382
11 InternationalEnergyAgency(2012)http://www.iea.org/newsroomandevents/news/2012/may/name,27216,en.html[lastaccessed06/05/12]
12 SuchasthosefromtheIPCC’sSpecialReportonEmissionsScenarios(SRES)
4. what the experts say
19 Future risk: Climate change and energy security – global challenges and implications
The uncertainty is not whether the world will experience climate change but how its impacts will be felt, and a world which has warmed by more than 2°C is likely to experience some very significant impacts.
Thereiswideacceptanceinthescientificcommunitythattherearealsolikelytobe‘tippingpoints’in
theclimatesystemwhich,ifcrossed,couldresultinlong-termorirreversiblechangestoourclimate.The
warmerourclimategets,thegreaterthelikelihoodofpassinga‘tippingpoint’;beitaccelerated(and/or
irreversible)meltingoftheGreenlandorWestAntarcticIceSheets,whichcouldsignificantlyincreasesea
levels,orchangestolarge-scaleatmosphericandoceaniccirculatorysystems,suchastheGulfStream,
whichcouldpotentiallyfundamentallyalterregionalclimates.
TheCopenhagenAccord13recognisesaneedtokeepglobalaveragetemperatureincreasetowithin2°C
comparedtopre-industrialtemperatures,withtheaimofavoidingthemostseriousimpactsofclimate
change.Scientificanalysisshowsagapbetweentheemissionsreductionspledgedby2020undertheAccord
andtheglobalemissionscutsneededtostaywithin2°Cwarming.Thisgap,andtheneedforgreaterambition,
wasrecognisedatthemostrecentUnitedNationsFrameworkConvention(UNFCCC)conferencenegotiations
inDurban.
Eveninthecurrentlyratherunlikelyscenariothatinternationalactionsleadtoaworldwhichhasonlywarmed
by2°Cwecanexpectarangeofimpacts,manyofwhichwillbenegative.Risingtemperatureswillaffect
weatherandprecipitationpatterns,sealevelwillrise,heatwaveswillincrease,andthereisthepotential
foranincreaseinextremeevents,suchasdroughts,floodingandstormsurges.Theseimpactswillnotbe
geographicallyuniform;differentregionswillbeaffectedindifferentways.Climatemodelsshow,forexample,
thepotentialforenhancedlevelsofprecipitationinsomeareasoftheworld,whereasothersaremorelikely
toexperienceareductioninprecipitation.Thesekindsofchangeshaveseriousimplications,bothdirect
implicationsforlocalpopulationsandlivelihoods,butalsoindirectimplicationsforpopulationsinother
regions,giventhehighlyglobalisedworldwelivein.
Rising temperatures will affect weather and precipitation patterns, sea level will rise, heatwaves will increase, and there is the potential for an increase in extreme events, such as droughts, flooding and storm surges.
Whilescientistshavehighlevelsofconfidenceinsomeofthelargescaleimpactsofclimatechange,itismore
difficulttoassesstheimpactsatregionalandlocallevels.Moreover,thelevelofseverityofmanyimpactsof
climatechangewilldependonthecontextinwhichtheyoccurandthecapacityofthoseaffectedtoadapt.
Makingdecisionsintheabsenceofcertaintyrequiresustoassesstherangeofpotentialoutcomesand
options.Evenwhenthereissignificantuncertaintytherecanstillbe‘noregrets’actionswhichcanbetaken.
InJanuarythisyeartheDepartmentforEnvironment,FoodandRuralAffairspublishedtheUK’sfirstClimate
ChangeRiskAssessment.14Thisground-breakinganalysislooksatrisksposedbyclimatechangeacrossUK
regionsandsectorsouttotheendofthiscentury;identifyingkeyrisks–intheabsenceofanyaction–to
theincreasedchanceofflooding;waterscarcity;threatstowildlife,and;whilewarmerwintersmayreduce
cold-relateddeaths,hottersummersarelikelytoincreasehealthrisks.
13 http://unfccc.int/documentation/documents/advanced_search/items/3594.php?rec=j&priref=600005735#beg[lastaccessed09/02/12]
14 http://www.defra.gov.uk/environment/climate/government/risk-assessment/
4. what the experts say
20 Future risk: Climate change and energy security – global challenges and implications
Forthemajorityoftherisksidentifiedtheseverityofimpactincreaseswithtimeinscenarioswhereemissions
arenotconstrained.Forexample,annualdamagetoUKpropertiesduetofloodingfromriversandthesea
currentlytotalsaround£1.3billion.ForEnglandandWalesalone,thefigureisprojectedtorisetobetween
£2billionand£12billionabovecurrentlevelsbythe2080sintheabsenceofanyadaptation.15TheClimate
ChangeRiskAssessmentalsosuggeststhattheremaybeopportunities;forexample,forbusinessestomake
themostofpotentialservicesrelatedtoclimatechangeadaptation.However,theneteffectofclimatechange
fortheUKisthoughttobenegative,ifnoactionistaken.
climate change, while a discrete challenge, is likely to act as a ‘risk multiplier’, interacting with other trends, exacerbating existing tensions and insecurity, and making it even more difficult to address poverty, disease, food and water insecurity.
ToaugmenttheevidencebasefortheClimateChangeRiskAssessmentaForesightstudy16lookedatthe
indirectriskstotheUKasaresultofclimatechangeimpactsoverseas.Thisstudyconcludedthatclimate
change,whileadiscretechallenge,islikelytoactasa’riskmultiplier’,interactingwithothertrends,
exacerbatingexistingtensionsandinsecurity,andmakingitevenmoredifficulttoaddresspoverty,disease,
foodandwaterinsecurity.
Evenwithoutclimatechangetheearth’sresourcesarealreadystretched.Sevenbillionpeoplecurrently
inhabitourplanetandthisfigureissettogrowto8billionby2025and9billionby2050.17Withthisgrowing
populationcomesgrowingdemandforfood,waterandenergy.Aroundoneinfivepeoplegloballystillhave
noaccesstoelectricity18andareasoftheworldareexperiencingfoodandwaterinsecurity:almostone
billionstillsufferfromhunger(andanotherbillionsufferfrom‘hiddenhunger’;long-termdeficienciesofkey
micronutrients)and1.2billionliveunderconditionsofphysicalwaterscarcityinriverbasinswherewater
resourcesdevelopmenthasexceededsustainablelimits.19
Overthenextfewdecadesitishighlylikelythattheworldwillcontinuetoexperiencerapidpopulation
growth,significantdemographicshifts,increasedglobalisation,greaterglobalinequality,resource
scarcity(includingwaterinsecurity)andshiftsineconomicpower.Areasoftheworldcurrentlyoptimised
for20thCenturyclimaticconditionswillneedtoadapttothechallengesthatanewclimatewillbring,
whilemeetingthedemandsofagrowingpopulation.
Areas of the world currently optimised for 20th Century climatic conditions will need to adapt to the challenges that a new climate will bring, while meeting the demands of a growing population.
Thesubstantialuncertaintyandcomplexitythatarisesinassessingthephysicaleffectsoffutureclimate
changealsoappliestoanyconsiderationofthepolitical,security,economic,andsocialimpacts,and
theinteractionsofthelatterwithwiderglobaldriversofchange.Impactsarecontextualandarelikelyto
differacrosssectors,regions,countriesandpopulations.
15 http://www.defra.gov.uk/environment/climate/government/risk-assessment/[Evidencereport,pagex]
16 ForesightInternationalDimensionsofClimateChange(2011)FinalProjectReport,GovernmentOfficeforScience,LondonAvailableat:http://www.bis.gov.uk/foresight/our-work/projects/published-projects/international-dimensions-of-climate-change[lastaccessed09/02/12]
17 UNDepartmentofEconomicandSocialAffairs(DESA)PopulationDivision(2011)WorldPopulationProspectsThe2010Revision:HighlightsandAdvanceTables,UnitedNations,NewYorkAvailableat:http://esa.un.org/wpp/Documentation/pdf/WPP2010_Highlights.pdf[lastaccessed10/02/12]
18 WorldEnergyOutlook2011ExecutiveSummary,InternationalEnergyAgencyAvailableat:http://www.iea.org/weo/docs/weo2011/executive_summary.pdf[lastaccessed09/02/12]
19 UnitedNations(2008)TheMillenniumDevelopmentGoalsReport2008,UnitedNations,NewYorkAvailableat:http://www.un.org/millenniumgoals/pdf/The%20Millennium%20Development%20Goals%20Report%202008.pdf[lastaccessed10/02/12]
4. what the experts say
21 Future risk: Climate change and energy security – global challenges and implications
TheForesightInternationalDimensionsofClimateChangestudyidentifiedarangeofriskstotheUK
fromclimatechangeimpactsoverseas.Theseincludepotentialdisruptiontovitalinfrastructureserving
globalmarkets,duetotheincreasingriskoffloodingandotherextremeweathereventsto,forexample,
communicationsnetworksanddatacentres;disruptiontoglobalagriculturalandfoodproduction
anddisruptiontosupplychains,throughimpactsoninfrastructureandtransportnetworksandthe
extractionofvitalrawmaterials.Shortsupplyofresourcesandincreasesincommoditypricesdrivenby
climatechangecouldleadtomoreprotectionisttrademeasures.Becausemanyglobalinfrastructure
networksareinterdependentthereisalsoariskof‘cascadefailure’wheredamagetoonenetworkhas
negativeimplicationsforothers(forexample,transportationisheavilyreliantuponcommunications
infrastructure,whichisitselfreliantonpowernetworks).20
Climate change impacts could exacerbate tensions driven by issues such as food, water and energy shortages, demographics and poor health.
Inthemostvulnerableareasoftheworld,governanceatthestatelevelisalreadyoverstretched,and
therewillbealimitedcapacitytoadapttoclimatechange.Climatechangeimpactscouldexacerbate
tensionsdrivenbyissuessuchasfood,waterandenergyshortages,demographicsandpoorhealth;and
wherethereislimitedresilienceorcapacitytorespondthereisthepotentialforheightenedregional
tensionsandwidereffectsoninternationalsecurityandstability.21
Populationgrowth,economicgrowthandurbanisationarelikelytoincreasethelevelofhumanand
economicexposure.Forexample,overhalfabillionpeopleliveinlowelevationcoastalzones,areasat
particularriskfromrisingsealevelsandflooding,andwhichalsocontainsignificanteconomicassets
andactivities(forexample,35percentoftheworld’soilrefineries,11percentofairportsandall
seabornetrade).22
Alongsidethepotentialnegativeimpacts,formoremoderatelevelsofclimatechangeatleast,thereare
alsopotentialbenefits.Forexample,somecroptypesareabletobenefitphysiologicallyfromhigher
temperaturesandatmosphericconcentrationsofCO2intheatmosphere(butthiswillonlyoccurif
plantgrowthisnotlimitedbyotherfactors,includingwaterandnutrientavailability).23Otherpotential
benefits,stronglyinfluencedbylocationandexistingconditions,includetheexpansionofareassuitable
forcropproduction,longergrowingseasons,and,forsomeregions,potentialincreasesinrainfall.24
Bythesecondhalfofthecentury,however,withouteffectivemitigationaction,moreextremewarmingis
expectedtohaveanoverwhelminglynegativeimpactglobally,throughchangesinprecipitationpatterns,
morefrequentdroughts,increasedstressincrop,animalandfishproductionsystemsinresponseto
extremesintemperature,andthereducedreliabilityofwateravailabilityinsomeregions.25
Itisvitalforpolicymakers,inindustryaswellasGovernment,todevelopstrategiestomitigatetherisks
posedbyclimatechange,toplanforunavoidableconsequences,andtounderstandbetterhowsuch
consequencesmayincreaseotherpressures.Inmanycases,actiontakennow,orinthenearfuture,
willaddressfutureproblemsforsignificantlylessresourcethanactionatalaterdate,oftenbysimply
accountingforclimatechangewhenconsideringthelegacyofnewdevelopment.
20 ForesightInternationalDimensionsofClimateChange(2011)FinalProjectReport,GovernmentOfficeforScience,London
21 ibid
22 ibid
23 ForesightInternationalDimensionsofClimateChange(2011)PhysicalResourcesandCommoditiesandClimateChange,GovernmentOfficeforScience,LondonAvailableat:http://www.bis.gov.uk/foresight/our-work/projects/published-projects/international-dimensions-of-climate-change/reports-and-publications[lastaccessed14/02/12]
24 ibid
25 ibid
4. what the experts say
22 Future risk: Climate change and energy security – global challenges and implications
In many cases, action taken now, or in the near future, will address future problems for significantly less resource than action at a later date, often by simply accounting for climate change when considering the legacy of new development.
Thatclimatechangeistakingplace,andprojectedtocontinueforatleastseveraldecadesevenwith
ambitiouseffortstoreduceemissions,iswellsupportedbytheevidence.Uncertaintiesinspecific
areasofclimatescience,alongwiththeinherentuncertaintyofconsideringthefutureoverseveral
decades,particularlybeyondmid-century,donotdiminishtheneedtotakeactionnow.Rather,they
implytheneedtodevelopplansandpolicieswhichareresilienttofutureuncertaintiesbytakinga
risk-basedapproach.
Therearealsoobviousbusinessopportunitieswhichmaybegeneratedbecauseoftheneedtoreduce
emissionsoradapttoclimatechange.UKbusinesshassignificantstrengthswhichcouldhelpother
countriestomitigateandadapttoclimatechange.Theyincludelow-carbontechnologies,coastal
engineering,financeandinsuranceexpertise,andclimateandweatherscience.Therewillbegrowing
demandfortheseskillsastheworldadaptstoclimatechange.
BusinessandfinancialservicesarekeysectorsoftheUKeconomyandsignificantfinancialinvestment
willbeneededforeffectiveclimatechangemitigationandadaptation.Investmentopportunitiesinclude
awiderangeofgreentechnologies,particularlyintheenergysector,suchaswindpower,andcarbon
captureandstorage.HSBC,ina2010report,consideredfourscenariosoffuturelowcarbonmarket
growthbasedonpolicyimplementations,withitsmostlikelyscenarioestimatinga$2.2trillionglobal
lowcarbonmarketby2020.26
Mitigatingagainstthemostsevereimpactsofclimatechange,andbuildingresiliencetothoseimpacts
whichareunavoidable,aresignificantchallenges.Wemustlooktoscienceandengineeringtodeliver
thefundamentalchangesthatclimatepolicydemands.Thedecarbonisationofourenergysectoris
probablyoneofthegreatesttechnologicalchallengesofthetwenty-firstcentury,bringingwithitreal
opportunitiesforUKprosperityandglobalsustainablegrowth.Oursuccessinachievingchangemust
alsobebasedonindividualbehaviourandsocietalacceptance–understandingtheinterplaybetween
thesefactorsandnewtechnologywillbeimportanttoclimatepolicydeliveryinanumberofareas.
Author’s biography
Sir John Beddington was appointed as Government Chief Scientific Adviser (GCSA) on 1 January 2008.
Since being in post, the GCSA has led on providing scientific advice to Government during the 2009
swine flu outbreak, the 2010 volcanic ash incident, and the emergency at the Fukushima nuclear
power plant in 2011. Throughout 2008 and 2009 Sir John raised the concept of the “Perfect Storm”
of food, energy and water security in the context of climate change, raising this as a priority in the UK
and internationally. Prior to his appointment as GCSA, he was Professor of Applied Population Biology
and headed the main departments of environmental science and technology at Imperial College. In
June 2010 he was awarded a knighthood in the Queen’s Birthday Honours.
26 HSBC(2010)SizingtheclimateeconomyAvailableat:http://www.research.hsbc.com/midas/Res/RDV?ao=20&key=wU4BbdyRmz&n=276049.PDF[lastaccessed09/02/12]
4. what the experts say
23 Future risk: Climate change and energy security – global challenges and implications
Climate change and extreme weather events in developing countriesDr Swenja Surminski (Centre for Climate Change Economics and Policy/Grantham Research Institute, London School of Economics, London, UK)
IntroductionFatalitiesandinjuries,propertydamage,economicandsocialdisruption–theimpactofextreme
weathereventscanbewidespreadandlong-lasting.Inadditiontodirectlocalconsequencesthere
canbedisruptiononaglobalscale,throughourever-growingconnectedness,affectingtravel,trade,
supply-chainsandcommunication,insomecasesevengeopoliticalstability.2011providedplentyof
evidence–severedroughtsinEastAfrica,floodsinAustraliaandThailand,landslideandflashfloodsin
BrazilandItaly,justtonameafew.Andthecostsappeartoberising,reachinganestimated$US150bn
in2010,thefifth-highestlevelsince1980.27
Thereisbroadagreementamongstexpertsthattheobservedglobaltrendinrisinglossesfromextreme
weathereventsismainlycausedbywealthandpopulationincreases,i.e.moreassetsandpeople
locatedinharm’sway.
Butoverthecomingfewdecades,climatechangeisalsoexpectedtoalterthegloballandscapeof
naturalcatastropherisk.Thescaleandspeedofthechangesisdeeplyuncertain,duetothecomplex
interplaybetweenhumaninducedclimaticchanges,naturalclimatevariabilityandsocio-economic
factorssuchaspopulationtrendsandeconomicdevelopment.Someregionscouldseeincreasesin
weather-relatedextremeeventsandothersdeclines.
Climatesciencehasbecomemorevisibleandimportant,butthechallengeofcommunicatinglatest
findingsonclimatechangeremainscomplex.Societylooksforevidenceandguidance,butoftenthe
sciencepredictionsarelessthanclear,withalargedegreeofuncertaintyattachedtothefindings.This
canleadtoinaction–forfearofgettingitwrong.Oritcanleadtodenial–withso-calledclimatesceptics
arguingthatnothavingcompletecertaintyimpliesnotknowinganything.Butscientificevidence
suggeststhatbothinactionanddenialnowwouldleavefuturegenerationswithhugeeconomiccosts
andpotentiallyirreversibleandcatastrophicconsequences.
The challenge of climate change will not be resolved simply by waiting for better climate data and new models – the uncertainty attached to both scientific findings and socio-economic trends needs to be properly communicated by scientists and accepted by decision makers.
Thechallengeofclimatechangewillnotberesolvedsimplybywaitingforbetterclimatedataandnew
models–theuncertaintyattachedtobothscientificfindingsandsocio-economictrendsneedstobe
properlycommunicatedbyscientistsandacceptedbydecisionmakers.Thischallengeappliestoboth
theneedtoreduceemissions(mitigation)andtoprepareforthoseclimaticchangesalreadyinthe
systemduetohistoricemissions(adaptation).
27 MunichRe:TOPICSGEONaturalcatastrophes2010,publishedin2011
4. what the experts say
24 Future risk: Climate change and energy security – global challenges and implications
Communicatingclimatescienceandmakingitaccessibletopolicymakers,businessesandthewider
societyisimperative.Thisbecomesevidentinthecaseofextremeweatherevents:Notconsidering
potentialimpactscanleadtocostlymal-adaptation,suchasinadequateflooddefencestructuresor
insufficientbuildingrestrictionsincoastalareas.
Aparticularchallengewithregardstopredictingtheimpactofclimatechangeonnaturaldisasters
isthattheyareveryrare,andthereforeonlylimiteddataexists.Thisexplainsthelimitedconfidence
thatscientistsdisplaywhenprojectingpotentialfuturechangesofclimateextremes.Ingeneralterms
scientificconfidencelevelsaboutweatherextremesaredrivenbyarangeoffactors,suchasthequantity
andqualityofdata,theknowledgeaboutcomplexunderlyingprocesses,thereliabilityofsimulation
modelsandalsothetypeofhazardandthespecificlocationorregioninvestigated.28Thisexplainswhy
wemayknowmoreaboutsomehazardsandsomeareasandlessaboutothers.
The IPCC Special Report on Managing the Risks of Extreme Events and Disasters to Advance Climate Change AdaptationThemostrecentefforttocommunicatesciencefindingsaboutextremeeventsandclimatechangeisthe
InternationalPanelonClimateChange(IPCC)SpecialReportonManagingtheRisksofExtremeEvents
andDisasterstoAdvanceClimateChangeAdaptation.29TheIPCC,theUN’sscientificintergovernmental
bodysetuptoprovidescientificassessmentsoftheriskofclimatechange,taskedmorethan200leading
scientistsandexpertsfromaroundtheworldtoassessexistingknowledgeabouttheeffectsofclimate
changeonextremeweatherevents.AsummaryofthereportwaslaunchedinNovember2011,andthe
fullpublicationisexpectedforFebruary2012.
Thereportassessestheroleofclimatechangeinalteringfrequencyandseverityofextremeeventsand
investigatesriskmanagementandresilienceoptions.Thefindingsarecharacterisedbytheconfidence
intheirvalidity–expressedinan“uncertaintylanguage”,basedontheevaluationoftheunderlying
scientificevidenceandagreement(from“lowagreement/lowevidence”to“highagreement/high
confidence”),andonquantifiedmeasuresofuncertaintyexpressedasprobabilities(rangingfrom
“virtuallycertain99–100percentprobability”to“exceptionallyunlikely0–1percentprobability”).
Theconfidencelevelsdependonthequalityandquantityoftheavailabledata.Itis,therefore,important
torecognisethat“lowconfidence”inafindingdoesnotgivetheall-clear.Itsimplysuggeststhatwedo
notknowenoughandthatwecouldeasilymisjudgethepotentialimpacts.
Figure 7: Evaluation of underlying scientific evidence: Confidence levels
HighagreementLimitedevidence
HighagreementMediumevidence
HighagreementRobustevidence
MediumagreementLimitedevidence
MediumagreementMediumevidence
MediumagreementRobustevidence
LowagreementLimitedevidence
LowagreementMediumevidence
LowagreementRobustevidence
28 IPCCSpecialReportonManagingtheRisksofExtremeEventsandDisasterstoAdvanceClimateChangeAdaptation,2012
29 IPCC,2011
Agre
emen
t
Evidence(type,amount,quality,consistency)
ConfidenceScale
4. what the experts say
25 Future risk: Climate change and energy security – global challenges and implications
Thereportdescribesas“virtuallycertain”aglobalincreaseinwarmtemperatureextremesandaglobal
decreaseincoldextremesinthe21stcentury,withlonger,morefrequentandstrongerheatwaves“very
likely”formostlandareas.Sealevelrisecontributingtorisingextremecoastalhighwaterlevelsisalso
“verylikely”.Anincreaseinthefrequencyofheavyprecipitationformanyregionsis“likely”.
The report describes as “virtually certain” a global increase in warm temperature extremes and a global decrease in cold extremes in the 21st century, with longer, more frequent and stronger heatwaves “very likely” for most land areas.
Forotherextremeweathereventsthepictureemergingismorecomplex:Whileanincreaseinthe
averagemaximumwindspeedoftyphoonsandhurricanesis“likely”,itisalso“likely”thatthenumber
oftheseextremetropicalcycloneswilldecreaseorstayunchanged.
Thereportassigns“mediumconfidencelevels”totheintensificationofdroughtsandexplainsthe
limitedconfidencebylackofobservationaldataandtheinabilityofmodelstorecogniseallfactors
contributingtodroughts.Similarly,thereis“lowconfidence”inglobalchangesinmagnitudeand
severityofriverfloods–withthereportreferringtolimitedevidenceandcomplexityofchangesat
regionalscale.
Wheredoesthisleavedecisionmakerswhoarelookingforguidanceintermsofpublicpolicies,
investmentdecisionsorinfrastructureplanning?
Thereisclearevidencethatwehavetoreducegreenhousegasemissionsandincreaseourclimate
resilience–butbyhowmuchandbywhenislessclear.Newapproachestodecisionmakingunder
uncertaintyareaddressingthischallenge–usuallybyfocusingonmeasuresandstrategiesthatare
deemedbeneficialunderdifferentclimaticscenarios(‘lowregrets’suchaswarningsystems,education,
andbuildingregulation)andbyallowingenoughflexibilitywithinapolicyoraninfrastructureplanto
takeintoaccountchangingevidenceandadjustingprotectionlevels.AnexampleforthisistheThames
Estuary2100plan,whichhasdevelopedafloodprotectionstrategyforLondontakingintoaccountthe
potentialimpactsofclimatechangeoverthenext100years.
New approaches to decision making under uncertainty are addressing this challenge – usually by focusing on measures and strategies that are deemed beneficial under different climatic scenarios.
Recognisingthepossibleimpactofclimaticchangesonthefrequencyandseverityofthehazardsis
important.Butitisofsimilarimportancetorecognisehowthisinterplayswithotherriskdrivers.
Populationgrowth,uncoordinatedurbanisationofteninexposedcostallocations,andenvironmental
degradationalonearesignificantriskdrivers,particularlyindevelopingcountries.Addingclimate
changetotheequationcreatesanevenmoredramaticpictureandunderlinestheurgencyforaction.
TheIPCCreportreflectsonthisandprovidesanassessmentofthecurrentevidenceonvulnerability
andexposuretrendsandriskmanagement.Itstateswith“highconfidence”that“theseverityof
theimpactsofclimateextremesdependsstronglyontheleveloftheexposureandvulnerabilityto
theseextremes”.30
30 IPCC,2011
4. what the experts say
26 Future risk: Climate change and energy security – global challenges and implications
Developing countries most at riskDevelopingcountriesaremostatriskfromchangesinextremeevents,duetoacombinationoffactors
suchasgeography–withmanybeinglocatedinalreadyhottropicalandsub-tropicalregions,sensitivity
oftheeconomiestoweatherbecauseoftherelativedominanceofagriculture,andlackofresourcesto
preparefordisastersandincreaseresiliencelevels.31
Whiletotaleconomiclossesfromnaturaldisasterarehigherindevelopedcountries,therelativesize
ofeconomicimpacts(economiclossesexpressedasaproportionofGrossDomesticProduct)andthe
numberoffatalitiesarehigherindevelopingcountries.EstimatesfromtheglobalreinsurerMunichRe
showthatbetween1980and2010,weathercatastropheshavecausedalmost1,200,000fatalitiesand
ledtodirectdamagesamountingtoUS$610billioninlowandlowermiddleincomecountries(Figure8).
Thesedisastersputatriskpastdevelopmentgainsbydamagingnaturalcapitalandinfrastructure,
underminingeconomicdevelopmentandsettingbackpovertyreductionefforts.32
...between 1980 and 2010, weather catastrophes have caused almost 1,200,000 fatalities and led to direct damages amounting to US$610 billion in low and lower middle income countries.
Figure 833: Fatalities and overall losses from global weather catastrophes by World Bank (as of 2010) income group between 1980 and 2010.
High income economies (GNI > 12,195 US$)
Income Groups 2010 (defined by World Bank)
* In 2010 values
Overall losses* US$2,310 bn Fatalities 1,400,000
Upper middle income economies (GNI 3,946 – 12,195 US$)
Lower middle income economies (GNI 996 –3,945 US$)
Low income economies (GNI < 996 US$)
66% 55%
28%
9%
8%
8%
3%
23%
Source:theMunichReNatCatSERVICEdatabase,April2011)
31 Milner,A.andDietz,S.:Adaptationtoclimatechangeandeconomicgrowthindevelopingcountries,CCCEPWorkingPaper,2011
32 WorldBank2009.WorldDevelopmentReport2010:DevelopmentandClimateChange
33 Ranger,Surminski,Silver(2011):Openquestionsabouthowtoaddress‘lossanddamage’fromclimatechangeinthemostvulnerablecountries:aresponsetotheCancúnAdaptationFramework.PolicyPaper,CentreforClimateChangeEconomicsandPolicyGranthamResearchInstituteonClimateChangeandtheEnvironment,London.http://www.cccep.ac.uk/Publications/Policy/docs/PP_Cancun-Adaptation-Framework-response.pdf
4. what the experts say
27 Future risk: Climate change and energy security – global challenges and implications
Climatechangeisexpectedtounderminetheresilienceofpoorercountriesbyexacerbating
socio-economicriskdriverssuchasunplannedurbanisation,povertyandenvironmentaldegradation.
Reductionsinagriculturalproductivity,waterscarcityandincreasingincidenceofdiseasealreadyreduce
theabilityofdevelopingcountriestoabsorbdisasterlossesandrecoverafteranextremeevent.34
Thisiswhyacloserintegrationofdisasterriskmanagementandclimateadaptationissoimportant.
Disasterriskmanagementisgenerallydividedintoex-ante(beforetheoccurrenceofadisaster–suchas
warningsystems,education,defencestructuresandinsurance)andex-postcategories(appliedafteran
event,suchasdisasteraidandreconstructionsupport).Thekeychallengewithex-postmeasuresisthat
theydonotpreventtheimpact,andarereactive.Historyshowsthatrelianceonaidcancreate‘charity
hazard’–wheregovernmentsdonotundertakeriskpreventionactivitiesintheexpectationthatshoulda
disasteroccurtheywouldreceiveaidpayments.
History shows that reliance on aid can create ‘charity hazard’ – where governments do not undertake risk prevention activities in the expectation that should a disaster occur they would receive aid payments.
TheIPCCreportassessesexistingapproachestomanagingextremeevents.Itstateswith‘high
confidence’thateffectivedisasterriskmanagementisusuallybasedonaportfolioofmeasuresto
reduceandtransferrisk,informedbythespecificlocalcircumstances.Thesemeasurescanalsoprovide
additionalbenefits,suchasimprovinggeneralhumanwell-beingandconservingbiodiversity.The
reportalsosignalstheopportunityofusing‘postdisasterrecovery’forimprovingresiliencelevels,for
example,byimprovedbuildingtechniques.Butdisasterriskmanagementcanalsoleadtolong-term
mal-adaptationandanincreaseinexposure,forexample,bytriggeringdevelopmentinexposedareas
throughtheprovisionofdefencemeasures,whichmaybecomeunabletocopewithclimaticchanges.
TheIPCCargueswith‘highagreement,mediumevidence’thatadaptationanddisasterriskreduction
actionaremosteffectivewhenthey“offerdevelopmentbenefitsintherelativelynear-term,aswellas
reductionsinvulnerabilityoverthelonger-term.”35
...risk management can also lead to long-term mal-adaptation and an increase in exposure, for example, by triggering development in exposed areas through the provision of defence measures, which may become unable to cope.
34 Warner,K.,Ranger,N.,Surminski,S.,Arnold,M.,Linnerooth-Bayer,J.,Michel-Kerjan,E.,Kovacs,P.andHerweijer,C.2009a.AdaptationtoClimateChange:LinkingDisasterRiskReductionandInsurance.ApaperpreparedfortheUnitedNationsInternationalStrategyonDisasterReduction(UNISDR).http://www.preventionweb.net/files/9654_linkingdrrinsurance.pdf
35 IPCC,2011
4. what the experts say
28 Future risk: Climate change and energy security – global challenges and implications
A role for insurance? Managingcurrentandfuturerisksisparticularlychallengingfordevelopingcountries,astheyoftenlack
resourcesandexpertise.Internationaleffortstorespondtothischallengehaveintensifiedoverthelast
fewyears.TheUnitedNationsFrameworkConventiononClimateChange(UNFCCC)hasnowrecognised
theimportanceofassistingvulnerablecountrieswiththemanagementofclimaterisks.TheCancùn
AdaptationFramework,anoutcomeofthe16thsessionoftheConferenceofPartiestotheUNFCCC,
highlightstheneedtostrengtheninternationalcooperationandexpertisetounderstandandreduce
lossanddamageassociatedwiththeadverseeffectsofclimatechangeandanewworkprogrammeon
‘LossandDamage’hasbeeninitiatedundertheUNFCCC.Thisconsidersawiderangeofadaptationand
riskmanagementmeasures.Oneparticularfocusofthisworkstreamistheproposaltocreateaclimate
insurancefacilitytoprovidecoveragainstextremeweatherevents.Thisconstitutesarecognitionthat
risktransferisstillinitsinfancyinmostdevelopingcountries.Mostdevelopingcountriesexperience
verylowinsurancepenetrationratesduetoarangeoffactorssuchashightransactioncosts,lackof
financialliteracyandlackofaccesstoaffordableproductsinremoteruralareas.36
Whilerisktransferisno’magicsolution’forallclimaterisksfacedbydevelopingcountries,thereis
evidencethatitcanplayacost-effectiveroleinacountry’seffortstoincreaseitsresilience,especially
whencomparedtoex-postdisasteraid.Ifappliedcorrectly,risktransferhasthepotentialtobean
importantpartofacountry’sadaptationandeconomicdevelopmentplan.Thisisalsounderlinedbythe
IPCCreportwhichstatesthat“risksharingandtransfermechanismatlocal,national,regionalandglobal
scalescanincreaseresiliencetoclimateextremes.”37Atthesametimethereisevidencethatapoorly
designedrisktransfercancreatemoralhazardandreduceincentivesforriskreduction.38
...there is evidence that it can play a cost-effective role in a country’s efforts to increase its resilience, especially when compared to ex-post disaster aid.
Therisinglossesfromextremeweathereventsposeasignificantchallengetotheinsuranceindustry.
Inresponse,insurershaveincreasedtheireffortstounderstandcurrentandfuturerisktrendsandwork
inpartnershipwithotherstakeholderstoincreaseresiliencelevels.39Thereisgrowingliteratureon
theimplicationsthatclimatechangecanhaveoninsuranceandhowtheprovisionofinsurancecould
supportthefightagainstclimatechange.Someoftheseimpactsarealreadyobservable,whileothers
arepredictedtooccurinthefuture,withthescaledependentonlocationandtypeofinsurance.
Asinsuranceisstillinitsinfancyinthedevelopingworld,lessattentionhasbeengiventotheroleofrisk
transferinsupportingclimateactivitiesinthosecountries.Butoverthelastdecademorerisktransfer
schemeshavebeendevelopedinpoorcountries,oftenrunaspilot-projectsbetweentheprivatesector
andpublicauthorities.
36 H.Ibarra,/J.Skees:Innovationinrisktransferfornaturalhazardsimpactingagriculture,EnvironmentalHazards7(2007)62–69
37 IPCC2011
38 Ranger,Surminski,Silver(2011)
39 IndividualcompaniesaswellassectorinitiativessuchasMunichClimateInsuranceInitiativeMCII,ClimateWiseandUNEPFI’sInsuranceWorkingGroup,aswellasindustryorganisationssuchastheCharteredInsuranceInstitute,theGenevaAssociationandnationaltradebodies,havestartedtopubliclyaddressthisissuethroughstatements,researchandevents
4. what the experts say
29 Future risk: Climate change and energy security – global challenges and implications
TherecentlypublishedCompendiumofDisasterRiskTransferInitiativesintheDevelopingWorld40offers
asnapshotofcurrentrisktransferactivitiesinlow-andmiddle-incomecountries.41TheCompendium
documents123existinginitiativesinmiddle-incomeandlower-incomecountriesthatinvolvethetransfer
offinancialriskassociatedwiththeoccurrenceofnaturalhazards.Thereappearstobepotentialinmany
placesandagrowingrecognitionofthepossiblerolesforrisktransfer.Closerexaminationshowsthat
theschemesarehugelydiverse,oftencreatedtomeetveryspecificneedsinaparticularcommunity,
withawiderangeofstakeholdersbeinginvolved,anddifferinglevelsofrisktransferbeingprovided.
Whileagriculturalinsuranceisthemostcommonforminallcountries,aparticulargeographical
preferenceforothertypesofinsuranceisnoticeable–suchasmicro-insuranceagainstnaturaldisasters
inAsia.Thismayreflectlocaltraditionandpossiblyalsoculturaldifferences,whileotherfactors,suchas
linkstomicro-financeschemes,mayinfluencethis.
...risk transfer schemes that do not recognise future risks may even lead to mal-adaptation and may not achieve economic viability.
OnlyoneofthedisasterrisktransferschemescapturedintheCompendiumappearstohaveexplicitly
takenintoaccounttheimpactofclimatechangeonrisklevels.Notsurprisingly,thelargemajority
ofrisktransferschemesfocusontoday’sweatherrisks.Thiscancapturealotofexperienceand
knowledgesuitableforadaptationefforts,asresiliencetotoday’sweatherisasteptowardsadaptation
toachangingclimate.Butrisktransferschemesthatdonotrecognisefuturerisksmayevenleadto
mal-adaptationandmaynotachieveeconomicviability.
Conclusion Everyextremeweathereventremindsusoftheimportanceofriskreductionandanincreaseinsocietal
resilience.TheIPCCreporthighlightstherisksandchallengesposedbyclimatechange,butalso
indicatessuitableoptionsforriskmanagementandresilienceincrease.Embracingscientificuncertainty
isimportant,withdecisionmakersrelyingonclearandtransparentcommunicationfromscientists.
Low-incomecountriesareparticularlyatrisk,withextremeeventsposingsignificantthreatstotheir
endeavourtosustainabledevelopment.Expectedimpactsofclimatechangeonthenaturalcatastrophe
landscapeunderlinetheurgencyofaction.Comprehensiveriskreduction,alignedwithclimate
adaptationmeasurescanhelpdevelopingcountriesmanagetheriskstheyface.Insurancerisktransfer
canbeausefulcomponentinthisstrategy,ifcorrectlydesignedandimplemented.
Comprehensive risk reduction, aligned with climate adaptation measures can help developing countries manage the risks they face. Insurance risk transfer can be a useful component in this strategy, if correctly designed and implemented.
Theneedtoaligndisasterriskmanagementandclimateadaptationhasbeenembracedbyexperts
forsometime,butprogressonthegroundisstilllimitedandslow.TheIPCCreportshouldbeauseful
remindernottowaitforthenextdisastertostrike,buttotakeprecautionaryaction.
40 ClimateWise(2011)“CompendiumofDisasterRiskTransferInitiativesintheDevelopingWorld”
41 Surminski&Oramas-Dorta:Buildingeffectiveandsustainablerisktransferinitiativesinlow-andmiddle-incomeeconomies:whatcanwelearnfromexistinginsuranceschemes?CCCEPPolicyPaper,2011
4. what the experts say
30 Future risk: Climate change and energy security – global challenges and implications
Author’s biography
Swenja joined the Grantham Research Institute and the Centre for Climate Change Economics and
Policy at the London School of Economics in September 2010. She works as a Senior Research Fellow
on a range of topics including the role of insurance in climate adaptation and mitigation; linking
adaptation and disaster risk reduction in developing countries; private sector adaptation; and the
economics and governance of natural disaster management.
Prior to joining the LSE she spent 10 years working in the international insurance industry, as climate
change adviser at the Association of British Insurers, for Marsh Risk Management division in London,
and for the Geoscience Team at Munich Re in Munich. Swenja has been a member of a range of
governmental and non-governmental steering groups and task forces, including the Management
Committee of the ClimateWise initiative, the European Insurance Industry Climate Change Taskforce,
and the London Climate Change Partnership Steering Group. She has been advising on climate
change risks at UN, EU and UK level and is the author of several papers on these topics.
In 2010, Swenja founded an independent climate insurance consultancy, advising industry and
policy makers.
Acknowledgements TheauthorwouldliketoacknowledgethefinancialsupportoftheGranthamFoundationforthe
ProtectionoftheEnvironment,aswellastheCentreforClimateChangeEconomicsandPolicy,whichis
fundedbytheUK’sEconomicandSocialResearchCouncilandbyMunichRe.
4. what the experts say
31 Future risk: Climate change and energy security – global challenges and implications
Growing challenges of megacities and climate change
Professor Lord Julian Hunt1,2, Dr Yulia Timoshkina1,2
1UniversityCollegeLondon,UniversityofCambridge
2AdvisoryCommitteeonProtectionoftheSea,Jan2012
1. IntroductionSincethesecondUNHabitatConferencein1996,scientists,engineers,plannersandpolicymakershave
beguntorealisetheimportanceoftheinteractionsbetweencitiesandthewiderglobalenvironment.
Theimportanceofurbanregionsindrivingeconomicgrowth,andefficientuseofenergyandnatural-
resourceshasneverbeengreaterforseveralreasons:first,citiesarepopular:overhalftheworld’s
populationlivesincities,andeveryweekonemillionpeoplemovetocities.
Second,thehigherstandardoflivingwithincitiesleadstoincreasingdemandsforgreaterenergyand
resourcesperperson,thoughtherearewidevariations,byafactoroffiveormorebetweenthemost
energyefficientcitiesinAsiaandthemostinefficientonesinNorthAmerica.
Third,everlargercitieshavesubstantialenvironmentalconsequences;theyarethemaincontributors
topollutionandglobalclimatechange.Ascitiesandclustersofcities,orconurbations,groweverlarger
theirenergyuseandpollutionemissionsincreaseapproximatelyinproportiontothesurfacearea.Asa
result,thoughcitiestakeuponlytwopercentoftheEarth’slandmass,theyareresponsibleforabout
57to75percentoftheheat-trappinggreenhousegases(GHG)thatarereleasedintoouratmosphere.
Citiesalsoaltertheadjoiningruralenvironment,andtheriversandcoaststhataresocrucialtothe
livelihoodsofmany.
Fourth,citiesarepronetoseriousrisks.Forexample,intheUSA,extremewindshaveendangeredthe
livesofthoselivinginlargecitieswherepeoplecannotescapebecauseofthesizeofthemetropolis.
...though cities take up only two per cent of the Earth’s land mass, they are responsible for about 57 to 75 per cent of the heat-trapping greenhouse gases (GHG) that are released into our atmosphere.
Thesetrendsdemonstratethatthesustainablefutureoftheplanetwillbedeterminedinlargecities.
Thispaperoutlinessomespecificchallengesandpracticalpoliciestoaddressthem.
2. Climatic and Environmental Trends Affecting Urban AreasTheIntergovernmentalPanelonClimateChangehasrecentlyreviewedhowincreasingextremesof
high-andlow-temperature,droughtandfloodarelikelytohavegreaterimpactswithclimatechange,
indifferentregionsoftheworld.Theseimpacts,especiallyinurbanareas,willgrowfasterthanmost
currentplansallowfor.Thelatestprojectionsforclimatechange(forexamplebytheInternational
EnergyAgency),basedonlikelyestimatesofexpandingemissionsofGHGbydevelopedanddeveloping
countries,indicatethatthefutureriseinaverageglobaltemperaturebytheendofthecenturywilllie
between3°and4°C.Thereisasteadytrendofrisingsurfacetemperatureoverlandareasoftheworld,
whereasthetrendfortheentiregloballandandseasurfacefluctuatesbecauseofsignificantdecadal
variationsofoceansurfacetemperatures.Theglobaltemperaturerisewillbesignificantlygreaterthan
the2°Ctarget,whichisstillconsideredtobethegoalofinternationalpolicyatUNclimateconferences
andbytheUKGovernment.
4. what the experts say
32 Future risk: Climate change and energy security – global challenges and implications
Suchariseintemperaturewillcauseanincreaseinthevariabilityofweatherandseasonalclimatein
certainpartsoftheworld.Forexample,therearelikelytobelongerperiodsofextremeheatandcold,
andstagnantweatherconditionswhichcaneffectivelyclosedownlargeareasofwindpowerorprolong
theseriouseffectsofvolcaniceruptionsonaviation.
In central London, for example, the urban heat island effect currently adds up to a further 5°C to 6°C to summer night temperatures and will intensify in the future.
Incities,observationalstudiesofthedecadalwarmingtrendworldwideshowthatthetrendisgreater
inurbanareasthaninthesurroundingregions.Intheeveningandnight-timethestoredheatinthe
buildingsistransferredtotheairandiscarriedawaybythewind.IncentralLondon,forexample,the
urbanheatislandeffectcurrentlyaddsuptoafurther5°Cto6°Ctosummernighttemperaturesandwill
intensifyinthefuture.Thelocationofthemaximumvarieswiththewinddirection;itisnotalwaysinthe
centre.InAsiancities,highlevelsofgaseousandparticulatepollution,whichincludedustfromdesert
areas,canalsotrapheatduringtheday,leadingtoevenhigherurbantemperaturesandairpollution.
Thelocalclimatevariesacrossurbanareas,withcoolspotslikeparks,riversandbuildings,whilelocal
hot-spotsoccuratairportsandcitycentres.Thesefactorsneedtobeconsideredinurbanplanningand
inpoliciesforthehealthofthepopulation.Pollutantscanbecarriedhundredsandeventhousandsof
kilometresdownwindofurbanareas,aswiththeaerosolsofeasternAsia.Thewindsassociatedwith
nearbycoastsandmountains,asinLosAngelesandPhoenix,cantransportpollutants30kmawayfrom
thecentreandthensweepthepollutantsbackagaintobuilduptheconcentrationsevenfurther.
As the Paris heatwave of 2003 demonstrated, local variations in the urban environment are very important, and can even determine the local pattern of mortality.
Asairpollutantsaretransportedacrossthecity,somegasesincreaseinconcentration,whileothers
undergochemicaltransformations.AstheParisheatwaveof2003demonstrated,localvariationsinthe
urbanenvironmentareveryimportant,andcanevendeterminethelocalpatternofmortality.Overall,
mortalityassociatedwithairpollutionisgreaterinlargercities,asshownbythestatisticsissuedbythe
WorldHealthOrganisation.
Theseandotherhazardsmaybecomemoreseriousandevenchangetheirnatureasaresultof
combinationsofeffectsresultingfromclimatechangeandothergeophysicalphenomena.This
combinationofriskisachallengetoscientificresearch,wheremorecollaborationbetweendifferent
specialismsisneeded.Forexample,therecouldbeincreasedimpactoftsunamisoncoastalcities
causedbytheincreaseinsea-levels,andeventsunamisonarcticcoastlinesasthesea-icemelts.The
greatesthazardsforurbanareasinAsiaareassociatedwithintenserainfallevents(withnewrecords
ashighas150milesperhour)whichcanrapidlyfloodandimmobilisemediumsizecities.Butsome
kindsofextremeeventsareapparentlynotworseninginfrequencyandintensity,suchastornadoes
andtropicalcyclones,althoughtherearetheoreticalreasonswhyworseningistobeexpectedinfuture
incertainregionsandincertainperiodsofatmosphericactivity.Combinationsofhazardscanhave
cumulativeeffectsonhumanhealth,suchasoccursinAsiawherehighurbantemperatures,together
withduststormsfromnearbydeserts,worsentheimpactsofhighconcentrationsofairpollution.
4. what the experts say
33 Future risk: Climate change and energy security – global challenges and implications
Combinations of hazards can have cumulative effects on human health, such as occurs in Asia where high urban temperatures, together with dust storms from nearby deserts, worsen the impacts of high concentrations of air pollution.
3. Environmental Risks and Increasing UrbanisationCitieshaveevolvedmeanstoshelterpeople,butasclimatechangeaffectsthenatureandmagnitudeof
meteorologicalandhydrologicalhazards,thereisanissueoverwhethertheywillcontinuetobeableto
doso.Thesedangers,whichvarywithclimaticregionsandgeography,areintensifiedbythepresenceof
largeandimmobilepopulations,aswellasthroughtheeffectsonbuildings,infrastructure,industryand
powerplants.
Many types of natural hazards have specific impacts on urban areas, which can arrive singly or in interaction with others... Current risk models generally underestimate these deadly combinations.
Manytypesofnaturalhazardshavespecificimpactsonurbanareas,whichcanarrivesinglyorin
interactionwithothers.Somecountriesareexposedtogeophysicalaswellasclimatichazardssuch
asvolcanoes,earthquakesandtsunamis,occasionallyatthesametime,asoccurredontheeastcoast
ofJapanin2011.Currentriskmodelsgenerallyunderestimatethesedeadlycombinations.Another
long-termhazardforlargeurbanisedareasindryregionsisreducedwatersupplyeithercausedby
reducedprecipitationlocallyorregionallyorbydepletingthewatertable.
Theincreasingscaleofcitiesaffectstheoperational,socialandeconomiccapacitiestodealwith
hazards.Somehazards,bothclimaticandenvironmental,aswellasthosecausedbyindustrial
accidentsandcriminals,arelocalisedoverdistancesmuchlessthantheoverallsizeofthecity.Inthis
casetheresourcesandsheerscaleofamegacityprovidesthecommunitiesaffectedwithrelatively
greaterresilience.
Buttheimpactsonconurbationsmaybeoverwhelmingwhenthehazardsareextendedacrossthe
wholecity,suchaswithfluvialflooding,largeearthquakes,heatwavesortropicalcyclones.Withclimate
changesomeofthesehazardscouldlastlonger.Insuchcircumstancesthedamagecanbewidespread
(likewaterborneorairbornedebris)acrosstheconurbation.
4. Current practices to adapt and mitigate natural hazardsTherearetwomainkindsofpolicyforreducingtheimpactofclimatechange;mitigation(reducing
netemissionsofcarbondioxideandothergreenhousegasestoreduceglobalwarmingandocean
acidification)andadaptation(increasedcapabilitytowithstandtheeffectsofclimatechange).The
formerpoliciesaregenerallyenactedoverglobalandregionalscales,whilethelatteraregenerally
morelocal.
4. what the experts say
34 Future risk: Climate change and energy security – global challenges and implications
Mitigation policiesEmissionsofgreenhousegasesleadtoacumulativebuild-upintheatmospherethataffectsthe
climateoftheplanet.Integratedandflexibleglobalcarbonmanagementtoeffectchangeisnecessary.
Thisrequiresajointcollaborativeapproachatglobalandnationallevels.Themostprominentpolicy
instrumentistheKyotoProtocoltotheUNFrameworkConventiononClimateChange,initiallyadopted
in1997.Despitetheagreements,whichstatedthatricherdevelopedcountriesshouldreducetheir
GHGemissionstobelowtheir1990levels,thefactremainsthatglobalemissionshavecontinuedto
rise.However,thisriseislesspronouncedthanitwouldhavebeenhadnomitigationmeasuresbeen
taken,giventheriseinemissionscausedbythesubstantialgrowthoftheglobaleconomyoverthe
pasttwodecades.
Improvementsintechnologyandenergyefficiencyarelimitingcertaincities’GHGemissions.Examples
includedevelopmentsinnon-fossilfuelsourcesofpowerandmoreefficientuseoftransportation
systemsinurbanareas.ButaccordingtotheUKClimateChangeCommitteethenecessarypoliciesfor
theUKarenotbeingintroducedfastenoughorstronglyenoughtoachievethenationaltargettoreduce
emissionsby80percentby2050,ortoadapttoclimaterisks.
It is intended that an agreement [to reduce GHG emissions] will be in place by 2015 for implementation by 2020. However, even if these efforts are successful, global emissions will still not start to fall before the middle of this century.
ThelatestinternationalclimateagreementbrokeredbytheUNFCCCatDurbaninDecember2011,
setatargetforlimitingGHGemissionsacrossallcountriesoftheworldincludingindustrialisingand
developingcountries.Itisintendedthatanagreementwillbeinplaceby2015forimplementationby
2020.However,eveniftheseeffortsaresuccessful,globalemissionswillstillnotstarttofallbeforethe
middleofthiscentury.
Inindustrialisingcountrieswithrapideconomicgrowthandincreasingemissions,suchasBrazil,
IndiaandChina,measuressimilartothoseintroducedindevelopedcountries,shouldbegintocurtail
emissionsbymid-century,whenpopulationlevelsofsomeregionsandcountrieswilllevelout.In
manycountries,energypoliciesarealsomotivatedbyothernationalpolicyobjectivessuchasreducing
relianceonfossilfuelsandimprovingenergysecurity.
Anothervitalcomponentof‘mitigation’policyistoensurethattheglobalareaofforestcoverremains
intactsoastocontinuetoabsorbasignificantproportion(about15percent)oftheCarbonDioxide
emittedbythehumanactivitiesoffossilfuelcombustion,includingtheexpansionofagriculture,which
canstillinvolvedeforestation.
Adaptation policiesComparedtoclimatechangemitigation,climatechangeadaptationpolicydevelopmentismuchless
developed.AlthoughtheBaliActionPlanandCopenhagenAgreementof2007and2009respectively
putadaptationonanequalfootingwithmitigation,nosubstantialinternationalfundingofvulnerable
countrieshasyetbeenagreed.However,effectiveadaptationmeasureshavebeenimplementedinsome
countriesandinsomevulnerableregionsasoutlinedlaterinthisessay.
4. what the experts say
35 Future risk: Climate change and energy security – global challenges and implications
Regional and local policies
Mitigation policies
Recent research...has shown that the majority of the top 60 UK cities by population size have agreed carbon reduction plans and targets.
Citiesnowrecognisetheneedtodealurgentlywiththesethreatstotheirsustainability.Themayorsof
400Europeancities,forexample,pledgedinFebruary2009tomake“drastic”cutsinCO2emissions
by2020.Recentresearch,fundedbytheRoyalInstitutionofCharteredSurveyorsEducationTrust,has
shownthatthemajorityofthetop60UKcitiesbypopulationsizehaveagreedcarbonreductionplansand
targets.CityofLondonaimstoreduceLondon’sCO2emissionsby60percentby2025andproposes:
• Stimulatinguptakeofelectricvehiclesandencouragementofwalkingandcycling.
• DevelopingLondonsmartgrid,whichenablesdecarbonisingenergysuppliesandtheincreasing
electrificationofheatandtransport.
• Recyclingofwasteandmoreefficientwateruse.
Citiesneedtomakeoverallplanstotransformtheirphysicalinfrastructure,theirplanningforfuture
developmentandtheirsystemsofenergy,water,andtransportation.Thereshouldbeotherbenefitsas
theybecomehealthier,greenerandmoreresourceefficient.
Adaptation policiesGivenprojectedcurrentclimatictrends,nationalGovernmentsandurbanauthoritiesarebeingforced
tointroducepoliciesforadaptingcommunities,industriesandagriculturetothelikelyconsequencesof
globalwarming.
Taking precautionary measures now, may be necessary to avoid having to take more drastic action later which, at its most extreme, could mean people having to abandon the city altogether.
Withcomputermodelsandremotesensingdata,itispossibletoplanhowtoreduceeffectsofclimate
changeandminimiseenvironmentalrisksinurbanareasthataredevelopingrapidly.Infutureitwill
becomepossibletogivegreaterforewarningaboutimpendinghazardsgiventhepresenceofmore
reliableprojectionsofatmosphericandoceanconditions–somecountriesarealreadyconsideringthe
useofelectromagneticionosphericdatatodetectearlysignsofearthquakes.Theconsequencesof
hazardsandimpactsneedtobeconsideredindividuallyandcollectivelyinordertodecideshort-term
responsesandlong-termpolicies.Integratedplanningcanhelpdealwithseveraltypesofhazard
simultaneously.Takingprecautionarymeasuresnow,maybenecessarytoavoidhavingtotakemore
drasticactionlaterwhich,atitsmostextreme,couldmeanpeoplehavingtoabandonthecityaltogether.
Indeedsomecoastalcommunitiesandislandstates,suchastheMaldives,arepreparingforsucha
possiblefateduringthiscenturyassealevelrises.
Constructionofnewdykesanddamsisconsideredthemosttraditionalstructuralmeasurestocopewith
increasingfloodimpactsand/orinundation-relatedrisks.Forexample,inHolland,followingamajor
reviewoftheirplanstopreventfutureflooding,theGovernmenthasdecidedtoraiseitsdykesbyseveral
metrestoallowfortheanticipatedriseinsealevelandinincreasedstormsurgesoverthenextcentury–
whichcorrespondstotheworstcasescenarioofsignificantmeltingofpolarice-caps.
4. what the experts say
36 Future risk: Climate change and energy security – global challenges and implications
...recent experience has emphasised how the magnitude of the impact depends not only on the nature and strength of the hazard, but also how well the community has adapted to reduce the impact of the hazard and to recover afterwards.
Thereisnotenoughworkonraisingtheawarenessofcommunitiesinordertoaccepttheriskofflooding
andbepreparedforit.Recentexperiencehasemphasisedhowthemagnitudeoftheimpactdependsnot
onlyonthenatureandstrengthofthehazard,butalsohowwellthecommunityhasadaptedtoreduce
theimpactofthehazardandtorecoverafterwards(i.e.itsresilienceorlackofvulnerability).Because
onehazardcanleadtoanother,suchasraincausingmassiveland-slidesandwaterpollution,theforward
planningandtheoperationalmanagementdependonthetypeofcriticaleventexpected.Inorderto
achievethisaim,thereneedstobebettersystemsinplacetowarntheendangeredpopulationwellin
advance,providingadviceaboutprimaryeventsandpossiblefollow-oneffects.
Hazardwarningsareanessentialprerequisitetoimprovetheresilienceofurbancentres.Ifhazard
warningsarenotwellinadvance,inhabitantswillnotbeabletoleaveendangeredareasofcities,
becausetransportationisunlikelytobeavailable.However,therearesomelargecitiesonislandslike
MumbaiandHongKongwhereitiseffectivelyimpossibleforsuchevacuationtobeachieved.Insome
cases,thehazardsmaybesomedistancefromtheconurbation,asinJapanin2011whenasevere
earthquakewasfollowedfirstbyanexceptionaltsunamiandthenbythereleaseofsubstantialradio
activityfromadamagednuclearpowerstation.Thiscombinationoverwhelmedlocalcommunitiesnear
thedisaster.ItalsoaffectedthewholeconurbationofTokyo300kmaway.
Withmobilephonesandsocialmedia,valuablemessagesandpicturesabouthazardsandimpacts
cannowbereceivedandtransmittedbypeoplelocatedincriticalsituations.Theseinformalmessages
arenowavaluablepartofpublicwarnings.Advancesindetailedsatelliteimagesandcommunication
systemsunaffectedbylocalpowercutscanalsogreatlyassisturbanresilience.
Warningscannowbecommunicatedmoreeffectivelyboththroughtechnology.Improvementsinthis
areaarelikelytoincreaseinpaceandscaleoverthedecadestocomeasinternetpenetrationandsmart
phoneuseaccelerates.
Communitiesneedtobeinformedandconsultedaboutadministrativeandtechnicalpolicyproposals
inorderthattheyareappropriateinthelocalcontext.Publicandeveninternationalpressureisforcing
somemajorcitiestobemoreopenaboutenvironmentalinformation.However,manypublicandprivate
bodiescontinuetorestrictinformationandcynically,reducethemeasurementsofcriticalprocesses.
Generallythoughmasscommunicationsareimprovingcommunity’spreparednessfordisasters.And
thesepossibilitiesareonlyjustbeginningtobeexplored.
Medical,socialandeconomicimpactsareofincreasingconcerntopolicymakers,sincetheydetermine
whethercommunitiescanrecoverbeforethenexthazardeventoccurs.Failuretodosomaythreaten
theirpositionasholderofpoliticaloffice.Insurancecompaniesnowassessvulnerabilityriskasmuchin
termsofthesocialcapacityofcommunities,asbythephysicalimpactsofextremeeventsandpreventive
measuresthatmayhavebeentaken.
Dealingwiththepotentialconsequencesofclimatechangeandshiftsinthefrequencyandseverity
ofnaturaldisastersrequiresarangeoftechnical,economicandadministrativepolicies.Especiallyfor
buildinginfrastructureandformanagingdisasters,integratedapproacheshavebeenshowntobemore
effectivesociallyandeconomically,e.g.bycombiningwarningandresponseservices.
4. what the experts say
37 Future risk: Climate change and energy security – global challenges and implications
ConclusionsExpertsandpolicymakersneedtoimprovetheirunderstandingofhowcomplexhazardsaffecturban
areasandimpactuponsocietyasawhole.Crucialtoachievingthisaimisabetterunderstanding
howhazardsrelatetothesocialandeconomicdriversdeterminingurbanisationandhowthephysical
infrastructureanditsoperationsdevelop(seeforexamplePeterHead’sworkinChinaasDirectorof
Arup).Theriskswillalsobeaffectedbyhowclimatechangealtersextremenaturalhazardsandhowthey
impingeonurbanareas.
Planningofurbandevelopment,aswellasthepracticalpoliciesregardingtheirmanagement,can
reducetheimpactsofnaturalandartificialhazards.Bettersystemsarebeingestablishedforwarning
theendangeredpopulationwellinadvanceofhazardsoccurring,andalsoforprovidingadviceabout
respondingtothelikelyconsequencesastheyevolvefollowingtheinitialevent(e.g.diseasesfrom
compromisedwatersystemsasaresultofflooding).Inaddition,policymakersshouldbeawareofthe
latestresearchaboutemergingtechniques.
Secondly,thereneedstobemuchgreaterinvestmentinevacuationarrangementsandsecuritymeasures
suchasrefugesforpeopleabovethelevelofanylikelyfloods,whicharebuilttorepelflyingdebrisin
highwinds.Inthelargestevacuationplananywhere,asecondcityisavailableforpeopleescapingfrom
NaplesintheeventofamajoreruptionofMountVesuvius.
Therehasbeenlittlestudysofarabouthowmegacitiesmayimpactuponclimates,environmentsand
naturalhazardsinsurroundingregions.
Internationalexperiencehasshownthatwherehazardshavereocurred,manycommunitieshaveputinto
practicelessonsfrompreviousevents,butwhentherehasbeenlittleornoexperience,therehasbeen
limitedsuccessineffectivepreparation.Thereneedstobemoresocialscienceresearchaboutimproving
theefficacyofpreparingcommunitiesaswellasoflocalandnationalgovernmentagainstuncommon
hazards.Internationalconferences(e.g.Kobein2005)andnationallegislationareestablishinggeneral
approachesalongtheselines.
Structural engineers, planners and social scientists need to consider more urgently the design of appropriate shelters in urban and also in rural areas. But for technical solutions to be successful, they have to be supported by communities.
Technicaldevelopmentsarealsourgentlyneeded,asthispaperhaspointedout.Structuralengineers,
plannersandsocialscientistsneedtoconsidermoreurgentlythedesignofappropriatesheltersin
urbanandalsoinruralareas.Butfortechnicalsolutionstobesuccessful,theyhavetobesupportedby
communities.Forexample,inBangladeshcycloneshelterswerenotuseduntilpeoplewereallowedto
bringtheirlivestockwiththem.Estimatesofthelikelihoodandimpactsofextremeeventsingrowing
conurbationsareneededtoplanandjustifytheinvestmentneededforsuchprecautionarymeasures.
Clearlydevelopingoptimumpoliciesfordealingwithnaturalandartificialhazardsandtheirimpacts
inexpandingurbanareasisextremelycomplex,andrequiresresearchanddataaboutalltheclimatic,
environmental,engineeringandsocietalaspectsinvolved.Exceptionallevelsofcollaborationbetween
specialistswillbenecessarytousetheseresultsanddevelopnewapproachesfortheplanningand
operationofmegacitiesindifferentpartsoftheworld.
4. what the experts say
38 Future risk: Climate change and energy security – global challenges and implications
Authors’ biographies
Professor Lord Julian Hunt,
Professor Julian Hunt’s current position is emeritus Professor of Climate Modelling in the Department
of Earth Sciences, at University College London. He is a Fellow of Trinity College Cambridge. He was
Director-General and Chief Executive of the Meteorological Office from 1992–1997. He was created a
Baron in the House of Lords (with the title Lord Hunt of Chesterton) in May 2000.
Professor Hunt held several visiting research appointments in USA, Europe and Asia. He was elected
a Fellow of the Royal Society in 1989 and was awarded the L.F. Richardson Prize of the European
Geophysical Society in 2001. He is an honorary Fellow of the Royal Meteorological Society.
Professor Hunt’s has applied his studies of environmental science to policy issues of risk (in
collaboration with the Lighthill Risk network), especially to integrated approaches to dealing with
natural disasters and the effects of climate change. He chaired the Royal Society Committee on
Natural Disaster Reduction in the 1990’s.
He has been a consultant to several UK and international companies and to government departments
on environmental fluid mechanics and pollution.
He and his colleagues at Cambridge formed a company, Cambridge Environmental Research
Consultants Ltd (CERC) which developed environmental software and is working with Cerc and other
collaborators on the environmental and security challenges of megacities.
Dr Yulia Timoshkina
Dr Yulia Timoshkina is an Honorary Research Fellow in the Department of Mathematics, at University
College London. She graduated with a PhD in Engineering for Sustainable Development, from the
Department of Engineering at the University of Cambridge. Between 2007 and 2009 she worked as a
Research Associate at the Centre for Energy Studies, University of Cambridge. In 2010 Dr Timoshkina
joined the British Civil Service’s Department of Energy and Climate Change as a Policy Advisor.
Currently she works as a Strategy Advisor at Gazprom.
At the Department of Mathematics Dr Timoshkina’s professional interests include design of urban
systems and infrastructure; she has applied her background in engineering to policy issues dealing
with integrated natural resources management, and responses to natural disasters.
Acknowledgements:TheauthorsaregratefulforsupportfomUK,French,EUandUSagencies,andforconversationswith
SteadmanJ.P.,FernandoJ.,ChunS.,MassonV.,CassouC.,CarruthersD.J.,BornsteinR.,SabatinoS.,
KareemA.,MurrayV.
AnearlyversionofthispaperwaspresentedattheAmericanMeteorologicalSocietymeetinginPhoenix,
ArizonainJanuary2009andattheNATOworkshopinApril2011.
4. what the experts say
39 Future risk: Climate change and energy security – global challenges and implications
Climate change and insurance adaptation
Professor David Crichton, Hon. Visiting Professor at the AON Benfield Hazard Research Centre at University College London
IntroductionInsuranceisthebiggestindustryintheworldwithaglobalannualincomeof$4.3trillion
($4,300,000,000,000)and$24.6trillioninmanagedfunds.Insurersareexpertsinriskmanagement
andarguablyhavethebestcatastrophehazardmaps,modelsanddata,yettheyarerarelyconsulted
bygovernmentsoracademicsaboutsuchissues.Thereisanenormouspotentialforinsurerstoprovide
economicincentives,dataandmodellingskillstohelptomanagerisksmoresustainablybyencouraging
adaptationtoclimatechange.
There is an enormous potential for insurers to provide economic incentives, data and modelling skills to help to manage risks more sustainably by encouraging adaptation to climate change.
Predictedclimatechangeimpactsincludemoresevereandfrequentdisastersfromheatwaves,diseases,
storms,andfloods.42Inrecentdecadesthenumberofreportedhydrologicaldisastershasincreasedby
7.4percentperyear,onaverage.43Hydrologicaldisasterscanhaveabighumanimpact.SeeTable.
Table: Global Losses for 2011
Dead or missing Insured Loss ($m)
Floods 5,093 16,262
Storms 3,301 41,152
Source:SwissRe.Sigma2/2012.
Outlook AccordingtothePRUDENCEresearchproject44,involvingcomputermodellingbynineleadingEuropean
universities,theoutlookisforanincreaseinhazards:
• Heatwaves:increasedfrequency,intensityanddurationespeciallyoverthecontinentalinterior
ofEurope
• Precipitation:heavywinterprecipitationincentralandnorthernEuropeanddecreasesintheSouth
• IncreasesinheavysummerrainfallinNEEurope.InJune2010,Francehaditsheaviestrainfall
since1827
• LongerdroughtswillhappeninMediterraneancountries
• Extremewindspeedsincreasebetweenlatitude45°Nand55°N.(thatisNorthofMilanandSouthof
Carlisle).Sevenofthetop40mostcostlyinsurancelossessince1970havebeenEuropeanstormsin
thislatitude,costingmorethan$40bnintotal.45
42 WorldHealthOrganisation,“Climatechangeandhumanhealth–risksandresponses.”WHOincollaborationwithUNEPandWMO,Geneva,2003
43 Scheuren,JM,LePolainDeWaroux,O,Below,R,Guha-Sapir,D,andPonserre,S,AnnualDisasterStatisticalReviewTheNumbersandTrends2007,CenterforResearchontheEpidemiologyofDisasters(CRED),Brussels.2008
44 PredictionofRegionalScenariosandUncertaintiesforDefiningEuropeanClimateChangeRisksandEffects(“PRUDENCE”)Seehttp://prudence.dmi.dk/accessed8May2012.
45 Source:SwissRe.Sigma2/2012
4. what the experts say
40 Future risk: Climate change and energy security – global challenges and implications
• MoreNorthSeastorms,leadingtoincreasesinstormsurgealongtheNorthSeacoast.Therehas
alreadybeenanunprecedented5metrestormsurgeinDenmarkduringtheAnatolestormin1999
whichrecordedabarometricpressureofonly953MB.(AsAnatolewasmainlyoverDenmarkand
Swedenitdidnotmakeittothetop40becauseScandinavianbuildingsaremoreresilient.)
ThemostauthoritativesourceonclimatechangeistheIntergovernmentalPanelonClimateChange
(IPCC).TheirFourthAssessmentreport46states:
• “Worldleadershavenotyetacceptedtheircountrieswouldhavetoadapttothelikely
consequences.”
• “Mitigationhasgotalltheattention,butwecannotmitigateoutofthisproblem.”
It will no longer be sufficient to base premiums on historic claims experience.
Increasinguncertaintyaboutfuturenaturaldisasterswillincreasethedemandfor,andthecostof,
insurance,andwillrequireinsurerstoadapttochangingcircumstances.Itwillnolongerbesufficientto
basepremiumsonhistoricclaimsexperience.
Insurance adaptationTherearethreetypesofinsuranceresponsetothechallengesofclimatechange:
1. React:respondtoclaimscostsbyadjustingpremiumsorwithdrawingcover.
2. Anticipate:usescientificmodellingandmappingtechniquestopredictfuturedisasters.Collectdata
toassessfuturecosts.
3. Manage:enterintoadialoguewiththeauthoritiesandotherstakeholderstolobby,educate,inform
andassisttheauthoritiesandthepublictomanagerisksbetter.
Mostinsurersseemtostillbeatthepassive,reactive,stage,
TheFloodandWaterManagementAct2010inEnglandwasintendedtoreducefloodrisksinEngland.
However,thelegislationcontinuestopromoteonlytraditionalstructuralsolutionstofloodrisks,
toenablecontinuedbuildinginthefloodplain.Inotherwordsitwillmakethingsworse.47Itseems
short-sightedtocomplaintogovernmentaboutinadequatespendingonfloodwallswhiletheycontinue
toallownewbuildinginthefloodplain.Eveniffloodwallswork(andoftentheydon’t)theysimply
transfertheriskontofuturegenerations,alongwiththemaintenanceandrepaircosts.48Alsothey
cannotpreventsurfacewaterfloodlosses.49Indeedthereareexamplesofcaseswheretheyincreased
thelossesbypreventingwaterfromdrainingawayaftertheflood.
InJune2010,stormshitthesouth-eastofFrance50andthelargeamountsofheavyrainledtolocalised
flashflooding.400mmofrainfellinlessthan2daysinProvence,producingtheworstfloodsinFrance
since1827.Infuture,surfacewaterfloodlossesarepredictedtooccurmuchmorefrequentlythan
“classic”casesofriverflooding,thankstoclimatechange,damfailures51andEUDirectives.Forexample:
46 M.L.Parry,O.F.Canziani,J.P.Palutikof,P.J.VanDerLindenandC.E.Hanson,Eds.“ClimateChange2007:Impacts,AdaptationandVulnerability.ContributionofWorkingGroupIItotheFourthAssessmentReportoftheIntergovernmentalPanelonClimateChange.”CambridgeUniversityPress,Cambridge,UK,976pp
47 Crichton,D.2012.“CIIThinkpiece73:IsitPossibletoHaveSustainableFloodInsurancewithoutSustainableFloodRiskManagement?”CharteredInsuranceInstitute,London
48 Etkin,D.(2004)“RiskTransferenceandRelatedTrends:DrivingForcestowardsmoreMega-Disasters”.EnvironmentalHazards,vol.1,pp.69-75
49 “FlashFloods.”Topics012010.MunichRe,Munich.2010http://www.munichre.com/en/reinsurance/magazine/publications/default.aspxAccessed28.5.2010
50 Climate:Observations,ProjectionsandImpacts.France.MetOfficeHadleyCentre.2011.http://www.metoffice.gov.uk/media/pdf/t/r/UK.pdfAccessed7.5.12
51 BabtieGroupandtheCentreforEcologyandHydrology,2002.“ClimateChangeImpactsontheSafetyofBritishReservoirs”defra,London
4. what the experts say
41 Future risk: Climate change and energy security – global challenges and implications
• TheWaterFrameworkDirective52forbidsmodifyingriversorlakestocopewithincreasedrainfall
(exceptinScotland,thankstothewriter’slobbying).
• TheHabitatsDirective53canbeusedasanexcusetoavoidtheclearanceofweedsandsiltfrom
watercourses,leadingtoblockages.(InScotlandlocalauthoritieshaveanoverridingstatutoryduty
todothiswork.)
...the non-Lloyds market in the UK even objected to sensible Parliamentary proposals to require dam owners to take out liability insurance, a risk which is usually underwritten by their competitors, Lloyds.
Heavyrain,failuretocleanwatercourses,ortomaintaindrainsordamscanproduceoverlandflows
whichcanhappenonanyslopingground,notjustnearriversorcoasts.Notonlyhastheinsurance
industrydonenothingsubstantialtoreducesuchrisks,thenon-LloydsmarketintheUKevenobjected
tosensibleparliamentaryproposalstorequiredamownerstotakeoutliabilityinsurance,ariskwhichis
usuallyunderwrittenbytheircompetitors,Lloyds.
ThereisstillnoprovisioninEnglandforfundingthemuchmorecosteffectiveapproachofworkingwith
natureusingnon-structural‘SustainableFloodManagement’methods.Contrastthemethodsusedby
GermanywhichisworkingwithFranceontheMosellecatchmenttointroduceforestrytoreducerainfall
runoff54andwithBelgium,LuxembourgandTheNetherlandsontheRhinetorestoremeanderswhere
theriverhasbeencanalisedinthepast.55(seeimage)
Image: INTERREG Rhine Meuse Activities Programme (IRMA). Restoring meanders in the Rhine in Germany to reduce flood risk in the Netherlands.
Source:IRMASecretariat,TheNetherlands
52 WaterFrameworkDirective,2000.Directive2000/60/ECoftheEuropeanParliamentandoftheCouncilof23October2000.OfficialJournal(OJL327)on22December2000Availableat:http://forum.europa.eu.int/Public/irc/env/wfd.library?1=/
53 ECDirectiveontheConservationofNaturalHabitatsandofWildFaunaandFlora(92/43/EEC)(‘TheHabitatsDirective’)
54 CommissionsInternationalespourlaProtectiondelaMoselleetdelaSarre«Pland’actioncontrelesinondationsdanslebassindelaMoselleetdelaSarreBilan2001-2005»SecrétariatderCIPMS(FrenchandGermanlanguageversionsonly).Trier2006
55 INTERREGRhineMeuseActivitiesProgramme(IRMA).SeeEuropeanCommissionPressReleaseReference:IP/01/1822Date:13/12/2001Brussels.Alsohttp://www.irma-sponge.org/accessed9.5.12
4. what the experts say
42 Future risk: Climate change and energy security – global challenges and implications
CountriessuchasJapan,56Germany,France,HollandandScotlandareconcentratingonmanaging
hazardandexposurethroughstrictlanduseplanningandaprogrammeofcleaningdrainsand
watercourses.57,58Theyrecognisethevalueofsustainablefloodmanagementtechniqueswhichinclude
economicincentivessuchasinsurancepenaltiesanddiscounts,butthisneedssupportfromthe
insuranceindustry.
They recognise the value of sustainable flood management techniques which include economic incentives such as insurance penalties and discounts, but this needs support from the insurance industry.
GermanyandSwitzerlandhavebeenworkingwithScotlandandthewriterontheverycosteffective
naturalfloodmanagementtechniquesdevelopedundertheSAFERproject.59
ThewriterhasbeenworkingwithNGOstolobbygovernmentsandtodevelopnaturalfloodmanagement
techniques.Whereareinsurersinallthis?
Insurancepoliciesarerenewableannuallyandunderwriterscanreadilyreacttoprotecttheir
shareholders,increasingpremiumsorwithdrawingcoverasalastresortifnecessary.Mortgagelenders
aremorevulnerable:theyissuemortgagesformanyyearsandifinsuranceiswithdrawntheymayhave
noalternativebuttoforecloseandlosemoney.Societyisthemostvulnerableofall.Attheendofthe
day,climatechangewillhaveitsbiggestimpactinitseffectsonsocialcohesionandresilience.
Social resilience
Even if people are fully insured, the intangible impacts can be significant.60 Evacuation of residents disrupts communities and the stressful effects of anxiety and insecurity may remain long after the physical damage has been repaired.
Disasterimpactscanbeparticularlysevereonsomeofthemostvulnerablepeopleinoursociety,and
thesearethepeoplewhocanfindithardertorecoverfromthemwhentheyhappen.61Disasterstendto
widenexistinginequalitiesunlesssocialresiliencecanbeaddressed.Ifnotaddressed,thedifferential
socialimpactsmayleaddirectlytoincreasedcostsfortheeconomyintermsofhealthcareandsocial
care.Itismoredifficulttomeasuresocialandemotionalcostssufferedwhenadisasterdisrupts
business,destroyshomesandlivelihoods,anddisturbsfamilylife.Evenifpeoplearefullyinsured,the
intangibleimpactscanbesignificant.Evacuationofresidentsdisruptscommunitiesandthestressful
effectsofanxietyandinsecuritymayremainlongafterthephysicaldamagehasbeenrepaired.
56 Crichton,D.2008,“FloodManagementinJapanandBritain.Acomparison.”athttp://www.ilankelman.org/crichton/2008japanbritain.pdf
57 Crichton,D,“TowardsaComparisonofPublicandPrivateInsuranceResponsestoFloodingRisks.”Dicke,W,andMeijerink,S(eds).InternationalJournalofWaterResourcesDevelopment,Delft,Netherlands.Vol24,Number4,Pp583-592
58 Crichton,D.“UKandGlobalInsuranceResponsestoFloodHazard.”WaterInternationalVol27,1.Pp119-131
59 ‘SAFER’isanacronymforStrategiesandActions/ImplementationsforFloodEmergencyRiskManagementhttp://www.forestry.gov.uk/newsrele.nsf/AllByUNID/9C46CB11A10DA97B80256E9100606E12accessed6.5.12
60 Werritty,A,Houston,D,Ball,T,TavendaleA,andBlack,A.“ExploringtheSocialImpactsofFloodRiskandFloodinginScotland”;ScottishGovernment,Edinburgh,2007
61 O’Neill,J,andO’Neill,M,2012.Socialjusticeandthefutureoffloodinsurance.JosephRowntreeFoundation
4. what the experts say
43 Future risk: Climate change and energy security – global challenges and implications
Insurershavebeenwarningofproblemsforyears.62Asrepossessionsincreaseorpropertiesremain
unsold,developershavecometorealisethattheremaybeproblemssellingpropertiesinfloodhazard
zones,becausewithoutinsurancethepurchaserwillnotbeabletoobtainamortgage.Thereare
alternativesforthedeveloperbutthesearejustasmuchacauseforconcern:
• Floodplainlandcanbeusedfor“public”buildingssuchasschoolsandhospitals.However,
hospitalsaredifficulttoevacuate,especiallyintensivecareunits,whereevacuationcouldputlives
atrisk.Hospitalsarealsoimportantresourcesduringfloodeventswherewaterbornepathogenscan
causewidespreadillness.Anunpublishedinsurancesurveyrevealedthatatleast89hospitalsin
Englandareatahighriskoffloodingand70percentofthemhavenoflooddefences.Therearealso
2,374schoolsathighriskinEngland.DuringthetsunamiinJapanin2011,patientsinintensivecare
inhospitalweresimplylefttodieastherewasnotimetoevacuatethemsafely.
• Housingcanbesoldtoahousingassociationandlettosocialtenants.Socialtenantstendtobe
older,poorerandaremorelikelytoincludesingleparentfamilieswithyoungchildren.
Inotherwords,themostvulnerablepeopleinthecommunitywillincreasinglybeforcedtoliveinthe
mosthazardousareas.63
...the most vulnerable people in the community will increasingly be forced to live in the most hazardous areas.
Health, age and disability problemsStormsandfloodsnotonlycausedamagetoproperty,theycanalsothreatenlives,especiallythose
withimpairedsenses,mobility,ordependenceonelectricalequipment,orthoselivingontheirown.
LocalauthorityEmergencyPlanningOfficers(EPOs)shouldbebuildingdatabasesofsuchpeopleto
targetthemforspecialassistanceintheeventofadisasterorevacuation.Aparticularissuecanarise
withregardtolossordamagetoitemsofgreatsentimentalvaluesuchasphotographs.Thewriterhas
beenhelpingEPOstodothis,butinsurerscoulddosomuchtoprovideadvice,assistwithmakingdigital
copiesofphotographs,andusingtheirhelplinespro-actively.
Other vulnerable peopleInadditiontotheold,thesick,children,thedisabled,andthepoor,othervulnerablesectionsof
societyinclude:
• Peopledependentonprescriptionmedicationormedicalequipment.
• Ethnicgroupswherewomenmaybeforcedtostayinfloodedhomesforsocialorreligiousreasons
whentheirmalerelativesareaway.
• ImmigrantswhocannotspeakEnglish,donotunderstandevacuationinstructions,andhaveno
friendsnearbytohelpthem.
• Schoolsandhomesforhandicappedpeople.
• Residentsindambreakinundationareaswhereurgentevacuationmaybenecessary.64
62 Davies,R“FloodinginBritain:ReviewofCauses,DamageandControlMeasures”56pp.InsuranceTechnicalBureaureportITB-R83/106,BritishInsuranceAssociation,London1983
63 Crichton,D.“TheFutureofFloodManagementintheUK.”InsuranceResearchandPracticeNo1.CharteredInsuranceInstitute,London,2007
64 Crichton,D.2007“Bestlaidplans”PublicPrivatePartnershipJournalIssue58,pp103–106
4. what the experts say
44 Future risk: Climate change and energy security – global challenges and implications
The Meaning of “Risk”The“CrichtonRiskTriangle”65,wasdesignedforusebytheinsuranceindustryforcatastrophemodelling
(seeFigure)andisausefulwaytoexplaintheconceptof“risk”.
Figure: The “Crichton Risk Triangle” (©Crichton, 1999)
RISKExposure
VulnerabilityHaza
rd
Inthisdefinition,riskisafunctionofhazard,exposureandvulnerabilityandisrepresentedbythearea
ofthetriangle.Ifanyonesideofthetrianglecanbereducedthenriskisreduced.Theconceptcanbe
usedforanytypeofrisk.
HazardInthecaseofflooding,“Hazard”representsthefrequencyandseverityofrainfalleventsorstorms.
Climatechangepredictionsindicateanincreasinghazardoverwhichsocietyhaslittleimmediatecontrol
otherthantocleanwatercourses,provideadequatedrainage,66andadoptnaturalfloodmanagement
practices.67Insurerscanhelpbyencouragingtheauthoritiestofollowbestpracticefromaroundthe
world,andinparticularbyexplainingthecriticalimportanceofmaintainingdrainsandwatercourses.In
Scotland,insurershavetheaddedadvantageofbeingabletotakelegalactionagainstauthoritieswhich
failtomaintainwatercourses,andwhileinsurersdonotseemtobeawareofthis,thepossibilityensures
thatlocalauthoritieswouldlistentotheiradvice,ifgiven.
ExposureThisrepresentsthedensityandvalueofpropertylocatedinfloodhazardareas.
After39peoplewerekilledinfloodsinTurkeyinNovember2006,TanselUnal,theHeadoftheChamber
ofConstructionEngineersinDiyarbakir,blamedthehightollonfaultybuildingpracticesintheregion,
notablyonsettlementsbuiltinriverbasins.
Nowhere (else) in the world, is construction authorised in river basins,” hesaid.68 “Negligence and badly planned urbanisation are the real cause of high death tolls, be they due to floods or earthquakes.
65 Crichton,D.“TheRiskTriangle”,NaturalDisasterManagement,Ingleton,J.,(ed),TudorRoseLondon,1999
66 Lindholm,OG,Schilling,W,Crichton,D,2007.“Urbanwatermanagementbeforethecourt:floodinginFreidrikstad,Norway.”Pp204–209,JournalofWaterLaw,Volume17,Issue5
67 WWF.“SlowingtheFlow.”16pp.WWFScotland,Dunkeld,2007
68 AgenceFrance-Presse,“TwelvemorekilledinTurkishfloods,tollhits39”02/11/200614:59Diyarbakir,Turkey;AFP,2006
4. what the experts say
45 Future risk: Climate change and energy security – global challenges and implications
Thisisnotquitecorrect:therearestilltwootherplacesinEuropewhichauthoriseconstructioninriver
basinsandotherfloodriskareas.OneisEngland;theotheristheRepublicofIreland.Itisperhapsno
coincidencethatthesearebothcountrieswithunusuallyhighlevelsoffloodinsurancepenetration.
Insurers can help by using the premium mechanism to discourage building or buying properties in flood hazard areas, but even more important is a regular frank dialogue between insurers and local planners as in Scotland, to avoid problems arising in the first place.
Insurerscanhelpbyusingthepremiummechanismtodiscouragebuildingorbuyingpropertiesinflood
hazardareas,butevenmoreimportantisaregularfrankdialoguebetweeninsurersandlocalplanners
asinScotland,toavoidproblemsarisinginthefirstplace.Suchliaisonshouldnotbelimitedtodialogue
betweeninsurersandplanners.InScotlanditextendstoemergencyplanningofficers,buildingcontrol
officers,utilities,fireandrescueservices,police,propertydevelopers,landowners,environmentalNGOs
andtheScottishEnvironmentProtectionAgency,allworkingtogethertoreducefloodrisk.Discussions
haveincludedthelatestlegalandresearchdevelopments,bestpracticeinotherpartsoftheworldand
thelatestinsurancestrategies.
Measuring RiskTomeasurerisk,itrequiresanunderstandingofthethreecomponentsofriskassetoutinthe“Crichton
RiskTriangle”:
• Hazard:forexampleaccuratefloodmaps,whichincludenotonlyfluvialandcoastalfloodbutalso
pluvial,groundwater,anddambreakinundationhazardzones.
• Exposure:thenumber,value,andtypesofpropertiesinfloodhazardareas.
• Vulnerability:theresilienceofpeopleandpropertiesandtheconsequenthealthandfinancialcosts
offlooding.
Oneproblemisassessingthecostsoffloodingclaims.IntheUK,theinsuranceindustryhasaccessto
theNationalFloodInsuranceClaimsDatabase,establishedbythewriterin1995.Thisisthebiggest
flooddamagedatabaseintheworld,withdetailsofthecostsofflooddamagebyupto28different
factors,includingage,value,andtypeofbuilding,byflooddepth,timeofyear,andvelocity.69Asa
result,insurancecompanieshaveformanyyearsbeenabletomodelflooddisastersintheUKtoahigher
resolutionandaccuracythangovernmentoracademia.
...insurance companies have for many years been able to model flood disasters in the UK to a higher resolution and accuracy than government or academia.
69 Black,A,andEvans,S.“FlooddamageintheUK:Newinsightsfortheinsuranceindustry.”UniversityofDundee,Dundee,1999
.
4. what the experts say
46 Future risk: Climate change and energy security – global challenges and implications
TheReview70bySirMichaelPittintothefloodinginEnglandin2007made92recommendationsand
highlightedthevulnerabilityofelectricityandwatersupplyplant.Insuchcasesthereisofcoursean
importantroleforcivilengineersindesigningstructuralflooddefencestoreducevulnerabilityasa
short-termmeasureuntilmoresustainablesolutionsarefound.Thereisalsothequestionofdirect
riskstolife.AgoodexampleisthecentreofParis.Thishadacatastrophic100yearreturnperiodflood71
in1910,butdespitethat,sincethen,154kmofundergroundrailwayhasbeenconstructedinthecity
and600,000undergroundcarparkspaceshavebeenbuiltneartheriverwithbasementdepthsup
to10levels.90percentofthefloodplainisurbanisedintheCityofParisandthethreesurrounding
départements:theValdeMarne,theSeine-Saint-DenisandtheHautsdé-Seine.Asaconsequence,a
majorfloodtodaywouldcausemanylossesinthisareaandabout17billioneurosofdamage(excluding
infrastructure).About1millioninhabitants,threehospitals,andmorethan100,000companies,factories
andnetworkswouldbeimpactedforseveralmonths.72
Buildinginfloodhazardareasincreasestheriskstolifeandsometimestheuseofmassconcrete
structuraldefencesmaybetheonlyshort-termsolution,butitmaynotbeconsideredacceptable
tobuildathreemetrehighfloodwallthroughthecentreofParis.Amajorinternationalresearch
programmeisunderwaytofindwaystomakeEuropeancitiesmoreresilient.73Noinsurancecompanies
areinvolved.
...adaptation and resilience is not taught in most architecture schools and there is only one architecture textbook in the world on how to adapt buildings for climate change.74 Professional indemnity insurers could encourage the retraining of architects in real world problems.
Manycitieshavealegacyofcriticalinfrastructureinfloodhazardareas.Thereisanimportantrolefor
architectsandcivilengineersindesigningtoreducevulnerabilityespeciallyforcriticalinfrastructure75
butadaptationandresilienceisnottaughtinmostarchitectureschoolsandthereisonlyone
architecturetextbookintheworldonhowtoadaptbuildingsforclimatechange.Professionalindemnity
insurerscouldencouragetheretrainingofarchitectsinrealworldproblems.
Civilengineersandarchitectsmayfindanincreasingdemandforfloodresilientbuildingdesigns,such
asbuildingsonstiltsandfloatinghouses.Thisislikelytobeforcedonpropertyownersbytheinsurance
industry,ifnotbybuildingregulations.Aresearchreport76wasproducedbyLloydsandtherisk
consultantsRMS,whichdemonstratedthatfloodresilientbuildingdesignscanbemorecosteffective
thantraditionalflooddefences.
70 Pitt,M.“Lessonsfromthe2007Floods.”IndependentReview.TheStationeryOffice,London
71 Mellot,P.“Parisinonde”208pp(Frenchlanguageversiononly.)EditionsdeLodi,Paris,2003
72 ProceedingsofColloqueFranco-anglais,Paris,Septembre2004«LesGrandesTempêtesetInondationsenEuropeDuNord»AssociationFrançaisePourLaPréventionDesCatastrophesNaturelles,Paris(Frenchlanguageonly)
73 http://resilient-cities.iclei.org/accessed11.5.12
74 Roaf,S.Crichton,D,andNicol,F.,2009.“AdaptingBuildingsandCitiesforClimateChange.”(Secondedition)384pp.ArchitecturalPress,Oxford.ISBN9781856177207
75 Crichton,D(2002).“UKandGlobalInsuranceResponsestoFloodHazard.”WaterInternationalVol27,1.Pp119-131
76 Lloyds3600RiskProjectandRMSLtd.“Coastalcommunitiesandclimatechange:maintainingfutureinsurability”24pp.RiskManagementSolutionsandLloyd’sunderwriters,London.2008
4. what the experts say
47 Future risk: Climate change and energy security – global challenges and implications
ConclusionsGreenhousegasessuchascarbondioxideremainintheatmosphereforaslongas100years,soeven
ifgreenhousegasemissionsstoppedtomorrow,wearecommittedtoongoingclimatechangefor
100yearstocome.Insurerscaneasilyadapttoclimatechangebyadjustingpricingandacceptance
strategies,buttheyshouldnotignoretheimpactofclimatechangeonsocialresilience.Inthelonger
term,abreakdowninsocialcohesionandariseinsocialproblemscouldthreatenthewidereconomic
healthofthecountryandthesecurityofthewholefinancialsector.
Thebuildingsweconstructnowcanbeexpectedtolastfor60yearsormore,soeffortsshouldbe
concentratedonnewbuildingnotonlytoconstructlowcarbonbuildings,buttomakesuretheywillnot
bedamagedbythenextmajorfloodorstorm.Insurersandmortgagelendersarewellplacedtoensure
this.Itisintheirintereststodoso.
Thewriterhasoftenbeentheonlypersonfromtheinsuranceindustryattendinginternationaldisaster
managementandclimateadaptationconferences.Withsomenotableexceptionsthereislittlesignas
yetofinsurancecompaniesseekingtodomorethanjustcomplain.Ifinsurerswanttobeconsulted,they
needtoparticipate.
Author’s biography
David Crichton MA (Hons), FCII, Chartered Insurance Practitioner, is an experienced practitioner
and academic researcher specialising in the insurance aspects of climate change and natural
disasters, particularly flooding. He is an Honorary Visiting Professor at the AON Benfield Hazard
Research Centre at University College London. This is the leading hazard research centre in Europe,
specialising in natural disasters and insurance. He is also an Honorary Visiting Professor at the
Middlesex University Flood Hazard Research Centre, London; and an Honorary Research Fellow at
the University of Dundee, the home of the first UNESCO water research centre in Europe and the
British Flood Insurance Claims Database (probably the biggest such database in the world).
4. what the experts say
48 Future risk: Climate change and energy security – global challenges and implications
5. the three scenarios 5. The three scenarios Intheprevioussection,anumberofdistinguishedauthorsidentifiedsignificantandinterrelated
environmentalrisks,whichcouldhavesevereimplicationsforlong-termhumanwellbeing.Bypulling
togethersomeoftheirkeyconclusions,itispossibletooutlineafewsimplescenariostoreflectonhow
climatechangemightaffecttheworldinthedecadesahead.
Beforesettingoutthesenarrativesafewwordsofcautionarenecessaryregardingsomeofthecore
underlyingassumptionsmade.Allthreescenariosassumethatthereisasignificantlinkbetweenhuman
GHGemissionsandglobalwarming.Theyalsoassumethatglobalwarmingwillincreasethelikelihood
ofextremeweatherevents.Crucially,bothassumptionsmaynotactuallyholdinrealityandtheextentto
whichthereisarelationshipbetweenemissionsandglobalwarmingandbetweenglobalwarmingand
extremeweathereventsisfarfromcertain.
Forexample,regardingthefirstassumption,whilstconventionalwisdomsuggeststhatthereissucha
phenomenonasanthropogenicclimatechange,wecannotbe100percentcertainthatthisisthecase,
onlythatitisverylikely(giventheavailabledata)thatsomeproportionofglobalwarminghasbeen
causedbyhumanbeings.Forexample,theIPCCestimatesthatthereisapproximatelya5percent
chancethatrecentglobalwarmingispurelytheresultofinternalvariabilityandnothumanactivity.
TheIPCCarguethatthe“widespreadnatureofthewarmingreducesthepossibilitythatthe
warmingcouldhave[solely]resultedfrominternalvariability”thoughitdoesnoteliminatethis
possibilityentirely.
Theextenttowhichglobalwarmingisrelatedtoextremeweathereventsisalsouncertain.Inourfirst
reportwithinthecentenaryFutureRiskserieswenotedhowthereappearedtobesubstantialincreases
inextremeweathereventstowardstheendofthelastcenturycoincidingwithsustainedperiodsof
globalwarming.However,wenotedthattherelationshipmaynotbeassimpleasitseems.Someof
therecordedincreaseindisasterfrequencyisactuallylikelytobetheresultofimprovementsmade
inreportingtechniquesratherthanpurelyduetoanactualincreaseincatastrophicweatherevents.77
And,earlierinthisreportDrSurminskireferredtoanIPCCforecastthatsuggestedthatcertaintypesof
extremeweathereventsmightactuallydeclineinfrequencyoverthecomingdecades.
Insummarythen,thebelowscenariosaredeliberatelysimpleandnecessarilyexcludemanypossible
permutationsandinteractioneffectsthatcouldleadtofuturescompletelydifferenttotheones
envisagedhere.Therefore,ratherthanbeingusedasconcreteforecastsforfutureplanning,these
scenariosshouldinsteadhelpguidedecisionmakersintoconsideringhowtheymightreactasdifferent
possiblefuturesunfold.
Existing scenariosItisworthnotingthattherearealreadyanumberofexistingscenarioswhichdescribeinvaryingdegrees
ofdetailthepotentialimpactsofclimatechangeonthewellbeingofpopulations.Atthegloballevel,
theseincludescenariosdevelopedbytheIPCC(2000),theMillenniumEcosystemAssessment(2005)
andtheGlobalEnvironmentOutlook(2007).AttheEuropeanleveltheseincludeSCENES(2008)VISIONS
(2000)andPRECLUDE(2007)amongstothers.Foranin-depthdiscussionabouttherelativestrengths
andweaknessesoftheseexistingscenariosandofscenarioplanningingeneral,itisworthwhilereading
averyusefulpaperbyKoketal(2011)onbehalfofTheCLIMSAVEProject–aprojectdevelopingitsown
scenariosforassessingclimatechangeimpacts,adaptationandvulnerability.78
77 SeeCII(Feb2012)FutureRisk:Learningfromhistory
78 Koketal(June2011)“Reportonthenewmethodologyforscenarioanalysis,includingguidelinesforitsimplementation,andbasedonananalysisofpastscenarioexercises”ReportforCLIMSAVEsee:http://www.climsave.eu/climsave/doc/Report_on_the_Scenario_Methodology.pdf[lastaccessed,7June2012]
49 Future risk: Climate change and energy security – global challenges and implications
Scenario 1 Upside Inourmostoptimisticscenarioenergyconsumptiondrivesglobalwarming,butbecauseofa
substantialincreaseintheuseofrenewaltechnologiesandimprovedenergyefficiencybefore2017,
thetemperaturedoesnotexceedtheinternationallyagreedtargetof2°Cby2035.Countriesalsotake
caretopreserveforestswhichabsorbasignificantproportionoftheremainingCO2.Asaresultofthese
measures,thereisarelativelysmallincreaseinsurfacetemperature(smallbycomparisontotheother
scenarios),withlimitedimplicationsfortheglobalenvironment.
Nevertheless,thetwodegreerisewillhavesomeweatherimplicationssuchasanincreasing
prevalenceofdroughtinsomeareasandfloodinginothers.Thetwodegreerisewillalsoincrease
thelikelihoodofextremeweatherevents,butnottotheextentasintheotherscenarios.Passing
irreversibletippingpointsisalsoavoided.
Theworldwillstillremainrelativelydependentonoilfortransportation,sopoliticalinstabilityinkey
producercountrieshasthepotentialtodisruptthepriceandsupplyofthistypeofenergy.However,
duetogreaterdiversificationofenergysources,includinggreaterprevalenceoftransportpoweredby
electricity,theresultingsocioeconomicimpactofsupplyshocksislimited.79
Globalwarmingstill,therefore,posesathreattopopulationsandeconomieseveninthegood
scenario.However,inthisscenario,notonlyisglobalwarminglesspronouncedduetoeffective
mitigation,butcountriesalsotakeappropriatemeasurestoadapttothethreatsitposes.Forexample,
countriesareabletomakethekindsofinvestmentsininfrastructurenecessarytoimprovethe
resilienceofbuildings,sustainableurbanplanningensuresthatpropertyisnotbuiltonfloodplains
andsecuresheltersareprovidedtoensureeasyaccesstosafereliefintheeventofanextremehazard
occurring.Andcrucially,improvementsaremadeintheforecastingofnaturaldisastersandtomethods
ofcommunicationsmeaningthatvulnerablegroupsarewarnedearlyenoughtobeabletosuccessfully
takeactionorultimatelyevacuatebeforeaneventoccurs.
Role of the insurance industry
Theinsuranceindustryplaysakeyroleinthisscenariobyprovidingeconomicincentivesforthe
constructionandmaintenanceofresilientpropertyandinfrastructure,byraisingawarenessof
climaterisksthroughpricingstrategiesandknowledgesharing,andbyplayingaleadroleinadvising
governmentsaboutnaturalhazardsandclimatechange.
Inthedevelopingworld,thereisalsosignificantpenetrationofnewproductslikemicroinsurance
whichhelptoprotecthouseholdsandvulnerableindustrieslikefarmersfromweatherrelatedevents.
Andnewfinancialinstrumentslikecatastrophebondsandinsurancelinkedsecuritiesareusedtohelp
spreadtheriskofanextremeweathereventsothattheindustrycanmoreeasilycopewithsignificant
lossesstemmingfromdisasters.
Overallthen,climatechangestillposesariskbutbecauseofeffectiveeffortstocontrolGHGemissions
andadapttotheclimatechangethatisalready‘lockedin’,riskstohumanwellbeingandeconomic
activityaresubstantiallylimited.Indeed,insomecountries,investmentinsustainabletechnologies
helpsprovidesomeeconomicstimulusinitsownright.
79 IntheUKforexample,ithasbeenestimatedthattheArabSpringof2011increasedhouseholdbillsbyupto20%.InareportfortheDepartmentofEnergyandClimateChange,OxfordEconomicsestimatesthatswitchingtorenewableenergysourcescould,intheirbestcasescenario,reducethepriceimpactofshocksinsupplyoffossilfuelsbyupto50%by2050.OxfordEconomics(Dec2011)“Fossilfuelpriceshocksandalowcarboneconomy”
5. the three scenarios
50 Future risk: Climate change and energy security – global challenges and implications
Scenario 2 Central Inthecentralscenario,increasedenergyconsumptionandraisedGHGemissionsagaincauseanincreasein
globalwarming.However,thistime,thereisalesssubstantialshiftfromtraditional,fossilfuelstorenewable
technologiesandgreaterenergyefficiencyby2017.Theearth’stemperaturethereforeexceedsthetwo
degreetargetbefore2035.Asaconsequence,theresultingenvironmentalimpactismoresignificantthanin
theupsidescenario.
Asaconsequenceofincreasedglobalwarming,thereislikelytobeasustainedincreaseintheprevalenceof
droughtinalreadyaridareasandfloodinginareaswithalreadyhighlevelsofprecipitation.Theriseinglobal
temperaturewillalsosignificantlyincreasetheprevalenceofextremeweathereventsandthereisariskthat
irreversibletippingpointsintheglobalclimatewillbebreached.Exacerbatingthesituation,thereislittle
diversificationinthesupplyofenergy,withmanystillreliantonoilproducedintheMiddleEastfortransport.
Therelativelypoorenvironmentalsituationisthereforeinterspersedwithsignificantshockstothesupply
andpriceofoilwithimplicationsforinflationinthepriceofglobalgoodsandservices.
Globalwarmingthereforeposesarealthreattopopulationsandeconomiesworldwideduetoafailurein
mitigation.Unfortunately,compoundingtheproblemswithmitigation,governmentsandindustriesdonot
investasheavilyinadaptationinrelationtothedegreeofclimateriskthattheyface.Someimprovementsare
madetobuildings,flooddefences,sheltersandearlywarningsystemsbutthereremainvulnerableregions
nothelpedbythefactthatsomeurbanplannersstillconstructbuildingsonfloodplainsandotherhighly
exposedareas.Peoplelivinginlowincomecountrieswillfacetheharshestaffectsofclimatechangehelping
tointensifyexistingpovertytraps.Andthemostvulnerablewithindevelopedeconomies,suchastheelderly
andthedisabled,willalsofaceaharsherworldcharacterisedbyhomesthatareillequippedforhotter
summersandcolderwinters.
Role of the insurance industry
Inourcentralscenario,theinsuranceindustryprovidessomeeconomicincentivesfortheconstructionand
maintenanceofresilientbuildingsandinfrastructurethrougheffectivepricingstrategiesbutitisunable
toactasacatalystforchangingsomebadplanningpractiseslikebuildingonfloodplainsorneglecting
sustainableflooddefences.
Inthedevelopingworldthereisonlylimitedpenetrationofmicroinsurancetoprotecthouseholdsand
businessesagainsttheadverseaffectsofweatherrelatedevents.Therearealsoonlyafewexamplesof
insurersspreadingclimateriskawayfromthesectortocapitalmarketsthroughnewfinancialinstruments.80
Thereissomeevidenceofinsurancemarketfailure.Marketfailurecanbecharacterisedbylackofcapital,
lackofcover,inabilitytopayclaimsorfailuretocontract(peoplewhoneedinsurancefailingtoseekit).81
Inourcentralscenario,insurancefailureismostlyrelatedtothelatterofthese–lackofcoverandfailure
tocontract.Weassumethatinsurersremainsufficientlywellcapitalisedtoabsorblossesemanatingfrom
catastrophicweathereventsthoughthisismadepossiblebyinsurersremovingcoverfromparticularlyhigh
riskbusinessesandindividuals.82Thereisalsolikelytobefailuretocontractashouseholdandbusiness
awarenessofclimateriskremainslowerthaninourupsidescenario.
Overallthen,intheabsenceofsufficientmitigationandadaptation,climatechangeposesasignificantrisk
tothelivelihoodsofmanyoftheworld’smostvulnerablepeopleinthedevelopedanddevelopingworld.In
manycasesinsurancecanhelpprotectindividualsandbusinesses,butprovidingcoverbecomesimpossible
forasignificantproportionoftheworld’spopulationandthereisstillarelativelylowlevelofglobal
awarenessaboutclimaterisks.
80 CII(2009)“Copingwithclimatechange:risksandopportunitiesforinsurers”Chapter5,Marketfailureandclimatechange
81 Ibid
82 Inour“Copingwithclimatechange”reportitisnotedthattherehavebeenonlyoccasionalinstancesofinsurancemarketfailurestemmingfromacatastrophicweatherevent.ExamplesincludefifteeninsuranceinsolvenciesfollowingHurricaneKatrinain2005.Inresponsetheindustrywithdrewprivatewindstormcoverfromthestate
5. the three scenarios
51 Future risk: Climate change and energy security – global challenges and implications
Scenario 3
Downside Inthedownsidescenario,thereisasignificantincreaseinglobalenergyconsumptionwithnoreal
attemptmadetoswitchtorenewableenergysourcesormoreenergyefficienttechnologies.Coal,oil
andnaturalgas(withoutcarboncapture)thereforeremainthepredominantglobalsourcesofenergy.
Asaconsequence,theearth’ssurfacetemperaturemissestheinternationaltargetof2°Cbya
significantmarginandtheenvironmentalimpactalongthewayissubstantial.
Notonlyistheresustaineddroughtinalreadyaridareas,floodinginalreadywetregionsandan
increaseincatastrophicweatherevents,buttheworldisalsolikelytocrossanumberofkeytipping
pointswhichcouldchangelocalclimatesirreversibly,increasingthedifficultyandcostofany
adaptationefforts.Forexample,SiberianPermafrostwhichstoresmuchoftheearth’scarbonmay
rapidlythawreleasingover30billiontonnesofcarbonayearby2040(thiscomparesto10billion
tonnesayearcurrentlyreleasedthroughfossilfuelusage).83
Unfortunatelyinthispessimisticscenario,littleconcertedeffortismadetoadapttoclimaterisk
beforethetippingpointsarebreached.Withlittleimprovementsmadetoinfrastructure,populations
aresignificantlymorevulnerabletoweathereventswhichare,givensuchsubstantialglobalwarming,
likelytooccuronamoreregularbasis.Manyoftheworld’scitizensindevelopedanddeveloping
countriesareunabletoadequatelyprotectthemselvesinthefaceofregularandseverenatural
hazards,thoughtheeffectismostsevereinlowincomeurbanareasthathavetheleastresilient
buildingsandinfrastructure.Indeedthesituationissobadinsomeregionsthatwholecitieshaveto
beabandonedaltogetherwithsignificantrepercussionsforsocialcohesionandeconomicactivity.
Inthisscenariopoliticalriskisrifefortworeasonsinparticular.Firstly,disasterswillnotjustprolong
povertytrapsandpoliticalinstabilitywithincountriesbutalsoacrosscontinents.Forexample,the
abandoningofdisasterstrickencitiesorregionsislikelytoleadtoasubstantialincreaseinthe
flowofrefugeeswhichcouldhaveapotentiallydestabilisingeffectonneighbouringcountriesand
beyond.84Secondly,sinceeconomicgrowthcontinuestodependsoheavilyonfossilfuelsandin
particularoil,politicaltensionoverwhocontrolssupplyislikelytobeparticularlyhigh,increasingthe
chancesofgeopoliticalinterventionandconflict.
Role of the insurance industry
Inthedownsidescenario,insurershelpcontributetothepooroutlookbyfailingtotakefull
advantageoftheirpositionasriskspecialists.Whilstthesectorprovidessomelimitedeconomic
incentivesforthedevelopmentandmaintenanceofresilientbuildingsandsustainableinfrastructure,
insurersmakelittleefforttospreadawarenessorengagewithpolicymakers.
Indevelopingcountries,microinsurancemakesnoheadway.Insuranceschemesarenotableto
achievesufficientscaletokeepcostslowmakingtheschemesunaffordableforthevastmajorityof
thepopulationstheyseektoserve.Andtheschemesthatdoexist,failtobuildinprovisionsforfuture
climaterisksotheyactuallyhelptocontributetomal-adaptationratherthanraisingawarenessand
reducingrisk.
83 NinaChestney(March2012)“Globalwarmingclosetobecomingirreversible-scientists”,storyforReutersNews,lastaccessed29Mayfrom:http://www.reuters.com/article/2012/03/26/us-climate-thresholds-idUSBRE82P0UJ20120326
84 KristianSkredeGledistchandIdeanSalehyan(Spring2006)“RefugeesandtheSpreadofCivilWar”InternationalOrganization60,pp.335–366
5. the three scenarios
52 Future risk: Climate change and energy security – global challenges and implications
Atourmostpessimistic,insurancemarketfailureiswidespreadandtakesdifferentforms.Due
toincreasinglyregularandsevereweatherrelatedevents,insurersarelikelytotakeincreasingly
substantialcapitalhits.Insolvenciesrelatedtoextremeweathereventsthereforebecomemore
prevalentthoughtheindustrywillsurvivebywithdrawingcoverforthemostriskaffectedareas.
However,giventheextentofworldwideclimaterisk,evenindevelopedcountrieswhichhave
relativelymoreresilientinfrastructure,largeswathesofthepopulationwillremainuninsurable.
Overallthenasaconsequenceoflittleefforttokeepglobaltemperaturesincheck,ortodelivermore
resilientinfrastructurethrougheffectiveadaptation,theworldfacesableakfuture.Climatechange
continuesunabated,wreakinghavoconhumanwellbeingandeconomicactivityandpotentially
creatingadownwardspiralofpovertytrapsandpoliticalviolence.Theinsuranceindustryis
characterisedbymarketfailurewithmanyproviderswithdrawingcoverinthefaceofcatastropherisk.
5. the three scenarios
53 Future risk: Climate change and energy security – global challenges and implications
6. conclusion 6. ConclusionClimatechangeisoneofthegreatestrisksfacingtheworldtoday.Whilsttheexactimplicationsare
uncertainduetothedifficultyofmodellingtheeffectsoftemperaturerisesoneconomicactivity,global
society,andalltheirinterlinkages,itisclearthatwecannotaffordtobecomplacent.Evenatwodegree
warmingoftheplanet–whichistheoutcomeofourmostoptimisticscenario,wouldmostlikelyhave
somenegativeimplicationsforthehealthandwellbeingofpopulations–particularlythoseinthemost
vulnerablepartsofthedevelopingworld.
Mitigationwillbecrucial.Tohelpreducethelikelihoodofbreachingdangeroustippingpoints,amajor
effortisneededrightnowtoshiftfromtraditionalfossilfuelslikeoilandcoaltorenewablesourcesof
energylikenuclearpowerandwind.Switchingtonaturalgasmayalsoprovetobeasignificantstep
forwardthoughitwillneedtobecombinedwithcarboncapturetechnologytoensureitissustainable.
Tomakesuchashiftrequiresseriouspoliticalwill.
UndertheKyotoProtocolof1997–theworld’sonlyexistingtreatystipulatingemissionscuts–
developingnations(whichincludetheeconomicpowerhousesofIndiaandChina)areexemptfromany
legallybindingobligationstoaddresstheirgreenhousegasemissions.Theinternationalsummitin
Durban2011,providedsomecauseforhopethatthissituationwouldbeoverturnedwithnegotiators
agreeingtostartworkonanewclimatedealthatwouldrequirebothdevelopedanddeveloping
countriestocuttheircarbonemissions.However,thetermsofthedealareunlikelytobeagreeduntilat
least2015andwillnotcomeintoeffectuntilatleast2020.Thisisbeyondthe2017watershednotedby
DrFatihBirolinthisreportasthepointatwhichtheworldmustbeintheprocessofmakingsignificant
headwayinmovingtoasustainablefuture.
Withmitigationeffortsstumblingalong,adaptationbecomesevenmorevital.Thisreporthas
emphasisedtheimportanceofensuringresilientinfrastructureincludingthedevelopmentofaccurate
earlywarningsystems,wehavenotedthenecessityofimprovedurbanplanningandfloodmanagement
systemsandwehavediscussedtheimportanceoftheinsuranceindustryinalloftheseefforts.Indeed,
perhapsoneofthemostcrucialpointsraisedoverthecourseofthisreportisthatallstakeholdersmust
worktogethertoincreasetheworld’sresiliencetoclimaterisk.Fromtheeconomisttothescientist,from
thearchitecttotheengineer,fromthelocaltownplannertocentralgovernment,andfromthesmall
businesstothelargemultinational,therehastobeajoinedupapproachtopoolingtheexpertiseofeach
groupiftheworldistoshifttowardstheupsidescenario.
Insurerscanandareplayingacrucialroleherebyspreadingawarenessaboutclimateriskthroughthe
pricingofnaturalhazards,byprovidingeconomicincentivesfortheconstructionandmaintenanceof
resilientinfrastructureandbysharingknowledgeanddatawithpolicymakers.Insurersarealreadydeeply
involvedinmanyoftheseprocessesandhavewonpraiseforbeingoneofthefewindustriestohavebeen
regularlywarningabouttherisksofclimatechange.85Butoverthecomingdecadestheindustrymust
embeditselfdeeperintothemultitudeofchannelsandnetworksthroughwhichitcanhelptoensurethat
adaptationisnotignoredandmal-adaptationisavoided.Innovationwillbekeytothis–bothintermsof
developingnewproductslikethoselinkedtomicrofinanceaswellasthroughbetterforecastingofclimate
risk.Andinsurersneedtocontinuetobeinnovativeinthewaythattheyengagewithpolicymakersto
ensurethattheiruniqueinsightsarefullyutilisedatthenationalandinternationallevel.
The next reportInournextreportwithinthecentenaryseries,wewilllookatpossibletechnologicalfutures.Similarto
thisreport,expertswillsetoutdiverseandcompellingnarrativesonwhatthefuturemighthold,and
wewillseektobuildanumberofsimplescenariostosetoutsomeimplicationsfortheinsuranceand
financialservicesindustry.
85 Seeforexample,JulesBoykoff(June2011)“Whytheinsuranceindustrygetsclimatechange”,articlefortheGuardian,lastaccessed29May2012:http://www.guardian.co.uk/commentisfree/cifamerica/2011/jun/28/climate-change-climate-change-scepticism
54 Future risk: Climate change and energy security – global challenges and implications
Previous reports within the Future Risk series
Future Risk: Learning From historyThefirstreportwithinourcentenaryseriesreflectsonpast
trendsandtheirpotentialimplicationsforfutureriskaswellas
discussingsomeinitialfindingsfromaglobalsurveyintothe
riskperceptionsofmembersofthepublicfromacrosstheglobe.
Itsetoutthemethodologyfortheentireseriesandidentified
themesforfurtherinvestigation.
Reportaccessiblevia:
http://www.knowledge.cii.co.uk/system/files/CII_Future_Risk_
Learning_From_History_Final_WEB.pdf
Future Risk: Social and Economic Challenges for Tomorrow Thesecondreportinthecentenaryseriesfocusesonsome
ofthebigsocioeconomicrisksidentifiedbythefirstreport.
UtilisingexpertanalysisfromGeorgeMagnusofUBSBankand
DavidSmithofTheSundayTimesamongstothers,weoutlined
threepossiblesocioeconomicscenariosandtheirpotential
implicationsfortheinsuranceindustry.Wethendiscussedhow
theindustrycanplayakeyroleindeterminingabetterfuture.
Reportaccessiblevia:
http://www.cii.co.uk/media/1735259/centenary_
socioeconomic_report_final_web.pdf
1912
1914
1939
19451918
19601950 20001960
1970
19801929 20101990
End of first age of
globalisation
WWI started
WWII started
WWII ended
WWI ended
Marked increase in civil wars
Average life expectancy 41
Average life expectancy 67
World population around 3 billion
Worldwide average 4.5 children per
woman
Start of Iran-Iraq warMt St. Helens erupts
Black Thursday stock market crash
World wide
average 2.5
children per
woman
2011
World population of 7 billion
?Rise in international peacekeeping
2005
Half of Sub-Saharan
Africa live on less than $1.25 a day
20522012
Future risk Learning from history
Future risk Learning from history Centenary Future R
isk Series: Report 1
Ref: CII_futureriskLFH (02/12)CII_6420
The Chartered Insurance Institute 42–48 High Road, South Woodford, London E18 2JPtel: +44 (0)20 8989 8464 email: [email protected] website: www.cii.co.uk
© The Chartered Insurance Institute 2012A CENTURY OF PROFESSIONALISM
Centenary Future Risk Series: Report 1
CII_6420 100 Years - Key Trends Cover ARTWORK V1.indd 1 06/02/2012 13:34
Future risk Social and economic challenges for tom
orrow Centenary Future R
isk Series: Report 2
The Chartered Insurance Institute 42–48 High Road, South Woodford, London E18 2JPtel: +44 (0)20 8989 8464 email: [email protected] website: www.cii.co.uk
© The Chartered Insurance Institute 2012A CENTURY OF PROFESSIONALISM
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Future risk Social and economic challenges for tomorrowCentenary Future Risk Series: Report 2
CII_6414 Socioeconomic Report Cover V3.indd 1 02/04/2012 15:16
previous reports
55 Future risk: Climate change and energy security – global challenges and implications
CIIBen Franklin
PolicyandResearchCo-ordinator
CharteredInsuranceInstitute
20Aldermanbury
London
EC2V7HY
Email:
About the Chartered Insurance Institute (CII)
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