Storm Shows America as One Nation, Without Enough Insurance
Sure, it would be rash to describe Hurricane Sandy as climate change incarnate. But it does make one wonder just how much longer we can ignore the bigger picture.
The bigger picture is that of a storm eating the northeastern United States from the Carolinas in the South to Lake Michigan in the West. More than 60 million Americans have been affected, many of them in areas where hurricane damages have not historically been a concern. Initial estimates by Eqecat put insured losses at $10 billion to $20 billion, with up to another $50 billion in economic damages. Once economists tally the total losses from property damage to homes, stores, cars, and utilities, as well as the opportunity costs of foregone wages and other productivity losses, the figure is likely to be even higher.
Storm-related damages of this magnitude are not new. Hurricane Irene cost the economy more than $7 billion last year, and Hurricane Katrina is estimated to have caused more than $100 billion (pdf) in damages. What is new about Sandy is that it hit directly at the heart of urban America – New York City. Sandy revealed New York’s vulnerabilities the way an arrow in the heel revealed Achilles’s.
The private sector better understands this reality, and has been more active than the U.S. government in addressing it, insurance companies in particular. They make their living off of pricing and managing risk, and have begun to brace for what they believe will be an inevitable increase in extreme weather.
Sandy revealed New York’s vulnerabilities the way an arrow in the heel revealed Achilles’s.
Standard property & casualty insurance companies have largely been prevented from pricing the full cost of climate change into the premiums their customers pay, mostly due to opportunistic short-term competitors and state regulators loath to allow large increases in premiums. Reinsurance companies -- those that insure the insurers -- have no such restrictions, and are aggressively reducing their climate risk. They are trying to raise rates on insurers with heavy exposure to coastal regions. The risk affects their bottom line and they are pushing insurance premiums up around the world.
The world’s largest companies are managing their energy and water use, supply chains, and product lines conscious of climate change, and the new laws, practices and potential disruptions it will bring about. That’s what sustainability is all about.
Given that climate risk affects so many Americans, it is natural that the federal government should take the lead in minimizing it. The Obama Administration lost its momentum on climate policy after the 2009 United Nations talks in Copenhagen. It has managed to raise car fuel efficiency standards and propose carbon pollution rules for power plants. That makes it all the more surprising that “climate change” became a naughty phrase during the election. Neither presidential candidate uttered it in their three debates, worried perhaps that it may provide fodder for attacks of being a “job-killer.” Never mind that solar industry jobs are growing faster than the national average. And never mind that nature can be a people killer.
The American aversion to climate change solutions is purely and needlessly driven by politics. But the reality is that climate policy, if designed correctly, could both strengthen the economy in the short run and act as an insurance policy against even costlier disasters in the long run.
A carbon tax could shore up the government’s finances, reduce the deficit by as much as 50 percent over the next 10 years and encourage businesses toinvest in clean technologies, according to a recent Congressional Research Service report (pdf). Historically low natural gas prices -- think fracking -- could minimize a carbon tax’s hit to consumers. “Cap and trade” is a pejorative phrase in Washington, but that doesn’t mean it’s necessarily a bad idea. In fact, California launches its new program this month.
Whichever candidate wins the election should push Congress for federal climate legislation. Anything short of that would be irresponsible.
Park, a Rhodes Scholar, is a PhD student and Environmental Economics Fellow at Harvard University and the executive director of Sense & Sustainability. Hacker is an editor for Sense & Sustainability.
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