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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


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


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”


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


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.


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)


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


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.



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.



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


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

2,500

3,000

3,500

4,000

4,500

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



Figure 4. Growth in world energy supply by fuel and region in the New Policies Scenario, 2009–2035 (milliontonnesofoilequivalent)

-400

0

400

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.



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.



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.



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.



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.



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)



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/



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]



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



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.


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]



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



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



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



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



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



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



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




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.



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.



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.



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.



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.



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.



...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.



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.



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.



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



• 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



• 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



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



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



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



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

.



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



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.


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).



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]


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


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.


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



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.


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



Atourmostpessimistic,insurancemarketfailureiswidespreadandtakesdifferentforms.Due

toincreasinglyregularandsevereweatherrelatedevents,insurersarelikelytotakeincreasingly

substantialcapitalhits.Insolvenciesrelatedtoextremeweathereventsthereforebecomemore

prevalentthoughtheindustrywillsurvivebywithdrawingcoverforthemostriskaffectedareas.

However,giventheextentofworldwideclimaterisk,evenindevelopedcountrieswhichhave

relativelymoreresilientinfrastructure,largeswathesofthepopulationwillremainuninsurable.

Overallthenasaconsequenceoflittleefforttokeepglobaltemperaturesincheck,ortodelivermore

resilientinfrastructurethrougheffectiveadaptation,theworldfacesableakfuture.Climatechange

continuesunabated,wreakinghavoconhumanwellbeingandeconomicactivityandpotentially

creatingadownwardspiralofpovertytrapsandpoliticalviolence.Theinsuranceindustryis

characterisedbymarketfailurewithmanyproviderswithdrawingcoverinthefaceofcatastropherisk.



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


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

Ref: CII_socioeconomicLFH (03/12)CII_6414

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


CIIBen Franklin

PolicyandResearchCo-ordinator

CharteredInsuranceInstitute

20Aldermanbury

London

EC2V7HY

Email:

[email protected]

About the Chartered Insurance Institute (CII)

Professionalism in practice

TheCIIistheworld’sleadingprofessionalorganisationforinsuranceandfinancialservices,withover

105,000membersin150countries.

Wearecommittedtomaintainingthehigheststandardsoftechnicalexpertiseandethicalconductinthe

professionthroughresearch,educationandaccreditation.

OurCharterremitistoprotectthepublicbyguidingtheprofession.FormoreinformationontheCIIand

itspolicyandpublicaffairsfunction,includingexamplesoftherangeofissuesinfinancialservicesand

insurancethatwecover,pleasesee:

www.cii.co.uk/policy

Who to contactw

ho to contact

The Chartered Insurance Institute 42–48HighRoad,SouthWoodford,LondonE182JPtel:+44 (0)20 8989 8464email:[email protected]:www.cii.co.uk

©TheCharteredInsuranceInstitute2012Ref:CII_environmentLFH(05/12)C12J_7194

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