Thursday, March 28, 2013

Debate 2.0: Can creating a Green Economy redeem the 1%?

Carol Smith and Brendan Barrett ask if the recent Occupy Wall Street protests are the beginning of a Societal Rethink?

The Occupy Wall Street protests are making headlines around the world, just as those in Spain and Greece did before. All on the tail of the uprisings of the Arab Spring.

However, critics of this latest wave have been equally vocal. And the right-wing media are having a field day with the mish-mash of poorly-expressed motivations espoused by some of the individual ‘Occupy’ protesters being interviewed (like the one quoted by a Vancouver columnist yesterday as saying, “We’ll be here until the rich are poor and the poor are rich” or another photographed with a poster that reads “One day the poor will have nothing left to eat but the rich”).

Then there are those who may quibble with the origins or interpretation of the data used to come up with the moniker “the 99%” that refers to the portion of the population that is not part of the “richest 1%” that own “40% of global assets” (from a 2006 UNU-WIDER study) or in the US, the 1% who own 34.6% of that country’s wealth. Some go even further and call North Americans crybabies for complaining at all, when their countries are undeniably easier places to live than many others around the globe.

But the fact is that long-term unemployment and bleak economic prospects have darkened the global mood. People are angry and this is manifesting in an anti-corporate (mainly financial institutions) and anti-ultra rich direction. Corporate greed is seen as the root cause for the 2008 financial meltdown. This could explain why a recent 10-country survey found consumers increasingly care about the ethics of companies.

The other issue is that some ultra rich people seem intent on blocking efforts to deal with pressing issues like climate change. They would rather risk the loss of a human friendly climate than the loss of a part of their wealth.

To some extent, these concerns may explain the underlying theme put forth by activist magazine Adbusters, conceptors of the Occupy Wall Street movement, which is a message that seems to resonate with what many of the 99% in affluent countries are sensing is necessary given the ecological and resource crises facing the world:

“Anything, from a bottom-up transformation of the global economy to changing the way we eat, the way we get around, the way we live, love and communicate… Let’s occupy the core of our global system. Let’s dethrone the greed that defines this new century,” a recent call to action enthused.

Is redemption possible?

But is it wishful thinking to imagine that the public display of displeasure could possibly encourage a greener tendency in the 1%? It would certainly be in line what the public wishes to see. The survey mentioned above indicated that 34% of respondents consider economic development as the first social priority, yet another 21% see the environment as tops. That means investments in green jobs would immediately be in line with the aspirations of 55% of the population.

That being so, in the run-up to next month’s COP17 climate negotiations, 285 of the world’s largest investors have issued a call for urgent policy action designed to fuel private sector investment into climate change solutions like low-carbon technology. Apparently it’s not the first year the group has made this call but now it’s backed up with a report, commissioned in partnership with the UN Environment Programme Finance Initiative, that gives more detail on what such climate policy might look like.

What would you get for your money? Well, here is a concrete example. The 285 investors have assets in the order of US$20 trillion. If they were to invest in even the most radical proposals on the table, like Greenpeace’s Energy (R)evolution scenario, then they would only need to spend US$17.9 trillion to move the entire world to 80% renewable energy by 2030.

This kind of outlay would not only assist in tackling climate change but would improve energy security and create new jobs. Such investments create new wealth and at the same time would provide electricity for the world’s 1.4 billion people without access.

We have heard repeatedly, going back to 1992 Rio Earth Summit, that the scale of funds needed to deal with climate change or clean energy, are insignificant in the grand scheme of things. Yet we have done very little.

Is it possible the Occupy Wall Street protests are the beginning of a group societal priority-rethink? Could this group of investors be an indication that the 1% is redeemable and not a hopeless lost greedy cause?

Carol Smith and Brendan Barrett are journalists with a Green heart who work together at the UNU - Media Centre.

Monday, March 04, 2013

Why the Insurance Industry won’t save us from Climate Change

RL Miller debugs the shaky Insurance industry and Climate Change relationship

A myth floats around among those seeking free-market solutions to climate change that insurers will be a positive force. Insurers are worried about the impact of climate on their business model. They will increase rates. Expensive insurance will drive people off the coasts. People and property won't be as affected by coastal storms. Most recently, Fast Company asked whether trillion-dollar storms will drive us off the coasts: "Just how long until large chunks of America's coastline become virtually uninsurable, starting with Lower Manhattan? Some would say this is a good thing, a perfect example of markets appropriately pricing risk and (dis-)incentivizing people accordingly."

There's only one problem: This market-driven solution won't work.

Insurers are worried about climate change, with good reason. A recent Ceres report found, generally, that they're ill-prepared for climate. Their model for pricing risks depends on historical models, which are meaningless in the time of the new normal.

For several years Munich Re, the giant reinsurer, has been advocating for governments to do something about climate change, based on rational self-interest: If governments can prevent it from happening, then insurers won't have to pay out. Guess that didn't work out so well -- thanks, United States Senate! As climate mitigation seems to be failing, adaptation strategies become necessary.

The first adaptation strategy will be to raise rates. Here, the free market advocates are giddy. Coastal insurance will become very expensive, so no one will live on the coasts! Yay! However, it won't work. A look at two southern California coastal communities illustrates the free-market failure of insurance to deter people from living near the coast.

Malibu is a notoriously high-risk area -- I joke, "Do you know what Malibu means in the Chumash language? 'Stupid people live here.'" It's prone to fires and landslides. Year after year, TV cameras cover muddy devastation, wrecked mansions, and teary-eyed residents vowing to rebuild. And, generally, they do rebuild. But they rarely do so with insurance money, because California policies don't cover landslides. Insurance in Malibu has become so expensive that many residents rely on the FAIR Plan, an insurance pool of last resort. Although California's FAIR plan was created in 1968 ostensibly to aid inner-city residents who were considered uninsurable after the 1965 Watts Riots, it now serves wealthy homeowners who have chosen to live in high-risk canyons and coastlines. And wealthy people have lobbied the state legislature for concessions in coverage.

Twenty-eight states have similar plans that cover certain high-risk weather events -- brushfires in Malibu; wind and hail damage in coastal communities in Georgia and New York. FAIR Plan high premiums and limited coverage haven't deterred people from living in high-weather-risk areas so far.

Another way of understanding how high premiums fail to act as a deterrent is to imagine yourself with enough money to buy your dream car -- that fire-engine-red Lotus, that 1965 Mustang, that Tesla Roadster. Insurance on that car is expensive. Does that stop you? If so, you're rare. People who can afford to live on the coast do so for reasons wholly divorced from pragmatic cost issues.

In short, the free market of high insurance premiums and limited coverage hasn't deterred people from living in pricey coastal communities. Climate change will raise premiums and limit coverage, but people will still want to live in Malibu. But what of less expensive coastal communities?

La Conchita is a small community sandwiched between the coast and steep, unstable mountains on the Ventura-Santa Barbara county line. A 1995 landslide buried seven homes. Property values plummeted, insurance became unaffordable, and people moved in anyway. Why did they move in? Because you could get a walk-to-beach home for $500,000 instead of the $5 million you'd spend in Santa Barbara or Malibu. The area took on a surfing haven reputation -- a little funky, a little high-risk, a lot less expensive. People moved in, paid cash, and thus weren't required to have insurance, or went onto the FAIR Plan -- again, the cost of insurance wasn't a factor. Then a second landslide in 2005 killed 10 people. The $500,000 house is now marked down to $350,000, and no one is buying it. Although no significant connection has been made between the storms of 1995 and 2005 and climate change, La Conchita may be a harbinger of what's to come: high-risk hamlets.

A new OECD report finds that the two American cities most vulnerable to rising sea levels are New York and Miami. Lower Manhattan is likely to end up like Malibu -- very wealthy people willing to ignore risks -- while Miami becomes a high-risk island, cut off from the rest of Florida as a wall of saltwater moves inland. Insurance rates aren't likely to uproot people.

In the medium-term (10 to 20 years), I wouldn't be surprised to see insurers attempt to restrict coverage for climate-related damage, much as has been done for mold/fungus coverage when mold became a hot-button issue in about 2001.

In the long-term, the industry may not survive in its present day form. It's built on charging risks based on past patterns. But past history can't map a new normal. The property insurance industry is reeling from the storms of 2011, and the life and health insurers have barely begun to consider the likely profound impact of climate change on their mortality tables. If the federal crop insurance program has yet begun to calculate the impact of climate on its program, I haven't seen it. Perhaps we'll end up with some sort of two-tiered program in which government extends the concept of a FAIR plan (minimal coverage, high premiums) to virtually every aspect of insurance, and some wealthy people choose to pay even higher premiums for additional coverage. For now, the insurance industry shouldn't be considered a player in the search for free-market solutions to climate change.

RL Miller is an attorney, climate/enviro blogger, runner, quilter, keeper of chickens. If you hate the terms climate zombies and oilpocalypse, blame RL Miller.© Grist Magazine