The Business of Global Warming

By Anthony | April 20th, 2006 | 11:43 pm

A post by DarkSyde at DailyKos takes a look at one way to untangle the arguments surrounding global warming:

One of the best ways to cut through the propaganda about the risk of potentially dangerous activity is to look at what businesses with a financial stake in getting it right are doing.

Who has a financial stake in global warming? The insurance industry. The post links to an article in Environmental Science and Technology Online, in which Evan Mills was interviewed:

As the world’s largest industry, the insurance business faces more financial risk from global warming than any other sector of the economy. To better understand how business leaders are dealing with the dilemma, ES&T spoke with Evan Mills, a staff scientist at the U.S. Department of Energy’s Lawrence Berkeley National Laboratory.

In the past 15 years, Mills has distinguished himself as an expert on the economic risks posed by climate change. In a study in Science last August, he detailed how global warming stands to hurt the insurance industry. He further explicated this work in a recent report released by Ceres, a network of investors and public interest groups that promote environmental stewardship on the part of corporations.

DarkSyde’s post quotes this part of the article specifically:

Right now, the media seems to be caught in a debate over whether hurricanes are becoming stronger because of global warming. What does the insurance industry predict?

Earlier this year, the insurers’ catastrophe [CAT] modelers unveiled their first attempt to incorporate the implications of climate change [...] The net result was an approximately 45% increase in previously expected insured losses due to changes in the physical characteristics of the extreme weather events alone.

Why do the insurance companies buy into the science?

I would say that insurers are better equipped to understand and evaluate the science than most other industries, and they have no particular vested interest in propping up polluting industries. [...] Insured losses from weather-related events in 2005 approached $80 billion (4 times those from 9/11) …

Seems like a pretty sound argument to me – not foolproof, but very suggestive of which side is more likely to be right. Insurance companies are in business to make money, and they can only do that by correctly interpreting the data they look at.

As a side note, the article also mentioned this (emphasis added):

When the U.S. delegation failed to engage in efforts to curb emissions of carbon dioxide and other greenhouse gases (GHGs) during climate talks in Montreal last December, a group of 25 economists—including 3 Nobel Prize laureates and 1 former member of the President’s Council of Economic Advisers—urged President Bush to drop his opposition to cuts in carbon emissions.

The rising costs from weather damage and agricultural losses far outweigh the price of curbing emissions, the economists wrote to Bush. Geoffrey Heal, an economist with the Columbia Business School, told the Financial Times, “The cost of implementing the Kyoto Protocol is about 1% of GNP. That is about two quarters of growth.�

I’ve heard it said that Kyoto would have “wrecked the economy”. One percent of the GNP doesn’t sound like much of a wrecking ball.

7 Responses to “The Business of Global Warming”

  1. David Boyd Says:

    US GNP in ‘05 was over $11 trillion.

    1% of $11,000,000,000,000 is $110,000,000,000.

    On July 25, 1997, before the Kyoto Protocol was to be negotiated, the U.S. Senate unanimously passed by a 95–0 vote the Byrd-Hagel Resolution (S. Res. 98), which stated the sense of the Senate was that the United States should not be a signatory to any protocol that did not include binding targets and timetables for developing as well as industrialized nations or “would result in serious harm to the economy of the United States”.

    Part of the harm, in addition to the actual costs, is the relative harm done by making ourselves less competitive with India and China. You don’t spend $110 billion one time and that’s it.

    What’s worse when arguing about Kyoto is that even if implemented and the ‘rosiest’ scenario plays out in its favor, it doesn’t do much. It’s a feel good policy built on incomplete information. Where would we be if in 1975 we had committed to spend billions to warm up the earth to stave off the coming ice age?

    What we ought to be doing is moving more quickly toward flex fuel vehicles which have less harmful emissions and have the added national security benefit of getting us off oil and reducing the amount of money going to people who want us dead.

    The only problems that I can see with this is that if the US moves toward alcohol, oil prices will collapse thus giving China an advantage. If we raise taxes to keep alcohol based fuels competitive, they have lower costs by remaining with oil. However, I’m willing to cross that bridge later.

    The other problem is that if we move seriously to using ag products to fuel our cars, it’s going to take a bunch of farming both here and in Central and South America. I suspect extreme enviromentalists will be upset about it. But what are you going to do? It’s important for our standard of living for us to continue to grow and that takes energy.

  2. PotatoStew Says:

    “Part of the harm, in addition to the actual costs, is the relative harm done by making ourselves less competitive with India and China.”

    That only goes so far. We could be more competitive with them by doing away with child labor laws and opening sweatshops, but few people (I hope) would advocate that. If something is the right thing to do, we should do it even if it means we’ll be a little less competitve.

    “Where would we be if in 1975 we had committed to spend billions to warm up the earth to stave off the coming ice age?”

    This assumes that the evidence for that ice age was equivalent to the evidence for global warming and our role in increasing it. I’m unfamiliar with what was being said in 1975 – can you point to anything that shows the evidence was on the same footing?

    I agree with the second half of your comment – there should definitely be a bigger push for some of those alternative energy ideas. Short term, there may be competitive disadvantages, but long term it would be likely to pay off.

  3. BrendaBowers Says:

    People you all are leaving out one very important factor: the United States is ideally located to receive the violent hurricanes off of the Atlantic and the almost as devastating storms off of the Pacific. Say we get another Katrina this year but instead of going into the Gulf it comes up the East coast and comes ashore in Charleston then right on up thru NC and Va. What if the West coast gets more torrential rains with the geologically newly formed unsettled land mass that makes up all the western sides of the states and they all side right into the Pacific.

    We are already seeing the increase of violent storms cause by global warming. What will happen to our economy that you are worried about if either or both of these catastrophes happen? And don’t say they won’t because they already have, and we have the proof in Alabama, Mississippi and Louisiana.

  4. David Boyd Says:

    PS, regarding child labor and moral issues like that, you’re correct. We’re less competitive than we could be due to our drawing a moral line. We may want to do the same at some point with global warming, but it’s unclear if the solution proposed is worthwhile. If it’s worthless, then it’s the worst of all possible outcomes – big bucks spent with no results.

    Here’s a Wikipedia recap on global cooling. Important point:

    At the same time that these discussions were ongoing in scientific circles, a more dramatic account appeared in the popular media, notably an April 28, 1975 article in Newsweek magazine. Titled “The Cooling World,” it pointed to “ominous signs that the Earth’s weather patterns have begun to change” and pointed to “a drop of half a degree [Fahrenheit] in average ground temperatures in the Northern Hemisphere between 1945 and 1968.”

    There is no question that the science now is better than it was then. However, there’s also no question that we’ll know more in 2036 than we do now.

    BB, it’s not clear yet that global warming has anything to do with hurricanes. We’ve had periods of frequent and intense storms in the past.

    As for the insurance companies, they’ll raise rates if they see risks growing. If consumers see risks growing, maybe they’ll reconsider building a house on a sand bar. However, I doubt it. Even before the current hysteria, we all knew it was only a matter of time before a Cat 5 storm wiped out the Outer Banks. It has always been thus.

  5. BrendaBowers Says:

    The ice caps at both poles are melting and that would not be happening unless more of the sun’s ultraviolet rays were getting thru to the earth below thru a polluted and damaged atmosphere. Yes, there is evidence that the waters in the northern hemisphere is getting cooler; the ice caps are melting. Put an ice cube in a glass of water and it will melt and at the same time make the water cooler. Global warming has it’s beginning in the atmosphere, not on land

  6. BrendaBowers Says:

    Check out the cyclone ( our hurricane) due to hit northern Australia tonight (our time) that is baring down on the city of Darwin on the northern coast of Australia. It is at the top end of the scale category 5 with winds of 350 km/h. (If I remember correctly that is approximately 280 mph.) There has never been a storm this strong recorded by the Bureau of Meteorology of Australia. This is following a cyclone last month in north Queensland that was a category 4 when it made landfall. The Australians aren’t having a whole lot of trouble believing in global warming. And considering they are now facing two areas so far this year wiped out as great or greater than the devastation of our own Katrina I would say they have found something more devastating to their economy than a bit of competition from India or China.

  7. PotatoStew Says:

    “And considering they are now facing two areas so far this year wiped out as great or greater than the devastation of our own Katrina I would say they have found something more devastating to their economy than a bit of competition from India or China.”

    That’s a good point, and one I’ve mentioned to David before. There is a cost associated with inaction.

    David, regarding the link between global warming and hurricanes, my understanding is that while scientists aren’t sure if it will result in more frequent storms, they are pretty sure that it will result in a greater percentage of longer, more intense storms.