Some argue that it is too expensive to do anything about the long-term effects of climate change—even if climate change is real. In a smart post at his Insurance Thought Leadership blog, Paul Carroll offers a stark reminder that there are significant short-term costs as well. And, those short-term costs will mount.
The post points out that the bankruptcy of PG&E will be, in fact, the first “climate change bankruptcy.” PG&E is preparing to file for bankruptcy in the face potential liabilities of $30 billion or more resulting from wildfires that swept its service area in 2017 and 2018. The extensive damage was due in large part to extremely hot, dry conditions that spawned more frequent and intense fires. Those conditions, PG&E’s (recently departed) CEO argued, were the result of global warming and climate change. Many experts agree.
Rather than a hypothetical scenario or debatable model of long term effects, PG&E’s imminent bankruptcy shows how climate change inflicts very specific, near-term pain:
1. Shareholders lost more than $20 billion as PG&E’s stock plunge 85%.
2. Insurers will sustain huge costs due to losses triggered in life, health, property, disability and every other possible form of insurance.
3. Customers, who already pay the second-highest rates in the country, are facing annual increases of 12 – 24% over the next three years. The rate increases will likely go on for decades.
4. Creditors will suffer since PG&E will not be able to make good on many of its obligations.
5. Taxpayers nationally will pay, due to FEMA and other federal agencies’ disaster relief costs.
Carroll argues that PG&E was in an especially poor position to deal with the wildfires because it did not take advantage of technology that could have sensed problems in its power grid. He calls for a greater focus on innovation. On that, he makes a solid point.
He risks, however, placing too much confidence on prevention and too much blame on PG&E. I understand the desire to hold the massive and once-mighty PG&E accountable. But, that assumes it could have avoided this disaster.
Consider the trees, for example. Falling trees can topple power lines and start fires. Record droughts and a bark beetle infestation have killed tens of millions of trees, according to the California State Association of Counties. Some large number of these trees were, no doubt, among the 120 million trees that PG&E estimated could come in contact with its 125,000 miles of power lines. In 2016, in response to an emergency declared by California’s governor, PG&E spent $435 million to clear dead and dying trees. Between 2015 and 2017, it removed about 400,000 such trees–in addition to a routine maintenance program that removes or prunes 1.4 million trees annually. That’s a lot of trees, but nowhere near the 120 million total number. Is there any way that PG&E could dealt with 120 million trees?
PG&E could have done better on other measures as well, such as burying lines underground, replacing wooden poles with taller, metal ones, insulating wires, installing networks of sensors and cameras and being more aggressive in shutting off power to at-risk areas. But, it would have been economically impossible for any utility to have hardened its entire grid in such a narrow timeframe and, as you’d suspect, customers don’t like getting their electricity cut off merely as a preventative measure.
To my mind, PG&E was a victim—actually it was a repeated victim of random acts of climate violence. If we hold companies liable in this way, expect other giants to fall, too.
Yes, every company needs to prepare for environmental changes and, as in the case of PG&E, labor to manage the increased risk due to the escalating number and magnitude acute climate events.
This doesn’t just apply to the energy industry—many industries need to face up to the risks. Consider, for example, the U.S. federal government’s gloomy National Climate Assessment outlining “growing challenges to human health and safety, quality of life and the rate of economic growth.” (Spoiler Alert: President Donald Trump does not believe this report.) There’s also the US Department of Defense’s report on the national security Implications of climate-related risks and a changing climate. The New England Journal of Medicine recently argued that climate change is a health emergency. The International Association of Insurance Supervisors offered a sobering analysis of the climate change risks to the insurance sector.
Pushing for prevention and mitigation where possible makes eminent sense. But, leaving it up to individual companies to defend us against random, acute climate events and other consequences of climate change will only lead to disappointment—and many more climate change bankruptcies.