Insurance, Water, Electricity, and Climate Change

As discussed in class, the validity of climate change is inevitable; the cumulative evidence that exists in support of climate change will eventually lead to a unanimous consensus [1]. However, it is important to know how climate change might be affecting us today.

In a recent article on the website Co.Exist (which I encourage all of you to regularly visit), Terry Tamminen adopts an interesting approach to assessing how climate change will play a significant role this year in four markets: insurance, water, real estate, and electricity. I offer my opinions on each of his analyses. Tamminen writes that the Insurance Information Institute recorded national insured losses of close to $36 billion in 2011 “from record-setting extreme weather catastrophies” [2].  While this is a significantly high number, the chart from the III puts things into perspective [3]. There definitely seems to be a higher frequency of losses post-1988 compared to pre-1988. In fact, it seems like the three years with the highest insured losses on record were all after 1994. Tamminen is perhaps right on the trend of increasing insurance costs.

 

Another kind of disaster discussed in the article is drought. In our class last Thursday, Mark Strama alluded to a general consensus in Texas that water is one of the state’s biggest concerns [5]. Spicewood Beach, a town not too far from Austin in Burnet County, has become the first town in Texas to officially run out of water [4]. The town is currently transporting in their water from miles away and costs the agency roughly $1000 a day. In 2011, Texas experienced its driest year since 1917, and if it continues this way, it’s not unimaginable to see these costs being passed down to consumers in the foreseeable future.

Tamminen discusses how the cost of coastal real estate will also rise as a consequence of preparing for more intense storms. But the last – and perhaps the most interesting – argument he makes is that the cost of electricity bills will go down. In California, specifically, the Energy Commission has been releasing some fairly detailed guidelines on the energy consumption of household goods. The 2010 edition, for example, has a stipulation that “a television shall automatically enter … stand-by mode after a maximum of 15 minutes without video and/or audio output” [6]. Tamminen believes that regulations like these, along with higher standards on chargers, will save $306 million a year off Californian energy bills, because they will have to build capacity for a lower peak load. I couldn’t find the source of this information, but a quick look at the USA’s energy consumption seems to imply that our energy consumption has reduced its rate of growth, while we consumed less in the years 2008-2010 compared to 2007 [7]:

While history has definitely shown that we can consume less, it’s hard to say definitively whether per unit energy costs will go down as a result of these measures. We trade energy on a global market, and the rising energy consumption of countries like China, India, and Brazil will probably have a bigger impact on the cost of energy compared to progressive local standards.

Do you agree/disagree with Tamminen’s views? Do you think he missed other important indicators?

[1] Dr. Webber’s Lecture on Energy, Technology, & Policy. The University of Texas at Austin, April 3, 2012

[2] 3 Things That Will Cost More in 2012, Terry Tamminen. http://www.fastcoexist.com/1679610/3-things-that-will-cost-more-in-2012

[3] http://www.iii.org/facts_statistics/catastrophes-us.html

[4] http://www.nytimes.com/2012/02/04/us/texas-drought-forces-town-to-haul-in-water-by-truck.html?_r=1

[5] Mark Strama’s Lecture on Energy, Technology, & Policy. The University of Texas at Austin, April 5, 2012

[6] http://www.energy.ca.gov/2010publications/CEC-400-2010-012/CEC-400-2010-012.PDF

[7] Data from EIA Annual Energy Review.

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2 Comments

Filed under energy

2 responses to “Insurance, Water, Electricity, and Climate Change

  1. gmcguirk

    I tend to agree with Tammimen’s views on the first two topics. More volatile weather and severe storms will inevitably lead to higher insurance costs, especially in areas across the Midwest and along the coasts where strong storms are most common. Coupled with water issues, droughts have been leading not only to falling water tables, but also dryer forests. As was seen around here last year, and recently in CO (http://www.denverpost.com/breakingnews/ci_20272546/colorado-wildfire-elite-search-and-rescue-team-looking-woman-missing), forests and cities are more and more at risk to fire dangers.

    I may disagree with the claim that ocean front property will become more expensive. It may very well become more expensive to maintain, and so some tourist cities may be stuck pumping millions into rebuilding beaches, but I would think private property values would fall as they erode into the ocean. Additionally, I think it is too early to say what will happen with our electricity consumption. Yes we are getting more and more efficient with how we use it, but we are relying more and more on electronics for every aspect of our lives. Even home energy management systems that are supposed to solve all our residential efficiency needs will be an added draw on our electricity bills. Every “smart” device will need to have a receiver that is powered and waiting for a signal from the HEMS. The low-tech option of just unplugging everything may be the only way to really be sure that unwanted electricity consumption isn’t occurring.

    • sevengroove

      I’m not too sold on the coastal real estate idea either. One of my professors in the Planning school seems to think that the opposite will happen, and advised us to purchase land in the midwest for the future :).

      Regarding the cost of electricity, another important concern we need to address is consumer perception of energy consumption. While we do receive positive results from more stringent energy standards, we run the risk of the public assuming that their current consumption levels are sustainable. Hopefully we will see policy address that as well.

      Funny picture: http://3.bp.blogspot.com/_oxWPV-_KX-M/TT_rtWi-awI/AAAAAAAAAQ0/LphhMVDNj5M/s1600/Turn+ON.png

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