Of Hurricanes, Insurance, Mitigation and Carbon Taxes
I’m in New Orleans at a conference on Preparing the Gulf Coast for Extreme Weather. Its lead sponsor is a reinsurer, the Institute for Building and Home Safety is here, and there are lots of insurance people around. The preponderance of the audience, however, consists of environmentalists. None of the people I know here self-identify as conservatives. In this setting, a lot of what gets discussed–wetlands preservation, insurance, disaster resilience, building codes—makes a lot of sense to me. But one of the major top of discussion rubs me the wrong way: consistent talk by a vocal minority of the environmentalists here about carbon taxes/cap-and trade as a solution to unpleasantly high insurance rates or some sort of cure-all for coastal disasters.
Given that my colleagues and I founded R Street in response to what we felt were overheated climate-change related billboard campaign that our former employer ran, it’s probably sensible that I clarify my own stance on these issues. Here it is: I have no doubt that climate change is real, human-caused to a significant degree, and likely to have a number of negative consequences. As such, it’s worthwhile for insurers and reinsurers to incorporate climate change models into their ratemaking and for communities near coasts to plan in advance for climate change. That said, I’m against big government, high-tax, central-planning-oriented schemes to deal with climate change for the same reason I’m against using them to deal with almost any other significant problem. If there is to be a carbon tax, it should be narrowly focused on pollution rather than an excuse to expand government control over the economy or hand money to politically favored groups.
That said, I don’t understand how anybody could suggest that any policy related to greenhouse gas emissions as a way of dealing with hurricanes or other extreme weather. Carbon emissions are a problem in large part because greenhouse gases are persistent in the atmosphere. If we were to end all net carbon emissions tomorrow–which would be impossible, undesirable, and economy-wrecking–the levels of GHG in the atmosphere would remain about the same for many decades. Furthermore, even if one accepts the idea that all weather events everywhere are somehow related to human activity, which strikes me as an untestable and thus, unscientific, statement, I’m not aware of anyone who thinks that hurricanes form mostly because of human activity. The records we have show trends in overall storm activity that do not track C02 emissions.
The problem, really, is that we have too many people living near the coasts and provide too may subsidies to encourage them to do so. Reducing GHG emissions will not move a single person away from the coast, harden a single structure against hurricanes, directly preserve a single acre of wetlands, or place a single insurance rate at its appropriate risk-based levels. All of these things will work much more quickly and effectively than controlling greenhouse gas emissions. In a few cases, indeed, its possible to envision how the best thing to for climate change would be terribly destructive for the coastal environment: I’d suspect, for example, that filling in wetland that emits methane gas and replacing it with some fast growing trees would reduce GHG emissions. Obviously, however, doing so is dreadful for the environment and terrible for the coast.
None of this means that we shouldn’t worry about climate change. Nor does it mean that we shouldn’t have some sort of carbon tax. (Doesn’t mean we should either.) But it’s important to realize that the best response to climate change from an insurance perspective is to charge risk-based insurance rates, engage in mitigation, and preserve natural wetlands. A carbon tax, whatever its merits or demerits as public policy overall, just isn’t a solution to any insurance or coastal protection problem. It certainly isn’t a solution to extreme weather.