Climate Risk and Responsibility

July 9, 2019

Climate risk and responsibility

Communities across the country and the world are already experiencing intensifying climate-related risks and extreme climate events. More severe and frequent fires, intense hurricanes, droughts and flooding are all becoming the new norm, wreaking devastation to life, property, and critical public infrastructure.

In 2018, the western US experienced its deadliest and most destructive wildfire season on record, fueling questions around who bears the responsibility and liability for climate disasters, what policies are necessary to mitigate and adapt to climate change, and how to overcome the challenges of cost, partisanship, and equity.

As climate risks grow, the impacts are being felt by a greater swath of communities and economic sectors, and there’s a growing understanding that opportunities for climate solutions lie within the full expanse of the economy, including sectors that may not have been traditionally associated with climate solutions, such as insurance and housing.

Speakers at the North American Carbon World 2019 conference addressed the future of climate risk and responsibility. (video: Special thanks to Hon. Ricardo Lara, California Insurance Commissioner; Sean Hecht, UCLA School of Law; Annie Notthoff, NRDC; Jerry Schubel, Aquarium of the Pacific; and Chris Thompson, Southern California Edison.


In this landscape of climate risk and devastation, our federal government has not been friendly to climate action. A New York Times analysis counts 83 environmental rules and regulations being rolled back in the current administration, which will result in increased air pollution, greenhouse gas emissions, toxic substances, and harm to health and ecosystems.

“All the action is at the state and local level now. They are really stepping up. Sometimes a vacuum actually invites action. Hostility out of Washington DC is now spurring action in Washington State, in Oregon, in Colorado, in New Mexico, in Nevada,” said Annie Notthoff, NRDC.

Engaging the insurance industry

“Insurance is a potential lever for addressing the causes and the impact of climate change in a bunch of different ways – insurers are powerful market actors in their investments. They also can create incentives to build resilience and reduce risk (as they have with many of our existing building codes), and they are key players in compensating victims,” said Sean Hecht, UCLA School of Law.

California is exploring creative and innovative opportunities to engage the insurance industry as a partner in fighting climate change. Ricardo Lara, the state’s Insurance Commissioner, has been working tirelessly to expand the scope of the insurance industry beyond thinking about just premiums and market solvency, to also think proactively about climate and environment.

“The insurance industry can continue to the be profitable but rethink the way they do business to protect our natural infrastructure and environment,” said Honorable Ricardo Lara, California Insurance Commissioner.

As an example of an innovative insurance industry solution, Lara points to Swiss Re’s insurance policy covering a 40-mile stretch of coral reef and connected beach in Cancun, Mexico. Local hotels and governments with a vested interested in tourism and habitat protection pay insurance premiums on the policy. If the reef system experiences damage or erosion, the policy holders can access millions from the insurance policy to restore and reforest of the reef immediately.

Role of utilities

The utility industry plays a key role in achieving emissions reductions and helping the state reach decarbonization goals. Southern California Edison is increasing its emissions-free generation mix and making huge investments in transportation electrification, including building 48,000 charging stations all over southern California through $750 million of investment from its ChargeReady 2 program. SCE is making investments both to provide clean electricity and enable their customers to make clean choices.

In addition to clean power generation and end use adoption, utilities are facing another serious climate challenge: the wildfire crisis. Fire investigators have determined that PG&E and SCE equipment have been responsible for major fires in California. The utilities are working to build, operate, and maintain their systems in a manner that reduces ignition sources and hardens the electrical grid, from insulating wires in high fire risk areas and cutting power on high wind days, but the uncertainty over their ability to absorb the financial impacts of the wildfire crisis remains a critical challenge.

“The scale and magnitude of the disasters that we’ve seen outstrip the ability of any particular industry to absorb. That’s something that the legislature has recognized, the insurance departments are recognizing, and the governor’s strike force recognized. How we allocate the climate-induced risks across industries and across our society has to adapt to the changing environment that we have. The insured losses from the 2018 wildfire season are in the order of $20-30 billion dollars,” said Chris Thompson, SCE.

The Catastrophic Wildfire Cost Allocation Commission is looking at this question and preparing a report. One possibility is the creation of a fund that could be capitalized from a variety of sources (utilities, insurance companies, taxpayers & others) in order to have a pool of funds available for recovery from those damages immediately and to allocate risks across society. Another response the governor is considering is moving to a fault based standard. Currently, the policy regime in the state is for liability without fault, which may not provide any inducement in getting utilities to improve standards.

“We need to make sure the insurance industry understands their role and responsibility, allow them the opportunity to recoup their costs, but also put some onerous on the utilities to do a much better job hardening their system, while understanding that we need to help them as well,” said Honorable Ricardo Lara.

“As far as the dynamic between the insurance industry and utility sector, a risk pool or a fund is a way to allocate that risk differently. We don’t want to bankrupt any industry due to climate induced change. We need to get to a system where we have a clear standard, we’re held to that standard, and if we fall short of that standard then we’re held accountable. You don’t want to squeeze the balloon and cause an economic problem elsewhere. We have to solve the problem, not shift it,” said Chris Thompson.


The state is suffering from a housing problem. Housing in many parts of the state is unaffordable and unattainable for too many of the population. Lack of options and affordability often result in people living a great distance away from their jobs or building in outlying areas. And where homes are being built makes a big difference for the climate – both in terms of greenhouse gas emissions from vehicle miles traveled (VMT) and wildfire/disaster sensitivity and risk.

One of the major challenges for California in meeting its climate goals is emissions from cars, which has increased by one to three percent each year for the past four years. The state has passed several measures to increase housing opportunities aligned with transit and transportation to reduce VMT, such as SB375 in 2008.

“We have got to give people options to get out of their cars or we are not going to meet our climate targets,” said Annie Notthoff.

Building in the wildland urban interface (where natural areas and development meet) introduces risk for wildfires and other disasters – both from the human risk that people can create and from the infrastructure that has to be built to serve those people.

“Everything has to have a planet component moving forward. Housing, transportation, every aspect of the work we’re doing. As we rebuild communities, what building materials can we update? How do we build in a much more resilient way? And that will cost money. Who bears the cost? Should we be building in certain parts of the state where we’re sensitive? And if local governments are going to allow for these homes to be built, should they be made to pay their fair share in terms of the amount of risk they are now incurring?” said Honorable Ricardo Lara.


Catastrophic climate events will ensure that climate change does not remain a partisan issue. As people are affected in rural and urban areas, in low- and high-income communities, in red and blue states, people will turn up demand for climate policies and solutions that protect their lives and communities. The responsibility lies with each of us and with policymakers to seriously address climate change.

“The goal of educating people is not for them to take personal responsibility for everything related to climate change because we solve climate change with policy changes not with changes in just individual habits. It’s policy that creates the conditions for people to make the changes that they need. So, ultimately, I would see it as educating people with the goal of having them be policy advocates so that they can make sure their representatives understand that they need to do something about the problem,” said Sean Hecht.

“There is no one solution. There’s no quick fix. The risk is huge and it’s increasing, and the responsibility rests with every one of us. We are going to have to look at everything we do as individuals and in the aggregate,” said Jerry Schubel, Aquarium of the Pacific.


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