Effects of Climate-Induced Catastrophes

May 16, 2006

Effects of Climate-Induced Catastrophes Considered at Annual Corporate Partners Summit

Santa Barbara, Calif. – The economic effects of climate-induced catastrophes were the topic of discussion May 11 and 12 when faculty members joined approximately 50 current and potential participants in the Bren School’s Corporate Partnership Program for the fourth annual Corporate Partners Summit.

Social activities included a golf tournament and barbecue, but the main event was a half-day of presentations interspersed with a spirited round-table discussion that emanated from a focus on climate-caused catastrophes and included discussions of fisheries and land use, carbon-trading, policy-making, and a host of other issues.

“This was my first Summit, and I was excited by the exposure to, and friendships with, our real-world partners,” said Bren School Dean Ernst von Weizs√§cker. “We can learn a lot from them.”

“The program extends the Bren School’s focus on real-world application and gives our Corporate Partners access to great thinkers who have answers and are creating solutions to the serious questions of environmental management,” said Marsha Marcoe, Bren School Corporate Liaison. “That dialog is essential to creating the next steps for putting ideas into action.”

After a cocktail gathering and dinner at Bren Hall, Corporate Partner Tim Cohen, Vice President, URS, one of the world’s largest engineering design firms, introduced Dr. von Weizsäcker, who presented a talk titled The Ecological Mindset: Current and Future.

The Dean traced the evolution of environmental thinking from the initial anti-pollution focus of the 1970s and early 1980s through the anti-regulation mindset of the later 1980s and 1990s and into our current era of increasing world population, growing resource scarcity, and the emerging threat of global warming. He ended with a call for a “new technological revolution” that would be focused on creating a “dramatic increase in resource productivity” in the form of such things as cars that get 100 miles per gallon, light bulbs that use one-tenth the electricity required by current-technology bulbs, and buildings that consume one-quarter the energy current buildings do.

Participants convened the following morning for three talks that produced a lively, free-flowing discussion. First up was Lindene Patton, Senior Vice President & Associate General Counsel for Zurich Environmental at Zurich North America. In her talk, titled “Insurance and Natural Catastrophes: Environmental Insurance at a Crossroads," she offered her personal views about the potential use of environmental insurance products to reduce loss content from natural catastrophes.

Next, Bren Professor and Associate Dean John Melack spoke on The Science of Catastrophies, using the levee system in Northern California's Sacramento River delta to illustrate the potentially devastating consequences of doing nothing in the face of a known – if not entirely predictable – future event. For instance, he quoted research concluding that within the next 50 years, there is a 64 percent chance of a massive levee failure that would bring seawater into the delta's freshwater system, shutting down pumps that supply drinking water for 23 million people. He also referenced World Bank reports stating that while there were fewer than 100 catastrophes related to natural forces in 1975, in 2005 there were more than 400; that expanding populations in vulnerable areas have increased the impact of each event; and that for every dollar spent on preparation for such events $5 to $10 could be saved in reduced damage costs.

Bren Professor of Environmental Economics and Policy Charles Kolstad then discussed the economic implications of climate change in his presentation, titled Climate Catastrophes. He examined the issue from several perspectives: physical changes that may occur as a result of climate change (including a shutdown of the Gulf Stream and resulting further climate change, or collapse of polar ice sheets and resulting raised ocean levels); the infrastructure overload and mass migrations that may arise from physical changes such as the loss of coastal residential areas in such low-lying areas as Florida, Bangladesh, and Holland; and the possible social and political result of those overloads, such as wars fought over scarce resources. He then addressed the topics of insurance markets and derivative markets in terms of hedging the financial risk of increased exposure resulting from global warming.