Market Forces

Unlocking Insurance to Rebuild Stronger and Greener after Disasters

By Carolyn Kousky / Bio / Published: December 16, 2024

This blog was authored by Talley Burley, Manager, Climate Risk & Insurance and Carolyn Kousky, Associate Vice President for Economics and Policy.

This is the third blog in a multi-part series on how insurers can support decarbonization and the energy transition. This series explores opportunities and challenges and highlights emerging insurance innovations that can drive emissions reductions. In this post, we discuss how insurance can support climate-friendly rebuilding after a disaster.  

In the United States, buildings account for more than a third of national CO2 emissions and many buildings are not able to withstand the impacts of future climate extremes. As the risks of climate disasters grow, our buildings require updates to decarbonize and improve energy efficiency and better protect inhabitants from intensifying weather-related events. State and local building codes are important tools to shrink emissions and improve resilience for new buildings. But 75% of existing residential buildings will still be standing in 2050, which means these structures will need retrofits in the coming years to improve efficiency and resiliency.

The rebuilding process after a natural disaster can be an opportunity to build back stronger and greener. Insurance can help to drive climate-smart upgrades and support retrofits that lead to savings over time from lower future losses and reduced energy use. Unfortunately, too often post-disaster rebuilding proceeds without these upgrades, replacing the structure and its components exactly as it was before. This is due to a variety of factors: high upfront costs, households lacking information on what changes to make, a shortage of appropriately trained builders or contractors, or concern that changes to the building will slow the recovery process. Insurance can also be a barrier, because of common restrictions that require covered repairs to restore the original structure. Read More »

Posted in Economics, Energy Transition / Tagged Decarbonization, Disaster Recovery, Energy Transition, Insurance Innovation | Leave a comment

Insured solutions: How insurance-based tools can unlock climate tech

By ptufano / Published: October 30, 2024

This blog was authored by Peter Tufano, Baker Foundation Professor at Harvard Business School and Senior Advisor to the Harvard Salata Institute for Climate and Sustainability, with support from the Environmental Defense Fund, including Andrew Howell, Senior Director for Sustainable Finance. Any references below do not constitute an endorsement of the firms or products mentioned.

This is the second in a multi-part series on how insurers can support the energy transition. The series explores climate-related opportunities and challenges and highlights emerging insurance innovations. This will help us build a greater understanding about how the insurance industry can support emissions reductions and new climate solutions. In this second post of the series, we discuss how insurance can support the emergence and scalability of clean tech solutions and innovations.

To combat climate change and adapt to a warming planet, we need new technologies that have yet to be invented, piloted, or commercialized. According to the International Energy Agency’s 2020 estimates for its Sustainable Development Scenario of net-zero by 2070, nearly three-quarters of the innovations needed to reduce emissions by 35 gigaton (billion tonnes) per year by 2070 are still far from commercialization. If we include innovations to help us adapt to the changing world, the technological gap is likely much larger, with a recent Global Adaptation & Resilience Investment (GARI) working group study suggesting that only 11% of firms offer “adaptation solutions” products. This call for innovation may not sound immediately relevant to the insurance industry, but it is.

Conversations around insurance and climate change typically focus on how insurers can reduce emissions from firms that they finance or insure (in their roles as investors and insurers, respectively). They examine how insurers measure climate risks and signal these risks through premia they charge, or how insurers can make coverage more available and affordable as climate intensifies extreme weather. But insurers in the climate space have another role: to support needed technological innovation through “insured solutions.”

How can insurers help support innovators? Surely, it’s not possible to “insure” the success of new ventures? Correct! But to make projects easier to finance, insurers can derisk climate innovations by applying risk engineering approaches and offering new contracts to offload certain risks.

Posted in Economics, Technology / Tagged Climate Tech, Economics, Energy Transition | Leave a comment

The Power of Electricity Modeling in the U.S. Clean Energy Transition

By Matthias Fripp / Bio / Twitter profile / Published: September 17, 2024

The journey toward a clean energy economy is complex and filled with technical, economic, and social challenges. Electricity models are key tools for driving this transformation, providing precision and insight into the potential outcomes of energy policies and technological shifts. At the Environmental Defense Fund (EDF), we are working to make these tools more accessible through the U.S. Model Intercomparison Project (MIP), which brings together leading developers of open-source planning models to help steer the nation toward a sustainable energy future. Read More »

Posted in Economics, Energy Transition, Technology / Tagged Clean Energy, Electricity Grid, Energy Modeling, Energy Transition | Leave a comment

How insurance innovation can drive decarbonization

By Carolyn Kousky / Bio / Published: September 10, 2024

This blog was authored by Talley Burley, Manager, Climate Risk & Insurance; Carolyn Kousky, Associate Vice President for Economics and Policy; and Leslie Labruto, Managing Director, Sustainable Finance.

This is the first in a multi-part series on how insurers can support the energy transition. The series will explore opportunities and challenges and highlight emerging insurance innovations. This will help us build a greater understanding about how the insurance industry, long overlooked as a potential core contributor, can drive emissions reductions. In this first post of the series, we discuss tools that are available to insurers to support the energy transition.

You’ve heard this before. Climate change-driven events — wildfires, hailstorms, tornadoes, hurricanes, and floods — have devastated lives and communities across the country, straining local economies and households as infrastructure, homes, and other personal effects are damaged and destroyed. Mounting costs from extreme weather events have significantly impacted the insurance industry, leading to rising costs and leaving many without sufficient insurance coverage to rebuild. In 2023 natural hazards accounted for $250 billion in economic losses, with insurers and reinsurers paying $95 billion globally. According to a report by SwissRe, insured losses from natural hazards have grown by about 5-7% annually since 1992. Human-driven climate change will continue to lead to more intense and frequent natural hazards. Global greenhouse gas emissions have increased by about 8% since 1990, and today those emissions are the highest they have been in human history. Without significantly greater efforts to reduce global emissions, climate change will only continue to drive costs and strain the insurance sector.

What will it take to reverse these trends? Transformational action and an all-hands-on-deck approach from market sector forces and actors is needed. This includes the insurance industry. While insurance plays a vital role in supporting disaster recovery and resilience, the insurance sector also has a variety of tools and levers it can use to drive the adoption of low-emission, energy-efficient practices.

As the insurance industry faces a period of unprecedented disruption in the face of climate change, insurance markets must evaluate, test and learn from a series of six levers that can make them part of the solution, while also helping their firms, their clients, and their communities remain leaders in innovation and competitiveness. Read More »

Posted in Climate Change, Economics, Energy Transition / Leave a comment

Navigating a Just Labor Transition: Unveiling the JLT Progress Scale and Strategies for a Fairer Future

By Luis Fernandez Intriago / Bio / Twitter profile / Published: August 21, 2024

This blog was authored by Brigitte Castañeda and Minwoo Hyun, former EDF Doctoral Interns, Raphael Heffron, Professor at the Universite de Pau et des Pays de l’Adour, and by Environmental Defense Fund economist, Luis Fernández Intriago.

As temperatures rise globally, the energy sector stands clearly accountable, putting a critical spotlight on the need for a just energy transition. In particular, the ongoing strikes and labor disputes within the energy sector emphasize the urgent necessity of ensuring an equitable workforce transition. Our new Environmental Defense Fund Economics Discussion Paper: “A Global and Inclusive Just Labor Transition: Challenges and Opportunities in Developing and Developed Countries,” addresses this by evaluating labor policies in both developed and developing countries, introducing the Just Labor Transition Progress Scale to assess their energy transition efforts.

From the experience of the energy transition in developed countries, we find that a successful Just Transition for labor markers in energy sectors requires robust government leadership, financial support, inclusive local consultations, a well-structured taxation framework, evaluation of social security and labor regulations, and a focus on economic diversification to create alternative (and green) job opportunities. Developing countries transitioning from fossil fuels to cleaner energy face further and particular challenges due to having higher informal employment and less social protection. For example, coal-dependent countries are at higher risk due to characteristics that include labor-intensive and low-skilled jobs and geographic concentration, while oil-dependent countries face less disruption with more specialized roles. Overall, careful planning is crucial to maintaining affordability, accessibility, and inclusive employment, particularly in countries with concentrated fossil fuel jobs. Targeted strategies and economic diversification are two policy actions needed to ensure a Just Labor Transition (JLT).

This is why we propose a decision-making policy tool called the Just Labor Transition Progress Scale (JLTPS) to evaluate national progress toward a just labor transition. Our results highlight that most developing countries are at the beginner or moderate stage, while developed countries are at the intermediate stage, with very few at an advanced stage. Read More »

Posted in Climate Change, Economics, Energy Transition / Tagged Climate Policies, Energy Transition, Environmental Regulation, Just Labor Transition, Just Transition, Labor Markets | Leave a comment

Clearing the Air: How New Rules for Oil & Gas Facilities Offer Major Wins for the Environment and Economy

By Lauren Beatty / Bio / Published: June 7, 2024

This blog post was authored by Lauren Beatty, High Meadows Postdoctoral Economics Fellow and Aaron Wolfe, Senior Economics and Policy Analyst.

Methane pollution caused by oil and gas production in the U.S. is a major contributor to climate change and releases health-harming pollution into nearby communities. New EPA rules are projected to slash methane emissions from covered sources by 80%.

Between 2024 to 2038, EPA projects a reduction of 58 million tons of methane—equivalent to removing nearly a billion cars from the roads for a year—along with slashing 16 million tons of smog-forming volatile organic compounds (VOC) emissions and 590,000 tons of air toxics. Many of the common-sense measures in the rules will lead to economic and environmental benefits for Americans and have already been adopted by leading states and operators. They also result in capturing otherwise wasted gas. EPA estimates that by 2033, increased recovery of gas will offset $1.4 billion per year of their compliance costs.

In response to arguments from the oil and gas industry that the rules will harm operators, EDF’s Economics team analyzed the economic impacts of the regulations, including their effect on small producers, marginal wells, and consumers. We found that:

The regulations have low compliance costs, which are further offset by profits from captured gas and are not expected to influence operational decisions by oil and gas producers;
Marginal wells are provided significant flexibility and are not expected to face significant compliance difficulties; and
The regulations will cause no perceivable oil and gas price increase for consumers.

Our conclusions are consistent with EPA’s own analysis and bolstered by the experience in leading states where similar methane regulations have been in effect for years without hindering production or harming the industry.

Posted in air pollution, Economics, Energy Transition / Tagged Economics, Methane | Leave a comment