Market Forces

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 »

Also posted in 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 »

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

How Economists Can Leverage MethaneSAT Data for Climate Action

By Lauren Beatty / Bio / Published: March 28, 2024

This blog was co-authored by Maureen Lackner (Senior Manager of Economics and Policy Analysis, Environmental Defense Fund) and Lauren Beatty (High Meadows Postdoctoral Economics Fellow, Environmental Defense Fund).

Climate change is a pressing issue, partly fueled by methane: a greenhouse gas responsible for about 30% of today’s global warming. Reducing methane emissions will slow down the rate of near-term warming and help avert the worst climate damages. To tackle this problem, Environmental Defense Fund launched MethaneSAT, the world’s first satellite developed by an environmental non-profit. MethaneSAT aims to quantify regional emissions of methane across more than 80% of oil and gas production in the world, while disaggregating diffuse area emissions and high-emitting point sources.

MethaneSAT will generate publicly available data allowing stakeholders to track emissions and hold polluters accountable. This data will empower various actors – governments, companies, and investors – to make informed decisions about emission reduction strategies. It will be an invaluable resource for economists and public policy researchers aiming to analyze and design effective climate policies. Read More »

Also posted in Climate science, Economics, emissions, Technology / Tagged Methane, MethaneSAT | Leave a comment

What Climate-related Financial Risk Means for Communities: Part 3 – Community Banking

By Elle Stephens / Published: February 15, 2024

Climate change-driven events—like heat waves, droughts, floods, and fires—cause damage to communities’ and individuals’ health and safety. But these events also threaten the financial well-being of communities across the U.S. through their impact on markets and local economies. These risks are increasingly visible in the housing and mortgage markets.

In this three-part series, we’ll be breaking down how the climate crisis is creating risk for three key financial systems—and how these risks to the insurance system, the real estate market, and community banking can affect communities.

Part 3: Climate-related Risks to Community Banking and Credit Unions

Climate change poses risks to individual banks as well as the entire banking system by damaging banking infrastructure, destroying collateral, and causing borrowers to default on loans. Threats to banks, especially to smaller banks, translate to risks to communities and individual households. Small banks serve local economies, engaging in relationship banking with small businesses and individuals. Some smaller banks also provide higher interest rates for deposits, more favorable loans than larger banks, and “better overall economic performance for their communities.” Read More »

Also posted in Economics / Leave a comment

What Climate-related Financial Risk Means for Communities: Part 2 – Housing & Mortgage Markets

By Jesse Gourevitch / Published: February 7, 2024

Climate change-driven events—like heat waves, droughts, floods, and fires—cause damage to communities’ and individuals’ health and safety. But these events also threaten the financial well-being of communities across the U.S. through their impact on markets and local economies. These risks are increasingly visible in the housing and mortgage markets.

Part 2: Climate-related risks to the housing and mortgage markets

For many people, their home is their most important financial asset—which is increasingly put at risk by the impacts of climate change.

While the economic costs of climate-related hazards have been growing, there is mounting concern that housing markets are failing to fully price these risks, creating moral hazard and potentially causing real estate bubbles to develop. Indeed, previous work by EDF researchers has shown that residential properties exposed to flood risk are overvalued by $121–$237 billion.

Also posted in Economics / Leave a comment

What Climate-related Financial Risk Means for Communities: Part 1 – Insurance

By Karina French / Published: February 1, 2024

Climate change-driven events—like heat waves, droughts, floods, and fires—cause damage to communities’ and individuals’ health and safety. But these events also threaten the financial well-being of communities across the U.S. through their impact on markets and local economies. Nowhere is this more visible recently than in the property insurance market.

Part 1: Climate-related risks to the property insurance market

Over the last few years, we have witnessed big shifts in property insurance markets. Insurance costs have increased and availability decreased in regions of high risk to climate-driven disasters, driven in-part by the increasing frequency and severity of flooding, hurricanes, and wildfires, increasing development in areas prone to hazard, growing costs of rebuilding, and high costs of reinsurance.

Also posted in Economics / Leave a comment