Warming trend chills business
World weather affects economic forecasts
By Craig Wolf
Poughkeepsie Journal
Business is beginning to take a serious look at the controversial issue of global warming.
And it's not just the business of moviemaking that's looking. The hyperbole of ''The Day After Tomorrow'' notwithstanding, there are those who say that as global temperatures hit new tops, the impact will also hit the bottom line. Then, it will work its way home to your pocketbook.
One industry that does long-range forecasting of the impact of weather is reinsurance, which is the business of backing up insurance companies when claims go too high for their reserves.
Swiss Re, one of the globe's giants in this line, said in an annual report on catastrophes this spring that ''there is increasing evidence for a rise in extreme weather events, and hence in insured catastrophe losses.''
That's where it comes home to individuals, businesses and institutions.
''The catastrophic exposure research we do is a standard part of pricing,'' said Thomas Holzheu, a Swiss Re senior economist in New York. ''That is part of the cost component for insurance for homeowners or business insurance policies.''
Insurance rates increasing
Rising property insurance costs generate lots of customer calls, said Lily Huang, a State Farm agent in LaGrange.
''We get phone calls every day, and we just have to explain to them,'' Huang said. ''They say, 'I never put any claims in; why should my insurance go up?' It's not just you, it's the whole area, the whole company.''
Plenty of factors affect insurance rates, including land-use patterns in which people place themselves in harm's way, concentration of development and inflation.
But Swiss Re -- based in Zurich, Switzerland, and active in 30 countries, including the United States -- has reported on climate change as a significant factor for about 10 years, Holzheu said.
''Climate change is a phenomenon that is starting to have a major impact on Swiss Re, its partners and our clients,'' company CEO John Coomber said in an announcement about a documentary sponsored by the company.
''The Great Warming," broadcast on Discovery Channel Canada in April, is slated for broadcast in the U.S. on PBS on a date in October yet to be announced.
''The question is no longer whether global warming is happening, but how it's going to affect our business, as well as our personal lives,'' Coomber said.
Tuesday, the Association of British Insurers warned that the extreme weather may triple the value of claims.
''The number of winter storms in the U.K. has doubled over the past 50 years and the 1990s were the warmest decade since records began,'' reported the BBC.
Not all scientists attribute extreme weather to global warming caused by human activity. Some cite other causes, such as long-term cycles with natural origins, like rising salt levels in the Atlantic Ocean increasing heat and hurricanes.
But regardless of the cause, extreme weather costs.
In a preface to a 1994 report titled ''Global Warming, Element of Risk,'' Swiss Re said, ''the more quickly and radically the global climate changes, the more extreme weather patterns could cause damage. Repercussions could be enormous, with threats posed not only to citizens and enterprises, but also to whole cities and branches of the economy, even entire states and social systems.''
Response needed
The United Nations Environment Programme Finance Initiatives said in a 2002 report, ''Climate Change and the Financial Services Industry,'' that climate change will force directors, executives, pension trustees and institutional investors to respond.
The U.N. report said climate change will also create large emissions-trading markets, catastrophic event bonds and weather-related derivatives.
Some economic areas will grow, such as the producers of clean power that minimizes emissions of carbon-containing compounds, ''greenhouse gases,'' linked to trapping heat in the atmosphere, or global warming.
Clean power technologies could generate revenues in the range of $234 billion to $625 billion by 2010, the agency projected.
One beneficiary could be IBM Corp., at least in the area of supercomputers, a good part of which comes out of Poughkeepsie.
The University of California at Irvine is using IBM rigs to model extreme situations and try to predict global warming impact up to 300 years into the future. Another system, called ''Blue Sky,'' is at the National Center for Atmospheric Research in Boulder, Colo., and another runs at the University of Hawaii in Honolulu, both partly devoted to climate research.
The Pew Center on Global Climate Change reported study results in April suggesting economic impact could go either way if a moderate rise in temperature occurs, from a 0.7-1 percent gain to a loss of 0.6 to 3 percent in Gross Domestic Product by year 2100.
But the Pew study authors cautioned that beyond critical thresholds, benefits diminish and reverse, eventually becoming costs.
Swiss Re said 2003's disasters, which contained numerous severe weather incidents, cost 60,000 lives worldwide, the seventh highest in 30 years, and economic losses of $70 billion.
It was a wild year of extreme weather. In May, a series of more than 400 tornadoes peppered the Midwest with hail. In Europe, many countries sweated through the hottest summer on record.
Climate measured over time
The report cautioned extreme weather events cannot be used to prove or disprove change in climate, which is the sum of all weather over a long period of time.
However, the authors added, ''An increase in extreme weather events is consistent with the developments that climatologists expect in a warmer climate.''
Citing data from the Intergovernmental Panel on Climate Change, a joint project of the United Nations and the World Meteorological Organization, it noted these statistics:
- Over the last century, temperature has risen markedly. On average, it's up 0.6 degrees Centigrade, which for the northern hemisphere is the strongest rise in 1,000 years.
- Levels of the greenhouse gas, methane, or marsh gas, have spiraled 151 percent since 1750.
- Some climate models predict a rise of from 1.4 degrees to 5.8 degrees Centigrade, or 3 to 10 degrees Fahrenheit, by the end of the 21st century.
Why does gradual warming cause more extreme weather?
The logic goes like this. First, warmer temperatures mean more energy at the earth's surface. This raises evaporation rates. The warmer atmosphere also can absorb more water.
A warmer climate thus has ''a more intensive water cycle and an attendant higher rainfall intensity,'' leading to ''a greater degree of storm activity.''
The U.N. report urged investment managers to require greater disclosure from companies on what impacts the global warming trend may have upon them.
Climate change is already changing parts of the financial world. For example, the United Kingdom now has a ''climate change levy,'' a tax on nonrenewable forms of energy including electricity and gas. It was introduced after the nation committed to reducing greenhouse gases by 12.5 percent as part of the Kyoto Protocols.
The United States refused to sign the protocols as President Bush complained it exempted large parts of the undeveloped world and said it would damage the nation's economy. He suggested instead a plan in which industry sectors would voluntarily cut emissions in exchange for ''market-based incentives.''
American refusal has remained controversial, globally and domestically.
In announcing the Pew Center's reports, Eileen Claussen, president, said, ''Without near-term action to address climate change, the U.S. is likely to face the need for more expensive and dramatic measures in the future.''
Craig Wolf can be reached at cwolf@poughkeepsiejournal.com.
On the Web
- For information on a summary of Sigma's report on natural catastrophes and man-made disasters in 2003, go to Swiss Re's Web site at http://www.swissre.com and find issue No.1, 2004.
- Pew Center on Global Climate Change: http://www.pewclimate.org
- Intergovernmental Panel on Climate Change: http://www.ipcc.ch
- United Nations Environmental Programme, Finance Initiative: http://unepfi.net
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