Climate Change Effects

How the Supreme Court Just Delayed the Clean Power Plan

July 1, 2015 21:40
by Tricia Caliguire
The Supreme Court’s decision in Michigan v. EPA holding that the Environmental Protection Agency should have considered costs when making the decision to regulate mercury emissions from power plants (the “MATS Rule”) may have put the brakes on the late-summer release of the final Clean Power Plan (“CPP”), the regulations limiting CO2 emissions from power plants – but not because EPA failed to consider the costs. They did, just not the right ones.

Carbon Emissions | Climate Change | Climate Change Effects | Renewable Energy

Houston Flooding and Lawyers - A Climate Change Informed View

May 27, 2015 09:57
by J. Wylie Donald
"After a natural disaster, such as a hurricane, litigation often follows to determine who will pay for the consequences." Mariner Energy, Inc. v. Devon Energy Prod. Co., 690 F. Supp. 2d 558 (S.D. Tex. 2010) (considering contractual responsibility for property damage after Hurricane Rita).

Climate Change | Climate Change Effects | Climate Change Litigation | Insurance | Weather

Floods in Texas, Flood Mapping, Flood Dollars

May 25, 2015 01:12
by J. Wylie Donald
Floods on the Rio Blanco these past few days demonstrate the link to climate change, but not in the way you think. It was a horrible Memorial Day weekend in Hays County, Texas. At least three people died from the worst flooding seen since 1922. The Rio Blanco crested at 43 feet, 30 feet over flood stage. Over 400 homes were destroyed and the interstate (I-35) was under water.

Climate Change Effects | Regulation | Weather

Florida’s Solar Conundrum

March 31, 2015 09:40
Despite ranking third in the nation for rooftop solar potential, the "Sunshine State" is 13th in cumulative solar capacity installed (dreary New Jersey is 3rd). This is the result of a state without a renewable energy portfolio standard (RPS) that does not permit power purchase agreements (PPAs) (Florida is one of only five states that explicitly prohibits anyone other than the big utilities from selling power). Depending on whom you ask, Florida's lack of solar infrastructure is either caused by the "monopoly" held by the State's big power companies, or the simple viewpoint that solar is a silly alternative when you compare cost to the comparatively cheap prices from more conventional generation sources. Well, the debate is scheduled to be settled soon... Environmentalists in Florida are pushing for a constitutional amendment initiative to place solar choice on the November 2016 ballot. The purpose of the ballot proposal is to expand solar choice by removing barriers that limit solar ownership models. If approved, the ballot measure would allow homes and businesses to install solar and sell excess energy they generate back into the grid. Curiously enough, much of the focus on this particular ballot proposal has been on the unlikely alliances that are now supporting the measure. Tea Party conservatives and aggressive libertarians (who advocate for free-market principles through energy choice) find themselves aligned with fundamental environmentalists and progressive liberals (who advocate for cleaner energy solutions). Opponents of course oppose taxpayer subsidies and consumer mandates. Regardless of one's viewpoint, an amendment permitting third-party sales in Florida will immediately result in a tremendous boom to the Sunshine State's solar industry. If that road is opened, expect a sea of solar developers to begin canvasing I-95 for opportunities from the Panhandle to the Keys.

Climate Change Effects | Renewable Energy | Solar Energy | Utilities | Florida | renewable portfolio standard | solar finance

EPA COMMENTS SUGGEST EMPHASIS ON CREATIVITY AND INTERNALIZING EXTERNALITIES IN CLIMATE STRATEGY

October 14, 2014 06:29
by Jameson Tweedie
The American Bar Association's Section of Energy, Environment and Resources held its Fall Conference last week.  Noteworthy from a climate perspective were the keynote address by Environmental Protection Agency Administrator Gina McCarthy, along with comments by other officials within President Obama's Administration with specific responsibility on climate issues—including Samantha Medlock, Deputy Associate Director for Climate Preparedness (White House Council on Environmental Quality); Hilary Tompkins, Solicitor (Department of the Interior); Cynthia Giles, Assistant Administrator, Office of Enforcement and Compliance Assurance (EPA); and Lorie Schmidt, Associate General Counsel of Air and Radiation (EPA).  Two repeated themes have particular resonance on climate issues. First was a repeated focus on the role of government to level the playing field.  Emphasized, for example, was the EPA’s effort to strongly enforce existing regulations and permits to eliminate competitive advantages that environmental rule-breaking gains individuals or companies over their rule-abiding competitors—in other words, to internalize the externalities associated with environmental rule-breaking.  Or, as Administrator McCarthy put it, to make compliance the efficient decision.  An analogous focus was evident on reducing the advantage the Administration believes heavy carbon-emitting companies gain over their lower-carbon competitors.  Ms. Schmidt, in particular, made clear the Administration's intent, in the wake of the authority left to the EPA by the Supreme Court in Utility Air Regulatory Group v. EPA, 573 U.S. ___ (2014), to continue imposing carbon limits on all applicable large emission sources. All indications are that the Administration is looking for opportunities to expand the reach of carbon emission limits beyond just those large sources.  The goal of leveling the carbon playing field across sources would undoubtedly have been simpler in many respects through a nationwide carbon tax or cap-and-trade system.  Indeed, John Cruden (current President of the Environmental Law Institute and nominee to head the Department of Justice’s Environment and Natural Resources Division), quoted former Secretary of State George Shultz who expressed the pressing need to put "all forms of energy production on an even playing field" by internalizing the externalities associated with carbon emissions and other pollutants.  But, with a national carbon tax or cap-and-trade system a congressional nonstarter, the Administration is left seeking a piecemeal set of solutions that, taken together, can achieve its climate goals.  This challenge seemed to lead naturally into the second theme of Administration personnel:  the need for creative solutions.  While by no means limited to climate change (for example, this was also reiterated in CERCLA and other enforcement contexts), the need for creative solutions seems particularly apt in the broad climate context facing the Administration.  That is, congressional impasse on top of stalled or snail pace efforts to reach an international framework.  Within these parameters, any significant short term climate change efforts are left to state and local action, to action within the corporate world (as former EPA head William Reilly was quoted, CEOs are the "unsung heroes" of the environmental movement, making environmental progress cost competitive) and to administrative action.  Ms. Medlock particularly pointed out the burden likely to fall on state and local government to devise innovative, cost-effective solutions to build resiliency along the coasts to the double challenge of rising sea levels and the increased storm intensity and storm surges which climate change is predicted to bring.  (Evidencing the Administration’s focus on this issue, Administrator McCarthy headed directly from the Conference to an event on Miami Beach highlighting the rising seas and extreme tides facing South Florida.)  As recent reports have indicated, while climate change impacts will be unevenly spread, no region will be spared its share of challenges, whether they be sea level rise and storm surge, flooding or drought, extreme temperatures or otherwise.  Without a doubt, creativity is required.

Carbon Emissions | Climate Change | Climate Change Effects | Rising Sea Levels

Super Models Are Looking Better Than Ever - What Does That Mean For Insureds?

August 20, 2014 20:19
by J. Wylie Donald
A recent article in August’s Best’s Review, The Rise of the Super Models, by Kate Smith (not Kate Upton, sorry), caught our eye.  A lot is going on in the world of computer catastrophe modeling.  First, demand by insurers and reinsurers is up and modeling firms are “broadening the scope of risks and regions that they model, with RMS, AIR Worldwide and CoreLogic EQECAT all set to release new models this year.”  Among other things, all of the top 3 modeling firms are releasing U.S. inland flood models.  This blog has been hard on FEMA and the Corps of Engineers, criticizing the backward-looking nature of flood plain mapping.  It looks like the tools to remedy that deficiency will soon be at hand. Second, modeling firms are shifting from open models to open platforms, which “offer more choice by providing access to models created by third-party suppliers.”  According to Ms. Smith, a catalyst for this change is Oasis Loss Modeling Framework, Ltd., an insurance industry-founded and -funded organization.  According to Oasis’s webpage, “Barriers to entry have restricted the ability of the insurance community to exploit large elements of available research in hazards and vulnerability.”  Such barriers include costs and knowledgeable personnel.  The goal then was to create an “open marketplace for models and data leading to much wider access to understandable tools for catastrophe risk assessment.”  Open platforms (think Linux) can have great benefits; nevertheless, some are skeptical of Oasis’s practicality in that it is not available for off-the-shelf use, is optimized for an expensive IBM platform, and runs slowly on other platforms, among other things.   The implications for policyholders of all this modeling are three-fold:  first, rates; second, policyholders’ own business decisions; and third, others' views of those business decisions. As insurers better understand the risks associated with particular locations their rates will be adjusted accordingly. This can be a good thing if insurers determine they have overestimated the risk, or if other insurers jump into that market and drive prices lower. But it will be a bad thing if the risk was underestimated and prices rise, or insurers flee a particular market as has regularly happened in Florida and other states.  Indeed, at least one state has seen high court approval of the use of models to limit insurance offerings in high risk areas. Modeling can also be a boon to business planning. What does the future likely hold for a particular location? Will water supplies hold up?  Is the flood map reliable or is it outdated?  Is the company compounding its exposure by yet another franchise or mall development in a particular region?  There is no reason that modeling expertise need be restricted to insurance and reinsurance companies.  Other businesses can benefit.  However, as pointed out in Super Models, “Models are not a perfect science; there are subjective opinions involved.”  Accordingly, businesses should be cautious. And what if a business does not bring modeling into its business planning? It is likely that if things go awry and the unpleasantness is substantial and can be attributed to an inadequate forecast, an injured party will assert the failure to model the future was negligent.  A case in point is In re PXRE Group, Ltd., Sec. Litig., 600 F. Supp. 2d 510 (S.D.N.Y. 2009), aff’d, 357 Fed. Appx. 393 (2d Cir. 2009), where a reinsurance company found its failure to rely on a particular model was the gravamen of a class action plaintiff’s security fraud suit.  PXRE was a thriving reinsurance company, whose business was conditioned on maintaining an A- rating.  Unfortunately, Hurricanes Katrina, and then Rita, and then Wilma, devastated certain portions of the Gulf Coast to its reinsureds’ detriment.  PXRE stepped in and paid on its reinsurance contracts but the losses kept increasing.  It relied on models to reassure the investment community that it remained financially sound in order to raise money.  The models it relied on, however, turned out to be inaccurate, and ultimately PXRE's rating crumbled and it succumbed to the unprecedented losses.  The class action ensued. Plaintiff claimed, among other things, that PXRE should have relied on a higher estimated loss ($40-60 billion by RMS) rather than valuations of $30-40 billion touted by PXRE’s own models as well as by ISO and Air Worldwide.  The district court opinion gives a lengthy dissertation on the standards to be applied in a securities fraud case on a motion to dismiss and concluded that PXRE was not reckless in its reliance.  More germane to the issue here, is that PXRE was able to defend itself because it had relied on models.  Granted, modeling was part of PXRE’s business and, no doubt, a lack of modeling would have been reckless.  But, is a prudent non-insurance business going to eschew modeling on the theory that no one else in its industry relies on them.  If models are becoming more widely available, as suggested by Super Models, the path of the prudent business is, at the very least, to consider whether modeling has something to offer. 

Climate Change Effects | Flood Insurance | Insurance

The New Bucket List: NOAA’s Top Sites for Increased Nuisance Flooding

July 29, 2014 11:26
by J. Wylie Donald
"Seawater on the streets.”  One immediately knows that, notwithstanding the alliterative allure, something is not right.  And when one is in Annapolis, Maryland, and the Alex Haley Scuplture Group is literally reading in the waves, it is plain disconcerting.  The National Oceanic and Atmospheric Administration calls this “nuisance flooding,” and has just issued a report, Sea Level Rise and Nuisance Flood Frequency Changes around the United States, that takes sea level rise down to the day-to-day and documents the quotidian, long-term repetitive inundations that are regularly besetting portions of the American littoral.  Annapolis and its sometimes aquatic sculpture grace the cover of the report and also top the list of areas experiencing the most increase in nuisance flooding.   The report is based on the National Water Level Observation Network (NWLON), whose gauges have been monitoring tides for decades, even, in many cases, nearly a century.  NOAA scientists have applied their expertise and formulae and provided valuable results.  The report is quite technical.  For example, “[t]rends derived from linear regression on the annual number of nuisance flood days are statistically significant at the 90% level at 41 of the 45 gauges analyzed.”  Report at 9-10.  However, while the Report may be technical, the graphs are plain.  Even non-technical people can understand the scatter plots showing an accelerating trend of nuisance flooding or the bar charts that show the increase in annual days of flooding.  Where is this increase occurring, and when? The Report identifies the Mid-Atlantic, Chesapeake Bay, North and South Carolina and southern Texas as experiencing a higher value of “nuisance flood days” – greater than 20 annually. Report at 9. By way of comparison, in the 1950s the frequency of nuisance flooding across the United States (the return period) was of the order of 1-5 years. Today “the probabilities of a nuisance flood event have increased throughout much of the U.S., with return periods typically <0.25 year (3 months) at most NOAA gauges.” Report at 16.  Besides Annapolis, areas recently suffering over 20 nuisance flood days on average per year include Atlantic City and Sandy Hook, N.J., Charleston, S.C., and Washington, D.C. The significance of this is easy to visualize:  “overwhelmed stormwater drainage capacity, frequent road closures, and general deterioration and corrosion of infrastructure not designed to withstand frequent inundation or salt-water exposure.”  Report at vi.  But there are other more subtle impacts.  Nuisance flooding immerses a community in a rising sea level.  That may prompt a review of coastal property boundaries and, because the State owns the land below mean high water (or, in some cases, mean low water), a transfer of property to the State with the accompanying effect on tax base and property ownership may materialize with substantial impact on the community.  Even without a redrawing of property lines, properties subject to increased flooding are likely to lose value, reducing or eliminating nest eggs, retirement security and loan collateral.  In such circumstances, transaction professionals (lawyers, real estate agents) may wish to evaluate the disclosures their client sellers need to make and the warranties their client buyers should require. Rising sea levels are bringing the ocean into areas it used to avoid.  The new bucket list for some destinations may literally mean to bring a bucket.     

Climate Change Effects | Rising Sea Levels

Negligent Operation of a Storm Sewer: A New Theory of Climate Change Liability

May 1, 2014 21:08
by J. Wylie Donald
We have written many times about the flawed design of the nation's flood maps in an era of climate change.  And spoken about the potential for claims against professionals for failure to consider the effects of climate change in what they do.  On April 16, 2014 those two ideas manifested in a 143 page lawsuit filed in Cook County, Illinois asserting that local governments are at fault for flood damage that insurance companies had to pay for.  Illinois Farmers Insurance Co. v. The Metropolitan Water Reclamation District of Greater Chicago (attached).  Let us explain. Flood maps are based on the historical record. Lots and lots of data over lots and lots of years, with one major underlying assumption:  the past is a reasonable basis for predicting the future. But what if it is not?  In that case a 100-year flood plain may actually be a 50-year or 25-year flood plain, or perhaps a 200-year flood plain. One can't know, absent some effort to predict the future. This issue is not limited to FEMA flood maps. Storm water systems are sized based on the predicted 20-year or 50-year or even 100-year storm event. We have seen that terminology before and it signifies a similar result:  culvert sizing and flood protections suffer from the same defect as flood plain mapping - a retrospective view is not enough.  One might theorize that civil engineers, planners, and others involved in the design, construction and operation of stormwater systems have a duty to recognize this state of affairs and incorporate climate change effects into their activities. On April 18 and 19, 2013 heavy rains in Cook County and elsewhere resulted in flooding.  Insurance companies paid millions on the claims.  Now Illinois Farmers Insurance Co. and others are seeking to recover those millions in the form of a class action on behalf of other insurers and property owners against the water reclamation district and municipal and county governments.  Of itself, that would not be particularly interesting.  But the allegations vault this case, and six other similar cases, to the top of the climate change litigation pantheon.  The central theme in the complaint is that the local governments are at fault for flooding caused by mis-operated stormwater systems:  the “common, central and fundamental issue in this action is whether the Defendants have failed to safely operate retention basins, detention basins, tributary enclosed sewer and tributary open sewers/drains for the purpose of safely conveying storm water within Defendants' territorial jurisdictions"  ¶ 27.  The defendant governments allegedly knew their systems were undersized.  In anticipation of heavy rains, they would pump down reservoirs and tunnels.  Climate change set the context:   "During the past 40 years, climate change in Cook County has caused rains to be of greater volume, greater intensity and greater duration than pre-1970 rainfall history evidenced, rendering the rainfall frequency return tables employed by the Reclamation District and each Named Municipal Defendant inaccurate and obsolete." ¶ 48. Plaintiffs assert that the climate change effects are admitted:  "In or around 2008, the Reclamation District, the County of Cook, the City of Chicago and other Municipal Defendants adopted the scientific principle that climate change has caused increases in rain fall amount, intensity and duration during a rain in Cook County as evidenced by their adoption of the Chicago Climate Action Plan. " ¶ 49.   Next comes the allegation of knowledge of the specific hazard:  "This defendant knew that because of climate change causing increased rainfall, this defendant had to increase stormwater storage capacity of its stormwater sewer system(s) to prevent sewer water invasions." ¶ 51.  Thus, the local governments were alleged to be on notice that their infrastructure was insufficient to prevent harm to individuals and businesses.  The final point was that, notwithstanding this notice, in the face of a heavy rain (heavy, but not out of the ordinary based on either the historical record or a climate model), the governments failed to take steps to remedy the defect (i.e., the lack of storage capacity and conveyance capacity to address the rainfall). With that prelude, plaintiffs allege three counts:  negligent maintenance of the stormwater system by failing to utilize temporary stormwater protection systems, failure to remedy a known dangerous condition (where stormwater invasions had occurred before), and an unlawful “taking” in that the governments had (it is alleged) appropriated the property of others for diversion and retention basins, etc. This is a complaint we knew was coming, although we will candidly admit that we did not anticipate the plaintiffs. An insurance company as the plaintiff raises an interesting question.  Is the insurance industry intent on cannibalizing itself?  If Illinois Farmers prevails, it will start to establish a standard of care for both design professionals whose work is impacted by climate change, and for those who rely on such professionals.  Third parties injured by the failure of a stormwater system may bring claims against entities responsible for the systems.  So we will have theories of liability that will trigger liability policies, errors and omissions policies, and even directors and officers policies.  If all of them subrogate, like Illinois Farmers did, it takes no imagination to see the mess that will be created.  Even without subrogation, if the theory is successful, it will cut wide and deep.  It is surprising that an insurer would advocate for it.     20140416 Illinois Farmers Ins. v. Metro. Water Reclamation Dist. of Greater Chicago.pdf (4.58 mb)

Climate Change Effects | Regulation

A Slow-Burning Fuse: Climate Change from the Risk Management Trenches

April 29, 2014 20:02
by J. Wylie Donald
This morning was the only professional session on climate change at the 2014 annual conference of RIMS, the Risk and Insurance Management Society, the preeminent risk management trade group in the country. Over 9,000 individuals from insurers, policyholders, brokers and vendors are in attendance.  In a different conference room, my partner made a presentation on "additional insured" coverage with 400+ in attendance.  About 30 showed up for climate change. The disinterest was not due to the quality of the presenters.  Climate Change: How to Stress Test Your Organization was presented by  Jeffrey Bray, Senior Vice President, Global Risk Management of Prologis, Inc. and John Marren, Director, Global Risk and Insurance Management of CSL Behring and also Business Insurance's Risk Manager of the Year.  Both are engaged in climate change risk management; they were here to give a view from the trenches on practical ways to address climate change issues. Both companies were new to me. CSL Behring is the American subsidiary of CSL Australia, whose core business is the manufacture of vaccines and plasma protein biotherapies with $5 billion in revenue.  Prologis is a global operator of industrial real estate with 3000 facilities and 569 million sq. ft. under management.  CSL Australia, in addressing a need for transparency in line with its corporate social responsibility goals, concluded that it needed to include climate change in its risk assessments.  Assessing climate change risk was also required in order to accurately respond to inquiries by the Carbon Disclosure Project, which sought information on the effect of climate change on business. CSL already had a risk framework in place.  They wanted to treat climate change just like every other risk.  If it was material it needed to be addressed.  If not, it still needed to be on the radar so they could do more than just react if and when it surfaced.  Fortunately, senior management was intimately involved with corporate social responsibility and including climate change in that area was not difficult.  The methodology of bringing climate change into the risk management framework was relatively simple.  First, the context needed to be established.  Environmental, social and economic impacts would be considered on a 25-year time horizon.  Second, information needed to be gathered as to where CSL's concerns would arise.  Workshops were held with every business unit.  Research was conducted.  Third, the data needed to be analyzed.  Last the findings needed to be reported.  The result was the identification of six key vulnerabilities:1.  Would there be enough potable water and where would it come from?2.  Would their sole source suppliers comply with environmental requirements?3.  Could time-sensitive biological raw materials be delivered timely?4.  Would energy supply reliability decrease?5.  Would resulting new diseases impair the availability of plasma donors?6.  Would resulting new diseases provide an opportunity for new vaccines? CSL utilized their corporate risk framework to guide the assessment of risks for the risk management process.  Climate change risks were integrated with all of the corporation's other risks for a relative comparison.  None of the six risks were considered material; nevertheless, they are being evaluated every two years on a Zero Basis risk review for their business unit. Prologis concedes it is not as far along in the evaluation process as CSL.  It noted that there are significant impediments to making that evaluation.  The accuracy of the data is varied and data is not available for many circumstances.  The modelers provide estimates with significant long-term variation.  Accounting for various exposures (inland flooding, storm surge, temperature change, storm severity) is variable.  For example, flood protection in Amsterdam is much better that it is in New York.  Despite these data and analyses challenges, Prologis recognized that climate change will affect it.  Ten of its markets (ports) ranked in the OECD top 15 for climate change  vulnerability.  Those potential impacts included  increased physical damage and business interruption, which would lead to more restrictive and costly insurance coverage.  Recognition that property concentrations in vulnerable areas would exacerbate event impacts, has led to risk mitigation in the form of more stringent construction requirements, new site selection criteria, and enhanced disaster management. A key question was raised during the presentation by the moderator, Andrew Thompson, the Global Lead, Risk and Insurance Practice, for the engineering firm, Arup.  How does one integrate a slow-burning risk like climate change into risk planning, which typically has much shorter time horizons.  Mr. Marren of CSL acknowledged that CSL's typical risk horizon is 12-24 months. The answer, at least for these two billion dollar companies, was in a nutshell:  strategic long-range thinking.  They concluded the presentation with four key points:1.  Companies should focus on increasing resilience;2.  Climate change risk is manageable;3.  While ongoing analysis is recommended, there need be no direct change in current business activity; and 4.  It is important to be proactive to reduce costly future solutions. This is not profound.  What is profound, is that at least two substantial business entities are stepping around the rhetoric and addressing climate change as simply another business risk (like interest rates, or workforce training, or raw material sourcing) that must be addressed in the short-term and in the long-term.  That short-term results have not yet been identified, does not say anything about the need for long-term consideration, integration and planning.  Others seeking long-term business success should follow.

Climate Change | Climate Change Effects

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