will the power industry evolve to meet the challenges ahead?
Climate change is happening: the world is getting warmer. The years 2015, 2016 and 2017 were the three warmest in recorded history1, and preliminary results for 2018 from the World Meteorological Organisation2 show this warmth to be continuing, meaning that the last four years are also set to be the four warmest years in the observed record. To work out how much the climate has warmed, these temperatures are compared to the pre-industrial era (1850-1900). The recent warm years are part of a clear and robust long-term global warming trend, which currently indicates that the global average temperature is close to one degree Celsius above pre-industrial levels.
However, these global statistics can be somewhat abstract compared to our everyday experience of the weather. To come up with a global average temperature, the spatial detail is lost and daily, monthly and seasonal variations around the average are smoothed. This means that the longer term trend can be warming, but there will still be room for cold spells, even cold seasons. Our memories are biased towards the significant weather that has an impact of our lives, whether it’s a particularly cold winter or a long drought in the summer, so therefore it can be hard to imagine what a ‘global average temperature’ is really telling us. When thinking about extreme weather, long term climate trends may seem trivial.
The evidence The Intergovernmental Panel on Climate Change (IPCC) states clearly that scientific evidence for warming of the Earth’s climate system is unequivocal. Evidence is found across a range of environmental systems:
In recent years the debate has moved on from the science, to focus more on what can be done to adapt to the warming that we are already locked in to, and to mitigate further global warming that we can still prevent to avoid the worst effects of climate change.
The cause According to NASA14 and peer-reviewed literature15, 97% of climate scientists agree that warming trends are due to rising levels of greenhouse gases. A report by the American Association of Advancement of Science (AAAS)16 likens this conclusion to the levels of confidence associated with the link between smoking and lung cancer. The difference is that reducing greenhouse gas emissions, such as CO2, will take a global concerted effort, and the link between CO2 and climate change is a much more complex causal chain than the link between smoking and lung cancer. Reducing greenhouse gas emissions will require much more action than the cultural changes, education and advertising regulations that have reduced the number of people smoking. CO2 is the chief culprit in causing climate change, and the elevated concentrations of CO2 in the atmosphere and oceans are set to remain for centuries to come. Emissions today are going to impact many generations into the future, which is why continuing unabated emissions will only exacerbate global warming.
To put the increases into context, the current levels of CO2 are unprecedented in the last 800,000 years17. For nearly a million years, CO2 concentrations oscillated between around 200 and 300 parts per million (ppm) in sync with the ice ages, but since the industrial revolution these concentrations have risen from around 280ppm to over 400ppm, driven largely by economic and population growth.
And despite efforts by many countries to reduce emissions, CO2 concentration continues to rise. A recent report on the “emissions gap” by the United Nations18 describes how CO2 levels are linked to economic growth, with high GDP in 2017 pushing emissions up by 1.2% after two relatively stable years of modest economic activity. Research carried out by the Global Carbon Project indicates that 2018 has seen a rise in emissions of 2.7%19. Transitioning to an economy that is not reliant on the burning of fossil fuels is essential for limiting the impacts of climate change.
The Prudential Regulation Authority released a report in 201520 outlining the impact of climate change on the insurance sector. It analyses the risks of climate change in terms of three broad themes:
The energy industry, like many others, can draw examples under these themes in terms of known and emerging threats but also opportunities.
Physical risk Assessment of physical risk can help a power company understand its operational risks and respond to extreme events. Insurance industry catastrophe modelling techniques can be applied to assess risks to infrastructure, or incorporate adjustments based on IPCC projected scenarios to investigate extreme events and changes to energy demand. Modeling likely amounts of damage or financial losses linked to future climate scenarios may help to make the impacts of possible future climates more tangible.
One of the difficulties with physical risk assessment related to climate change is the difference between the timescales of a weather event, and the long term changes, both of which are mixed into the background of natural climate variability. But it is important to realise that with small changes in the average conditions, it is the extremes where we are likely to notice a change first. It is of course difficult to assign a single event to a longer term trend, but certain characteristics of extreme weather events, such as increasing heavy rainfall in tropical cyclones, or longer and more severe droughts leading to abundant fuel for wildfires, can be examined. Research into climate attribution has been growing as modelling capabilities increase. The level to which an individual event can be attributed to climate change depends on the characteristics being examined; however, recent peer-reviewed studies are able to isolate the proportion of certain extreme events to the changes we have seen in our climate since pre-industrial times21.
One metric used in academic study is the Fraction of Attributable Risk (FAR) which has been applied to summer heat waves and mortality rates among other climate extremes. Increasingly, studies are finding greater relationships between individual events and the changing background climate as the average temperature creeps up. The insurance industry is developing methods which involve tailoring catastrophe model event catalogues to represent climate variability and adapting this process to portray future warmer climates. We can also use event scenarios to describe impacts from severe flooding, droughts and intense storms that all may be more likely in the future.
Transition risk Transitioning to low-carbon energy technology represents a tangible opportunity for market differentiation. As technology has increased solar efficiency and brought other renewable sources to the fore, energy demand is less dependent on the traditional oil and gas resources. Unused fossil-fuel reserves surveyed by the oil and gas industry contain five times the amount of carbon than is safe to burn. “Safe” in this context means keeping levels of CO2 below that which is likely to bring about continued global warming through this century, and avoiding the worst effects of dangerous levels of climate change, generally accepted to be 1.5 Celsius above pre-industrial levels. As part of the COP21 Paris Agreement, countries had to submit their Intended Nationally Determined Contributions (INDC) which outline their goals and strategy for this transition to a low or zero-carbon economy.
Governments of the world are tied into meeting these commitments, and industry needs to evolve and adapt to the challenges that are to come. But the driving force will not just be regulation or international policy. The private sector is primed to lead the way, with companies already signing up to voluntary climate risk initiatives such as the Task Force for Climate Related Financial Disclosures22 (TCFD), which encourages them to assess and report on their climate risk both now and into the future, to allow investors to better assess their resilience and sustainability.
As the climate warms, our energy demand will also increase, leading to a technological challenge in how to meet the needs of growing urban centres, while maintaining the stability of increasingly important electricity grids as society embraces the Fourth Industrial Revolution. Aside from renewables, the growing demand for energy can also be met by nuclear power, a solution which will significantly increase energy supply at relatively low carbon emission rates. In conjunction with a more general switch to electricity, this combination can make a big contribution to meeting carbon reduction goals. Removing our reliance on fossil fuels will bring risks which need to be measured and managed for companies to remain competitive.
Liability risk In terms of liability, the range of possible plaintiffs range from individuals affected by extreme events23 made worse by climate change, such as Typhoon Haiyan, to city governing bodies24 who must foot the bill for resilience and recovery efforts following climate extremes such as heatwaves, forest fires, floods or droughts. Liability settlements or costs of court cases may well grow if such cases start to win compensation from the oil and gas industry. As science develops a deeper understanding of how extremes of climate are modified by global warming, the scientific evidence upon which such liability risks may be based will grow.
Regional variations in extreme weather However the power industry adapts to climate change, it will be dictated by an ever-growing energy demand25 by an expanding urban environment and increasing temperatures. It will not be the same everywhere and regional detail will be important depending on the method of power generation. An EU report26 highlights the impact on hydropower as changing rainfall and melting glaciers could increase power output by over 5% in Northern Europe, while southern parts of Europe are likely to see a decrease in hydropower by around 25%. Areas that are projected to see a decrease in rainfall and increase intensity and duration of heat waves will also experience a detrimental effect on thermal power plants. In terms of demand, increasing summer peak temperatures will increase the demand for cooling which is likely to outweigh the decrease in demand for heating during winter.
Views on how extreme weather events will change in a warmer world vary, depending on the type of event and its individual characteristics. For example, there is strong evidence to suggest that hurricanes in the North Atlantic have increased in intensity since the 1970s, and may continue to with global warming, while conclusions concerning storms affecting Europe are more mixed, although precipitation is expected to increase. The impact will then depend on the specific interest, whether the result is physical damage or interruption to supply.
Analysing recent events Scientific studies have also used recent events as analogues for potential future extreme. A study by Emanuel et al. (2017)27 looked at the likelihood of Hurricane Harvey magnitude rainfall in future climates. Under the worst case scenario from the IPCC, the chances of Harvey-like rainfall for Texas increases from roughly 1% annual probability (in the climatological period 1981 to 2000) up to around 18% by 2081-2100. These kinds of studies can help us understand what the future holds in terms that we have already directly experienced.
Computational modelling –power and opportunity
A recent report from the UK government28 highlights the power and opportunity arising from computational modelling. A wide array of modelling applications exist in climate risk-related research to aid decision making; as computing power grows, the real world processes based on the laws of thermodynamics and fluid mechanics, that represent our weather and climate, can be modelled in greater and greater detail. Models also help us visualise the outcomes of our decisions, whether it’s through catastrophe modelling for insurance and risk management, or visualising a pathway towards our carbon reduction goals as a nation. The 2050 Energy Calculator29 is an example of a model that helps non-specialists to imagine and compare the consequences of different decisions and understand the complexity of the huge array of opportunities available as our society shifts towards a low-carbon economy. Non-specialists can quickly familiarise themselves with the trade-offs in managing complex systems. Reducing carbon emissions is complex, and there is no simple solution to how we can avoid the worst effects of climate change. There is much uncertainty, largely due to the future actions of the human race on an international and individual scale. This is why the IPCC uses scenarios in the form of their Representative Concentration Pathways30, to show the future effects of the choices we make today. If we can recognise the impact of our actions, and reduce our greenhouse gas emissions to shift to a less ‘carboniferous’ energy system, we can mitigate the negative effects of global warming to some degree, and help to reduce the impact on those most vulnerable to the effects of climate change.
The power and insurance industries will play crucial roles in the transformation of society to meet national and international carbon targets to avoid the worst effects of climate change. Through innovation and development of modelling capabilities we can provide more confidence in the decisions that need to be made.
Geoff Saville is Senior Research Manager for the Willis Research Network (WRN), which develops strategies to help companies in adapting to climate change and reducing their carbon emissions.
WRN is funded by Willis Towers Watson to link leading scientific expertise in the academic community with the needs of the insurance industry. For over ten years the WRN has been supporting scientific projects to provide deeper insight into ways the different industries can manage their extreme risk through financial means or improved risk management.
Our collaborations span the globe and include multiple initiatives linked to climate change research. For example, the Engineering for Climate Extremes Partnership is an initiative set up by our WRN partners at the National Center for Atmospheric Research, which aims to build new tools and datasets to help users assess their resilience to the impacts of climate change and better manage future risks. There is a growing interest in finding new ways to understand and manage climate risk, and the WRN will remain at the forefront of industry understanding on the issues as the evolve.
1 https://climate.nasa.gov/vital-signs/global-temperature/ 2 https://public.wmo.int/en/media/press-release/wmo-climate-statement-past-4-years-warmest-record 3 https://climate.nasa.gov/vital-signs/global-temperature/ 4 https://www.climate.gov/news-features/featured-images/past-three-decades-warmest-record 5 https://climate.nasa.gov/vital-signs/sea-level/ 6 https://ar5-syr.ipcc.ch/topic_observedchanges.php 7 https://climate.nasa.gov/causes/ 8 https://ar5-syr.ipcc.ch/topic_summary.php 9 http://www.climatechange2013.org/images/report/WG1AR5_SPM_FINAL.pdf 10 https://climate.nasa.gov/evidence/ 11 https://climate.nasa.gov/vital-signs/arctic-sea-ice/ 12 http://www.climatechange2013.org/images/report/WG1AR5_SPM_FINAL.pdf 13 https://link.springer.com/article/10.1007/s00382-013-1713-0 14 https://climate.nasa.gov/scientific-consensus/ 15 http://iopscience.iop.org/article/10.1088/1748-9326/11/4/048002 16 “What We Know: The Reality, Risks And Response to Climate Change”, AAAS 17 IPCC AR5
18 https://www.unenvironment.org/resources/emissions-gap-report-2018 19 https://www.bbc.co.uk/news/science-environment-46447459 20 https://www.bankofengland.co.uk/-/media/boe/files/prudential-regulation/publication/impact-of-climate-change-on-the-uk-insurance-sector.pdf?la=en&hash=EF9FE0FF9AEC940A2BA722324902FFBA49A5A29A 21 https://www.nature.com/articles/d41586-017-08808-y 22 https://www.fsb-tcfd.org/ 23 https://www.vice.com/en_uk/article/3k7dv9/the-woman-going-after-big-energy-for-the-typhoon-that-killed-her-family 24 http://www.climateactionprogramme.org/news/paris-is-considering-suing-the-fossil-fuel-industry 25 https://dailyplanet.climate-kic.org/european-energy-demand-to-increase-with-climate-change/ 26 https://www.eea.europa.eu/ 27 http://www.pnas.org/content/early/2017/11/07/1716222114.short 28 https://www.gov.uk/government/publications/computational-modelling-blackett-review 29 http://2050-calculator-tool.decc.gov.uk/%20-%20/home#/home 30 http://sedac.ipcc-data.org/ddc/ar5_scenario_process/RCPs.html
