GLOBAL ENVIRONMENTAL RISKS: ACTION OR DENIAL

GLOBAL ENVIRONMENTAL RISKS: ACTION OR DENIAL Prof. Dr. Peter Hoeppe Geo Risks Research/Corporate Climate Centre, Munich Re NEW THINKING ABOUT GLOBAL C...
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GLOBAL ENVIRONMENTAL RISKS: ACTION OR DENIAL Prof. Dr. Peter Hoeppe Geo Risks Research/Corporate Climate Centre, Munich Re NEW THINKING ABOUT GLOBAL CHANGES, BERLIN, OCT. 10, 2011

Global Environmental Risks

Natural risks (hazard not influenced by human activities): •

Meteorites (effects depending on size and location of the crash): tsunamis, global cooling



Solar storms: disturbance of communication systems, long term power outages



Volcano eruptions: disturbance of air traffic, global cooling

Characteristics of natural risks: •

Hazard cannot be influenced



Hazard follows natural fluctuations, does not have a long term trend.



Risks partially can be managed by preventive measures,



No direct liability issues

Global Environmental Risks

Anthropogenic risks (hazard influenced by human activities) Human activities became relevant for the environment at different places than the origin or even globally starting in the 20th century. Risks •

Change of land use: influence on global climate in different directions



Acid rain: caused by high SO2 emissions especially in Europe and North America



Ozone hole: caused by emissions of CFCs (Chlorofluorocarbons)



Global warming: caused by emissions of green house gases, predominantely CO2

Acid Rain - Solutions Clean Air Act Amendments of 1990 (USA) – title IV: Acid Deposition Control • 10 million ton reduction in SO2 emissions from 1980 levels • EPA’s Acid Rain Program sets nationwide cap on SO2 emissions from electric-generating facilities • By 2010 the program has resulted in a 50% reduction from 1980 SO2 emission trading law: Allows utilities to trade SO2 allowances within their systems and/or buy or sell allowances to and from other affected sources. Each source must have sufficient allowances to cover its annual emissions. If not, the source is subject to a $2,000 /ton excess emissions fee and a requirement to offset excess emissions in following year.

4 Source: US Environmental Protection Agency (2010)

Ozone Hole - Causes

Stratospheric ozone depletion over polar regions through catalytic destruction of ozone by atomic halogens. Main source of halogens in the stratosphere is photo-dissociation of man-made halocarbons, such as CFCs, freons and halons, after being emitted at the surface. During polar spring, UV radiation of sun produces atomic chlorine radicals from CFCs via photodissociation. Atomic chlorine radicals decompose ozone.

Antarctic Ozone Minimum Sept. 2006 (“Antarctic Spring”) (Source: NASA -- http://www.nasa.gov/vision/earth/lookingatearth/ozone_record.html) 5

Ozone Hole – Solutions The Montreal Protocol (1989) Protocol on Substances that Deplete the Ozone Layer (Chlorofluorocarbons and Chlorinated Hydrocarbons) • International treaty to protect the ozone layer by phasing out the production of substances responsible for ozone depletion • Treaty entered into force in 1989, ratified by 196 states • Adherence to the international agreement should result in recovery of ozone layer by 2050. Due to its widespread adoption and implementation it has been hailed as an example of exceptional international co-operation, with Kofi Annan quoted as saying that "perhaps the single most successful international agreement to date has been the Montreal Protocol”

Titel der Präsentation und Name des Redners

28.10.2011

6

Long term ozone trends measured at DWD observatory Hohenpeissenberg (http://www.dwd.de/ozon)

7

Climate Change by now the only real global anthropogenic environmental risk • Effects not bound to the regions where the problem is caused • CO2 the most relevant green house gas is emitted whenever fossil fuels are burned • Emissions stay more than 100 years in the atmosphere • Almost even distribution in the global lower atmosphere (troposphere) • In contrast to acid rain and ozone hole difficult to fight the causes as there are not only few easy to regulate and concentrated emitters but 7 bn of them spread all over the globe

Global Warming is Real! Continental Temperature Changes

Quelle: IPCC FoAR, 2007

Black lines: decadal averages of observations Blue band: 5-95% range 19 simulations from 5 climate models using only natural forcings Red band: 5-95% range for 58 simulations from 14 climate models using natural and anthropogenic forcings 9

CO2 concentration in the atmosphere

of the past 650,000 years from Antarctic ice core data

400

x

380

2010: 390 ppm

360 340 CO2 (ppmv)

320 300 280 260 240 220 200 180 160 -650 -600 -550 -500 -450 -400 -350 -300 -250 -200 -150 -100

-50

0

Thousand years before present Sources: Siegenthaler et al., Science (2005). Etheridge et al., J. Geophys. Res. (1996). Petit et al., Nature (1999). Fischer et al., Science (1999). Indermühle et al., Geophys. Res. Lett. (2000). Monnin et al., Earth Planet. Sci. Lett. (2004). Monnin et al., Science (2001).

Observed changes in sea surface temperature in tropical ocean basins with TC activity !"#$-%&'#("$,"*+"&#,%&"-$3'$-45$3("#6$7#-46-$ 84,9$)0$#(,4:4,; $*"#6-$ ?@#,#A$BCDE$= FGGCH ($#$

!'#% 1 0 /$. - !'#$ " & % ,# & " + *!&#% " )$ " (# '& % !$ !&#$ # " !

*+,-./0-123-45/6783/9 :5-;

1856 -=,3/?254@45/6A2B/9 C=5;

D2>-/?254@45/6783/9 :5-; E+8-.F=>-/?254@45/6C=5/9 0G,; 1601 *+,-./H3I423/60G,/9 A2B; *+,-./H3I423/6E=G-/9 *+J; E+8-./H3I423/6*+J/9 0G,;

!"#%

!"#$ )'"$

)'&$

)''$ 2"#&

!$$$

!$)$

Source: Munich Re, November 2009. Data source: HadISST, MetOffice, 2009

2011 a year with extremely low arctic sea ice extent

Source: The National Snow and Ice Data Center, Boulder CO (2011)

Munich Re NatCatSERVICE – The most comprehensive database of natural loss events

29,000 data sets

© 2011 Münchener Rückversicherungs-Gesellschaft, Geo Risks Research, NatCatSERVICE

Floods, Pakistan July – September 2010

Source: Reuters

Country affected

Overall losses

Insured losses

Fatalities

Pakistan

US$ 9,500m

US$ 100m

1,760

Wildfires/Heat wave, Russia June – August 2010

Source: Reuters

Country affected

Overall losses

Insured losses

Fatalities

Russia

US$ >3,600m

US$ 20m

130 (wildfires) 56,000 (heat wave, smoke)

Floods, Queensland, Australia December 2010 to January 2011

Australia rainfall anomalies (Oct-Dec 2010)

Reuters

Quelle: Reuters

Region

Overall losses

Insured losses

Fatalities

Queensland, Australia

US$ 7,800m

US$ 2,570m

29 Source: New York Times

© 2011 Münchener Rückversicherungs-Gesellschaft, GeoRisikoForschung, NatCatSERVICE

Queensland floods – is there a link to climate change?



December sea surface temperature in the Australian region has been the highest on record



There is a relation between precipitation and the sea surface temperature in Australia

Source: Bureau of Meteorology (Australia)

Sea surface temperature is rising due to climate change

© 2011 Münchener Rückversicherungs-Gesellschaft, Geo Risks Research

Source: RAHMSTORF, S. (2011): Überschwemmungen in Queensland. WISSENSlogs.de

Cyclone Yasi, Queensland, Australia February 2011

Foto: dpa

Quelle: Reuters

Region

Overall losses

Insured losses

Fatalities

Queensland/Australia

US$ 2,000m

US$ 1,000m

1 Source: New York Times

© 2011 Münchener Rückversicherungs-Gesellschaft, GeoRisikoForschung, NatCatSERVICE

U.S. Natural Catastrophe Update

U.S. Thunderstorm Loss Trends Annual Totals 1980 – 2010 vs. First Half 2011 Average thunderstorm losses have increased fivefold since 1980. First Half 2011 First Half 2011 $16.4 $16.4 bn bn

Source: Property Claims Service MR NatCatSERVICE

© 2011 Munich Re

19

NatCatSERVICE

Weather catastrophes worldwide, 1980 – 2010 Number of weather-related events per continent

Asia (4,950)

Europe (3,700)

North and Central America, Caribbean (4,200)

300

300

250

250

200

200

150

150

100

100

50

50

300

250

200

150

100

1980

50

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

1980

2010

South America (975)

Africa (1,560) 300

250

250

250

200

200

200

150

150

150

100

100

100

50

50

50

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

Meteorological events (Storm)

2004

2006

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2008

2010

Australia/Oceania (1,300)

300

1982

1984

2010

300

1980

1982

2008

2010

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

Hydrological events (Flood, mass movement)

© 2011 Münchener Rückversicherungs-Gesellschaft, Geo Risks Research, NatCatSERVICE – As at March 2011

2006

2008

2010

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

Climatological events (Extreme temperature, drought, forest fire)

NatCatSERVICE

Natural catastrophes worldwide, 1980 – 2010 Number of events by peril with trend Number

500 450 400 350 300 250 200 150 100 50

1980

1982

1984

Geophysical events (Earthquake, tsunami, volcanic eruption)

1986

1988

1990

1992

1994

Meteorological events (Storm)

1996

1998

2000

Hydrological events (Flood, mass movement)

© 2011 Münchener Rückversicherungs-Gesellschaft, Geo Risks Research, NatCatSERVICE – As at January 2011

2002

2004

2006

2008

2010

Climate change and extreme weather events (IPCC, 2007)

very likely > 90%

likely >66%

more likely than not > 50% 22

New studies show causal associations between climate change and weather extremes

“… Here we show that human-induced increases in greenhouse gases have contributed to the observed intensification of heavy precipitation events found over approximately twothirds of data-covered parts of Northern Hemisphere land areas. ..Changes in extreme precipitation projected by models and thus the impacts of future changes in extreme precipitation, may be underestimated because models seem to underestimate the observed increase in heavy precipitation with warming”.

New GDV-study on future nat cat losses based on climate modelling Statistical loss model storm/hail of PIK: Regional distribution of changes in losses in a A1B-scenario relative to the average of the past 25 years

New GDV-study on future nat cat losses based on climate modelling Flood model of PIK: Mean loss in dependence on return period (values in million EUR)





World Economic Forum 2011

• Survey of 580 leaders and decision makers across the globe • Supported by 18 workshops • Assessment of 37 global risks for the next 10 year period

Top 5 risks for the insurance industry More than 70 industry analysts from around the world interviewed

Long-term, far-reaching and with significant impact on the industry.

Offers business opportunities but risks that other sectors will capitalize first.

Rising costs and serious impact on earnings for insurers.

Risk and opportunity but competitive threat from new players.

Increased scrutiny impacting on operations and practices.

Munich Re the first alerter in the industry to global warming

Munich Re Publication,1973

Climate change is a strategic topic for Munich Re The three pillars of Munich Re’s climate change strategy

Risk assessment  Research of natural hazards and climate change impacts  Climate liability issues  Prospective risk management (considering weather oscillations such as El Niño)

Business opportunities  Growing demand for risk transfer solutions such as renewable energy covers  Performance covers for solar modules

Asset management  Integration of sustainability criteria into investment strategies  Significant expansion of renewable energy investments where frameworks are appropriate

Becoming carbon neutral (Munich: since 2009, reinsurance worldwide: 2012) Supporting several climate initiatives (Climate Group, UNEP FI, …) Initiating flagship projects such as MCII and Dii GmbH (“Desertec Industrial Initiative”)

Protecting the entire life cycle of renewable energy projects

Challenge  Increased demand for renewable energy and related investments  New technological challenges create new risks  Risks and threats change as projects move through different phases of their life cycle

Solution  Construction Phase: Erection – All Risk, Transit/Marine, 3rd Party Liability, Advance Loss of Profits/Delay in Start-Up, Surety Bonds  Operational Phase: All Risks – Traditional P&C Covers, Including Machinery Breakdown, Lack of Wind/Sun, Premature Ageing

Strengthening security and reliability for investors and thus incentivizing investments by offering complete life cycle protection

New Munich Re risk covers for renewable energies CPV cover Performance warranty cover for concentrator photovoltaic systems (CPV)

 Collaboration between Munich Re, SolFocus and broker Woodruff-Sawyer on the new coverage of its kind for CPV technology systems  SolFocus is the first CPV company that can provide its customers a warranty for its CPV systems of 25 years for power performance  If the product fails to reach the performance, Munich Re cover attaches  This innovative insurance solution is an important milestone for the financing of photovoltaic projects, offering producers additional financial protection

Source: Munich Re; picture source: SolFocus

Asset Management

Munich Re investments in renewable energies Renewable Energies / New Technologies Renewable Energies

Bio energy

Wind

Geothermal

Water

Solar

New Technologies

Resources (e.g. wood, silicium)

Efficiency (e.g. insulation, usage)

Components Power plants (e.g. Module)

Grid (e.g. expansion, de-regulation) Storage

Munich Re will expand its investments in Renewable Energies and New Technologies to € 2.5 bn. over the next years (currently about € 0.5 bn invested). Source: Munich Re, Asset Liability Management (ALM)

Insurability of Global Warming Effects in Developing Countries Munich Climate Insurance Initiative (MCII)

MCII

Objectives of MCII: Development of risk transfer solutions to support adaptation mechanisms to global warming in developing countries in the framework of the UNFCCC-process. Milestones reached: Insurance related processes part of adaptation negotiation texts, decision in Cancun on “Loss and Damage” programme of UNFCCC for next two years. MCII was founded in 2005 on initiative by Munich Re together with Germanwatch, International Institute for Applied Systems Analysis (IIASA), Munich Re Foundation, Potsdam Institute for Climate Impact Research (PIK), Tyndall Centre, World Bank and independent experts..

RISK MANAGEMENT MODULE

The MCII Proposal TIER 1 Insurance Pillar

Climate Insurance Pool

TIER 2 Support for micro and macro insurance systems

Prevention Pillar

The two-tiered insurance pillar • Meets the principles set out by the UNFCCC • Provides assistance to the most vulnerable, and • Includes private market participation.

mainly

High Layer RISK

Premiums paid by AF ($5 bn)

Middle Layer RISK

Support financed by AF ($2 bn)

Low Layer RISK

Support financed by AF ($3 bn)

Rough estimated annual costs: $ 10 bn

Munich Re together with the Desertec Foundation has initiated the foundation of the Desertec industrial initiative (Dii GmbH)

Origin and vision  Developed by the Club of Rome’s TREC Initiative (Transmediterranean Renewable Energy Cooperation)  Vision: Providing Europe (EU), the Middle East and North Africa (MENA) with a sustainable supply of renewable energy by the year 2050 “Within six hours, deserts receive more energy from the sun than humankind consumes within a year.”

The founding of the Dii GmbH Milestones  Joint signature for a memorandum of understanding by 12 companies and the DESERTEC Foundation for the formation of the Dii GmbH 07/13/09

10/30/09

 Legal foundation of the planning company (LLC)  Appointment of Paul van Son as CEO  Definition of Dii’s governance structure  Appointment of Prof. Klaus Töpfer as special envoy

03/10/10 10/31/12

 Development of an implementable roadmap to „green energy generation“ in the deserts of North Africa and the Middle East  20GW installed capacity (according to political goal of MSP)

2020

 100GW installed capacity (referring to the 15% aim of the Dii concept)

2050 36

Dii Shareholders

20 Dii Shareholders

Dii Associated Partners

32 Dii Associated Partners

Objectives of Munich Re as initiator of the Dii GmbH

CLIMATE PROTECTION

BUSINESS CHANCES

INVESTMENT

Relevant contribution to the solution of one of humankind‘s largest problem in this century (climate change) by significant reduction of CO2-emissions

Leading role in the development and provision of new risk transfer products for renewable energies/new technologies.

New (direct) investment opportunities

Munich Re publication on „Energy Situation, Problems with Commodities and Insurance“ dated 1978

Conclusions

 Global environmental risks caused by human activities are a relatively new phenomenon in the history of humans  The first of those global risks, change in land use, acid rain and the ozone hole, are either of minor range or solutions have been found to mitigate them  Global warming is THE environmental risk of this and probably also the next centuries. A solution is not in sight.  The general difference between global warming and previous environmental risks is the large number of polluters, its link to cheap energy use and the long residence time of CO2 in the atmosphere.  CO2 not only is the major green house gas but also acidifies the oceans and thus threatens maritime ecosystems.

Conclusions

 Key to reduce climate change risks and also acidification of the oceans is a quick switch in energy production from fossils to renewable energies.  As such a switch will be necessary anyway as fossil fuels are finite, ambitious climate protection is a no regret project  Denial of the risk and delay of action may cause abrupt and irreversible changes in the climate system

So let us take action as quick as possible and not deny this problem any longer!

Thank you for your interest!