Fair and feasible climate change adaptation

1. Fair and feasible climate change adaptation Sverker C. Jagers Department of Political Science University of Gothenburg Sweden

2. Content • Background • The project • Insurance as climate change adaptation • Next move

3. Background • 1997-2001 Climate change and insurance industry • Mitigation and adaptation (differences, but in what way?) • CC ethics continue see M & A as morally the same • 2006 Responsibility theory • Adger & Paavola (2006) • Jagers & Duus-Otterström (2008) ”Dual Climate Change Responsibility: On Moral Divergences between Mitigation and Adaptation.” Environmental Politics 17(4) • PPP and ATP (Caney 2005) • Well-off and Badly-off • Baseline e.g., 360ppm • M= burden-sharing A= burden-sharing + benefit-distribution

4. Figure 2. Burden scheme for adaptation and mitigation following a hybrid between PPP and ATP. Non-symmetrical relationship!

5. Background • 1997-2001 Climate change and insurance industry • Mitigation and adaptation (differences, but in what way?) • CC ethics continue see M & A as the same • 2006 Responsibility theory • Adger & Paavola (2006) • Jagers & Duus-Otterström (2008) ”Dual Climate Change Responsibility: On Moral Divergences between Mitigation and Adaptation.” Environmental Politics 17(4) • PPP and ATP (Caney 2005) • Well-off and Badly-off • Baseline e.g., 360ppm • M= burden-sharing A= burden-sharing + benefit-distribution • Some challenges remains (to say the least!) E.g: • Poor high-emitting countries? • Moral hazard (1-order and 2-order adaptation responsibility)

6. The project “Fair and feasible climate change adaptation” • Aim at addressing climate change adaptation from an ethical and an institutional perspective • Main questions: • What is a fair politics of adaptation (fair burden-sharing and payouts) • What institutional arrangements are needed to bring about a fair adaptation? • In this paper, focus on insurance

7. Background • 4 strategies to cope with environmental problems: • Address the causes(mitigation) • Milder/prevent the effects(adaptation) • Compensation. • Full ignorance • Clear order ofdesirability

8. Insurance • Insurance as an adaptation strategy? • Make sense (in a sense) • Insurance = transfer of risk of a loss from one party to another in exchange for a fee (premium). • The size of the premium is, in market based insurance schemes, determined by the size of the risk the insured is insuring against. • However: Insurers will seldom take on insurances that are very likely to occur.

9. The merits 1.Insurance can involve paying a manageable sum instead of risking an unmanageable cost (and insurance schemes take losses overwhelming any individual part). 2.Insurance schemes can limit the need of each individual to take costly individual action. 3. Insurance represents a predictable cost which facilitates planning 4. Insurance provides a clear, self‐interested reason to be prudent.

10. On the negative side • Moral hazard • ex ante (not enough precaution) • ex post (claims you would not make if uninsured) • Adverse selection(only those at highest risk buy insurance) • Correlated risks(simultaneous losses among the insured may exhaust the scheme’s ability to cover losses) • IMPORTANT! Always the risk that insurance systems are not sufficiently covering and that those in most need of insurance will not be able to afford insurance, because their vulnerability translates into steep premiums. Yet it might be precisely those people towards which we have the greatest obligation to insure.

11. Still…. …….insurancedevicesappear to play a significant part in future climate change adaptation regimes(Mace 2006; Linnerooth-Bayer & Vári 2006; Persson et. al 2009; cf. AOSIS 1992, Kyoto 1997, Bali Action Plan 2007). • Generate challenging normative issues

12. The issue of fair climate change adaptation raises two principal questions(Jagers & Duus-Otterstrom 2008) 1. How are the resources required to engage in adequate adaption to be raised? 2. How are those resources to be allocated/distributed? Insurance provide a particular answer to the second question: Resources are to flow to those who: (a) Are covered by insurance against events of a particular type, and (b) Are hit by such events. What about fair burden-sharing?

13. A fair burden‐sharing of climate change adaptation should reflect a combination of the polluter pays principle and ability to pay principle (Jagers & Duus-Otterström 2008; Caney 2005)

14. A commercial insurance model would fail the fairness criteria on a number of grounds. • It would leave uninsured those in most need of insurance • It would not allow resources to flow from the Annex I to the non‐Annex I countries. • It would not adhere to crucial normative demands; that burden‐taking should reflect a balance of ability and causal responsibility as grounding of obligations to assist. Instead it let each actor insure against its own losses based on the risks it faces.

15. A (non)commercial insurance model should: • Play only a part in a larger set of adaptive responses. (compensation less desirable) (b) Include clear and equitable criteria for payouts. (what is caused by climate change?) (c) Entail substantial and fair redistribution from the developed to the developing world.(doubly unfair: those least in need of insurance have primarily caused the problem) (d) Cover as many countries as possible. (An attractive climate insurance scheme would involve as many net‐payers and net‐beneficiaries as possible)

16. Munich Climate Insurance Initiative (MCII)

17. Munich Climate Insurance Initiative (MCII) 500 years TIER 1 Climate Change Pool High Layer Risk Insurance Pillar 100 years TIER 2 Support micro/ macro insurance systems RISK MANGAMENT MODULE Middle Layer Risk 10-30 years Low Layer Risk Prevention Pillar Comment: Figure 1 is compiled from Warner (2008) and MCII (2008)

18. Analysis • Play only a part in a larger set of adaptive responses. - Both an insurance and a prevention pillar

19. Analysis (b) Include clear and equitable criteria for payouts. • Tier 1 = parametric index-based triggers, i.e., based on some natural event reaching some pre-defined trigger level, e.g. rainfall reaching a certain level

20. Analysis (b) Include clear and equitable criteria for payouts. • Tier 2 = Aimed at facilitating insurance • Core argument: (1) If also Tier 2 contains externally financed insurance capital and premiums, these subsidies are risking crowding out private incentives for wider market segments. • Subsidies are also risking distorting developing countries’ propensity to adopt different risk-reduction activities (read moral hazard). • Substantial argument for middle level risks (some damage can be afforded…) Our results: • Cost-efficiency and moral high horses v.s. human need, vulnerability and harm. • Better forecasting - a country may face a bleaker future • Unclear why high and middle level risks are morally different.

21. Analysis (c) Entail substantial and fair redistribution from the developed to the developing world As of yet rather poorly explored and specified (both Tier 1 and 2) • Assumes that they will be sufficient (“substantial transfer of resources from Annex I to non‐Annex I countries”) • Merely points to some possible principles of burden-sharing (PPP, ATP) • Our proposal: A country’s historical and present pollution and financial wealth, RCI (“Responsibility and Capacity Indicator”), Greenhouse Development Framework (Baer et.al. 2008) RCI = Ra x Cb (where a and b are the weights attached to the respective components)

22. Analysis (d) Cover as many countries as possible • The proposal certainly aspires to cover all countries. • There is nothing in the proposal as such which encourages a regime which is less than comprehensive in scope.

23. Conclusion • If combined with a major prevention component, it appear possible to design an insurance model that both regard fairness and efficiency and thus (hopefully) feasibility. • MCII come far in fulfilling the criteria required for a fair insurance model. • MCII need to be elaborated on especially three accounts: • Tier 2 should contain insurance too (e.g., fulfilling prevention demands) • Regulations required to prevent the facilitating components from making some developing countries less well off • Clearer criteria for payment are required (e.g., RCI)

24. Future moves • Finalize the analysis of the ethical differences and similarities between M & A (1-2 papers) • Finalize the analysis of climate change insurance (1 paper on MCCII and 1 paper on insurance in general –> “social-insurance logic”) • Propose an institutional arrangement composed by an active adaptation component (e.g., adaptation funds) and one reactive adaptation component (an improved insurance model based on paper 2:2) • Is four years enough?

25. Thank you for your attention!