The federal government provides formal and informal disaster insurance to the states. Formal programs include the National Flood Insurance Program, while informal insurance comes in special recovery grants following major disasters such as Hurricanes Katrina, Sandy, Harvey, and Irma. We urgently need an overhaul of such funding, starting with the recovery in Texas and Florida.
The basic problem is moral hazard. Insurance causes individuals, businesses, and regions to under-estimate predictable risks because they will be bailed out in the event of a disaster. Texas politicians were long warned by scientists and engineers that Houston was a sitting duck for massive flooding, but the warnings were not heeded. Now the very same politicians demand a federal bailout. Florida too has had its share of climate deniers, despite the state’s extreme vulnerability to hurricanes and rising sea levels. Yet to say no to bailouts after disasters is heartless and politically impossible.
There is a standard insurance solution to this conundrum called “protective safeguards.” Suppose that a business wants to insure against a flood. The insurance company and the company will safeguard that the company’s operations not be located in a hundred-year floodplain (a zone with a 1 percent annual risk of flooding). In the event of flood damage, the insurance company will not reimburse for losses in the previously designated floodplain.
Homeowners are of course experienced with such protective safeguards. Homeowner policies typically require fire detectors and sprinkler systems for insured premises. Before issuing coverage, the insurance company typically inspects the premises to verify that the necessary fire protection is in place and functioning.
Houston presents a striking case of moral hazard. Texas politicians led by Governor Gregg Abbott now request more than $125 billion of federal disaster aid. Yet the same politicians were in the lead in denying climate science and the growing climate risks facing the Texas coastline. These growing threats to Houston were well known among experts (including climatologists and urban planners) but were almost entirely ignored by the political leaders.
Houston epitomizes the collision of rising climate risk with unplanned sprawl. Florida is similarly vulnerable to the rising sea level expected from global warming this century. Indeed, large parts of the state could be lost to the sea in the event of worst-case scenarios in which the sea level rises by several meters, a dramatic risk that is, alas, all too real.
Global warming exacerbates catastrophic flood risk in three main ways: warming the ocean waters and thereby adding thermal energy to hurricanes; warming the air and thereby adding water vapor that turns into torrential rains; and raising the sea level, thereby adding to the flood surge that accompanies the hurricane and rainfall.
Urban sprawl also adds dramatically to flood risk by putting more people and property in direct danger and by replacing wetlands and forests by paved surfaces that dramatically reduce the ability of the land to absorb the rainfall and flood surge.
The recent storms illustrate another distinctive risk: massive corruption by the oil industry. Too many politicians in the Gulf states are in the pocket of Big Oil. Their campaigns have long been financed by the oil industry, the very industry most responsible for rising climate threats. These politicians therefore make a living by denying climate science, pooh-poohing climate threats, and suing the Environmental Protection Agency — until disaster hits. Then they demand bailouts.
Of course, Donald Trump is recklessly playing their game. Twenty-two Republican senators in the pay of the oil industry called on Trump to pull out of the Paris climate agreement, and he dutifully complied. Just days before Hurricanes Harvey and Irma, Trump repealed Obama-era regulations to bar federal infrastructure in flood plains. Good timing, Donald.
Now the bailout demands will soar, perhaps to $200 billion or more. And these won’t be the last such requests, of course. Global warming will continue to make such disasters dramatically more likely in the future, unless and until we shift decisively to a low-carbon economy. That means that the oil industry must accept the need to shift to a new line of business. Norway’s Statoil and France’s Total, for example, have begun the transition to becoming global powerhouses in renewable energy.
Here’s my proposal. First, as part of a federal bailout package, Texas and Florida must admit the truth. Global warming is raising the risks and frequency of such extreme events. We need the Paris climate agreement to limit these rising dangers. Second, the rebuilding — and indeed the entire national flood insurance program — must adopt climate science at their very core. Third, the costs of rebuilding should be shared by the states, the federal government, and the oil industry, through an income-tax surcharge on the oil producers. Polluters should pay for the damages they are causing. Only then will market incentives be matched with environmental safety.Jeffrey D. Sachs is university professor and director of the Center for Sustainable Development at Columbia University and author of “The Age of Sustainable Development.”