Cloudy with a chance of chaos

A disturbing consensus is emerging among the scientists who study global warming: Climate change may bring more violent swings than they ever thought, and it may set in sooner. John Browne, the CEO of BP, has been jolting audiences with a list of proposed solutions that hint at the vastness of the challenge. To stabilize CO2 levels at double the pre-industrial level, carbon emissions would have to be reduced by 7 gigatons a year. Eliminating just one gigaton, argues Browne, would mean building 700 nuclear stations to replace fossil-fuel-burning power plants, or increasing the use of solar power by a factor of 700, or stopping all deforestation and doubling present efforts at reforestation. There's just one catch: Even change on this vast scale might not stop global warming.

Just 40 years ago the consensus was that climate shifted smoothly and over many centuries. Since the early 1990s, however, scientists have been coming to see climate change as less like a dial and more like an on-off switch. The transition from, say, warm to cold is far more abrupt - taking decades, not centuries - and far more chaotic than previously supposed. A flickering climate would affect every part of the planet, and in so doing reduce the resiliency of the global community. Property values in most places would plummet as buyers disappeared and costs of insurance and maintenance soared.

As climate change starts inflicting losses, insurers will pull back, shifting financial risk to businesses, homeowners, banks - and finally to taxpayers. Andrew Dlugolecki, a risk analyst at the Tyndall Center for Climate Change Research, recently estimated that the chances of the industry getting wiped out by weather-related catastrophes will rise from 1 in 100 worldwide today to 9 in 100 by 2050. To insure against that degree of risk, a carrier would have to charge annual rates as high as 12% of insured value - most businesses and individuals start self-insuring (industry-speak for dropping their coverage and taking their chances) when premiums reach 3% of value.

As businesses begin to recognize the dangers of climate change, markets will help economies adjust, pricing the risks and shifting resources. Yet markets have blind spots: They typically underprice long-term or novel risks. In the case of climate change, where large-scale actions must be taken lest change hit with full force, a purely market-based response would be too little, too late. To address the risks, governments need to get involved.

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