Preventing Industrial Disasters in a Time of Climate Change: A Call for Financial Assurance Mandates
54 Pages Posted: 3 Jun 2017 Last revised: 4 Jun 2017
Date Written: May 1, 2017
In the current era of accelerating climate change, rising sea levels, and increasingly extreme weather, coastal industrial disasters pose a large and growing risk to society. The private sector and public officials are both failing to adequately respond to this risk, and the familiar regulatory tools in this context, such as design mandates and adaptation subsidies, have significant drawbacks. This paper proposes a novel policy framework to prevent coastal industrial disasters. I argue that financial assurance requirements (FAMs), such as insurance mandates, can induce coastal industry to adapt to the coastal impacts of climate change and can ensure that the public will be fully compensated for any disasters that nonetheless occur. FAMs can mobilize the considerable expertise of third-party financial assurance providers and provide efficient incentives for private adaptation. Moreover, they are relatively simple to implement, making them especially suitable for state, regional, and municipal policymakers facing locally concentrated climate impacts, tight resources, and federal gridlock. FAMs are a promising remedy for a significant and increasingly urgent danger.
Keywords: climate change, adaptation, flooding, hurricanes, insurance, sea level rise, global warming
JEL Classification: K10, K32, Q40, Q54, R14, R52
Suggested Citation: Suggested Citation