Date of this Version
Holley, E.R. (2016). Adaptation to climate change via insurance and financial incentives (Unpublished Master's Thesis). University of Nebraska-Lincoln, Lincoln NE.
Catastrophic climatic events have accounted for 72% of global insurance claims and totaled ~$1 trillion from 1980 to 2012. Costs are driven by socio-economic developments and an increased frequency and severity of climatic disasters in which climate change may have been a contributing factor. Climate change is projected to become a more prominent driver of these changes in the decades ahead. Government policies to reduce systemic risk have been the predominant approach for multi-level mitigation and adaptation to climate change. The analysis presented here shows how forceful and effective market-based approaches for adaptation and mitigation to climate change already operate via the insurance industry. Feedbacks from insurance to society include these primary changes: 1) premiums and insurance policies, 2) non-coverage, and 3) policy making and litigation (Chapter 1). Through these mechanisms, the insurance industry actively manages climate change adaptations and creates incentives to lessen impacts on industry and society. For mitigation of climate change, renewable energy-based energy production has become more of a priority for utilities in recent years (Chapter2). However, renewable energy is competitively disadvantaged compared to fossil-fuel based systems due to high investment costs, the intermittent nature of renewables, and a lack of pricing for externalities (Chapter 2). A model is used for calculating the total cost of a renewable utility and the cost of energy for that utility. Three scenarios were modeled (a null scenario with no incentive, an existing incentive in Nebraska, and a federal incentive that until recently was available to renewable utilities) to show the effects of incentives on the cost of production to the utility and the costs to the incentive providers. In Nebraska, the incentive was found to provide some relief to the utility compared to the null scenario and the federal incentive provided significantly more relief to the utility. Costs for the incentive investor with the federal incentive were significantly higher than with the Nebraska incentive, compared to the null scenario. To develop renewable-energy production and mitigate climate change impacts, incentives enable market entry where externalities for fossil fuels are not adequately priced. Adaptation to climate change requires thorough understanding of how the impacts affect society (Chapter 1) and how society might mitigate and adapt to the impacts of climate change (Chapter 2).
Advisors: Adam J. Liska & Michael J. Hayes