Shoring up the Energy Coast - Building climate-resilient industries along America’s Gulf Coast

The US Gulf Coast already faces significant risk of hurricane damage. Climate change, combined with economic growth and land subsidence, could increase losses in the region by up to 65 percent over the next twenty years. As a result, affected communities could face cumulative economic damages of USD 350 billion from climate hazards by 2030, says a new study released by Entergy Corporation and supported by Swiss Re research.

America’s Energy Coast – a strip of land comprising coastal Texas, Mississippi, Alabama and Louisiana – harbours over USD 2 trillion in assets. Its economy is largely supported by the US oil and gas industry, which owns around 90 percent of industrial assets. But severe wind and storm surge damage from hurricanes already cost the region an average of USD 14 billion per year. Climate change, economic growth and subsiding coastal land could make matters even worse.

Entergy Corp., America’s third-largest utility company, commissioned a study to assess the impact of natural hazards on the Gulf Coast’s economy. It looks at the potential damage to residential and commercial properties, infrastructure and assets across key energy sectors, which are estimated to reach USD 3 trillion in value by 2030. Swiss Re provided analytical support to the project, contributing its expertise in natural catastrophe modelling and risk assessment to quantify local climate risks. The analysis is based on the Economics of Climate Adaptation (ECA) methodology, developed by a consortium that included Swiss Re.

The findings of the Gulf Coast study show that economic losses in the region could rise by 50 to 65 percent to an annual average of USD 23 billion by 2030. While half of this increase is driven entirely by asset growth and subsidence, climate change could exacerbate the risks. Under this scenario, loss years such as 2005 – when hurricanes Katrina and Rita ravaged the Gulf Coast – are more than twice as likely to occur in 2030 as today.

But a number of economically sensible adaptation measures are available to avert a large part of the damage. “The Entergy project reinforces the financial benefits and opportunities provided by investments in climate adaptation,” says Andreas Spiegel, Swiss Re’s Senior Climate Change Adviser. “In the Gulf Coast region, communities could cost-effectively prevent almost a third of expected losses. To protect against losses from the most extreme events, insurance is a cost-efficient alternative to more physical defences.”

Among the most attractive adaptation measures are improved building codes, beach nourishment and roof cover retrofits. By investing USD 50 billion in these and other measures, Gulf Coast communities could avert about USD 135 billion in annual losses over the next 20 years. Expanding insurance coverage, reducing underinsurance and transferring top-layer risk through innovative insurance solutions are important ways to further strengthen the region’s resilience to climate risks.

Published 20 October 2010

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