An important admonition to all who fear climate change is from Greek philosopher, Heraclitus, in 500 BC: “Change is the only constant in life.”
Today we say, “The only constant is change” – a little more succinct.
Climate change activists fear this risk is leading to the destruction of our planet. Some even say it will happen within the next 12 years! To mitigate this risk and “save the planet,” they advocate reduction of carbon dioxide emissions including those emanating from Kern County’s oil and gas facilities.
Before shutting in local wells and demolishing local refineries, a fundamental understanding of this risk and how it needs to be managed should be helpful. The formal discipline of risk management applied to the risk of climate change should help provide each of us a quiet night’s sleep, if our leaders adhere to its principles.
Climate change activists tend to focus only on a single process from among the risk management system’s multiple processes, viz., risk reduction. In this context, innovative risk reduction efforts must continue within each targeted industry with a Total Cost of Risk that is realistic and achievable.
However, these two processes also need to be included in these important efforts:
- Risk transfer to both commercial and governmental insurers
- Risk assumption of any risk remaining after such transfers.
Climate change activists also tend to ignore certain facts in their otherwise noble effort to do Root Cause Analysis of manmade climate change. Here are key scientific findings reported in Engineering & Technology magazine.
- Less than 4 percent of all CO2 produced is manmade
- Trees and creatures grow, die, rot and ferment, giving back their CO2
- The oceans covering 70 percent of the earth’s surface contain 80 percent of all plant and animal life
- Only one-fourth of the 30 percent of the planet that is land can support man unaided — just 7.5 percent of the entire surface.
Nevertheless, according to Engineering & Technology magazine — and most of us concur — “we are a burden to the earth and reducing that burden is our responsibility. ... The solution is greater efficiency.” Most CO2-generating industries continue to accomplish major innovative efficiencies. The solution clearly should not include demolition of our local energy operations, as Gov. Newsom recommends.
Data support this direly needed reality check. The following facts are expressed in tons of CO2 released during 2000 and 2018, respectively:
- United States: 5,693,685 and 5,275,480 – an 8 percent reduction
- China: 3,405,180 and 11,255,880 – a 330 percent increase
- Russia: 1,557,699 and 1,748,550 – a 12 percent increase.
In India and other countries, climate change doesn’t even make their list of priorities.
How successful can our country’s noble efforts be in view of other countries’ increasingly negative results? Yet, we need to persist, not by destroying industries but rather by innovative win-win solutions that help each industry grow in productivity and profitability with lower CO2 emissions.
All risk management processes make that highly appropriate goal “do-able” despite adverse outcomes in other countries and their apparent unwillingness to collaborate with us in this context.
Insurers have long accepted “climate change” risks for affordable premiums. Whether such risks are windstorms, hailstorms, floods, wildfires or other risks associated with climate change, risk transfer works. When not meeting the criteria of a commercially insurable risk, our government typically steps in with a program that works, e.g., crop-hail, flood and other insurance programs.
Risk assumption for families will be the deductible they pay in minor amounts ranging from $100 to $500 or higher. For large entities, it will be self-insured retentions of major amounts ranging from $5,000 to $5 million, depending on the financial capacity of each entity.
Total Cost of Risk takes into consideration each of these elements far more than premium expense alone. All organizations need to calculate their Total Cost of Risk. It’s not complex.
Gov. Newsom, as well as the many vocal climate change activists, need to understand and support the reality of these risk management processes yet still “save our planet.”
John Pryor is a risk management consultant with Cal State Bakersfield’s Small Business Development Center. A copy of the Total Cost of Risk calculation worksheet is available without fee at email@example.com.