[Senate Hearing 117-471]
[From the U.S. Government Publishing Office]
S. Hrg. 117-471
21ST CENTURY COMMUNITIES: CLIMATE CHANGE,
RESILIENCE, AND REINSURANCE
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HEARING
BEFORE THE
COMMITTEE ON
BANKING,HOUSING,AND URBAN AFFAIRS
UNITED STATES SENATE
ONE HUNDRED SEVENTEENTH CONGRESS
FIRST SESSION
ON
EXAMINING THE WAYS CLIMATE CHANGE PUTS THE AMERICAN ECONOMY AND
AMERICAN COMMUNITIES AT RISK
__________
JULY 20, 2021
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Printed for the use of the Committee on Banking, Housing, and Urban
Affairs
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Available at: https: //www.govinfo.gov /
__________
U.S. GOVERNMENT PUBLISHING OFFICE
49-451 PDF WASHINGTON : 2023
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COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS
SHERROD BROWN, Ohio, Chairman
JACK REED, Rhode Island PATRICK J. TOOMEY, Pennsylvania
ROBERT MENENDEZ, New Jersey RICHARD C. SHELBY, Alabama
JON TESTER, Montana MIKE CRAPO, Idaho
MARK R. WARNER, Virginia TIM SCOTT, South Carolina
ELIZABETH WARREN, Massachusetts MIKE ROUNDS, South Dakota
CHRIS VAN HOLLEN, Maryland THOM TILLIS, North Carolina
CATHERINE CORTEZ MASTO, Nevada JOHN KENNEDY, Louisiana
TINA SMITH, Minnesota BILL HAGERTY, Tennessee
KYRSTEN SINEMA, Arizona CYNTHIA LUMMIS, Wyoming
JON OSSOFF, Georgia JERRY MORAN, Kansas
RAPHAEL WARNOCK, Georgia KEVIN CRAMER, North Dakota
STEVE DAINES, Montana
Laura Swanson, Staff Director
Brad Grantz, Republican Staff Director
Elisha Tuku, Chief Counsel
John Richards, Counsel
Dan Sullivan, Republican Chief Counsel
Alexander LePore, Republican Detail
Cameron Ricker, Chief Clerk
Shelvin Simmons, IT Director
Charles J. Moffat, Hearing Clerk
(ii)
C O N T E N T S
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TUESDAY, JULY 20, 2021
Page
Opening statement of Chairman Brown.............................. 1
Prepared statement....................................... 29
Opening statements, comments, or prepared statements of:
Senator Toomey............................................... 3
Prepared statement....................................... 30
WITNESSES
Abdollah Shafieezadeh, Lichtenstein Endowed Professor of Civil,
Environmental, and Geodetic Engineering and Director of the
Risk Assessment and Management of Structural and Infrastructure
Systems Lab, The Ohio State University......................... 6
Prepared statement........................................... 31
Responses to written questions of:
Chairman Brown........................................... 112
Rachel Cleetus, Policy Director, Union of Concerned Scientists... 7
Prepared statement........................................... 36
Responses to written questions of:
Chairman Brown........................................... 117
Senator Warren........................................... 121
Frank Nutter, President, Reinsurance Association of America...... 9
Prepared statement........................................... 65
Responses to written questions of:
Chairman Brown........................................... 122
Senator Warren........................................... 123
Senator Sinema........................................... 124
Roger Pielke, Jr., Professor, Environmental Studies, University
of Colorado.................................................... 10
Prepared statement........................................... 94
Jerry Theodorou, Director, Finance, Insurance, and Trade, R
Street Institute............................................... 12
Prepared statement........................................... 110
Additional Material Supplied for the Record
Statement of the National Association of Mutual Insurance
Companies...................................................... 126
Statement of the Insurance Institute for Business & Home Safety.. 129
Statement of the SmarterSafer Coalition.......................... 136
Statement of the American Property Casualty Insurance Association 139
Statement of the SBP............................................. 162
(iii)
21ST CENTURY COMMUNITIES: CLIMATE CHANGE, RESILIENCE, AND REINSURANCE
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TUESDAY, JULY 20, 2021
U.S. Senate,
Committee on Banking, Housing, and Urban Affairs,
Washington, DC.
The Committee met at 10:02 a.m., via Webex and in room 538,
Dirksen Senate Office Building, Hon. Sherrod Brown, Chairman of
the Committee, presiding.
OPENING STATEMENT OF CHAIRMAN SHERROD BROWN
Chairman Brown. The Senate Banking, Housing, and Urban
Affairs Committee will come to order. This hearing is in the
hybrid format. Our Members are in person but we will have
witnesses testifying both in person--two of them are here--and
by video--three of them are elsewhere.
For those joining remotely, a few reminders. Once you start
speaking there will be a slight delay before you are displayed
on the screen. To minimize background noise please click the
Mute button until it is your turn to speak or ask questions.
You should all have one box on your screens labeled ``Clock''
that will show how much time is remaining. For those of you
joining virtually you will hear a bell ring when you have 30
seconds remaining and then again when your time has expired.
If there is a technology issue we will move to the next
witness until we can resolve it.
As we are, the Members and two of the witnesses, here in
person, our speaking order will be as is traditional, that is
by seniority of the Members here when the gavel came down at 10
o'clock, then by seniority of Members arriving later,
alternating between Democrats and Republicans.
This morning the Banking and Housing Committee again looks
at the ways climate change puts the American economy and
American communities at risk. Earlier, we examined the ways big
banks' focus on short-term profit, while ignoring long-term
climate risk, puts homes and businesses and the overall health
of the American economy at risk.
In April, we looked at all the opportunities for American
workers and the benefits to the entire economy from investment
in new, 21st century energy.
Today's hearing will look at what cities and towns and
businesses of all sizes can do to protect our infrastructure,
including homes and transit systems, that are at risk from
climate change.
This Committee must do all we can to help our communities
protect themselves and reduce the risk to taxpayers from
climate disasters.
We will hear from witnesses about cost-effective measures
to ensure the infrastructure we rely on--from bridges to major
highways, from water treatment plants to neighborhoods and
office buildings--to ensure they can withstand more frequent
extreme weather events.
Pretty much every month we see another climate change-
fueled catastrophe, from the wildfires ravaging the western
United States to the increasingly common coastal and river
flooding.
Historic heat melts streetcar cables in Portland, Oregon.
Another polar vortex hits a woefully unprepared Texas and
disables natural gas lines and the electrical grid. Last month,
tropical storms that would have been unprecedented not too long
ago devastated roads, and flooded homes through Ranking Member
Toomey's Delaware and Chester Counties in the southeast part of
his State.
Last year, remnants of Tropical Storm Isaias hit the same
area outside Philadelphia, floating large shipping containers
and crashing them into a local bridge, flooding roads and
homes, and shutting down service on SEPTA, one of America's
great and largest transit systems.
My State of Ohio is not immune. Recent landslides in
Cincinnati closed heavily traveled highways and cut the value
of some Ohioans' homes in half. The disaster resulted from the
combination of the clay in that part of the country, and
rainfall that has been more than 16 percent heavier than
historical averages.
Water levels and temperatures in Lake Erie are higher than
they have ever been, and are on a steady two-decade rise. This
affects power plant operation, contributes to flooding of
homes, businesses, and farmland, and feeds harmful algae
blooms, jeopardizing the water supply for more than a million
people.
All of these disasters affect the economy. They mean supply
chain interruptions and power outages and damage to buildings
and raw materials and transportation networks. It is just
common sense--when disaster strikes the infrastructure our
economy relies on, our economy gets interrupted, over and over
and over again.
It is the American people who pay. They pay in higher
utility bills and higher prices, more tax dollars shelled out
to afford repairs, and lost jobs and homes and opportunity.
Our competitors around the world are taking this seriously.
China plans to invest more than $2.5 trillion in more
resilient, integrated transportation, energy, and information
technology infrastructure by 2025, including 16 new Ultra High
Voltage transmission routes to connect renewable generation in
the countryside to the booming demand in its cities. That is
all on top of their Government-funded clean energy R&D, where
they invest more than the U.S., Japan, and India combined.
Every time business grinds to a halt because an American
factory was not built to withstand extreme heat, or because a
road is blocked by landslides, or because a power grid is shut
down, that is another opportunity for China and other foreign
competitors to get ahead.
Investment we can make now to shore up our infrastructure
will both create jobs at home--jobs that cannot be outsourced--
and make our industries more competitive. And all the
investments we make today will save taxpayers money in the
future. It is a lot cheaper to build a stronger bridge now than
to repair it every other year.
This Committee oversees the stability of the economy, the
homes Americans live in, and the transit systems that get
people to work. It is our job to look at the risks that
infrastructure faces, both the source of that risk, and the
steps we must take to plan for it and prevent it. As we look at
record high temperatures around the world, we should be worried
that our grandchildren may look back at these days as ``the
good old days.''
We cannot continue on this path. Now is the time to tackle
this problem, to protect our vital infrastructure and American
competitiveness.
I hope my colleagues will listen to today's testimony with
the understanding that the health of our economy and the lives
of our fellow Americans may very well depend on it.
Ranking Member Toomey.
OPENING STATEMENT OF SENATOR PATRICK J. TOOMEY
Senator Toomey. Thank you, Mr. Chairman. Today, the
Committee will discuss climate-related risks, including the
ways in which the insurance and reinsurance industries are
evolving and adapting in response. This hearing is meant to be
about reinsurance, though apparently we will also hear
proposals for massive new Federal infrastructure spending based
in part on misleading claims regarding climate-related risks.
To the extent that policy proposals are based on
misrepresentations or misunderstandings of the actual science,
they could lead to very bad results.
Now at the outset, let me acknowledge that global warming
is real. However, we must also recognize at least three
important points. First, there is actual significant debate
within the scientific community about global warming's impact
on man and the economy. Second, direct economic damages
associated with extreme weather events have actually decreased
both globally and in the United States when measured against
GDP. And third, insurance and reinsurance companies, whose very
existence depends upon the presence of uncertain risks, have
always adjusted to changing risks, and climate-related risks
are no exception
In March, all 12 Republicans on this Committee sent a
letter to Fed Chairman Jay Powell expressing concern that
financial regulators were seeking to impose costly new rules
based on highly uncertain climate models. Unfortunately,
proposals to assess climate-related risks to financial
institutions are too often based on outdated scenarios and
unrealistic assumptions.
Even the Financial Stability Board acknowledges the massive
uncertainty. They just issued a report earlier this month
stating that, and I quote, ``financial institutions' exposures
to climate-related risks are generally subject to greater
uncertainty than those relating to other financial risks,'' end
quote. The report notes that this uncertainty derives from the
difficulty in modeling such risks and a lack of reliable
historical data.
Despite substantial modeling and data limitations,
President Biden recently issued an unjustified Executive order
directing financial regulators to consider integrating climate-
related risks into supervision and regulation.
But good policy rests on a foundation of good science. As
one recent publication in the leading science journal Nature
stated, calls to integrate climate science into risk disclosure
and economic decisionmaking, quote, ``has leap-frogged the
current capabilities of climate science and climate models by
at least a decade,'' end quote.
Despite the great deal of uncertainty regarding climate-
related risks, many in the media and politics assert that the
frequency and severity of extreme weather events are increasing
as a result of climate change. This assertion misrepresents the
data, including assessments by the IPCC, the organization
widely considered to be the world's leading climate authority.
The reality is that leading climate scientists do not agree
on whether or not, or to what extent, climate change is causing
an increase in the frequency or severity of weather events.
There can be no debate, however, that economic damage from such
events is shrinking as a portion of our economy, as one of
today's witnesses, Dr. Roger Pielke, will explain in greater
detail. And that decrease in economic damage is occurring is
despite the tremendous amount of development in exposed areas.
Further, the overwhelming reason for increased disaster
losses, in absolute terms, is that locations exposed to loss
have grown in wealth and population, not that global warming
has increased the frequency or severity of extreme weather
events.
Behind the drive to impose climate-related regulations on
financial institutions is a fatal conceit of progressivism, and
that is that bureaucrats know the risks to business better than
the businesses itself. But as we will hear from one of today's
witnesses, insurance industry expert Jerry Theodorou, it
actually has occurred to financial institutions that potential
climate-related risks might affect their operations, and they
have been responding accordingly.
Perhaps no industry has done more to adapt and evolve than
insurance and reinsurance. Among other things, large property/
casualty insurance companies covering about 70 percent of the
U.S. market have been reporting climate risks for over 10
years. They have modified their underwriting practices and they
have diversified their investment portfolios.
In addition, insurance policies and products are generally
short term and are repriced annually or withdrawn as conditions
change. Nevertheless, property/casualty insurance is readily
available across the United States. Increased risk is not
itself a prohibitive problem for insurance or reinsurance
because their business models depend upon accurately pricing
risk, at whatever level it occurs.
Regulators must avoid the temptation to think that they are
smarter than the market. Assessing and pricing risk is the core
competency of insurance companies, and they will apply hundreds
of years of experience as risks evolve.
And when was the last time any major insurer or financial
institution failed as a result of extreme weather, or any time
an insurance company failed to pay a policy claim because of
extreme weather?
Finally, I would like to note that States, not the Federal
Government, have been the primary regulators of insurance for
the past 150 years. Congress explicitly endorsed this State-
based regulatory approach with the McCarran-Ferguson Act.
State-based regulation has worked and it has worked well
for both the insurance industry and, of course, more
importantly, for the consumers it serves. It would be
profoundly misguided for the Biden administration to throw the
State-based insurance regulatory regime out in pursuit of its
climate agenda.
Let me conclude where I began: global warming is real, and
it likely will present new risks. However, we simply have too
little understanding of the near-term effects climate change
will have on any particular place to justify imposing huge new
regulatory costs on the consumers who would ultimately have to
pay for them.
Thank you, Mr. Chairman.
Chairman Brown. Thank you, Senator Toomey.
We will hear from five witnesses today. I will introduce
the five and then we will begin the testimony. Dr. Abdollah
Shafieezadeh, the Lichtenstein Endowed Professor of Civil,
Environmental, and Geodetic Engineering, Director of the Risk
Assessment and Management of Structural Infrastructure Systems,
the RAMSIS Lab at The Ohio State University. He joins us
remotely from Columbus. He is an Associate Professor in the
Department of Civil, Environmental, Geodetic Engineering at The
Ohio State University. His scholarship focuses on improving the
resilience of a built environment against natural and manmade
hazards. He is the Director, as I said, of OSU's RAMSIS Lab.
Dr. Rachel Cleetus is Policy Director, Union of Concerned
Scientists. She joins us today on video. She leads the climate
and energy program at UCS, where she designs equitable policies
to address climate change. She has more than two decades of
experience in climate and clean energy policy, power sector,
decarbonization, the risks and costs of climate impact, and
improving climate resilience. She is author or co-author of a
number of publications on topics such as climate impacts on
coastal communities, especially.
Mr. Frank Nutter is President of Reinsurance Association of
America. He joins us in person. He is an expert on insurance
and reinsurance. He currently advises OECD on financial
management of large-scale disasters in the RAND Center on
Catastrophic Risk Management. He is a member of the advisory
board of the Carl Lender III Center for Insurance and Risk
Management at his alma mater, the University of Cincinnati. He
has been adjunct faculty at the Harvard School of Public
Health.
Dr. Roger Pielke is Professor of Environmental Studies,
University of Colorado. He is our third remote witness. Dr.
Pielke is an academic and author focusing on the intersection
of science and public policy at the University of Colorado.
Before joining the faculty, he studied extreme weather and
climate at the National Center for Atmospheric Research.
And our fifth witness, who is also joining us, is Mr. Jerry
Theodorou. He is Director of Finance Insurance and Trade
Program at the R Street Institute. Prior to his current job,
Mr. Theodorou did insurance research for Conning, a global
investment management forum. Before that, he worked in global
underwriting and strategy for the American International Group.
Dr. Shafieezadeh, you have 5 minutes, if you would begin
your testimony. Thank you so much for joining us from my State
capital.
STATEMENT OF ABDOLLAH SHAFIEEZADEH, LICHTENSTEIN ENDOWED
PROFESSOR OF CIVIL, ENVIRONMENTAL, AND GEODETIC ENGINEERING AND
DIRECTOR OF THE RISK ASSESSMENT AND MANAGEMENT OF STRUCTURAL
AND INFRASTRUCTURE SYSTEMS LAB, THE OHIO STATE UNIVERSITY
Mr. Shafieezadeh. Thank you, Chairman Brown, Ranking Member
Toomey, and Members of the Committee on Banking, Housing, and
Urban Affairs. My name is Abdollah Shafieezadeh. I am an
associate professor of Civil, Environmental, and Geodetic
Engineering, at The Ohio State University. I am also the
Director of Risk Assessment and Management for the Structural
Infrastructure Systems at OSU. It is my great honor to be here
today to share my insights on challenges and solutions for the
resilience of our infrastructure and communities.
We have a large set of infrastructure systems in the
country. They are critical to the daily life of Americans, the
long-term economic prosperity of the Nation, and the national
security. The current state of our critical infrastructure is
not good. According to a recent nationwide assessment,
America's infrastructure scores a C-minus. These systems that
expanded significant shortly after World War II have been
challenged by a large set of factors, such as aging and
deterioration, natural hazards, and cyber and physical attacks.
As an example, parts of the power grid were built about a
century ago, but a major expansion of the grid happened in
1950s and 1960s, with components and systems that had the
design lifetime of about 50 years. In many cities there are
considerable portions of underground wastewater collection
pipelines that are a century old.
Resilience concerns are further compounded by climate and
other extremes. Since 1980, the country has witnessed 298
weather and climate disasters with a loss from each of them
exceeding $1 billion. We call such events as billion-dollar
disasters. The total cost of these events has exceeded $1.97
trillion. The observed trends in these losses are even more
concerning. The number of billion-dollar weather and climate
disasters has increased from 2.9 events per year in the 1980s
to 12.3 events per year in 2010s.
Meanwhile, climate change is anticipated to increase risks
to the built environment. As an example, projections indicate
that an increase of only 14 inches in relative sea level along
the coast of the U.S. may increase the annual frequency of
damaging floods by 25 times. In addition, modern design codes
for structures were developed in the late 1990s and early
2000s. Many of our structures, however, were built long before
and based on codes that are no longer considered adequate.
Investment gap in the Nation's critical infrastructure is
estimated at $2.59 trillion for this decade. The investment
needs to be even larger if our infrastructure is to be prepared
for future stresses and demands beyond this decade.
Attending to risks to our infrastructure in a cost-
effective manner requires a national strategic vision that
includes long-term planning with the flexibility included to
adapt to uncertain conditions of the future. Mitigation of
hazard risks to buildings and other infrastructure are among
the most effective ways. However, infrastructure stakeholders
may not be able to afford the upfront costs of resilience
projects. Therefore, resiliency strategies will need to be
incentivized through measures such as reduced insurance rates
and premiums, Federal, State, or local grants, and improved
resilience-based codes.
Infrastructure decisions, we also need to consider the
eventual impacts and benefits for different populations,
especially vulnerable populations, as hazard exposure and
disruption impacts are not uniformly distributed. We also need
to equip the various stakeholders with the knowledge and tools
to be able to navigate the risks with limited available
resources. Toward this goal, we should increase investment in
basic and applied research to address knowledge and technology
gaps and community resilience.
Thank you for your attention, and I would be happy to
answer your questions.
Chairman Brown. Thank you very much Dr. Shafieezadeh. Next
is Dr. Cleetus. We recognize you for 5 minutes.
Thank you for joining us.
STATEMENT OF RACHEL CLEETUS, POLICY DIRECTOR, UNION OF
CONCERNED SCIENTISTS
Ms. Cleetus. Hello, and thank you, Chairman Brown, Ranking
Member Toomey, and Members of the Committee, and thank you for
providing the opportunity for me to testify remotely. My name
is Rachel Cleetus and I am the policy director for the climate
and energy program at the Union of Concerned Scientists.
The science on climate change and the real-world evidence
of worsening climate impacts are abundantly clear and sobering.
I welcome the opportunity here today to talk about solutions
solutions that are well within our grasp and can help safeguard
people, critical ecosystems, our economy, and our future well-
being. We cannot delay action any longer.
This is not about some distant future. As we look around
our country we see communities faced with intense drought, wave
upon wave of extreme heat, a fiery start to what is likely to
be a terrible wildfire season, an early start to an above-
average hurricane season that is projected. Meanwhile,
accelerating sea level rise and ocean acidification are slow-
moving disasters poised to unleash profound consequences.
Underlying this all, the relentless rise in global average
temperatures, fueled by heat-trapping emissions.
Climate impacts are being felt by people all over our
country, and communities of color and low-income communities
bear a disproportionate toll. Many of these same communities
also bear an outsized burden of the pollution from our
dependence on fossil fuels. In addition, the COVID-19 pandemic
and the economic crisis are far from over, both of which also
have an equitable impact.
Extreme heat is one of the most harmful and deadly hazards
we have faced. UCS research shows that without global action to
reduce emissions, the number of days per year when the heat
index exceeds 100 degrees Fahrenheit will more than double from
historical levels, and increase fourfold by midcentury, and
increase fourfold by late century.
We also found that, on average, by midcentury, U.S.
military installations will experience nearly five times as
many days with a heat index above 100 Fahrenheit as they have
experienced historically.
Our research also shows that under a high sea level rise
scenario, by 2045, about 325,000 coastal properties, worth $136
billion, will be at risk from chronic flooding. All along our
coasts, Florida, New Jersey, New York, California, Louisiana,
and South Carolina are among the most exposed.
Military installations too, along the East and Gulf Coasts
face risks of more frequent and extensive tidal flooding, land
loss, and extensive storm surge. We analyzed 18 installations
and found that by 2050, without action, most will see more than
ten times the number of floods they see today, and four
installations--Naval Air Station Key West, Joint Base Langley-
Eustis, Dam Neck Annex, and Parris Island--are at risk of
losing between 75 and 95 percent of their land by the end of
the century.
Infrastructure disruptions due to climate impacts are very
costly. We have seen, again and again, roads, bridges, our
power infrastructure damaged or disrupted by extreme heat,
floods, storms, wildfires. We must invest in upgrading and
modernizing our infrastructure to ensure that it will be
resilient in the face of worsening climate impacts. The past is
simply not a good predictor of the future anymore.
Communities must also be better prepared and protected. We
need to ramp up funding for predisaster mitigation measures.
Increased access to grants, loans, affordable insurance, public
health protections for communities, workers, first responders
grappling with extreme heat, smoke from wildfires, floods, and
other harms is also vital.
The Federal Government must lead on providing the research,
data, and tools to help the public understand these risks, and
we need coordination from the Federal to the State, Tribal,
local sectors as well as the private sector.
Climate change is a systemic and growing risk to our
economy and yet it is not being priced adequately into the
market today. A combination of short-sightedness, maladaptive
policies, the outsized power of fossil fuel companies, and
business-as-usual inertia is getting in the way. We need
monetary, transparent, and uniform disclosure of climate risks
in the marketplace. We must harness the power of the market.
However, these approaches will not be enough on their own.
We do need additional policies to foster equitable outcomes. We
must ensure that 40 percent of Federal investments directly
benefit marginalized and underserved communities. We cannot
replicate or reinforce past harms. For example, our Nation's
shameful history of mortgage redlining has led to lasting
injustices and inequities, particularly for African-American
households.
Finally, it is important to note that there are limits to
adaptation. We also have to make deep cuts in our emissions. We
must get firmly on the path to at least 50 percent reduction,
50 to 52 percent reductions below 2005 levels by 2030. We have
to clean up our borrower transportation sectors. We have to
work across the economy.
This is an opportunity to build a clean energy and climate-
resilient economy that works for all, investing in domestic
manufacturing, investing in a just transition for coal
communities. We must meet this moment with a robust scale of
investments to promote resilient, low-carbon infrastructure,
good-paying jobs, environmental and economic justice, and we
look to Congress to take these urgent actions.
Thank you again for the opportunity to testify and for your
work to advance climate action and protect our Nation.
Chairman Brown. Thank you, Ms. Cleetus, or Dr. Cleetus. Mr.
Nutter, you are recognized for 5 minutes.
Thank you for joining us in person.
STATEMENT OF FRANK NUTTER, PRESIDENT, REINSURANCE ASSOCIATION
OF AMERICA
Mr. Nutter. Chairman Brown, Ranking Member Toomey, and
other distinguished Members of the Committee, thank you for the
opportunity to testify, and we appreciate the interest of this
Congress and this Committee in improving the resilience of
communities across the United States.
Climate change clearly is impacting the incidence and
damage caused by climate and extreme weather. Congress can help
improve resilience in the face of these risks to save lives and
better protect our homes, businesses, communities, taxpayers,
financial sector, and the economy.
The RAA and its member companies have recognized the value
of the science of climate change since the 1990s and adopted a
formal policy in 2008. Our climate change policy has driven the
RAA to engage with a range of public and private sector
communities to advocate for scientific and data-driven research
and analytics, the development of new financial products, and
public policy that seeks to mitigate climate and natural
disaster risk and its impact.
The RAA has supposed coalitions that advocate for improved
community resilience such as BuildStrong and SmarterSafe and
the recently released Insurers' Principles for Climate Change
Adaptation. We also supported initiatives such as the National
Flood Insurance Program's Risk Transfer Program with
reinsurers, which helped pay for Hurricane Harvey losses.
Congressional enactment of the Disaster Recovery Reform Act of
2018, which increased predisaster mitigation funds, and Federal
lending institutions' regulators issuance of private flood rule
to increase consumer flood insurance options.
These are positive steps toward helping Americans and their
communities increase resilience, but more must be done,
especially given the increasing number of disasters and losses,
including at least one billion-dollar disaster affecting each
State since 1980.
In the context of the infrastructure legislation being
developed by this Congress, the RAA developed and is advocating
for a proposal to address the impact of climate change through
data-driven analysis, established community disaster resilience
zones, or CDRZs, as we refer to them, and direct public and
incentivize private sector investment to help improve
infrastructure resilience, including affordable housing for
CDRZ communities that are most in need and most at risk from
natural disasters.
Specifically, the proposal would codify, enhance, and
utilize FEMA's National Risk Index for Natural Hazards, to find
the intersection of risk, vulnerability, and low community
resilience scores as the basis to identify and establish these
zones that reflect diversity among the States by geography and
type of peril.
With our proposal, Congress can coalesce a variety of new
funding mechanisms that focus Federal, State, local,
charitable, and private sector investments in resilience
projects in these zones, including taxable direct pay bonds,
like Recovery Zone Economic Development Bonds, one of the three
types of Build America Bonds created as part of the 2008-2009
financial crisis economic recovery; tax-exempt private activity
bonds, subject to a separate volume cap like the Recovery Zone
Facility Bonds, also in the 2009 recovery legislation. And for
communities that are unable to access the debt markets because
they do not have a tax base to support additional borrowing or
have reached their debt limits, our proposal includes Federal
tax credits for charitable contributions by individuals and
businesses and transferrable tax credits, similar to low-income
housing tax credit, to encourage investors to help fund
resilience improvements in these zones.
Aligned with the CDRZ, the RAA supports the provisions in
House Financial Services Chairwoman Waters' Housing is
Infrastructure bill that would authorizing funding for
affordable housing, climate, and natural disaster resilience.
We are advocating for Congress and the Administration to enact
disaster mitigation tax credits for homeowners and businesses;
exempt homeowners from Federal taxation of State mitigation
grants; improve research on building code standards and FEMA's
new mitigation program, often referred to as BRIC; encourage
nature-based solutions; include forward-looking climate and
natural risk and analysis in Federal programs, initiatives, and
regulation; enlist the insurance industry's risk assessment and
financing capability related to climate and natural disasters;
and reauthorize the National Flood Insurance Program for the
long term and enact, part of the NFIP reforms, to increase
public and private flood insurance options for consumers and
align Federal agency private flood policies.
There are a variety of ways Congress can address and
increase resources to mitigate the impacts of climate and
natural disasters on our communities, especially for
homeowners, businesses, and our most vulnerable communities.
The RAA looks forward to working with this Committee and others
on our most recent proposal.
Thank you for the opportunity to testify.
Chairman Brown. Thank you, Mr. Nutter. Dr. Pielke from
Boulder--I believe he is calling in from Boulder.
STATEMENT OF ROGER PIELKE, JR., PROFESSOR, ENVIRONMENTAL
STUDIES, UNIVERSITY OF COLORADO
Mr. Pielke. Yes. Chairman Brown, Ranking Member Toomey, and
the entire Committee, thank you for the opportunity to share my
perspectives today remotely.
I am a professor at the University of Colorado Boulder that
has studied the use of science and policy for more than 25
years, including a long-term focus on climate. Unfortunately,
key scientific guidance on climate that informs policy,
including central bank climate stress testing and U.S.
Government estimates of the social cost of carbon, has departed
from basic standards of scientific integrity. A main reason for
this departure is that climate science has increasingly been
enlisted in support of policy advocacy rather than to inform
policy debates and decisions.
Today I have five points to make. First, I emphasize that
human-caused climate change is real, it poses significant
risks, and policy responses in mitigation and adaptation are
necessary and make good sense.
Second, the reality and importance of climate change does
not excuse failures to provide up-to-date and accurate
scientific advice to policymakers. In 1990, the U.S. Congress
established the interagency Global Change Research Program to
provide usable information on which to base policy decisions
related to global change, the key product being the U.S.
National Climate Assessment, produced every 4 years. In
practice, however, the National Climate Assessment has been
politicized in varying degrees by both Democratic and
Republican administrations. It has been used less as a
mechanism of science advice than as a tool for promoting the
climate policy agenda of the President.
Third, shortfalls in scientific integrity matter, because
right now policymakers are being badly misled in a number of
crucial areas. Here I will briefly cite just two examples.
One, climate scenarios that underlie much of research on
climate, its impact, and policy responses are badly outdated
and no longer offer insight to plausible futures. It is
analogous to focus our Nation's current foreign policy on the
Soviet Union. Once that made sense, but today it would just be
out of date. The out-of-date climate scenarios are not off by
just a little. For instance, they assume the dramatic expansion
of coal energy to a level six times that of today, such that it
becomes our primary energy source, and we decide to use coal to
fuel our cars. No one believes this is plausible, yet there it
is, at the center of our most widely used climate scenarios.
Second, economic losses associated with extreme events are
routinely attributed to changes in climate while changes in
society and its exposure and vulnerability, which also
profoundly influence future risks, are largely de-emphasized.
Every day, somewhere on Planet Earth, extreme weather events
are happening. With 21st century communication technology and
platforms, we are all able to witness disasters in ways that in
earlier times just were not possible.
But the visceral appreciation of extremes and their impacts
is no substitute for data and evidence. These data and evidence
indicate that since at least 1990, when data first became
reliable, economic damages associated with extreme weather
have, in fact, decreased when measured in the context of global
GDP. This pattern has occurred in countries of all income
levels. It is good news, and we want it to continue.
In contrast, the National Oceanic and Atmospheric
Administration, one of the Nation's leading science agencies
with a strong staff and an important mission, routinely
promotes a billion-dollar disaster list of events since 1980,
to suggest that disasters and their costs are increasing
dramatically due to climate change. What the dataset really
indicates is growing wealth in locations exposed to loss. We
should always use climate data to document climate trends, not
economic data. Every time you see economic advantage invoked as
evidence of human-caused climate change you should think
instead about the state of scientific integrity in climate.
Fourth, shortfalls in robust science advice on climate are
more than just an academic issue. They also show up in
important policy context. Here I will just cite two, which are
discussed in more detail, with data, in my written testimony.
Proposals for climate stress testing in the global and
national financial systems are grounded in the use of outdated
scenarios. These scenarios include those of the Network for
Greening the Financial System and the International Monetary
Fund. If the baseline scenarios used to project policy futures
are out of date, so too will be any guidance that results from
their use.
The estimated social cost of carbon, of the Biden, Trump,
and Obama administrations, each has similarly relied on
outdated scenarios with roots decades ago. Again, following
guidance from impossible futures is not a good recipe for
useful science advice. Worse, it can mislead. These are
problems that require immediate fixing.
Fifth and finally, climate change is too important to allow
shortfalls of scientific integrity and science advice to
persist. Congress should enhance its oversight of the U.S.
Global Change Research Program and the National Climate
Assessment to ensure that the scientific advice that it
receives is up to date and accurate. Mechanisms are in place.
They need to be matched by a bipartisan commitment securing
robust science advice.
The bottom line. At present there are troubling signs that
Congress and the Federal agencies are not receiving the high-
quality advice necessary to inform decisionmaking on climate
mitigation and adaptation policies.
Thank you very much.
Chairman Brown. Thank you, Dr. Pielke. Mr. Theodorou, you
are recognized for 5 minutes, in the room. Thank you.
STATEMENT OF JERRY THEODOROU, DIRECTOR, FINANCE, INSURANCE, AND
TRADE, R STREET INSTITUTE
Mr. Theodorou. Thank you, Chairman Brown, Ranking Member
Toomey, distinguished Members of the Committee, for the
opportunity to offer testimony on climate change, resilience,
and reinsurance. These issues impact multiple public policy
areas. They need to be understood to inform prudent responses
to protect our economy.
The three topics of climate change, resilience, and
reinsurance are interrelated. We are witness to the effects of
changing climate, in higher temperatures, melting ice caps,
rising sea levels, more frequent and more catastrophic weather
events.
These trends call for resilience. Resilience is the ability
to bounce back and to absorb shocks. Reinsurance is a financial
shock absorber. It allows insurers and the people in the
communities they protect and serve to bounce back, to recover.
For example, a small insurance company in the northern
panhandle of West Virginia, Municipal Mutual, paid $3.8 million
in 334 claims from a wind event in March of last year. This was
over 12 percent of its equity base.
But reinsurance allowed it to recover $3 million of the
$3.8 million, so the net loss was a bearable $800,000.
Reinsurance protected the company and its policyholders.
Without reinsurance, hundreds of insurance companies, millions
of policyholders would be exposed to the crippling financial
loss on top of catastrophic physical loss.
The climate catastrophe event of the day is the complex of
wildfires in a dozen Western States. Losses from wildfires are
covered by standard homeowners, business owners, and commercial
property policies. Wildfire is fire, the central peril covered
by personal and commercial insurance. To be sure, the oldest
continuously operating insurance company in the U.S., founded
in 1752 by Ben Franklin, is the Philadelphia Contributionship
for the insurance of homes from loss by fire.
With the exception of flood, largely covered by FEMA's
national flood insurance program, risks from climate, fire,
hail, drought, and wind are covered by existing insurance
policies. This is what the insurance industry does. It matches
its capital to these kinds of risks.
Collectively, the U.S. insurance industry and the global
reinsurance industry are adequately capitalized to withstand
the financial impact of today's climate-related risk. In the
year when the most insured U.S. losses ever, 2005, when we had
Hurricanes Katrina, Rita, and Wilma, there was $110 billion of
insured losses. The U.S. property and casualty industry has
$2.4 trillion of total assets. The global reinsurance industry,
an additional $650 billion. This means that it would take a
year with three times the losses of 2005 to dent the industry's
capital by 10 percent.
Reinsurance is critical for the insurance industry to play
its role, as we saw in West Virginia. In addition to the
capital base of the insurance and reinsurance industries
providing coverage for climate risks, alternative capital
sources are also taking on climate risk. This is coming from
pension funds, sovereign wealth funds, university endowments,
foundations, and family offices that seek to take on
catastrophe risk because it is uncorrelated with equity and
debt market risk. This is a really new phenomenon, and it is
growing. Alternative capital provided about 4 percent of
reinsurance industry capital in 2006. Now it is 15 percent,
about $100 billion.
Transferring climate risk onto the balance sheets of
insurers and reinsurers and to alternative capital investors
may be a source of comfort but it is not enough, because it
kicks the can of climate risk down the road. Claims from losses
will be paid, but premiums may rise as risks increase.
The traditional reinsurance industry, supplemented by
alternative capital, plays, and will continue to play, an
important role in providing resilience through its role as a
shock absorber, taking on climate risk, but it is only part of
the long-term response. Public policy must also encourage and
incentivize risk mitigation--incentives for sound construction,
restrictions on building in catastrophe-prone areas, physical
defenses and barriers, and working with authorities to
introduce and to enforce codes and standards.
In closing, thank for the privilege of testifying today,
and for your interest in exploring how the reinsurance market
and private capital solutions provide resilience to our economy
in the face of growing climate risk taking a toll on our homes,
our businesses, our health.
Thank you. I look forward to your questions.
Chairman Brown. Thank you, Mr. Theodorou.
Mr. Nutter, even when some of my colleagues acknowledge
climate change is real, too many of them downplay the economic
risks--do not worry about it now, or they say the market will
take care of it. No one has ever labeled your industry
alarmist. Your members look at risk. They suggest financial
decisions clients can make to weather them.
So explain if you would, Mr. Nutter, to the Committee why
we should take climate change seriously as a financial risk,
and what steps Congress should take to protect ourselves, our
families, our country?
Mr. Nutter. Thank you, Mr. Chairman. Indeed, our sector,
the insurance, and particularly the reinsurance sector, is very
committed to providing financial relief for events related to
climate and extreme weather.
The industry does see climate change through the prism of
extreme weather events. It is very dependent upon sound
science. It is very dependent upon Government research related
to science. The funding of NOAA, NASA, the National Science
Foundation is a critical part of how we look at that.
Our sector does engage both in the discussion about climate
change and climate science, and many of the major companies
have a very deep reservoir of people who are trained in the
natural sciences to help them advise about the impacts of
climate change as well as the analysis.
What we have proposed, Mr. Chairman, is a proposal designed
really to look at the infrastructure package that is being
considered by this Congress, to see if there is a way to
improve the investment, not just by the public sector but by
the private sector. So the proposal that we had, the Community
Disaster Resilience Zone proposal, is designed to bring more
private sector investment into predisaster mitigation and
improve social vulnerability as well as the resilience of the
communities in our country.
Chairman Brown. Thank you, Mr. Nutter.
Dr. Cleetus, the New York Times reported a few weeks ago
about the mayor of Des Moines and city leaders trying to
increase the tree canopy in that city, particularly in low-
income neighborhoods. We know that a good tree canopy keeps
homes cooler in the summer, improves air quality. And even in
cities with fairly abundant tree canopy--Des Moines,
Washington, DC, Cincinnati in my State--the relative lack
of trees in lower-income, predominantly Black and Brown
neighborhoods is startling. It often mirrors, as you suggest in
your opening testimony, the redlining that happened in those
communities throughout the 20th century.
I know you have researched this. You have talked about
increased premature mortality due to extreme temperatures and
poor air quality. Talk about what a robust tree-planning
program might mean for the lives of residents in those
communities.
Ms. Cleetus. Thank you, Chairman Brown. As you point out,
many of our urban areas in the country are experiencing heat
wave after heat wave, and what we are seeing is a
disproportionate impact in low-income communities and
communities of color, because of an exacerbated urban heat
island effect. We have historically underinvested in these
communities, including the lack of green space and tree canopy,
but also the kind of asphalt and concrete infrastructure that
traps heat and then releases it at night, so it just keeps
those places hotter and hotter.
This is very harmful to health, especially for the elderly,
for very young kids, for those whose health is compromised. It
is also very harmful for outdoor workers, like policy, like
construction workers, et cetera.
So we have an opportunity now to make the kinds of
investments in urban areas as well as rural areas that can help
mitigate some of these extreme heat impacts, including
investments in the kind of infrastructure that will reduce
these kind of harmful heat impacts, but also changing workplace
requirements so that outdoor workers are protected, the have
public health protections that allow them to be spared some of
these extreme impacts. It is also very important for
agricultural sector workers who are exposed to these impacts.
We know that in cities like Baltimore this does follow the
tragic history of mortgage redlining in our country. Those
long-term effects, we can see this in cities around the
country. These neighborhoods need investments. They need 40
percent of Federal investments directed to these kinds of
marginalized and underserved communities.
Chairman Brown. Thank you. Dr. Shafieezadeh, you argue for
the cost-effectiveness of investing to improve infrastructure
resilience now. Dr. Cleetus, there is a phrase you use to
describe why Congress has not gotten serious. It goes into the
underinvest and pay more later, the business-as-usual inertia,
you call it. We see the problem around.
So I would like to ask the two of you, and Mr. Nutter, to
weigh in on really the central question, I think, in the
remaining seconds. What are the costs of doing nothing?
So, Dr. Shafieezadeh, you would answer that briefly, and
then two of the other witnesses. What is the cost of doing
nothing?
Mr. Shafieezadeh. So Senator, thank you for the question.
Currently, even if we set aside the climate change impacts, we
have a huge backlog of deferred maintenance that is impacting
many of our infrastructure, so addressing those needs are in
the order of $2.5 trillion for the coming decade. And a sign
that it is needed to take care of these immediate needs as soon
as possible is that the previous estimate, which was 4 years
ago, was around $2.1 trillion. So in a matter of 4 years the
needs have increased, estimates of needs has increased by $0.5
trillion, because the issues that we have currently are
becoming more and more severe, and if we do not take action
this will lead to major problems with higher cost to address
those.
And when systems are experiencing these types of issues,
their capacity to meet the challenges of the future, like
climate extremes and weather extremes, is going to reduce
further and further, and the systems are going to be more
vulnerable to future hazards.
Chairman Brown. Dr. Cleetus, briefly, if you would. The
same question. What is the cost of doing nothing? And then Mr.
Nutter.
Ms. Cleetus. The cost is incalculable, and it is not just
economic costs. We are talking about leaving our children and
grandchildren with a planet that is gravely more unsafe if we
fail to curtail our emissions sharply. And what I want to point
out is the benefits of action are tremendous. We can build this
clean energy climate-resilient economy. We can make it a fair
economy that works for everyone. So let us embrace that
opportunity. The costs of inaction outweigh, by far, the costs
of embracing this vision.
Chairman Brown. Mr. Nutter.
Mr. Nutter. The people in our communities, and our
communities are reliant on both public insurance programs and
private insurance coverage. If, in fact, we do little to
mitigate, premitigate if you will, the exposure of these people
and communities to climate and extreme weather risks, we will
eventually develop uninsurable communities, and our people will
be reliant upon disaster assistance from the Federal
Government, which has largely been proven to be inadequate to
help people fully recover.
Chairman Brown. Thank you, Mr. Nutter. Senator Toomey is
recognized.
Senator Toomey. Thank you, Mr. Chairman. Dr. Pielke, I want
to start with you. It seems that nearly every day there is a
new press report warning that weather events are more extreme
and more frequent, and that they are a result of global
warming, and that the attendant costs are skyrocketing. Your
testimony suggests that this conclusion, the conclusion that
climate change is the sole or primary cause of severe weather
events, misrepresents the underlying data and evidence.
So could you describe to us what the actual data tells us
about the frequency and severity of extreme weather events in
the United States over, say, the past 100 years?
Mr. Pielke. Yeah, thank you. And talking about extreme
weather is a little bit like talking about disease. We would
not lump together cancer with obesity, with COVID. We break
down disease into its constituent parts. And it is the same
with extreme weather. Extreme weather is not a particularly
useful category. And if we look at the United States over the
long term, both the U.S. National Climate Assessment, in its
Volume 1, and the IPCC, have done a nice job of summarizing the
trends and the physical science metrics.
And they are nuanced. So heat waves have increased in the
United States, without a doubt, since the 1960s, but they have
not since the 1930s. Drought, overall, in the United States, is
down over the last century, but it is up in the Southwest.
Hurricanes, to many people's surprise, hurricane landfall in
the United States, both overall hurricanes and major
hurricanes, have not increased over the last century. Flooding,
similarly. There is no trend up or down in flooding, though if
you pick a region I can find you an up or a down trend. Extreme
precipitation, which is not the same thing as flooding, has
increased, again, in some regions but not in other.
So the relationship of the physical climate system and
trends and extremes, and the damage that we witness is pretty
complicated, but when we take a step back and take a look at
what is driving the absolute cost of disasters, it is more
property, more wealth in exposed locations, that happen to be
vulnerable.
So yes, we want to take actions to reduce our exposure and
vulnerability, and we have to realize that it is not all driven
by patterns of climate, whether it is variability or change.
Senator Toomey. Right. You know, when you think about, I
suppose, the many hundreds of thousands of miles of rivers
around the world--and maybe it is millions--probably millions
of miles of coastline, innumerable distinct geographies,
different climates, different microclimates, from a purely
statistical point of view, should not we expect a 1,000-year
weather event to be occurring somewhere in the world on a
fairly frequent basis, just statistically speaking?
Mr. Pielke. This is where it gets very important to follow
the science that the IPCC has recommended to us, and it
involves two steps. One is the detection of changes over long
terms, 30 to 50 years or longer, and once a trend is detected
to attribute the trend to reasons. Something like flooding, as
you say, is very complicated, because we pave the land surface,
with agriculture we channelize rivers. And so identifying
changes to one specific cause can be complicated.
But again, the IPCC has concluded that overall, for reasons
of incomplete data but also lack of a strong signal, flooding
overall, globally, has not increased on climate time scales.
Senator Toomey. So let me follow up then with a question,
also for Dr. Pielke. The Federal Reserve recently joined the
Network for Greening the Financial System. That is a coalition
of central banks whose stated aim is to, and I quote,
``mobilize mainstream finance to support the transition toward
a sustainable economy,'' end quote. In other words, I think
their mission is to allocate credit based on their perception
of climate risks.
But this network recently released climate scenarios
designed to stress-test financial institutions, and as you
point out, the scenarios they are use are predicated on several
very dubious assumptions. For instance, is it not true that the
Network for Greening the Financial System assumes a level of
greenhouse gas emission that significantly outpaces current
trends?
Mr. Pielke. Yes. Climate stress-testing is a good idea. We
want to make sure that our institutions are robust in an
uncertain future. The NGFS, to their credit, was one of the
first organizations to recognize that the scenarios of the IPCC
are dated and unrealistic. So they came up with their own
custom scenario, and it turns out that was too extreme and
unrealistic. So just last month they released a Version 2.0,
which again is too extreme.
So stress-testing for risk makes good sense, but those risk
estimates have to be grounded in empirical science that is
defensible.
Senator Toomey. Great. And a quick question for Mr.
Theodorou. Contrary to the concern that insurers or reinsurers
will be wiped out by huge losses associated with disaster
costs, is it not the case that short-term policies which are
repriced annually tend to be less susceptible to that kind of
risk than even, say, banks or other kinds of financial
institutions that take long-term exposure?
Mr. Theodorou. Yes, thank you for your question, Senator.
That is true. Most insurance policies are annual policies that
gives the insurer the opportunity to change terms and
conditions to respond, sometimes favorably. Unrelated to
today's discussion, worker's compensation policy that has less
payroll than was anticipated at the beginning of the year, as
happened last year, results in returned premiums, more premiums
back in the pockets of the policyholders.
So there is a resilience there, and the insurance and
reinsurance industries, although they have been buffeted by
large disasters, have always recovered. This is the business
that they are in, going back to the San Francisco fire early in
the last century, to 2005, the catastrophes of 2017.
So there is resilience in the insurance and reinsurance
industry. This is not a unique event, the likes of which we
have never seen, that would lead one to conclude that the sky
is falling, that reinsurers will pack up and go home. Certainly
not. This is the business that they are in, and it is their job
to find ways to deal with it, to manage risk, assume risk, and
mitigate it.
Senator Toomey. Thank you. Thank you, Mr. Chairman..
Chairman Brown. Thank you. Senator Tester of Montana is
recognized.
Senator Tester. Yeah, thank you, Mr. Chairman and Ranking
Member Toomey, for having this hearing. I want to thank
everybody who has testified today. This is an interesting
concept that I have not heard until today, that the cost of
climate incidents is less today when compared to GDP.
In my real life I am a farmer, and so I just want to point
out a couple of things. Number one, if I address climate from
where I am sitting right now, this is a pretty nice room,
pretty comfortable. Outside it is hot, it is humid, and it is a
different world. That is Washington, DC.
On my farm we can talk about ice cap melting and rising sea
levels, but the truth of the matter is I am in north-central
Montana. The ice cap is several thousand miles away, and the
ocean is probably 800, 900 miles away. So I go off of that by
what people tell me, because I have not seen it.
But where I live right now, in the month of June, for
example, we had 6 days that were above the temperature of 100
degrees. Incidentally, my grandparents homesteaded this place.
We have owned it for over 100 years. We have forest fires right
now, I think you could say throughout the West, that are
record. In Montana, if you take a look at where the fires are
burning in our State, it is all over the damn State, except in
the east, where there is grass, and that will probably be
burning later, except we are in the middle of a drought, so the
grass resource is not probably big enough to burn.
We have a situation where my parents never, ever had crop
insurance, never had a hailstorm in the 35 years they farmed,
from 1943 to 1978. My wife and I have been on the farm, this is
our 44th harvest, and it ain't going to be much of a harvest,
because, quite frankly, between the drought and the hailstorm
that came through a week ago, day before yesterday, there is
not much left. OK?
But there is crop insurance, something my folks never had
to have, that almost every farmer has now, that, by the way, is
highly subsidized by the Federal Government. So you add on
flood but also include crop into that on subsidized insurance.
And we also have hail insurance that some have. And I will tell
you that I am not concerned about the hail insurance company,
because, quite frankly, they have it pegged out. And next year
I guarantee you that because of the hailstorm that went
through, our premiums will go up, because that is what hail
insurance companies do, and that is what they should do. That
is what insurance companies do, and that is what they should
do.
So I am not as concerned about the insurance industry,
because they will manage the risk. I am concerned about what I
have seen over the last 43 years on our farm, and the last 100
years overall. Let me give you an example. In 2000, when we had
another extreme drought, my mom was still alive, a child of the
1930s, and said, ``We got more moisture in the 1930s'' that we
are getting at that moment in time, and now we have had another
series of droughts.
So I would just say this, and I have got a question in all
this, by the way. I would just say that we can say that this
does not have physical impacts, but I am going to tell you what
it does have--food impacts. If we do not address this, there
are going to be a lot of hungry people around here 100 years
from now. In fact, there are going to be a lot less people on
this Earth 100 years from now. I really believe that.
And I will also tell you that I still think it is
physically prudent, even though big houses are built in the
middle of forests, which do not make a lot of sense to me, and
built in the middle of floodplains, which do not make a lot of
sense to me, but they have been doing that since I have been
around, the 64 years I have been here.
I want Dr. Cleetus to answer this question. On the claim
that the cost of incidences is less today, of climate events,
than it was in years past, compared to the GDP, could you
respond to that, if that is something that you see as the same
way, number one. And number two, if that means that climate
change is less of a situation that we should be dealing with,
or just let it go?
Ms. Cleetus. Thank you, Senator Tester, especially for your
personal testimony for what the people of Montana are bearing
right now. I am finding myself deeply disturbed by the cherry-
picking of data and the misrepresentation of climate signs that
I have heard here today. I would prefer to look to all major
scientific organizations and institutions here in the U.S.--the
National Academies of Science--these are the institutions of
integrity that we should look to for independent science to
help guide our policymaking. And every one of them is telling
us that climate change is here, and its effects are going to
get profoundly worse if we fail to curtail our heat-trapping
emissions sharply.
So please, please, let us not waste time debating the
science. Let us take action now. People around the country
depend on it. And I am not talking about people in boardrooms,
fields, folks with multibillion-dollar paychecks. I am talking
about ordinary people, the working people, who are finding
their livelihoods wiped out, who are faced with terrible
disasters, still trying to get back on their feet from the last
one before the next one hits. Those are the people that we need
to be protecting and looking out for, now and in the future.
And I thank you for your calling attention to that today.
Senator Tester. Thank you. I yield.
Chairman Brown. Thank you, Senator Tester. Senator Cortez
Masto from Nevada.
Senator Cortez Masto. Thank you. Thank you, Chairman and
Ranking Member Toomey, for this important conversation. I have
to agree with my colleague from Montana. Something is happening
there, and we cannot discount it as some sort of natural event
that occurs and has occurred in the past.
I will tell you this. I am from Nevada. We have wildfires
now all the time. They are no longer seasonal wildfires. They
happen. I was just home in Nevada. I was traveling through
northern Nevada, where it is very, very dry. A thunderstorm
came. Lightning hit. As soon as we drove up to where the
lighting was, the Prison Hill Fire was happening, because of
that lightning. I mean, it is immediate and it is something we
cannot ignore.
So, Dr. Cleetus, let me ask you this. I am introducing my
wildfire bill, the Western Wildfire Support Act. One provision
of this bill would provide assistance to at-risk communities to
establish wildfire protection plans, to address local hazard
and wildfire fuels reduction, and to assist homeowners with the
disposal of brush in order to help communities, homeowners, and
building owners in adapting homes property to decrease the
harmful impacts from wildfire.
So, Dr. Cleetus, can you talk about the importance of
preparing communities and individual properties to mitigate
against wildfire impacts, and how such assistance may
financially help property owners impacted by the wildfires?
Ms. Cleetus. Thank you, Senator Cortez Masto. I cannot
agree more. We have to stop reacting to these as one-off
disasters that we cannot predict. Now that we are seeing these
long, hotter, drier conditions that are fueling these terrible
wildfire seasons, we have to act in advance. And we know that
climate change is contributing, of course, but also our history
of mismanagement of our forests and fuels, the places in which
development is happening, putting more people and property in
harm's way are all contributing to worsening these disasters.
So taking steps ahead of time, as you are proposing, are
very, very important to protect communities so that they are
not just left picking up the pieces after the disaster. We have
to make sure that we are reducing these risks.
Emergency responders on the front lines of this, wildfire
firefighters, are just being pushed to the max by these seasons
again and again. It is taking a terrible toll, both mental and
physical. We cannot just continue business as usual, continue
doing what we have done in the past. We have to do better.
Senator Cortez Masto. Thank you. And then, Dr.
Shafieezadeh, Nevada has 27 federally recognized Tribes, with
numerous reservations in our State. When we discuss resilience
we need to ensure our Tribal communities are part of that
conversation.
In your opinion, do you believe our Tribes have the
resources available to cope with the impacts of climate change?
Mr. Shafieezadeh. Thank you for the question, Senator, and
usually socioeconomically vulnerable communities are not
equipped to deal with disasters and preparing for disasters.
Many studies have shown that when we look at the treatments of
risk which is hazard, the impacts on the built environment, and
the consequences of those failures for society, there are
disparities at every elements of risk. And even some of the
measures that we see and have been studied to show that they
have very high benefit-to-cost ratios, those communities are
not usually able to afford those measures. So there needs to be
some assistance, in various forms, that could be made available
to them, to be able to adopt those measures.
Senator Cortez Masto. Thank you. Mr. Nutter, in your
opinion, what types of investments should we target to our
Tribal areas to promote resilience?
Mr. Nutter. Senator, thank you for the opportunity to
respond. Also to your comment about the introduction of your
legislation, which we look forward to working you. In our
testimony, we highlighted a proposal that we have developed
that, in fact, would use the National Risk Index, which does
look at social vulnerability, the nature of the communities,
the community resilience, if you will, and it has a proposal
that would allow more private sector investment in addition to
public sector investment. Each of the Members of the Committee
have in front of them a screen shot, if you will, of our effort
to try and take the National Risk Index and look at community
vulnerability on a variety of factors, including agriculture. I
am sorry that Senator Tester is not here. I wanted to highlight
that. And it would bring, in fact, more predisaster mitigation
funding into communities, based on what the community believes
is appropriate to help with its resilience. It also includes
tax credits for individuals and tax credits for these
communities that would be transferrable and tradeable.
Senator Cortez Masto. Thank you. Thank you, Mr. Chairman.
Chairman Brown. Thank you, Senator Cortez Masto. Senator
Ossoff from Georgia is recognized.
Senator Ossoff. Thank you, Mr. Chairman. Thank you for
holding this hearing. Thank you to our panelists, both in
person and those joining remotely.
Dr. Shafieezadeh, I would like to address a couple of
questions to you, if you please. First of all, just to set the
table here, the National Oceanic and Atmospheric
Administration, or NOAA, states that warmer oceans may result
in stronger, wetter tropical storms and hurricanes, increased
storm surge, and other events that threaten coastal
settlements.
The U.N. Intergovernmental Panel on Climate Change, or
IPCC, states that sea level rise will likely result in more
damaging coastal storm surge and flooding. And the Department
of Defense cites climate change as a national security threat
to its installations, including the Naval Submarine Base at
Kings Bay, Georgia, which may suffer from increased flooding,
damage from storm surge, and threats to naval operations there.
Dr. Shafieezadeh, if these projections from NOAA, the IPCC,
and the Department of Defense are correct, can you please speak
to the climate risks faced by Georgia's coastal cities such as
Savannah, Brunswick, and Georgia's barrier island chain,
including Tybee, St. Simons, St. Catherines, St. Marys, Sapelo,
and Cumberland Islands?
Mr. Shafieezadeh. Thank you, Senator, for the question.
There are overwhelming concerns in the community, in the
research community, academic community, that there is upward
trend in many hazards by climate. And we are not only are
concerned about single events, single hazard types becoming
more frequent or intense but we are also concerned about
combination of the events, extreme events, becoming more
likely. And that, coupled with aging and deterioration of the
infrastructure, cyber and physical attacks, and changes in the
service demands across the Nation may put some conditions for
our infrastructure that are not designed for. That is the major
problem.
Some, as were mentioned earlier, there are some parts of
the Nation that may see decrease in some of the hazards, but
there are some, a lot of parts of the country we are seeing
increases in the stresses, and those are the parts that are
very concerning, because the infrastructures are not designed
for those type of increases.
So in many coastal regions we have the issues of flooding
and sea level rise. Even small amount of sea level rise will
substantially increase the frequency of damaging floods to
these events, and when such hazard happens then we have
significant stress on various infrastructures--housing,
transportation, our power grid. And the other challenge there
is that with sea level rise the exposure increases. Not only we
are concerned about the frequency but also the exposure,
meaning that many of our flooding events are going to go
further inland, impacting areas that are not currently at high
exposure to flooding events.
So these compounding effects are something that we need to
be very serious about in how we think about the future and
preparing for the future hazards.
Senator Ossoff. Well, thank you, Dr. Shafieezadeh. And
considering these potential impacts on Savannah, Georgia, on
our naval facility at Kings Bay, on our barrier island chain--
Cumberland Island, Sapelo Island, Tybee Island--it is vital, in
my view, and I know I have discussed this with the Chairman as
well, that this upcoming infrastructure bill includes
significant investments in coastal resilience, to help
communities in coastal Georgia, and coastal communities across
the country, prepare for increased flooding, worse tropical
storms, increased storm surge events.
Can you speak to the kind of infrastructure that will help
communities like Savannah, Georgia, adapt to what is coming?
Mr. Shafieezadeh. So that is a great question. We have a
whole host of solutions, at least from the engineering and
science community, and then I would suggest that for every
specific location we need to do a deeper study on the hazards
that these areas are facing, what sorts of solutions need to be
taken now. And one point I would like to make is that the risks
you are facing are dynamic, not static, so we need to have
strategies that are adaptive in time, meaning that some of the
actions we need to take now, but we need to also have a plan
for sustained funding so that as we hear more from the science
community and climatologists about the trends of the future
climate, we are able to make decision on the go and improve the
state of infrastructure further.
The type of solutions that might be available now for
coastal communities can range from nature-based systems to
flood walls and levels to improving the stormwater collection
systems, to elevating homes or buying out some of the houses in
the floodplains. And the good news is that the benefit-to-cost
ratio for many of these measures are very high, and it is
highly justified to take those actions.
Senator Ossoff. Thank you, Dr. Shafieezadeh, and with the
Chairman's permission just one final question for you, Dr.
Cleetus, please. The impacts of climate change and these events
will not be uniformly distributed. Low-income communities,
vulnerable communities, communities in the floodplain,
communities who already live in under-resourced neighborhoods,
dilapidated housing, will be more severely impacted. I am
thinking, for example, of the Geechee communities along
Georgia's coastline, descendants of West African slaves,
brought to Georgia and other parts of the Southeast to work in
coastal plantations, who still endure a high level of poverty.
These communities are going to be hit the hardest.
What can we do to ensure that our investments in coastal
resilience help and protect those who are most vulnerable, Dr.
Cleetus?
Ms. Cleetus. Thank you, Dr. Ossoff. I think you raise a
very, very important point, and what is most important is that
we understand that we need to engage with these communities
directly. They need to be at the table as solutions are being
developed that will benefit them, because they have very good
ideas of what can work and what cannot.
As you pointed out, there are places like St. Simons and
Tybee Island where we have thousands of homes that are at risk
from chronic inundation. We have places like Brunswick where
nearly one-half of the residents are African American, nearly
one-third live below the national poverty line. It is projected
to have more than 800 homes at risk of chronic flooding, which
would put 20 percent of this property tax base at risk.
So we have to make sure that we are deliberately allocating
funding programs and policies to these communities, reducing
the barriers to access. Many of these communities are
underinsured. They are not able to navigate the bureaucratic
red tape to get assistance. Recent research has shown that FEMA
funding is disproportionally inequitable along racial and
income lines. This is very, very troubling. We need to be
tracking this data to make sure that the people who need access
to these resources are first in line.
Senator Ossoff. Thank you, Dr. Cleetus. Thank you, Mr.
Chairman.
Chairman Brown. Thank you, Senator Ossoff. Senator Van
Hollen from Maryland is recognized.
Senator Van Hollen. Thank you, Mr. Chairman and Ranking
Member Toomey. I thank all of our witnesses today.
There was a March survey, March of this year, by the
National Association of Insurance Commissioners. In that
survey, more than a quarter of consumers said that they had
trouble getting homeowner's insurance or renewing their
policies due to natural disasters in their area. Over 25
percent of homeowners said that insurance premiums had risen
for the same reason, and nearly three-quarters of consumers
said that most significant threats facing their homes today
were weather related, not surprising when we see that in 2020,
the United States experienced a record-breaking 22 incidents of
over $1 billion in damage due to extreme weather disasters.
I want to second the comments made by my colleague, Senator
Ossoff, about the importance of the infrastructure
modernization plan that Congress is considering to include
investments in resilience to protect our communities.
Mr. Nutter, what can the insurance industry do to help
promote mitigation and resilience measures in response to the
impact of climate-related risks?
Mr. Nutter. Yes, Senator, thank you for the question. In
our prepared statement and brief testimony we highlighted a new
proposal that we have made about directing more public as well
as private sector investment in communities that are socially
vulnerable as well as have resilience issues and that are
affected by natural disasters.
The proposal takes FEMA's National Risk Index, which is 18
perils, is across the country, and it would facilitate the
issuance by local communities of both taxable and nontaxable
bonds and provide tax credits associated with what the
communities believe are improvements in resilience for those
communities. Each of the Members of the Committee have before
them a brief screen shot of a data analytics program that we
have done showing how you can take this information, vulnerable
communities, and direct investments, if you will, to deal with
those communities.
So our newest proposal is that, Senator. We have supported
a host of tax credits as well, for both businesses and
individuals, that would help encourage disaster mitigation,
predisaster mitigation investments.
Senator Van Hollen. Thank you. Thank you for that proposal.
I will take a look at it.
Another question related to the rising risks and costs of
climate change, which is that those risks outpace insurance
supply. Is there a way of transferring that risk more broadly
so that catastrophic risk is not concentrated in a small number
of insurers and that more balance sheet is freed up so that
insurers can continue to offer coverage to as many households
and businesses as possible? Do products like cat bonds have a
useful role to play here?
Mr. Nutter. Senator, thank you for that comment, and
absolutely, the reinsurance sector has, as part of its
strategic business model, the use of reinsurance as well as
catastrophe bonds, that you referenced, as a way to tap into
capital markets to supplement the traditional reinsurance
indemnity process. That is almost $100 billion of capacity that
is in place now with catastrophe bonds used by the National
Flood Insurance Program and by a number of insurance companies.
We do think that those are ways to transfer risk and to spread
it, if you will, into the capital markets and not just on the
Government's balance sheet.
We also see creative proposals being made about parametric
insurance, which is insurance that may be for communities or
individuals that would provide financial recovery funds
independent of the actual loss that an individual may have, but
where the trigger is based upon the event, if you will--the
wildfire, the flood, that sort of thing.
Senator Van Hollen. I thank you. I do not know if any of
the other witnesses want to comment on that. That was my final
question.
Mr. Theodorou. Thank you, Senator. I would like to comment.
Indeed, there is diversification that is done by insurers so
that they do not exceed their capacity in a particular area,
just like decades ago there were pins on a map, and if there
were too many houses in one particular area they would stop
writing there. What is the maximum possible loss? They
calculated that. And indeed, they do spread the risk. I
mentioned a small West Virginia mutual insurance company that
has less than $20 million in premium and that got a big return
from the reinsurance recoverable. That company had over 10
reinsurers. So even reinsurers are not overloaded with risk in
a particular area.
Since 1992, in Hurricane Andrew, the modeling industry,
risk modeling, was born and has developed so that insurers can
manage their accumulations and spread it, and it is a large
market. There are hundreds of reinsurers, a couple thousand
insurers, so that no one company has got too much of a
concentration in one particular part of a State.
Senator Van Hollen. Thank you.
Chairman Brown. Thank you, Senator Van Hollen. Senator
Menendez of New Jersey is recognized.
Senator Menendez. Thank you, Mr. Chairman. Flooding is one
of the most expensive and most frequent natural disasters in
the United States. As we look to invest in our Nation's
infrastructure for the 21st century, we need to ensure that our
investments are protected from the challenges that lie ahead.
In New Jersey, we are leveraging Federal resources from
Community Development Block Grants to build state-of-the-art
resilient infrastructure like Hoboken's Rebuild by Design
project, a $230 million mitigation initiative which I helped
secure funding for, and will help alleviate repetitive flooding
and protect against damage from storm surges.
Dr. Shafieezadeh, as Congress looks to enact historic
infrastructure legislation, should we not be investing in more
flood-resilient projects to programs like CDBG-DR, to ensure
that our investments in infrastructure last for years to come?
Mr. Shafieezadeh. Thank you very much for the great
question. I believe that the project in New Jersey is a very
good model because it took a multihazard view to the issue and
had a long-term view, and it took a look at a whole host of
solutions, both hard solutions to nature-based solutions to
improving the capacities of the city itself.
And related to flooding issues, we currently have a lot of
problems from flooding to our infrastructure. Around 57 percent
of 1,948 bridge collapses that were recorded in the U.S. have
been related to hydrology problems where flooding and scouring
are the major drivers there.
So they have been putting a lot of pressure on our
infrastructure, and we anticipate that these stressors are
going to continue to increase. Under very mild climate
projections it is estimated that 66,000 of our bridges are
going to be vulnerable to increased peak flow rates, and
addressing the vulnerable bridges would cost somewhere between
$140 to over $200 billion. And that is just one liability due
to increased peak flow. And that also applies to many other
built environment that they have, for example, the power grid,
telecommunication, and hospitals in coastal areas.
But the good news is that the benefit-to-cost ratio of
taking actions is very high. Studies have shown that
retrofitting existing buildings with some common retrofit
measures, in coastal areas has a benefit-to-cost ratio of 4-to-
1. And applying these measures to buildings where benefit-to-
cost ratio would cost somewhere around $500 billion, but the
estimated benefits is over $2.2 trillion.
Senator Menendez. Very good. So I would say the answer to
my question is yes, based on what you said, right? Investing in
flood resilience projects makes a lot of sense.
Mr. Shafieezadeh. Yes.
Senator Menendez. OK. Let me turn to Dr. Cleetus. In 2012,
Superstorm Sandy devastated New Jersey's coastline in the
greatest natural disaster in our State's history. It caused
billions of dollars in damage, it took lives, including some
sustained damage to home values. Sea levels continue to rise at
alarming rates, exacerbating the potential damage from major
storms like Sandy as well as more common rainfall events.
As climate hazards continue to grow, this inevitably
endangers the cornerstone of wealth building for so many
American families, which is their home value. If, due to
climate change, these homes become uninsurable and
unmarketable, the value of these homes and the wealth of
homeowners is at risk.
So Dr. Cleetus, without bold action to mitigate the effects
of climate change, do you expect coastal homes and homes facing
other climate risks to lose value relative to the balances of
home owners' mortgages, causing those mortgages to become
financially under water?
Ms. Cleetus. There is no question that we have billions of
dollars of real estate along our coastlines, including in New
Jersey, that are at risk of chronic inundation well within the
lifetime of the 30-year mortgage issued today. And we have seen
the leading edge of some of these challenges already in many
coastal communities, including places like Ocean City and Cape
May, Monmouth Beach, in New Jersey, Atlantic City.
But right now the market is not pricing this risk
adequately, and my sincere worry and concern is that when the
market moves, the adjustment can be very harsh and abrupt, and
it will really hurt fixed-income and low-income folks for whom
their home is their single biggest asset. I urge policymakers
to get out ahead of this problem, make the kinds of investments
that will make communities' homeowners more climate resilient.
And it is not just about individuals homes and homeowners.
This is the property tax base of these communities. This is
linked to our mortgage market. This is linked to many of our
retirement portfolios that include real estate. The
reverberations are wide for our economy. We do not know what
can trigger this. It can be an extreme weather event, change in
insurance rates, policies. But the physical risk is real.
Our climate projections show that the physical risk is
increasing due to accelerating climate change. So let us
implement the policies ahead of time that will safeguard
communities and their financial well-being.
Senator Menendez. Thank you. Mr. Chairman, would you
indulge me one other question?
Chairman Brown. Of course.
Senator Menendez. Thank you. Mr. Nutter, as we continue to
pursue major infrastructure legislation, including investments
to mitigate the impacts of climate change, we need to ensure
that this funding finds its way to where it is most needed,
like those communities facing outsized climate risk as well as
those that have historically been underserved, from our low-
income urban communities to our rural communities and
environmental justice communities.
How can a data-driven approach guide our policy decisions
here in Washington to ensure that our Federal investments have
the maximum impact while reaching the communities that are most
in need?
Mr. Nutter. Senator Menendez, thank you for your question
and your comment. We have promoted the idea that in this
infrastructure package Congress should include a proposal to
identify communities at risk and that are socially vulnerable
by using the National Risk Index, which is a FEMA-prepared
product that provides a number of factors related to community
vulnerability and social vulnerability, and allow the local
communities, consistent with your point earlier, to make
decisions about what kind of investments would be appropriate
in those communities to make them more resilient and protect
the communities and the homeowners that are there, by using
federally taxable as well as tax-exempt obligations and tax
credits that would draw both public sector investment but also
private sector investment.
We look forward to working with you and your staff to
include it in an infrastructure package. We think it does a lot
to help draw additional resources to protect these communities
and protect the homes and the homeowners that are there.
Senator Menendez. Thank you, Mr. Chairman. This hearing is,
for coastal States like my own, although not only coastal
States, but for coastal States like my own this hearing is
incredibly important to understand some of the challenges we
have and some of the policy opportunities I hope we can pursue.
Thank you.
Chairman Brown. Thank you, Senator Menendez, for your
always thoughtful comments.
Thanks to our witnesses for joining us today, the three
remote and the two here. For Senators who wish to submit
questions for the record, these questions are due 1 week from
today, Tuesday, July 27th. To our witnesses, per our Committee
rules, we ask that you respond to any questions within 45 days
from the day you have received them.
Thank you again. With that the hearing is adjourned. Thank
you so much.
[Whereupon, at 11:29 a.m., the hearing was adjourned.]
[Prepared statements, responses to written questions, and
additional material supplied for the record follow:]
PREPARED STATEMENT OF CHAIRMAN SHERROD BROWN
This morning the Banking and Housing Committee again looks at the
ways climate change puts the American economy and American communities
at risk.
Earlier, we examined the ways big banks' focus on short-term
profit, while ignoring long-term climate risk, puts our homes and
businesses and the overall health of the American economy at risk.
In April, we looked at all the opportunities for American workers
and the benefits to the entire economy from investment in new, 21st
century energy.
Today's hearing will look at what cities and towns and businesses
of all sizes can do to protect our infrastructure, including homes and
transit systems, that are at risk from climate change.
This Committee must do all we can to help our communities protect
themselves and reduce the risk to taxpayers from climate disasters.
We'll hear from our witnesses about cost-effective measures to
ensure the infrastructure we rely on--from bridges to major highways,
from water treatment plants to neighborhoods and office buildings--can
withstand more frequent extreme weather events.
Pretty much every month we see new climate change-fueled
catastrophes, from the wildfires ravaging the Western United States to
the increasingly common coastal and river flooding.
Historic heat melts streetcar cables in Portland, Oregon. Another
polar vortex hits an unprepared Texas and disables natural gas lines
and the electrical grid.
Last month, tropical storms that would have been unprecedented not
too long ago devastated roads, and flooded homes throughout Delaware
and Chester Counties in the southeast part of Ranking Member Toomey's
home State of Pennsylvania.
Last year, remnants of Tropical Storm Isaias hit the same area
outside Philadelphia, floating large shipping containers and crashing
them into a local bridge, flooding roads and homes, and shutting down
service on SEPTA, one of America's largest transit systems.
My State of Ohio is not immune.
Recent landslides in Cincinnati closed heavily traveled highways
and cut the value of some Ohioans' homes in half. The disaster resulted
from the combination of the clay in that part of the country, and
rainfall that's been more than 16 percent heavier than historical
averages during this century.
Water levels and temperatures in Lake Erie are higher than they
have ever been, and are on a steady two-decade rise.
This affects power plant operation, contributes to flooding of
homes, businesses, and farmland, and feeds harmful algae blooms,
jeopardizing the water supply for 11 million people.
All of these disasters affect the economy. They mean supply chain
interruptions and power outages and damage to buildings and raw
materials and transportation networks.
It's just common sense--when disaster strikes the infrastructure
our economy relies on, our economy gets interrupted--over and over
again.
And it's the American people who pay for it. They pay in higher
utility bills and higher prices, more tax dollars shelled out to afford
repairs, and lost jobs and homes and opportunity.
Our competitors around the world are taking this seriously. China
plans to invest more than $2.5 trillion in more resilient, integrated
transportation, energy, and information technology infrastructure by
2025, including 16 new Ultra High Voltage transmission routes to
connect renewable generation in the countryside to the booming demand
in its cities.
That's all on top of their Government-funded clean energy research
and development, where they invest more than the U.S., Japan, and India
combined.
Every time business grinds to a halt because an American factory
wasn't built to withstand extreme heat, or because a road is blocked by
landslides, or because a power grid is shut down--that's another
opportunity for China and other foreign competitors to get ahead.
Investment we make now to shore up our infrastructure will both
create jobs at home--jobs that can't be sent overseas--and make our
industries more competitive.
And all the investments we make today will save taxpayers money in
the future. It's a lot cheaper to build a stronger bridge now than to
repair it every other year.
This Committee oversees the stability of the economy, the homes
Americans live in, and the transit systems that get people to work and
school and doctors appointments.
It's our job to look at the risks that infrastructure faces--both
the source of that risk, and the steps we must take to plan for it and
prevent it.
As we look at record high temperatures around the world, we should
be worried that our grandchildren may look back at these times as ``the
good old days.''
We cannot continue on this path. Now is the time to tackle this
problem, to protect our vital infrastructure and American
competitiveness.
I hope my colleagues will listen to today's testimony with the
understanding that the health of our economy and the lives of our
fellow Americans may depend on it.
______
PREPARED STATEMENT OF SENATOR PATRICK J. TOOMEY
Thank you, Mr. Chairman.
Today, the Committee will discuss climate-related risks and the
ways in which the insurance and reinsurance industries are evolving and
adapting in response. This hearing is meant to be about reinsurance,
though apparently we will also hear proposals for massive new Federal
infrastructure spending based in part on misleading claims regarding
climate-related risks. To the extent that policy proposals are based on
misrepresentations of science, they could lead to very bad results.
At the outset, let me acknowledge that global warming is real.
However, we must also recognize three important points. First, there is
actual significant debate within the scientific community about global
warming's impact on man and the economy. Second, direct economic
damages associated with extreme weather events have actually decreased
both globally and in the United States when measured against GDP.
Third, insurance and reinsurance companies, whose existence depends
upon the presence of uncertain risks, have always adjusted to changing
risk, and climate-related risks are no exception.
In March, all 12 Republicans on this Committee sent a letter to Fed
Chairman Jay Powell expressing concern that financial regulators were
seeking to impose costly new rules based on highly uncertain climate
models. Unfortunately, proposals to assess climate-related risks to
financial institutions are too often based on outdated scenarios and
unrealistic assumptions.
Even the Financial Stability Board acknowledges the massive
uncertainty. They just issued a report stating that ``financial
institutions' exposures to climate-related risks are generally subject
to greater uncertainty than those relating to other financial risks.''
The report notes that this uncertainty derives from the difficulty in
modeling such risks and a lack of reliable historical data.
Despite substantial modeling and data limitations, President Biden
recently issued an unjustified executive order directing financial
regulators to consider integrating climate-related risks into
supervision and regulation. But good policy rests on a foundation of
good science. As one recent publication in the leading science journal
Nature stated, calls to integrate climate science into risk disclosure
and economic decision-making ``has leap-frogged the current
capabilities of climate science and climate models by at least a
decade.''
Despite the great deal of uncertainty regarding climate-related
risks, many in the media and politics assert that the frequency and
severity of extreme weather events are increasing as a result of
climate change. This assertion grossly misrepresents the data,
including assessments by the IPCC, the organization widely considered
to be the world's leading climate authority.
The reality is that leading climate scientists do not agree on
whether or not--or to what extent--climate change is causing an
increase in the frequency or severity of weather events. There can be
no debate, however, that economic damage from such events is shrinking
as a portion of our economy, as one of today's witnesses, Dr. Roger
Pielke, will explain in greater detail. And that decrease is despite
the tremendous amount of development in exposed areas.
Further, the overwhelming reason for increased disaster losses is
that locations exposed to loss have grown in wealth and population--not
that global warming has increased the frequency or severity of extreme
weather events.
Behind the drive to impose climate-related regulations on financial
institutions is a fatal conceit of progressivism: Bureaucrats know the
risks to business better than the business itself. But as we will hear
from one of today's witnesses, insurance industry expert Jerry
Theodorou, it has actually occurred to financial institutions that
potential climate-related risks might affect their operations, and they
are responding accordingly.
Perhaps no industry has done more to adapt and evolve than
insurance and reinsurance. Among other things, large property/casualty
insurance companies covering approximately 70 percent of the U.S.
market have been reporting climate risk for over 10 years. They've
modified their underwriting practices and they've diversified their
investment portfolios.
In addition, insurance policies and products are generally short
term and are rericed annually or withdrawn as conditions change.
Nevertheless, property/casualty insurance is readily available across
the United States. Increased risk is not a prohibitive problem for
insurance or reinsurance because their business models depend upon
accurately pricing risk--at whatever level.
Regulators must avoid the temptation to think they're smarter than
the market. Assessing and pricing risk is the core competency of
insurance companies, and they will apply hundreds of years of
experience as risks evolve.
When was the last time any major insurer or financial institution
failed as a result of extreme weather? Or the last time an insurance
company failed to pay a policyholder claim because of extreme weather?
Finally, I'd like to note that States, not the Federal Government,
have been the primary regulators of insurance for the past 150 years.
Congress explicitly endorsed this State-based regulatory approach with
the McCarran-Ferguson Act.
State-based regulation has worked and it has worked well for both
the insurance industry and more importantly for the consumers it
serves. It would be profoundly misguided for the Biden administration
to throw the State-based insurance regulatory regime out in pursuit of
its climate agenda.
Let me conclude where I began: global warming is real, and it
likely will present new risks. However, we simply have too little
understanding of the near-term effects climate change will have on any
particular place to justify imposing huge new regulatory costs on the
consumers who would ultimately pay for them.
______
PREPARED STATEMENT OF ABDOLLAH SHAFIEEZADEH
Lichtenstein Endowed Professor of Civil, Environmental, and Geodetic
Engineering and Director of the Risk Assessment and Management of
Structural and Infrastructure Systems Lab, The Ohio State University
July 20, 2021
Chairman Brown, Ranking Member Toomey, and Members of the Committee
on Banking, Housing, and Urban Affairs, my name is Abdollah
Shafieezadeh. I am the Lichtenstein Associate Professor of Civil,
Environmental and Geodetic Engineering at The Ohio State University
(OSU). I am also the director of Risk Assessment and Management of
Structural and Infrastructure Systems lab at OSU. It is my great honor
to share with the Committee my insights on the state of the Nation's
critical infrastructure, current and future risks, especially those
that are imparted by climate and weather hazards, and some of the ways
we can pursue to improve the resilience of our infrastructure and
communities.
The Significance of the Nation's Infrastructure
The daily life of Americans, the long-term economic prosperity of
the Nation and the national security of the United States depend on the
continued functioning of a large set of infrastructure systems in the
country. These systems that form the backbone of our society are
complex in terms of their scale, and system operations and
interdependencies under normal conditions and when challenged by the
stresses of the environment. Attending these risks in a cost-effective
manner requires a strategic vision that includes long-term planning
with a flexibility included to adapt to uncertain conditions of the
future.
The physical and operational scales of our infrastructure are
significantly large. As an example, the power grid in the U.S., is
widely considered the most complex engineered system in the world. It
includes over 8,000 power plants, 600,000 miles of high and extra high
voltage transmission lines and millions of miles of distribution lines.
\1\ At every instant in time, this system balances electricity supply
and demand, and delivers power from distant generation units to energy
consumers through a web of transmission and distribution networks. We
have over 4 million miles of public roadways and over 600,000 bridges
across the United States. Together, they facilitated 3.2 trillion
vehicle miles traveled in 2019. \2\ More than 16,000 wastewater
treatment plants in the country and a web of tens to tens of thousands
of miles of pipelines under small communities to large cities collect
and process over 60 billion gallons of wastewater every day.\2\
Similarly, we have other vast interconnected and interdependent systems
of telecommunication, water, dam, and levees, health care and emergency
services, among many others, that provide immediate and long-term
critical services to the society. \3\
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\1\ U.S. DOE, ``Dynamic Line Rating Report to Congress'', June
2019, https://www.energy.gov/sites/default/files/2021/03/f83/
DLR%20Report%20-%20June%202019%20final%20-%20FOR%20PUBLIC%20USE.pdf.
\2\ American Society of Civil Engineers, ``2021 Report Card for
America's Infrastructure'' (Reston, VA), accessed July 14, 2021,
https://infrastructurereportcard.org/wp-content/uploads/2020/12/
National-IRC-2021-report.pdf.
\3\ DHS, ``Critical Infrastructure Sectors CISA'', accessed July
13, 2021, https://www.cisa.gov/critical-infrastructure-sectors.
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Challenges Facing Our Critical Infrastructure
The current state of our critical infrastructure, however, is not
good, and for many systems, the state is far from good. According to a
nationwide assessment of the state of our critical infrastructure
across the Nation by the American Society of Civil Engineers (ASCE),
which I am a member of, America's infrastructure scores C-.\2\ \4\ A
grade of C means that the infrastructure state is mediocre and requires
attention, and a grade of D means that the infrastructure is poor and
at risk.\2\
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\4\ The scoring is based on regular assessment of the state of the
infrastructure and considers multiple factors including capacity,
condition, funding, future need, operation and maintenance, public
safety, resilience, and innovation. See ASCE Infrastructure Report Card
2021 for more details.
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Our infrastructure, for a long time, has been a source of pride for
the Nation. The vast power grid, highway systems, water and wastewater
networks, among our other infrastructure systems have changed the way
of life, created jobs and provided many opportunities for growth for
rural and urban communities. These systems that expanded to a
significant degree shortly after World War II, have been challenged by
a large set of factors including, among others, aging and
deterioration; natural hazards, primarily climate and weather extremes;
cyber and physical attacks; and shifting, and in some parts, increasing
demands for infrastructure services, partly, because of increasing
urbanization. The infrastructure needs have been increasing with
systems and components reaching or passing their intended design
lifetime, as this transition increases the rate of failure, and
subsequently, the required replacement or costly maintenance and
rehabilitation actions. \5\ While local, State, and Federal Governments
and public and private sectors have been investing in infrastructure,
the needs have consistently exceeded investments, leading to a growing
gap in infrastructure investments.\2\
---------------------------------------------------------------------------
\5\ Yousef Mohammadi Darestani, et al., ``Life Cycle Resilience
Quantification and Enhancement of Power Distribution Systems: A Risk-
Based Approach'', Structural Safety 90 (2021): 102075.
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The Nation's infrastructure was built long ago. As an example,
parts of the power grid were built about a century ago, but a major
expansion of the grid happened in 1950s and 1960s, with components and
systems that had the design lifetime of about 50 years. Inspection of
facilities built in 1960s and earlier have shown significant
deterioration. \6\ The traffic volume on bridges and roadways has
increased by 18 percent from 2000 to 2019.\2\ The increasing service
demands along with aging have resulted in accelerated deterioration,
which among other factors, have left 43 percent of our public roadways
in poor or mediocre conditions and 7.5 percent of bridges (over 46,000
bridges) in the Nation in poor conditions.\2\ In many cities, there are
considerable portions of underground wastewater collection pipelines
that are a century old. Infiltration, exfiltration and leakage are
becoming more frequent, as these systems are aging and as traffic loads
on our roadways are increasing, posing risks to public health and
safety.\7\ \8\
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\6\ PJM Regional Transmission Operator (RTO), ``2019 Regional
Transmission Expansion Plan (RTEP)'', 2020, https://www.pjm.com/
library/reports-notices/rtep-documents.aspx.
\7\ Soroush Zamanian, Jieun Hur, and Abdollah Shafieezadeh,
``Significant Variables for Leakage and Collapse of Buried Concrete
Sewer Pipes: A Global Sensitivity Analysis via Bayesian Additive
Regression Trees and Sobol'indices'', Structure and Infrastructure
Engineering, 2020, 1-13.
\8\ Soroush Zamanian, Mehrzad Rahimi, and Abdollah Shafieezadeh,
``Resilience of Sewer Networks to Extreme Weather Hazards: Past
Experiences and an Assessment Framework'', in Pipelines 2020 (American
Society of Civil Engineers Reston, VA, 2020), 50-59.
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Resilience concerns of our increasingly deteriorating--yet
increasingly vital--critical infrastructure are further compounded by
climate and weather extremes. The built environment in the U.S. is
exposed to a broad range of climate and weather hazards. Since 1980,
the country has sustained 298 billion-dollar weather and climate
disasters\9\ \10\ with the total cost of these events exceeding $1.975
trillion. The observed trends in these losses are concerning. The
number of billion-dollar weather and climate disasters has increased
from 2.9 events per year in 1980s to 12.3 events per year in 2010s. In
the same period, the average annual loss by such events has increased
by a factor of 4.6 to $84.5 billion. In 2020, the number of billion-
dollar disasters reached 22 incurring $98.9 billion in losses. Impacts
of climate and weather extremes on our infrastructure have been
significant. Historical data indicate that extreme weather events are
the leading cause of power grid outages. \11\ In the period of 1980 to
2012, the Nation observed an alarming tenfold increase in the number of
outages. \12\ The compounding effects of aging and deterioration and
stresses from extreme events can substantially increase grid
failures.\13\ \14\ The number of major power outages has remained high
since 2012.\15\ \16\ Power outages inflicted an annual average loss on
the U.S. economy of between $40 and $55 billion. \17\ The lasting
outages have also had detrimental impacts on public health especially
for vulnerable populations.\18\ \19\ Similarly, the impacts of climate
and weather extremes on the transportation infrastructure have been
significant. Over 57 percent of 1948 recorded bridge collapses in the
U.S. until 2014 have been linked to hydraulic causes, e.g., flooding.
\20\
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\9\ A billion-dollar disaster refers to an event with the total
incurred loss across all impacted areas exceeding $1 billion.
\10\ NOAA National Centers for Environmental Information (NCEI),
``U.S. Billion-Dollar Weather and Climate Disasters'', 2021, DOI:
10.25921/stkw-7w73, https://www.ncdc.noaa.gov/billions/.
\11\ Executive Office of the President., ``Economic Benefits of
Increasing Electric Grid Resilience to Weather Outages'' (IEEE USA
Books and eBooks, p. 29., 2013).
\12\ Alyson Kenward and Urooj Raja, ``Blackout: Extreme Weather,
Climate Change and Power Outages'', Climate Central 10 (2014): 1-23.
\13\ Abdollah Shafieezadeh, et al., ``Age-Dependent Fragility
Models of Utility Wood Poles in Power Distribution Networks Against
Extreme Wind Hazards'', IEEE Transactions on Power Delivery 29, no. 1
(2013): 131-139.
\14\ Yousef Mohammadi Darestani and Abdollah Shafieezadeh,
``Multi-Dimensional Wind Fragility Functions for Wood Utility Poles'',
Engineering Structures 183 (2019): 937-948.
\15\ Sayanti Mukherjee, Roshanak Nateghi, and Makarand Hastak, ``A
Multi-Hazard Approach To Assess Severe Weather-Induced Major Power
Outage Risks in the U.S.'', Reliability Engineering & System Safety 175
(2018): 283-305.
\16\ Stephen A. Shield, et al., ``Major Impacts of Weather Events
on the Electrical Power Delivery System in the United States'', Energy
218 (2021): 119434.
\17\ Richard J. Campbell and Sean Lowry, ``Weather-Related Power
Outages and Electric System Resiliency'' (Congressional Research
Service, Library of Congress Washington, DC, 2012).
\18\ Joan A. Casey, et al., ``Trends from 2008-2018 in
Electricity-Dependent Durable Medical Equipment Rentals and
Sociodemographic Disparities'', Epidemiology (Cambridge, Mass.) 32, no.
3 (2021): 327.
\19\ Wangjian Zhang, et al., ``Power Outage: An Ignored Risk
Factor for COPD Exacerbations'', Chest 158, no. 6 (2020): 2346-2357.
\20\ Madeleine M. Flint, et al., ``Historical Analysis of
Hydraulic Bridge Collapses in the Continental United States'', Journal
of Infrastructure Systems 23, no. 3 (2017): 04017005.
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We are in a highly uncertain and increasingly volatile environment
because of the changes in climate patterns, especially climate and
weather extremes. We are not only concerned about single hazard types
becoming more extreme, we are also concerned about the increasing
likelihood of compound weather and climate events, \21\ where
combinations of multiple climate drivers or hazards can lead to
significant losses. \22\ Climate change is anticipated to impact many
hazards to the built environment. Projections indicate that the
relative sea level along the coasts of the U.S. may rise by over 14
inches by 2080 under a low global mean sea level rise scenario. \23\
This scenario is very likely to be exceeded under various climate
change projections. This small rise in relative sea level will increase
the annual frequency of damaging flood events by 25 times,\23\ which
will have devastating impacts on buildings, energy, and transportation
infrastructure and other critical built and natural systems in coastal
regions, and will extend the reach of coastal flooding to areas further
inland. While there are differences in the projected impacts, studies
generally indicate that stresses to the built environment in the United
States will increase, and in some parts of the country the increase
will be substantial. \24\
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\21\ Omid Mazdiyasni and Amir AghaKouchak, ``Substantial Increase
in Concurrent Droughts and Heatwaves in the United States'',
Proceedings of the National Academy of Sciences 112, no. 37 (2015):
11484-89.
\22\ Jakob Zscheischler, et al., ``A Typology of Compound Weather
and Climate Events'', Nature Reviews Earth & Environment 1, no. 7
(2020): 333-347.
\23\ William Sweet, et al., ``Global and Regional Sea Level Rise
Scenarios for the United States'', 2017.
\24\ Donald J. Wuebbles, et al., ``Climate Science Special Report:
Fourth National Climate Assessment (NCA4), Volume I'', 2017.
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Infrastructure design codes and standards have traditionally relied
on statistical analysis of historical data to determine design loads
for the intended service life of the systems. This approach would work
well if the environment remains stationary meaning that there are no
long-term temporal trends in loads. However, we are currently at a
stage where we are observing trends that are changing loads. In
addition, modern design codes for structures with new design
philosophies and procedures were developed in late 1990s and early
2000s based on the lessons learned from past failures and research on
the performance of structures. \25\ Many structures in the Nation's
built environment, however, were designed and constructed long before
modern standards and based on codes that are no longer considered
adequate. In addition, changes in the characteristics of the
environment over time, e.g., land use and its impacts, can result in
conditions that significantly differ from those assumed during the
design of infrastructure, therefore, posing risks that were not
accounted for in the design process.
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\25\ Jim Rossberg and Roberto T. Leon, ``Evolution of Codes in the
USA'', ASCE. https://www.Nehrp.Gov/Pdf/UJNR-2013-Rossberg-
Manuscript.pdf (Sept. 29, 2019), 2013.
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Projected Costs for Improving the Resilience of Critical Infrastructure
Proactive management of risks is substantially more effective than
reactive strategies; however, insufficient resources have prevented
infrastructure owners and operators from applying proactive measures in
many cases. Instead actions are taken when failures occur or when the
state of the infrastructure reaches a critical condition. The American
Society of Civil Engineers has estimated that the investment gap in the
Nation's critical infrastructure has grown from $2.06 trillion for the
period of 2016-2025 \26\ to $2.59 trillion for 2020-2029\2\ period.
More detailed assessments of investment gaps by infrastructure type are
available in ASCE's Report Card for America's Infrastructure.\2\ These
estimates of investments are primarily to address current and immediate
future needs and to comply with current regulations. The investment
needs will grow, if these systems are to be prepared for the
anticipated stresses and expected service demands of the future. As an
example, depending on the emissions scenario, 66,000 to 117,000 of the
Nation's bridges are estimated to be vulnerable to increased peak flow
risks because of climate change. \27\ The total cost for adapting to
these increased risks alone ranges from $140 to $250 billion. \28\
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\26\ American Society of Civil Engineers, ``2017 Report Card for
America's Infrastructure'' (Reston, VA), accessed July 14, 2021,
https://2017.infrastructurereportcard.org/wp-content/uploads/2019/02/
Full-2017-Report-Card-FINAL.pdf.
\27\ Len Wright, et al., ``Estimated Effects of Climate Change on
Flood Vulnerability of U.S. Bridges,'' Mitigation and Adaptation
Strategies for Global Change 17, no. 8 (2012): 939-955.
\28\ Multi-Hazard Mitigation Council, ``Natural Hazard Mitigation
Saves: 2019 Report'' (Washington, DC: National Institute of Building
Sciences, 2019), https://www.nibs.org/files/pdfs/NIBS-MMC-
MitigationSaves-2019.pdf.
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Solutions to Infrastructure Challenges
The Nation's infrastructure plays a critical role for many
activities of the society, in supporting the economy and serving the
public safety and national security. As elaborated earlier, these
systems, however, face a wide spectrum of near-term and long-term
challenges in an environment that is highly uncertain and increasingly
volatile. In order to prepare our infrastructure for such environments,
I recommend the following solutions.
Strategic Investments in Our Infrastructure
We are in an environment where risks to our infrastructure are not
static but dynamic, the needs are evolving, and the environment is
uncertain. In response, we need a long-term national vision for the
resilience of our infrastructure with sustained investment plans for
adaptive, robust strategies. Mitigation of hazard risks to buildings
and other infrastructure systems are among the most effective ways to
reduce losses and enhance the resilience of the built environment.
Cost-benefit studies of such investments have shown high benefit to
cost ratios in the order of 11 to 1 for adopting the latest building
codes, 4 to 1 for above-code design of buildings, and 4 to 1 for
applying common and practical retrofit measures to our existing
building stock.\28\ Every dollar spent on resilience investments for
businesses has reduced business interruption losses under major hazards
by over $4.5. Retrofitting bridges and hardening the power grid are
shown to yield significant benefits over the life of these systems.\29\
\30\ \31\ To maximize gains, the mitigation investments must consider
strategies that improve infrastructure resilience against multihazard
risks.\30\ \32\ Moreover, early application of climate adaptation
measures to deficient infrastructure can substantially reduce
adaptation costs.\28\ A critical point to note here is that
infrastructure stakeholders including owners, operators, and users may
not be able to afford the upfront costs of resilience projects, even
for cases where the benefit to cost ratio is high. Therefore,
resilience strategies may need to be incentivized through measures such
as reduced insurance rates and premiums; Federal, State, or local
grants for resilience strategies; tax incentives; mortgages and loans
for mitigation plans; and improved resilience-based codes. \33\
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\29\ Ehsan Fereshtehnejad and Abdollah Shafieezadeh, ``A Multi-
Type Multi-Occurrence Hazard Lifecycle Cost Analysis Framework for
Infrastructure Management Decision Making'', Engineering Structures 167
(2018): 504-517.
\30\ Nariman L. Dehghani, Ashkan B. Jeddi, and Abdollah
Shafieezadeh, ``Intelligent Hurricane Resilience Enhancement of Power
Distribution Systems via Deep Reinforcement Learning'', Applied Energy
285 (2021): 116355.
\31\ Nariman L. Dehghani, Chi Zhang, and Abdollah Shafieezadeh,
``Evolutionary Optimization for Resilience-Based Planning for Power
Distribution Networks'', in Nature-Inspired Computing Paradigms in
Systems (Elsevier, 2021), 47-61.
\32\ Jieun Hur and Abdollah Shafieezadeh, ``Multi-Hazard
Probabilistic Risk Analysis of Off-Site Overhead Transmission
Systems'', in SMiRT-25 (Charlotte, NC: IASMiRT, 2019).
\33\ Multi-Hazard Mitigation Council, ``Developing Pre-Disaster
Resilience Based on Public and Private Incentivization'' (Washington,
DC: National Institute of Building Sciences, 2015), https://
www.nibs.org/files/pdfs/NIBS-MMC-ResilienceIncentivesWP-2015.pdf.
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As resources are limited, the short- and long-term infrastructure
needs must be characterized and prioritized.\34\ \35\ We must develop
and apply tools for life-cycle cost and life-cycle performance (e.g.,
life-cycle resilience \36\) analysis to evaluate infrastructure
projects. Future projects should have funding plans that cover
maintenance, operation, and end of service life costs, in addition to
the initial costs of projects. Reliable characterization and
prioritization of needs require extensive data from the built
environment. Facilitating the application of sensing technologies at
large scales to various elements of our existing and new infrastructure
along with broadband communication and technologies such as digital
twin to collect, transfer, process, and learn from the data can enable
highly effective proactive risk management for our infrastructure
systems.
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\34\ Ehsan Fereshtehnejad, Abdollah Shafieezadeh, and Jieun Hur,
``Optimal Budget Allocation for Bridge Portfolios With Element-Level
Inspection Data: A Constrained Integer Linear Programming
Formulation'', Structure and Infrastructure Engineering, 2021, 1-15.
\35\ Ehsan Fereshtehnejad, et al., ``Ohio Bridge Condition Index:
Multilevel Cost-Based Performance Index for Bridge Systems'',
Transportation Research Record 2612, no. 1 (2017): 152-160.
\36\ Nariman L. Dehghani, Yousef Mohammadi Darestani, and Abdollah
Shafieezadeh, ``Optimal Life-Cycle Resilience Enhancement of Aging
Power Distribution Systems: A MINLP-Based Preventive Maintenance
Planning'', IEEE Access, 2020.
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Integration of Equity Considerations in Risk Distribution Into
Infrastructure Decisions
Apart from technical challenges, we face very important questions
at the interface of science and policy about the distribution of risks.
Socioeconomically vulnerable communities are taking a higher share of
infrastructure disruption risks relative to the rest of the population.
This disparity manifests in both hazard exposure and impacts of
disruptions. In all stages of resilience response including predisaster
mitigation projects as well as infrastructure and community recovery,
we should consider the eventual impacts and benefits for different
populations in the society, especially the vulnerable populations, to
ensure that the risks are equitably shared.
Support Research and Development for Resilient Infrastructure and
Communities
Infrastructure resilience is a highly complex problem with
significant knowledge gaps in many areas including, among others, (i)
evolving characteristics of hazards, (ii) physical and operational
performance of the built environment during and in the aftermath of
extreme, uncertain conditions of natural hazards, (iii) interactions of
built, natural, and human systems over time and space, and (iv)
innovative technologies and strategies that enable robust, adaptive,
and cost-effective pathways to infrastructure resilience in the
evolving uncertain hazard environment. We must increase investment in
basic and applied research to address these gaps in science and
technology. Moreover, critical infrastructure resilience research is
often hampered by limited access to reliable integrated and spatially
explicit data related to infrastructure and hazard impacts. Policies
are needed to require critical infrastructure owners and operators to
collect and make the data available. This step, in addition to
benefiting research to understand and enhance resilience, will lend to
a transparent environment where infrastructure stakeholders can learn
about the performance of service providers and make informed decisions
for risk management.
PREPARED STATEMENT OF RACHEL CLEETUS
Policy Director, Union of Concerned Scientists
July 20, 2021
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
PREPARED STATEMENT OF FRANK NUTTER
President, Reinsurance Association of America
July 20, 2021
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
PREPARED STATEMENT OF ROGER PIELKE, JR.
Professor, Environmental Studies, University of Colorado
July 20, 2021
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
PREPARED STATEMENT OF JERRY THEODOROU
Director, Finance, Insurance, and Trade, R Street Institute
July 20, 2021
Chairman Brown and Ranking Member Toomey: Thank you for the
opportunity to offer testimony on climate change, resilience and
reinsurance. These issues impact multiple public policy areas. They
need to be understood to inform the development of prudent responses to
protect our economy from great harm today and in the future. I am the
director of Finance, Insurance & Trade for the R Street Institute. R
Street is a nonprofit, nonpartisan public policy research organization
whose mission is to engage in policy research and outreach to promote
free markets and limited, effective Government. The issues covered in
today's hearing are of interest to R Street because, since its founding
R Street has analyzed the role of reinsurance, and climate change and
resilience are among the most consequential issues of the day.
The three topics of climate change, resilience and reinsurance are
interrelated. The effects of climate change can be seen in the form of
higher temperatures, melting ice caps, rising sea levels, and more
frequent and severe catastrophic weather events, including tropical
storms, hurricanes and convective storms. \1\ These trends are a
clarion call for resilience, which is the ability to bounce back and to
absorb shocks. Reinsurance is a financial shock absorber. It allows
insurance companies and the people and communities they serve to bounce
back and to recover. For example, a small insurance company in the
northern panhandle of West Virginia--Municipal Mutual Insurance Company
of West Virginia--paid $3.8 million in 334 claims, equivalent to 12
percent of its equity, after a severe windstorm in March 2020.
Reinsurance allowed it to recover $3 million of the $3.8 million, so
the net loss was a more bearable $800,000. \2\ Reinsurance protected
the company and the policyholders. Without reinsurance hundreds of
insurers across the country and millions of policyholders would be
exposed to crippling financial loss on top of catastrophic physical
loss.
---------------------------------------------------------------------------
\1\ S&P Global and Intelligent Insurer, ``Global Reinsurance
Highlights 2020'', Newton Media Limited, 2020. https://
www.spglobal.com/-assets/documents/ratings/research/global-reinsurance-
highlights-2020.pdf.
\2\ ``2020 Management Discussion and Analysis'', S&P Global, 2020.
https://platform.marketintelligence.spglobal.com/web/
client?auth=inherit#company/documents?id=13229.
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My comments will focus on the response of the insurance and
reinsurance market to risks from climate change. The climate
catastrophe event of the day is the complex of wildfires in a dozen
Western States. Wildfire is fire, which is the main peril covered by
personal insurance and commercial insurance. In fact, the oldest
continuously operating insurance company in the United States, the
Philadelphia Contributionship, was founded in 1752 by Benjamin Franklin
and his fellow firefighters to allow policyholders to share risk
related to fire damage and loss. \3\ Since Franklin's day the insurance
industry has expanded its product offerings to cover the needs and the
risks of a changing economy with automobile insurance, workers
compensation insurance, liability insurance, and cyber insurance.
---------------------------------------------------------------------------
\3\ ``History'', The Philadelphia Contributionship, last accessed
June 17, 2021. https://1752.com/blog/about-us/history.
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The risks associated with climate change--fire, flood, hail,
drought, and wind--are covered by existing insurance products. This is
what the insurance industry does. It matches its capital to risk. The
one exception is flood insurance because flood risk is primarily
covered by the Federal Emergency Management Agency's (FEMA) National
Flood Insurance Program (NFIP). Unlike the insurance industry, which is
well capitalized and financially sound, the NFIP operates
uneconomically, having incurred $36 billion of debt since its founding.
\4\ The NFIP is undertaking reforms to be introduced this fall, but it
will be many years before the NFIP can approach financial health. In
other countries with elevated flood risk, such as Australia and Japan
flood coverage is available in their insurance policies. \5\ However,
the market for private flood insurance in the United States is small
because it is challenging for insurers to compete with artificially low
and subsidized NFIP rates.
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\4\ Diane P. Horn, National Flood Insurance Program Borrowing
Authority, Congressional Research Service, Oct. 2, 2020. https://
fas.org/sgp/crs/homesec/IN10784.pdf.
\5\ Nicole Pederson-McKinnon, ``How To Tell If Your Insurer Covers
You for Flood Damage'', The Sydney Morning Herald, March 27, 2021.
https://www.smh.com.au/money/insurance/how-to-tell-if-your-insurer-
covers-you-for-flood-damage-20210326-p57ee4.html; Jiji, ``Japan Nonlife
Insurers To Raise Premiums 6-8 percent in Wake of Disasters'', The
Japan Times, July 8, 2020. https://www.japantimes.co.jp/news/2020/07/
08/business/japan-nonlife-insurers-raise-premiums-6-8-percent-wake-
disasters.
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Collectively, the U.S. insurance industry and the global
reinsurance industry are adequately capitalized to withstand the
financial impact of today's climate-related catastrophe risk. In 2005--
the year with the most insured U.S. losses--there was $110 billion of
insured losses. \6\ The U.S. property and casualty insurance industry
has $2.4 trillion of total assets; the global reinsurance industry an
additional $600 billion. \7\ This means that it would take a year with
three times the losses of 2005 to dent the industry's capital by 10
percent.
---------------------------------------------------------------------------
\6\ ``Facts + Statistics: U.S. Catastrophes'', Insurance
Information Institute, last accessed July 17, 2021. https://
www.iii.org/fact-statistic/facts-statistics-us-
catastrophes#Loss%20Events%20
in%20the%20U.S.201980-2018.
\7\ S&P Global and Intelligent Insurer. https://www.spglobal.com/-
assets/documents/ratings/research/global-reinsurance-highlights-
2020.pdf.
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Reinsurance is critical for the insurance industry to play its
role, as demonstrated in the previously mentioned example in West
Virginia. The reinsurance industry is global, allowing insurers that
buy reinsurance to spread their risk to multiple counterparties, each
protecting its own balance sheet by taking a sliver of risk. Only three
of the top 25 reinsurers in the world are U.S.-based. The remaining 22
are domiciled in reinsurance hubs in continental Europe, London,
Bermuda, and increasingly, Asia.
In addition to the capital base of the insurance and reinsurance
industry providing coverage for climate-related risks, there is also
alternative capital taking on insurance climate risk. \8\ This
alternative capital comes from pension funds, hedge funds, sovereign
wealth funds, university endowments, foundations and family offices
that seek to take on catastrophe risk because it is uncorrelated with
equity and debt market risk. This is a relatively new phenomenon, and
it is growing. The volume of alternative capital in the reinsurance
industry has grown from $17 billion in 2006, when it accounted for 4.4
percent of global reinsurer capital, to $94 billion in 2020, when it
accounted for $14.5 percent of global reinsurer capital. \9\
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\8\ Steve Evans, ``World Bank Climate Plan Highlights Cat Bonds &
Risk Transfer'', Artemis, June 24, 2021. https://www.artemis.bm/news/
world-bank-climate-change-plan-highlights-cat-bonds-risk-transfer.
\9\ ``Aon's Reinsurance Aggregate: Results for the Year to
December 31, 2020'', Aon Empower Results, 2021. http://
thoughtleadership.aon.com/Documents/ARA-FY-20210415.pdf.
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U.S. pension funds have over $32 trillion in assets. \10\ To give
an example of pension funds taking on catastrophe risk, the Arkansas
Teacher Retirement System, a $20 billion fund, invests $330 million,
equivalent to 1.7 percent of its total assets, in catastrophe bonds.
\11\ To the extent the large pool of private capital gets more
comfortable with insurance catastrophe risk as a diversifying asset
class, there would be less need for taxpayer-funded disaster recovery
expenditure.
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\10\ F. Norrestad, ``Total Assets of Pension Funds in the United
States From 2009 to 2019'', Statista, Dec. 7, 2020. https://
www.statista.com/statistics/421729/pension-funds-assets-usa.
\11\ Steve Evans, ``Pension Funds Investing in Insurance-Linked
Securities (ILS)'', Artemis, last accessed July 17, 2021. https://
www.artemis.bm/pension-funds-investing-in-insurance-linked-securities-
ils; Michael R. Wickline, ``Teacher Fund Ends Quarter $783M Higher'',
Northwest Arkansas Democrat Gazette, June 8, 2021. https://
www.nwaonline.com/news/2021/jun/08/teacher-fund-ends-quarter-783m-
higher.
---------------------------------------------------------------------------
Transferring climate risk onto the balance sheets of insurers and
reinsurers and into the investment portfolios of third-party investors
may be a source of comfort, but it is not enough because it kicks the
can of climate risk down the road. Claims from losses will be paid, but
premiums will rise as the risk increases. The traditional reinsurance
industry, supplemented by alternative capital, plays and will continue
to play an important role in providing resilience through its role as a
shock absorber, taking on climate risk, but it is only part of the
long-term response. Public policy must also encourage and incentivize
risk mitigation-incentives for sound construction, restrictions on
building in catastrophe-prone areas, defenses and barriers, and working
with authorities to establish and enforce codes and standards.
In closing, thank you for the privilege of testifying today, and
for your interest in exploring how the reinsurance market and private
capital solutions provide resilience to our economy in the face of
growing climate risk taking a toll on our homes, businesses and health.
RESPONSES TO WRITTEN QUESTIONS OF CHAIRMAN BROWN
FROM ABDOLLAH SHAFIEEZADEH
Q.1. Value of Infrastructure at Risk--Dr. Shafieezadeh, would
you be able to share with the Committee current reliable data
pinpointing the value of U.S. infrastructure at risk from
climate change?
A.1. One of the areas of need for assessing risks and
developing effective mitigation and adaptation strategies in
response to the changing climate is the data of the built
environment and its conditions. Climate change will impact many
stressors to our infrastructures in different ways and to
different degrees, with the impacts varying spatially over the
United States and over time. Moreover, depending on the type
and conditions of the infrastructure, the impacts may vary
considerably. Moreover, failure of a component within an
infrastructure can have cascading effects within the same
system and across multiple infrastructure systems. The
compounding effects of aging infrastructure and climate change
effects can also increase system vulnerabilities. These factors
lead to a highly complex problem that will need to be captured
in the analyses in order to reliably analyze the infrastructure
at risk. Extensive multidisciplinary research is needed to
address these challenges, uncover yet-unknown effects of
climate change on the built environment and develop innovative
strategies for communities and the Nation in order to
effectively prepare and respond to upcoming challenges.
Several studies, e.g., \1\ \2\ \3\ have investigated
climate change impacts on the elements of the built environment
in the United States. While these investigations provide
valuable insights into the risks posed to the infrastructure,
they have considered a subset of the key complexities of
climate change impacts. Therefore, their risk estimates can be
regarded as a lower bound for infrastructures at risk and the
actual risks may be higher.
---------------------------------------------------------------------------
\1\ James E. Neumann, et al., ``Climate Change Risks to U.S.
Infrastructure: Impacts on Roads, Bridges, Coastal Development, and
Urban Drainage'', Climatic Change, 131.1 (2015), 97-109.
\2\ April M. Melvin, et al., ``Climate Change Damages to Alaska
Public Infrastructure and the Economics of Proactive Adaptation'',
Proceedings of the National Academy of Sciences, 114.2 (2017), E122-31.
\3\ Charles Fant, et al., ``Climate Change Impacts and Costs to
U.S. Electricity Transmission and Distribution Infrastructure'',
Energy, 195 (2020), 116899.
Q.2. In the absence of a nationwide accounting of all elements
of critical infrastructure, can you share with the Committee
whatever relevant sectoral assessments of which you are aware
on the value of infrastructure at risk from climate change with
respect to----
Electricity generation, transmission, and distribution
infrastructure?
A.2. The power grid is a vast infrastructure system. It
includes over 8,000 power plants, 600,000 miles of high and
extra high voltage transmission lines and millions of miles of
distribution lines. \4\ The depreciated value of the U.S. power
grid is estimated to range between $1.5 and $2 trillion and
replacing this system to cost nearly $5 trillion. \5\ Climate
change may impact many elements of this vast system. Heatwaves,
droughts, rain, lightning, wildfires, sea level rise, storm
surge, floods, high winds, freezing temperatures, and ice and
snow storms are among the key stressors for the power grid that
are impacted by climate change. A recent study\3\ that analyzed
the impacts of a subset of these stressors on the grid
estimated the discounted total costs incurred by climate change
impacts to range from $120 to $380 billion through 2099 (based
on $ 2017) considering different general circulation models
(GCMs), emission scenarios, and adaptation strategies. The
study also found that proactive adaptation strategies can
reduce costs by as much as 50 percent compared to no adaptation
for a given emissions scenario. Not considered in the study are
the compounding effects of stressors, cascading effects of
failures, and some key elements of the power grid including
generation plants, and the impacts of climate change on the
production of electricity beyond immediate infrastructure
impacts (e.g., high environment temperatures may lead to the
shutdown of power plants as the available water cannot be used
for cooling the plants). These factors can substantially
increase the estimates of the impacts of climate change on the
power grid.
---------------------------------------------------------------------------
\4\ U.S. DOE, ``Dynamic Line Rating Report to Congress'', June
2019 (https://www.energy.gov/sites/default/files/2021/03/f83/
DLR%20Report%20-%20June%202019%20final%20-%20FOR%20PUBLIC%20USE.pdf)
[accessed 13 July 2021].
\5\ Joshua D. Rhodes, ``The Old, Dirty, Creaky U.S. Electric Grid
Would Cost $5 Trillion To Replace. Where Should Infrastructure Spending
Go?'', The Conversation (http://theconversation.com/the-old-dirty-
creaky-us-electric-grid-would-cost-5-trillion-to-replace-where-should-
infrastructure-spending-go-68290) [accessed 12 September 2021].
---------------------------------------------------------------------------
Q.3. Ports or inland waterway infrastructure?
A.3. Seaports are one of the pivotal nodes in transportation
networks and serve as critical gateways for national and
international trade. Past experiences have shown that any
disruption in the activities of port infrastructure may lead to
significant losses from secondary economic effects in addition
to direct losses associated with physical port damage. \6\
These systems are disproportionately vulnerable to climate
change effects due to their high exposure to stressors that are
affected by climate change. Sea level rise and increasing
frequency and intensity of extreme wind, storm surge and wave
events, precipitation, droughts, heatwaves, and riverine floods
are among significant evolving stresses for seaports.
Projections indicate that the relative sea level along the
coasts of the U.S. may rise by over 14 inches by 2080 under a
low global mean sea level rise scenario. \7\ This scenario is
very likely to be exceeded under various climate change
projections. This rise in relative sea level is expected to
increase the annual frequency of damaging flood events by 25
times,\7\ which will have devastating impacts on coastal
infrastructure including seaports. To the best of my knowledge,
no nationwide estimates of value of seaports at risk of climate
change are currently available.
---------------------------------------------------------------------------
\6\ Abdollah Shafieezadeh and Lindsay Ivey Burden, ``Scenario-
Based Resilience Assessment Framework for Critical Infrastructure
Systems: Case Study for Seismic Resilience of Seaports'', Reliability
Engineering & System Safety, 132 (2014), 207-219.
\7\ William Sweet, et al., ``Global and Regional Sea Level Rise
Scenarios for the United States'', 2017.
Q.4. Flood control infrastructure adjacent to our Nation's
---------------------------------------------------------------------------
major rivers?
A.4. Levees and other flood control infrastructures are vital
for mitigating risks of coastal and riverine flooding for large
populations in vulnerable regions. Indeed, levees protect
millions of people and $2.3 trillion of property. \8\ The total
length of levees in the U.S. is estimated at 40,000 miles with
30,000 miles included in the National Levee Database maintained
by the U.S. Army Corps of Engineers (USACE) and about 10,000
miles of levees outside of this portfolio with limited
information available. \9\ The costs of maintaining and
improving the moderate to high-risk levees in the USACE
portfolio is estimated at $21 billion. \10\
---------------------------------------------------------------------------
\8\ American Society of Civil Engineers, ``2021 Report Card for
America's Infrastructure'' (Reston, VA) (https://
infrastructurereportcard.org/wp-content/uploads/2020/12/National-IRC-
2021-report.pdf) [accessed 14 July 2021].
\9\ U.S. Army Corps of Engineers, ``U.S. Army Corps of Engineers
Levee Portfolio Report: A Summary of Risks and Benefits Associated With
the USACE Levee Portfolio'', March 2018 (https://
www.mvk.usace.army.mil/Portals/58/docs/LSAC/USACE-Levee-Safety-
Report2018.pdf).
\10\ Congressional Research Service, ``Levee Safety and Risk:
Status and Considerations'', 7 December 2017.
---------------------------------------------------------------------------
Climate change poses additional direct and significant
risks to our flood control infrastructure requiring adaptation
strategies to address the evolving threats. The high
significance of risks stems from the anticipated high impacts
of climate change on sea level rise as well as increasing
intense precipitation in many parts of the U.S. However, to the
best of my knowledge, no estimates of the value of flood
control infrastructure at risk due to climate change are
currently available.
Q.5. Any significant portion of the Interstate Highway system,
or any other federally or State-funded highway that has been
determined to be nationally or regionally economically
significant?
A.5. There are over 4 million miles of public roadways and over
600,000 bridges across the United States. \11\ Together, they
facilitated 3.2 trillion vehicle miles traveled in 2019. The
needs to address current risks to the transportation
infrastructure are significant. Based on the National Bridge
Inventory (NBI) database of the U.S. Department of
Transportation (DOT), about 36 percent of bridges (220,000
bridges) need repair and about 8 percent of bridges (79,500)
need replacement. Among bridges in need of repair are over
17,000 Interstate Highway bridges. The bridge investment
backlog representing all bridge improvements needed to meet the
current conditions and operational performance of the highway
system (i.e., excluding expansion needs as well as mitigation
and adaptation needs in response to climate change) is
estimated at $125 billion (based on $ 2014). \12\
---------------------------------------------------------------------------
\11\ American Society of Civil Engineers.
\12\ U.S. Department of Transportation, ``Status of the Nation's
Highways, Bridges, and Transit: Report to Congress'' (Washington, DC,
21 November 2019) (https://www.fhwa.dot.gov/policy/23cpr/chap7.cfm).
---------------------------------------------------------------------------
Climate change poses additional risks to the existing
portfolio of transportation infrastructure. Depending on the
emissions scenario, it is estimated that 66,000 to 117,000 of
the Nation's bridges will be vulnerable to the impacts of
climate change when only increases in the peak flow are
considered. \13\ The total cost of adapting to these risks
ranges from $140 to $250 billion.\13\ These estimates, however,
do not account for the impacts of increases induced by climate
change in stressors other than peak flow, the amplifying
effects of bridge deterioration for the impacts of climate and
weather stressors, and the cascading effects of bridge failures
for transportation systems.
---------------------------------------------------------------------------
\13\ Len Wright, et al., ``Estimated Effects of Climate Change on
Flood Vulnerability of U.S. Bridges'', Mitigation and Adaptation
Strategies for Global Change, 17.8 (2012), 939-955.
Q.6. Please share with the Committee any analyses assessing the
effect on the U.S. economy from the loss of all or significant
component parts of the infrastructure elements in the previous
---------------------------------------------------------------------------
question?
A.6. As indicated in response to the previous questions,
climate change impacts on the built environment is expected to
be significant. Assessing the collective impacts of climate
change on critical infrastructures and the U.S. economy is very
challenging and requires further studies. In the meantime, past
hazard incidents and their impacts can provide valuable
insights into current trends of risks by climate and weather
extremes and the evolving characteristics of these risks. Since
1980, the country has experienced 298 weather and climate
disasters with the total loss of each event exceeding $1
billion. \14\ The collective loss of these events has exceeded
$1.975 trillion. The observed trends in these losses are very
concerning. The number of billion-dollar weather and climate
disasters has increased from 2.9 events per year in 1980s to
12.3 events per year in 2010s. In the same period, the average
annual loss by such events has increased by a factor of 4.6 to
$84.5 billion. In 2020, the number of billion-dollar disasters
reached 22 incurring $98.9 billion in losses.\14\ These trends
are anticipated to continue, thus indicating a dire situation
for our built environment and communities in many parts of the
United States.
---------------------------------------------------------------------------
\14\ NOAA National Centers for Environmental Information (NCEI),
``U.S. Billion-Dollar Weather and Climate Disasters'', 2021, DOI:
10.25921/stkw-7w73 (https://www.ncdc.noaa.gov/billions/) [accessed 13
July 2021].
Q.7. Compounding Risks--This Committee is concerned about any
threat to the economy. Climate change creates a significant
range of challenges for the economy, but the situation is
particularly daunting when those potential impacts are
compounded by the challenges of an aging infrastructure, long-
term underinvestment in maintenance and upkeep of that
infrastructure, and cyberbased threats from increasingly
sophisticated actors.
What recommendations would you make to the Committee and
Congress, generally, to address compounding risks?
A.7. Climate change, aging and their compounding effects create
an environment where the consequent impacts on the
infrastructure are expected to be significant. At the same
time, uncertainties in the specific manifestations of
vulnerabilities are high and evolving. To address these
pressing challenges, first and foremost, we need a long-term,
national, strategic plan for our critical infrastructure to
support adaptive risk management strategies as new threats are
uncovered, projections of risks are updated and new
infrastructure technologies emerge.
Even in the absence of climate change impacts, there are
significant gaps in knowledge and practice vis-a-vis the
performance of new and aging built environment under extreme
stresses of natural hazards and the most effective ways to
mitigate the risks. Climate change imposes additional
significant complexities that the engineering and science
community has only recently begun to analyze. While Federal
entities such as National Science Foundation, Department of
Energy, National Oceanic and Atmospheric Administration, and
Department of Defense have recently initiated programs in
support of research and development (R&D) for issues concerning
climate change, support for such programs especially in areas
related to the nexus of infrastructure and climate change
should increase to address the significant knowledge gaps.
Furthermore, impacts of climate change on critical
infrastructures and the subsequent socioeconomic consequences
will vary across the United States. To investigate specific
challenges posed by climate change and aging infrastructure to
regional built environment and support the decision needs of
regional economies and communities, regional research hubs
fostering collaborations between universities, national labs,
the private sector and communities can be established, which
can also serve as a platform for the much needed workforce
development.
In managing risks of climate change, currently there are a
set of solutions available for each infrastructure. The
particular designs of the strategies depend on the
characteristics and conditions of the infrastructure and the
projected risks of climate and weather extremes, among other
factors. Although such solutions are known to be effective,
infrastructure stakeholders including owners, operators, and
users may not be able to afford the upfront costs of these
projects. Therefore, resilience strategies may need to be
incentivized through measures such as reduced insurance rates
and premiums; Federal, State, or local grants for resilience
strategies; tax incentives; mortgages and loans for mitigation
plans; and improved resilience-based codes. \15\ While there
are known effective solutions, support must continue and
increase for improving existing and developing disruptive
technologies. New green technologies or those that address
practical limitations of existing green technologies are
important in adapting to climate change. As an example, the
intermittency of renewable energy resources (e.g., wind and
solar power) can be addressed by coupling these systems with
emerging nuclear power technologies such as small modular
reactors, microreactors, or fission batteries, \16\ which are
safe, carbon-free, and economically competitive means of energy
production.
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\15\ ``Multi-Hazard Mitigation Council, Developing Pre-Disaster
Resilience Based on Public and Private Incentivization'' (Washington,
DC: National Institute of Building Sciences, 2015) (https://
www.nibs.org/files/pdfs/NIBS-MMC-ResilienceIncentivesWP-2015.pdf)
[accessed 15 July 2021].
\16\ Elmar Eidelpes, et al., ``Fission Battery Initiative: Siting
and Transportation Workshop Report'' (Idaho National Lab, August 2021).
Q.8. As a faculty member at The Ohio State University and a
resident of the Columbus area, are there threats to our State's
infrastructure that are of particular concern to you, whether
from likely impacts of climate change or other pervasive
---------------------------------------------------------------------------
challenges?
A.8. Ohio is exposed to several climate and weather hazards.
Since 2000, Ohio has experienced many billion-dollar disasters
including 33 severe storms, 4 floods, 3 winter storms, 5
droughts, 3 tropical cyclones, and 1 freezing temperature
event.\14\ Climate change impacts on the built environment will
be spatially and temporally stochastic, and each region in the
country will face particular types and degrees of challenges.
In Ohio, climate change is anticipated to increase the
frequency and intensity of extreme precipitation and floods as
well as the number of extremely hot days, which may pose risk
to public health in urban areas and the agriculture sector in
rural areas. \17\ Climate change is also anticipated to
increase the intensity of summer droughts in Ohio.\17\
---------------------------------------------------------------------------
\17\ NOAA National Centers for Environmental Information, State
Climate Summaries: Ohio (Revised 2019), 2019 (https://
statesummaries.ncics.org/downloads/OH-screen-hi.pdf) [accessed 12
September 2021].
---------------------------------------------------------------------------
Of particular concern in Ohio is the vulnerability of our
levees and other flood protection systems such as dams. In
spring 2019, severe flooding in the Midwest incurred over $20
billion in damages to public and private property and losses to
the agriculture sector. During this event, over 700 miles of
levees sustained damage and more than 80 levee systems in the
USACE levee portfolio failed due to overtopping or breach. \18\
Repairing damaged levees is estimated to cost approximately $1
billion.\18\ Although this event did not particularly impact
Ohio, the State is vulnerable to such events.
---------------------------------------------------------------------------
\18\ Federal Emergency Management Agency, Hazard Mitigation
Assistance (https://www.fema.gov/hazard-mitigation-assistance.)
---------------------------------------------------------------------------
The increasing intensity and frequency of extremely hot
days and humidity in Ohio will likely challenge the energy
security of the State. Such environments on the one hand will
increase the energy demand of households and industries, and on
the other hand will challenge the ability of the grid to
generate and transmit electricity. Analyzing climate change
risks for Ohio must also account for the impacts of compound
hazards such as flood, tornado, or downburst that can induce
damage to the grid followed by extreme temperatures and
humidity that put additional stresses on the system.
Increasing temperatures and precipitations, in addition to
acting as shocks to the built environment in Ohio, may
accelerate the deterioration of some of infrastructure
components, thus further increasing the vulnerabilities of
systems. In developing adaptation strategies, these gradual
impacts of climate change must also be considered.
------
RESPONSES TO WRITTEN QUESTIONS OF CHAIRMAN BROWN
FROM RACHEL CLEETUS
Q.1. Dr. Cleetus, if we are being honest about the goal of
addressing climate change, and we want to ensure that our
solutions lean into not only our energy use and emissions
reductions, but also community resilience and environmental
equity, what scale of resources do we need to dedicate to our
collective response to the ongoing climate crisis?
A.1. Thank you for the question. Yes, the reality is we have to
work on aggressively on both fronts: sharply cutting our heat-
trapping emissions and investing in equitable climate
resilience. Because we have delayed action on climate change
for so long, we have locked in some pretty significant climate
impacts in the decades ahead. Right now, we are dealing with
climate-related extreme events--such as intensifying storms,
floods, droughts, wildfires and heatwaves--as if they are one-
off disasters instead of the worsening trend that the science
shows. We are spending billions of dollars in postdisaster aid
for communities and businesses ravaged by climate impacts. We
would be much better off if we also invested upfront, prior to
these disasters, to better protect people and our
infrastructure. Investing upfront will help keep people safer
and lessen rebuilding costs.
A study from the National Institute of Building Sciences
shows how the benefits of preventive measures and investments
far outweigh the costs for a range of climate-related risks
(see Figure 1 below). \1\
---------------------------------------------------------------------------
\1\ https://www.nibs.org/projects/natural-hazard-mitigation-saves-
2019-report
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
We know we will have to invest in our response to the
climate crisis in a sustained way for many decades to come and
that inaction is the most harmful and costly path forward, as
the latest IPCC report confirms. \2\ This year Congress must
pass a $3.5 trillion reconciliation bill with significant
climate provisions, as a downpayment on climate action. We must
invest here at home, and also contribute in a robust way to
international climate finance to help developing countries also
make a low carbon transition and invest in climate resilience.
Along with other groups, UCS has sent a letter to Congress
calling for at least $3.3 billion in climate finance to be
appropriated this year and are calling on President Biden to
commit to at least $12 billion a year by 2024. \3\
---------------------------------------------------------------------------
\2\ https://www.ipcc.ch/report/sixth-assessment-report-working-
group-i/
\3\ https://ucsusa.org/about/news/un-general-assembly-convening-
critical-climate-action-robust-us-climate-finance-1
Q.2. This summer the Congress may consider Infrastructure in
multiple pieces of legislation. You have undoubtedly seen media
reports talking about what the total cost of the bipartisan
bill might be, and what a Budget Reconciliation bill might add
to the total level of investment. What range of Federal
investment must be considered in order to allocate the
resources mentioned above, so that we don't miss a once-in-a-
generation opportunity to create more resilient and equitable
---------------------------------------------------------------------------
communities?
A.2. There is no question that the scale of funding for the
reconciliation package must be on the order of at least $3.5
trillion, including significant investments in climate related
priorities alongside other pressing social and economic needs.
We need transformative climate action now, that will put us on
a firm path to meeting the goal of cutting U.S. emissions 50-52
percent below 2005 levels by 2030 and ensure that our
communities and infrastructure are climate resilient. This year
alone, people in our Nation have been reeling from a series of
unprecedented climate-related disasters, with a mounting human
and economic toll. There is no time for delay and we cannot
just take incremental steps that will leave us vastly
underprepared.
We are encouraged to see the House committees pass a
package that includes several important priorities, including:
The Clean Energy Payment Plan (CEPP) and extending
and expanding clean energy tax incentives over the next
10 years to help ensure that 80 percent of the
electricity that's produced in the United States by
2030 comes from clean sources.
Tax credits, grants, and rebates to support the
transition to electric heavy-duty vehicles to reduce
pollution in overburdened communities and the
deployment of charging infrastructure to improve access
to EV charging.
An updated EV tax credit including equity
provisions and strong domestic manufacturing and labor
standards.
A fee on methane emissions.
Robust investments that directly benefit
environmental justice communities, including
environmental and climate justice block grants; funding
to reduce greenhouse gases and local pollution;
increased monitoring of toxic air pollution in
frontline communities; solar projects that serve low-
income households; and investments in healthy ports,
affordable housing, climate resilience, and much more.
Funding for an affordability program for the
National Flood Insurance Program (NFIP).
Funding for the Civilian Climate Corps.
These provisions must remain strong and robustly funded as
the package moves toward final passage. We also urge greater
attention to funding programs to benefit workers who may be
dislocated by the transition from fossil fuels to clean energy.
I would like to share with you a few blogposts that my
colleagues and I have written on these topics to provide more
detail on the level of funding and the investments needed
across the economy: https://blog.ucsusa.org/rachel-cleetus/
priorities-for-congress-climate-change/; https://
blog.ucsusa.org/rachel-cleetus/we-have-an-infrastructure-bill-
we-still-need-bold-climate-action-urgently/; https://
blog.ucsusa.org/jonna-hamilton/zero-emission-transportation-
must-be-included-in-congressional-priorities/; https://
blog.ucsusa.org/john-rogers/the-cepp-clean-energy/.
Q.3. With respect to Banking and Housing jurisdiction--the
financial services sector, housing, transit--how would you
recommend this Committee work to influence future legislation
to achieve the goals I mentioned--environmental performance,
resilience, and equity--what will do the most good for the most
people? What policy proposals will best position us to avoid
the most catastrophic climate scenarios, and importantly, help
to close the resilience gap that you mentioned in your
testimony?
A.3. The Senate Banking and Housing Committee has a vital role
to play in helping to elevate and advance climate action. Three
specific areas for action that should be prioritized:
Legislation to ensure transparent, standardized
climate risk disclosure in the marketplace, and
specifically to help ensure fossil fuel companies are
held accountable. Currently, climate risks are not
being appropriately accounted for in the marketplace
and that is leading to business-as-usual actions that
increase climate risks and costs--with a
disproportionate impact on low-income households and
communities.
Investments to help ensure that our Nation's
housing and transit infrastructure is climate-
resilient, low-carbon and energy efficient, safe,
accessible, and affordable. Oversight of the FHFA and
GSEs is also vital to help ensure the housing market is
proactively taking into account climate risks, and
ensuring equitable access to safe, affordable housing.
Federal investments should be made in line with
President Biden's Justice40 Initiative to help ensure
that communities that have long been marginalized and
disadvantaged benefit directly and equitably from these
investments. Across the Nation, communities are being
forced to contend with the compounding effects of
climate-related disasters, longstanding social and
economic inequities and structural racism. Climate
solutions must be responsive to this and not reinforce
existing injustices.
Ensuring that the National Flood Insurance Program
is updated to reflect the latest science, ensure
affordability provisions, and encourage investments in
flood mitigation measures at the individual and
community level.
To close the resilience gap, we will need to work on both
fronts, to cut heat-trapping emissions and build climate
resilience, while prioritizing historically disadvantaged
communities. I would like to offer one additional resource to
help answer the question of what policies are most needed in
the United States to help limit some of the worst impacts of
climate change: A Transformative Climate Action Framework:
Putting People at the Center of Our Nation's Clean Energy
Transition.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARREN
FROM RACHEL CLEETUS
Q.1. How does the United States compare to other Nations in its
regulation of climate change-related financial risks,
particularly with respect to the insurance industry?
A.1. The reality is the United States is currently falling well
short on regulating climate change related financial risks,
particularly behind the U.K. and European Union--and this is to
our detriment since it potentially increases risks to our
financial system and our markets, which ultimately affects the
well-being and prosperity of all of us. Further, it is
entrenching and elevating narrow profit interests of fossil
fuel companies, instead of the broad interests of the public
which is to move as quickly as possible to a clean energy
economy. UCS strongly supports mandatory disclosure rules for
climate risk to avoid untenable growth of climate and ESG risk
within our markets that harms investors, spurs the improper
allocation of capital, and may increase the cost of capital for
U.S. companies. Mandatory disclosures should address companies'
stewardship of a just and equitable transition to a low-carbon
economy; human capital management; impacts on and strategies
related to racial, economic, environmental, and climate
justice; accounting of country-by-country tax payments; and
disclosure of political activity including direct and indirect
spending on elections and lobbying.
We have submitted comments to the Securities and Exchange
Commission, the Commodity Futures Trading Commission \1\ and
the Federal Housing Finance Agency \2\ to highlight each body's
role in ensuring these outcomes. We have also endorsed
Congressional action, including organizing a letter of support
for the Climate Risk Disclosure Act of 2021 (introduced by Rep.
Sean Casten, D-IL) signed by 82 environmental and social
justice groups, faith-based and public interest organizations
and socially responsible investors. \3\
---------------------------------------------------------------------------
\1\ Pinko, N., R. Cleetus, and K. Mulvey. 2020. Union of Concerned
Scientists Submission to the Climate-Related Market Risk Subcommittee
Under the Market Risk Advisory Committee of the CFTC. Online at https:/
/comments.cftc.gov/PublicComments/ViewComment.aspx?id=
62482&SearchText=.
\2\ Cleetus, R. and S. Udvardy. 2021. Union of Concerned
Scientists Response to the FHFA RFI on Climate Risk. Online at https://
www.fhfa.gov/AboutUs/Contact/Pages/input-submission-
detail.aspx?RFIId=1426.
\3\ Letter in support of the Climate Risk Disclosure Act. 2021.
Online at https://casten.house.gov/sites/casten.house.gov/files/
Climate%20Risk%20Disclosure%20Act
%20Support%20051121.pdf.
Q.2. Congress created the Financial Stability Oversight Council
(FSOC) to identify risks to financial stability and coordinate
responses to these risks amongst regulators.
Is the existing macroprudential regulation of insurance
companies sufficient to protect the financial system from
distress if one of these companies were to fail due to climate
risk?
A.2. In brief, no. Insurance companies are still largely
operating in a backward-looking sense in evaluating risks but
the reality is that climate change is a systemic risk that is
worsening and accelerating. We are already seeing the
challanges, as insurance companies struggle to adapt to
catastrophic wildfire seasons, worsening flooding, and more.
The past is no longer a good guide for the future and the FSOC
should help identify and foster a forward-looking risk
evaluation and management regime that takes into account the
latest scientific projections of climate risks.
Q.3. How should FSOC evaluate the financial stability risks
associated with the exposure of the insurance industry to
climate change?
A.3. The FSOC should be guided by the latest science and also
be very mindful of worsening and compounding climate risks--for
example, extreme heat and extreme flooding colliding or the
cascading risks when extreme events result in critical
infrastructure failures that magnify impacts on insured assets.
Spatially downscaled data is vital to help understand the
geography of risk and how that intersects with socioeconomic
and demographic factors that can result in disproportionate
impacts for some. Too many communities are underinsured or do
not have access to affordable insurance at all. With climate
change, this gulf could worsen.
Q.4. Please describe how the various tools at FSOC's disposal
can help mitigate these risks.
A.4. The FSCOC can play a vital role by:
Assembling the data, tools, and platforms to help
evaluate and communicate financial risks posed by
climate change in a uniform and transparent way
Coordinating across Federal Government agencies to
ensure that climate risks are appropriately accounted
for in their actions
Providing nonbinding expert advice and
recommendations to regulators
Helping ensure than equity considerations are
centered in how climate risk disclosure and actions to
mitigate those risks are implemented
To fulfill these functions well, FSOC must also have the
necessary staffing levels and resources.
I am grateful for the opportunity I had to testify before
the Committee. Please do reach out if the Union of Concerned
Scientists can be a resource on these topics or anything else
in the future.
Thank you for your efforts to advance just and equitable
climate action in this crucial moment.
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RESPONSES TO WRITTEN QUESTIONS OF CHAIRMAN BROWN
FROM FRANK NUTTER
Q.1. Mr. Nutter, the impacts of climate change are clear: Power
goes out; water supplies are cut; crops are threatened; smoke
from wildfires keeps kids from playing outside and jeopardizes
the health of our first responders; and people lose their homes
and jobs, and sometimes, their lives.
Your industry is data-driven and also has significant skin
in the game when it comes to paying for losses resulting from
extreme weather disasters.
Does the data your member companies see and analyze
demonstrate both that the number of natural disasters and the
costs of losses are increasing?
A.1. Yes, the frequency, severity, and costs of many natural
disasters continue to increase due to climate change. In my
written testimony, please see pages 2 and 3, specifically
tables one through four by Aon's Catastrophe Insight division,
which demonstrate the increase in the number of natural
disaster events and overall and insured losses in the U.S. and
globally from 1980 to 2020.
Q.2. What would you suggest Congress do about it?
A.2. In addition to encouraging traditional solutions, like
property insurance protections for homeowners, my written
testimony highlights several bills and proposals. Pages 8
through 12 feature the RAA's legislative proposal to establish
Community Disaster Resilience Zones (CDRZ) and direct public
and incentivize private sector investment to help improve
infrastructure resilience, including affordable housing
resilience, for communities that are the most in need and most
at risk from natural disasters. Reducing risk and improving
resilience in communities can help reduce the loss of lives and
property, natural disaster recovery costs, and the cost of
insurance.
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RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARREN
FROM FRANK NUTTER
Q.1. Congress created the Financial Stability Oversight Council
(FSOC) to identify risks to financial stability and coordinate
responses to these risks amongst regulators. How can improved
Federal and State coordination of regulation help mitigate
climate-related risks?
A.1. Insurers and reinsurers are regulated by the States in the
U.S. The FSOC includes three insurance members, including a
State insurance commissioner, an independent member having
insurance expertise, and the Treasury's Director of the Federal
Insurance Office (FIO). President Biden issued Executive Order
14030, pursuant to which FSOC is required to conduct an
analysis and issue a report on climate-related financial risk,
and FIO also has climate-specific directives.
In 2011, for the FSOC, Federal Reserve, and others, the RAA
prepared a substantial analysis about the systemic nature of
property casualty reinsurance. The analysis demonstrated that
rather than being a potential source of systemic risk, property
casualty (re)insurance is a material mitigant of systemic risk
in the financial markets and broader economy. Further to this
point, in my written testimony, please see pages 2 through 4
and pages 14 and 15 for a more detailed discussion about
climate change, natural disasters, reinsurance, and risk
transfer. Expanded utilization of (re)insurance would reduce
systemic risk, including climate-related risk. Pages 8 through
12 feature the RAA's legislative proposal to establish
Community Disaster Resilience Zones (CDRZ) and direct public
and incentivize private sector investment to help improve
infrastructure resilience, including affordable housing
resilience, for communities that are the most in need and most
at risk from natural disasters. Reducing risk and improving
resilience in communities can help reduce the loss of lives and
property, natural disaster recovery costs, and the cost of
insurance.
There also is strong coordination by ``Team USA'' between
State regulators and the Federal Government (including the
Treasury's Federal Insurance Office) in advocating U.S.
positions at the International Association of Insurance
Supervisors (IAIS) and other relevant international fora.
Critically, this coordination helps to ensure that any
international insurance standards that are developed and
expected to be adopted in the U.S. are constructed in a manner
that works for the current insurance regulatory structure. The
RAA supports FIO's international work.
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RESPONSES TO WRITTEN QUESTIONS OF SENATOR SINEMA
FROM FRANK NUTTER
Q.1. Can you share specific instances where Government can use
or has used risk transfer to lower exposure to taxpayers and
mitigate systemic risks, such as climate risk? What can
Congress do to encourage diversification of systemic risk?
A.1. Examples of successful State and Federal risk transfers
programs can be found on pages 14 through 15 of my written
testimony. The best example of an ongoing Federal risk transfer
program is the Federal Emergency Management Agency's National
Flood Insurance Program Reinsurance Program. In the program's
first year (2017), FEMA transferred $1.042 billion of NFIP's
financial risk to 25 reinsurers, and FEMA collected the full
amount to help pay the cost of NFIP losses and claims resulting
from Hurricane Harvey. This 2017 coverage, which also improved
NFIP's financial viability and protected taxpayers, cost $150
million, and the program successfully renewed the subsequent
year and currently has reinsurance coverage through 2024. This
example is a true testament of successful private-public
partnerships.
Like NFIP, the Export-Import Bank of the United States and
others, Congress can explicitly authorize and/or encourage
Federal agencies with risk to diversify that risk by
transferring it, as is cost-effective, to the private
reinsurance sector and the capital markets. Government risk can
and should be transferred voluntarily to the private market.
The use of private capital will protect consumers, taxpayers,
and communities, while spreading risk throughout the globe to
insurers and other capital providers who are willing to assume
such risk. Risk transfer will strengthen Government programs by
giving them the financial flexibility to ensure they continue
to remain viable in the long term.
Q.2. Do you believe that there is appetite among the insurance
industry and in the insurance market to transfer publicly held
risk to the private market? To what extent does that remain
true if insurance markets harden further?
A.2. Risk transfer, including reinsurance, is a successful
solution used by both the public and private sector including
(re)insurers, financial institutions, and Government programs.
Reinsurers believe the private sector can and should assume
more Federal Government risk. Reinsurers are willing to offer
reinsurance options to a wide variety of Government programs to
help manage their exposure to losses. The graph, ``Global
Reinsurer Capital'', below demonstrates the previous decade of
reinsurance industry capital growth despite extreme events.
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Additional Material Supplied for the Record
STATEMENT OF THE NATIONAL ASSOCIATION OF MUTUAL INSURANCE COMPANIES
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
STATEMENT OF THE INSURANCE INSTITUTE FOR BUSINESS & HOME SAFETY
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
STATEMENT OF THE SMARTERSAFER COALITION
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
STATEMENT OF THE AMERICAN PROPERTY CASUALTY INSURANCE ASSOCIATION
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
STATEMENT OF THE SBP
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
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