This past August marked 30 years since Hurricane Andrew pummeled the Caribbean and south Florida. On August 23, 1992, Andrew made landfall on the Bahamas’s Eleuthera Island as a Category 5 hurricane. It briefly weakened as it passed over the rest of the Bahamas, but quickly regained intensity. At 5 a.m. the next day, Andrew landed in the Florida Keys—again, as a Category 5 hurricane, with winds sustaining speeds of 165 miles per hour. Andrew leveled entire neighborhoods as it moved across the Florida coast; in Dade County alone, 160,000 people were rendered homeless. For weeks after the storm, thousands of Floridians were left without power, water, telephone connection, or other basic services, while groceries and gas remained in short supply. Andrew quickly became the costliest hurricane in US history, racking up $27 billion—roughly $56 billion in today’s dollars—in damage.
Facing historic losses and payouts, nearly a dozen insurance companies became insolvent in Andrew’s wake. But, in another corner of the insurance world, the storm became a business opportunity.
Spurred by the fallout from Andrew, the reinsurance giant Hannover Re began issuing new financial products. These catastrophic bonds (cat bonds, for short) allow hedge funds and institutional investors to bet on the likelihood of certain catastrophic natural disasters happening within a short time horizon. A reinsurer might issue bonds that guarantee payout, for example, if a high-magnitude earthquake hits San Francisco within a three-year term. By creating a wider market for investments, insurers can continue issuing policies in markets they might otherwise deem too risky. In other words, rather than take steps to more accurately price in the risk of extreme events, the insurance industry opted, instead, to profit from it.
For Eugene Linden, the story of Hurricane Andrew exemplifies the perverse incentives that emerge when capitalism is allowed to dictate what counts as an urgent environmental risk. In his latest book, Fire and Flood: A People’s History of Climate Change, from 1979 to the Present, Linden points to this dynamic to explain why the world has continually failed to heed the warnings of climate scientists. “Looking back at the history of the modern climate change era,” he writes, “we see that if the business community does not want something to happen, it usually doesn’t.”
Weaving together an account of the history of climate science with a history of the world’s ongoing dithering, Linden organizes the history of the climate crisis into four “clocks:” 1) reality, or the climate-related changes that have occurred in the environment itself; 2) climate science and its deepening knowledge about the threats that climate change posed; 3) public awareness of the risks of climate change; and 4) relevant developments in the business and finance world.
Throughout, Linden aims to understand why the world has continually minimized climate risk. In doing so, he intriguingly shows how the institutions and fields of research that cropped up to help policymakers get a handle on climate change’s effects became, in fact, handmaidens to capitalism’s project of downplaying risk. The overall effect is to reveal the profound malleability of “risk.” Those who seek to rationalize risk are bound to underestimate it; meanwhile, those who stand to benefit from the prevailing status quo can manipulate risk for their own ends.
Our dysfunctional climate politics, Linden explains, date to the 1990s. By then, climate scientists had collectively painted a dire picture of the certainty, and urgency, of climate change: global warming was real, and it would happen within our lifetimes. Moreover, since 1979, they had been explicitly warning against a “wait and see” policy approach. So, why didn’t the world take heed?
First, the usual suspects. Oil and gas companies, fresh off a campaign to cast doubt on the science behind ozone-hole alarmism, teamed up to ward off action on climate. In 1989, they formed the Global Climate Coalition to lobby against climate policies. Linden finds traces of the GCC’s handiwork across a range of political defeats, including the tanking of the Clinton administration’s proposed BTU tax on fossil fuels, in 1993, and the mysterious removal of a report on renewables from the final agenda of the 1992 United Nations Earth Summit. But, as Linden points out, industry’s 1990s-era delay tactics gained credibility from some unlikely sources.
Consider the case of the UN’s Intergovernmental Panel on Climate Change. Established in 1988, the IPCC was meant to serve as a premiere scientific clearinghouse for climate research. It was charged with assessing the state of scientific knowledge about climate and periodically synthesizing these assessments into “policy-relevant but not policy-prescriptive” reports. It published its First Assessment Report in 1990, with the Second Assessment appearing in 1995.
Linden zeros in on the “Summary for Policymakers” section of the reports—the only section that most people ever bother to read. What he finds is disheartening: these sections contradicted the most up-to-date science and even, in some cases, the findings presented in subsequent chapters of the same report. In 1990—two years after James Hansen made headlines by testifying before Congress that it was 99 percent certain humans were causing global warming—the IPCC reported only that the “observed increase [in temperature] could be largely due to this natural variability.” (emphasis mine.) In 1995—two years after scientists from the European and American ice core projects announced their major discovery that climate change could occur with staggering rapidity, even within as little as 3 years—the IPCC emphasized that “many factors currently limit our ability to project and detect future climate change.”
The result was a split-screen effect. The independent studies appearing in scientific journals during these years provided an increasingly refined understanding of the climate’s sensitivity and its tipping points. They also clarified the threat that global warming posed to a host of critical features of the environment, including ice sheets, permafrost, and sea levels. But reading only the UN’s IPCC reports, one came away with the sense that the science was still uncertain, and that the world still had time to study the issue.
In other words, the IPCC—sold to the public as the ultimate arbiter of climate knowledge—“defused any sense of urgency about the threat and gave comfort and cover to those who would delay action.” Linden chalks up the IPCC’s extreme aversion to full-throated alarmism to the organization’s structure: “Having [government representatives] weigh in on a process that was supposed to provide the best scientific basis for a treaty … may have been necessary, but the bureaucrats, politicians, and functionaries proved to be a drag anchor on the process and the reports.”
Faced with the opportunity to play the climate hero, the insurance industry opted, instead, to bury its head in the sand.
The IPCC’s equivocations were compounded by the work of environmental economists. In the 1990s, esteemed Yale economist William Nordhaus developed a model for forecasting the economic effects of global warming. According to the model—known as DICE—global warming would ultimately have a modest impact on the US economy: DICE predicted that a warming of 3 degrees Celsius would reduce the national income by no more than one-quarter of a percent. Based on his findings, Nordhaus argued that a simple tweak to the system via a carbon tax, rather than drastic (and expensive) measures to reduce greenhouse gas emissions, was the more economical option.
But Nordhaus’s model, Linden points out, relied on a narrow definition of the effects of climate change: it accounted for the effects of climate change only as they related to temperature, and disregarded second-order effects like more frequent extreme weather events. Additionally, as other critics have pointed out, Nordhaus’s model also hinged on a high discount rate, a controversial concept that economists use to estimate the future value of something (a high discount rate gives less weight to the future).
Nevertheless, Nordhaus’s DICE model became something like gospel among the delaysayers, with members of conservative think tanks like the Cato Institute periodically trotting out Nordhaus’s findings before lawmakers to argue that “the costs of doing nothing appear to be quite small.” For his DICE modeling work, Nordhaus was awarded the economics Nobel in 2018.
But Linden saves his most scathing critique for a group whose approach to climate risk was not to undercut it, but to offload it: the insurance industry. One might have reasonably expected that property and casualty insurers—whose entire business depends on accurately pricing risk—would have insisted that governments take climate change seriously. In fact, in 1994, Linden wrote a piece in Time magazine heralding the insurance industry as the coming “white knight” of climate politics for this very reason. A $2 trillion industry, insurers also had the political clout to make it happen: in the past, insurance companies had successfully lobbied federal lawmakers to implement risk-mitigating policies such as lighting standards, electrical codes, and seat belts.
Faced with the opportunity to play the climate hero, the insurance industry opted, instead, to bury its head in the sand. Linden reads this choice as a “cautionary tale” about the perverse relationship between climate risk and profit motives—a relationship that, in this case, is built into the industry’s very mechanics. Because most insurance policies are renewed every year, they are effectively limited to a one-year time horizon when it comes to risk. As Linden puts it: “A house that has a 100 percent chance of being flooded in the next hundred years has only a 1 percent chance of being inundated in the next year.” In this case, even a doubling of risk as a result of global warming still translates into just a 2 percent chance of flooding.
The insurance industry, in other words, is set up to operate in ways that elude the realities of climate change. Combine this short-term risk horizon with the industry’s invention of cat bonds and the fact that insurance is, at heart, a retail product—sold by agents who work on commission—and the result is a perfect storm of do-nothing-ism.
The story in the 21st century is a mixed bag. By the 2000s, feed-in tariffs, which provide a guaranteed return on investments in renewables, were up and running in a number of countries. Linden credits them for the rapid expansion of solar and wind technologies in Germany and elsewhere in Europe.
But in the United States, the George W. Bush administration and its oil-and-gas cronyism proved a major setback for climate politics (to put it mildly). And in terms of actually reducing greenhouse gas emissions, the world made little headway. Rather than slash emissions, the Kyoto Protocol’s Clean Development Mechanism, whereby rich countries fund emissions reduction projects in poorer nations, merely gave rise to an industry of creative carbon accounting techniques. Cap-and-trade programs fared (and continue to fare) little better.
Back in Florida, apparently not even cat bonds could provide enough assurance for the insurance industry. In the aftermath of Hurricane Andrew, insurance companies began taking steps to wind down their policy holdings in the state. In this case, rather than allow market forces to take hold and render high-risk coastal properties uninsurable, Florida lawmakers intervened. In 2007, the Florida legislature removed most restrictions on who could get a policy from the state-run Citizens Property Insurance Corporation. Lawmakers also imposed a cap on the rates CPIC could charge, significantly undercutting the private insurance market.
As a result, CPIC—formerly the insurer of last resort—is now the largest property insurer in the state. CPIC currently runs on a deficit; in the event of a major hurricane, the state will cover CPIC’s shortfalls by imposing an assessment on all insurance policies in the state, including car insurance. In other words, when the next big one inevitably comes, all Floridians—even those who are not homeowners or whose homes are not at risk from hurricanes—are on the hook for the bill. Meanwhile, the Florida housing market has continued to boom, largely unabated.
All this indicates, for Linden, that lawmakers have successfully prevented climate change from becoming a “pocketbook issue.” Linden also points to Florida as a case study in the dangers of socializing risk. He writes, “Once risk has been spread so wide that it ends up with the nation’s taxpayers, it is also effectively camouflaged, and camouflaging risk allows business as usual to continue long after financial prudence would dictate changing course.” It’s a compelling point, although the alternative—transforming hundreds of thousands of Floridians’ homes into stranded assets by allowing them to become uninsurable—seems untenable both politically and ethically.
In any case, the storms will continue to come. Today, as Floridians take stock of the catastrophic damage wrought by Hurricane Ian—initial reports estimate that insured losses from the storm will reach a record-setting $67 billion—they face an all too familiar question: Rebuild or retreat? As they wrestle with the answer, it’s worth keeping sight of who got us in this mess in the first place. Linden rightly expands the cast of villains who must share the blame. 
