My nonprofit organization, Adaptation Leader, has tracked the SEC’s proposed rule on climate-related disclosures with great interest. Admittedly, we were disappointed the agency opted to limit its rule to climate disclosures rather than a broader environmental, social, and governance or sustainability framing. Climate change is an essential consideration within ESG and sustainability reporting, but it does not present the complete picture for disclosure purposes.

Within the narrow climate focus presented in the proposed rule, we believe the SEC has done an excellent job of outlining disclosure requirements for greenhouse gas reduction, or mitigation. Unfortunately, the rule largely ignores the adaptation and resilience side of climate action. This is a critical mistake.

The brief mentions of adaptation and resilience in the proposed rule are superficial and not actionable. While multiple sections explain the rationale for several mitigation-related provisions, like attestation, metrics, scenarios, and others, there is not one analogous section offering rationale or guidance for adaptation. The result is an incomplete, imbalanced scope of material climate considerations that will result in a far less robust disclosure rule than needed. But not all hope is lost; the agency can remedy this.

In comments Adaptation Leader submitted to the SEC, we urged the agency to correct this imbalance and incorporate adaptation considerations. The agency should pay equal attention to mitigation and adaptation.

The SEC’s emphasis on mitigation stems from the agency’s over-reliance on the Task Force on Climate-related Financial Disclosures framework, known as the TCFD. The proposed rule is so focused on GHG reduction that it virtually excludes substance on the other half of climate action: adaptation and resilience.

We have no gripe with the TCFD; it is an influential framework that has effectively advanced climate disclosure. The TCFD drafters have readily acknowledged that adaptation was not in their remit. So, while TCFD is an excellent base for GHG-related disclosures, it should not be the sole base for all climate disclosure.

The fact that the adaptation and resilience field is less developed than the mitigation space does not justify the SEC’s inattention to their inclusion in the proposed rule. On the contrary, the agency should lead on this issue. It should strongly acknowledge the importance of adaptation in the climate risk equation and urge greater corporate attention to developing and implementing adaptation strategies.

Recent attention on adaptation and resilience, most notably in the Intergovernmental Panel on Climate Change report released last year and news coverage of climate-induced extreme weather events, only underscores the importance of looking beyond mitigation for climate disclosures.

We hope the SEC takes our plea seriously. As we stated in our comments on the rule:

“Should adaptation reporting requirements and/or guidance be added to this proposed rule, the SEC will enormously contribute to overall U.S. climate action by drawing attention to adaptation and resilience through disclosure. Any delay in incorporating specific guidelines for adaptation and resilience disclosure in the Final Rule will be counterproductive. Now is the time to highlight the significance of adaptation, not ignore it.”

Realistically, the final rule will not balance mitigation and adaptation provisions if the SEC holds to its timeline for an April 2023 release. But the story doesn’t end there. The evidence clearly indicates that great urgency is needed to catch up on the adaptation side of climate efforts as compared to mitigation. We recognize that mitigation and adaptation are inextricably linked. To quote the hockey player Wayne Gretzky, the SEC should take note of “where the puck is going” in climate reporting. The regulated community can no longer ignore adaptation, and the lack of holistic corporate climate disclosures will not be acceptable going forward.

The SEC needs to get up to speed on adaptation and resilience rapidly. It must lead on this issue and encourage innovation and experimentation. We recommend the SEC convene a multi-stakeholder process or a series of listening sessions to become better informed on adaptation and resilience. As best practices emerge, the agency can issue guidance on adaptation metrics and the materiality of adaptation and resilience-related expenses. It could then formalize results-oriented provisions through a follow-up rulemaking or other process.

In the Biden administration’s “whole of government” approach to climate change, the SEC must play its part. The proposed rule cannot be isolated or cordoned off in its own financial silo. At this juncture, the only coherent approach addresses both mitigation and adaptation. The absence of relevant provisions in the final rule will send the wrong signal to the regulated community—one that says that adaptation and resilience need not be considered yet. But if not now, then when?

Ira Feldman is founder & board chair of the nonprofit organization Adaptation Leader.

Are we “on a highway to climate hell with our foot on the accelerator,” as the UN secretary-general declared last November at COP27, the annual meeting of the parties to the climate convention? While the U.S. Department of Defense’s recent Climate Adaptation Plan 2022 Progress Report wasn’t quite so dramatic, it did state, “No country can find lasting security without tackling the climate crisis.”

DOD was one of 20 agencies that published first-ever climate “adaptation-and-resilience plans” in 2021. In comprehensive comments on the plans, the Union of Concerned Scientists lauded the department’s recognition that “no entity” has the luxury of “opting out” of climate change’s impacts, and singled out DOD’s statement as “perhaps the strongest language” on the subject of any federal agency’s climate plan.

In describing the significance of the agency plans overall, Shana Udvardy, UCS’s senior climate resilience policy analyst, says it’s important for the federal government and agencies “to walk the talk,” offering “a model for the nation” as climate-related disasters increase. Moreover, adaptation-and-resilience investments are money well spent, Udvardy says, citing a 2019 report from the congressionally chartered National Institute of Building Sciences. Since 1995 federal mitigation grants have cost taxpayers $27 billion but will ultimately save $160 billion. An even greater 16:1 benefit-cost ratio would be provided by Gulf Coast building upgrades to protect against severe weather.

The federal progress reports came shortly before the COP27 meeting in Egypt, making them especially timely, Udvardy says. At the meeting, delegates overcame longstanding U.S. and E.U. objections to placing “loss and damage” on the agenda—a demand that richer nations responsible for planet-warming emissions should fund poorer countries’ efforts to achieve greater resilience—as flooding, drought, and other disasters are worsening. CNN reported that money quickly surfaced as COP27’s “key issue” and “the most difficult to resolve.”

Showcasing how adaptation and resilience can be done is important internationally, as well as for the United States at the national, state, and local levels, Udvardy adds.

The fact that DOD’s 2021 adaptation-and-resilience plan and 2022 progress report stand out is not surprising. After all, as early as 2010 DOD’s Quadrennial Defense Review cited the U.S. Global Change Research Program’s findings that heavy downpours, rising temperatures, and other “climate-related changes” were already being seen worldwide, including in this country.

Then in 2018, Hurricane Michael slammed Tyndall Air Force Base, inflicting “catastrophic” damages and prompting the Air Force to invest an estimated $5 billion to build Tyndall as an “installation of the future” that will meet strong reliability and sustainability standards. Across Florida the hurricane’s total damages were $18.4 billion, which were far exceeded by last September’s Hurricane Ian, which inflicted damages of more than $50 billion from Florida to the Carolinas.

In its progress report, DOD describes five “lines of efforts,” starting with LO1, “climate-informed decision-making,” and concluding with LO5, “enhance adaptation and resilience through collaboration.” In 2021, according to LO1, the department published a climate adaptation plan and created a climate working group to track the department’s implementation of its climate directives and progress.

In critiquing the progress reports, Udvardy says agencies should provide more quantitative metrics of progress toward “closing the resilience gap,” or reducing the degree to which a community or nation is unprepared for climate effects. She applauds metrics associated with DOD’s Climate Assessment Tool for evaluating the exposure to eight climate hazards, including flooding, heat, drought, wildfire, and historic extreme weather events. The tool has been used to assess all major domestic defense installations and is being expanded to all major international installations, which will help prioritize resources.

The reports are of uneven quality. Generally, DOD clearly took time to detail its engagement with climate change as a national security threat. In contrast, the Department of Homeland Security’s report has a slapped-together quality. All of the reports could use more metrics, Udvardy comments.

Although resilience planning lacks the punch of greenhouse gas regulatory mandates, concerns have begun shaping some agency policies in important ways, Udvardy notes. For example, the Federal Emergency Management Agency updated its National Flood Insurance Program’s risk-rating method for the first time in 50 years.

And there’s money for resilience—at least $50 billion in the 2021 Bipartisan Infrastructure Law and more than $37 billion in the Inflation Reduction Act. Consider the funds down-payments as we brace for climate hell.

David P. Clarke is a writer and editor who has served as a journalist, in industry, and in government. Email him at davidpaulclarke@gmail.com.

“No way am I going to agree to a curfew. Tourism is the lifeblood of our community, and we can’t afford to jeopardize that.”

This is the sort of remark you might expect to hear at a town hall meeting — but it was uttered in the offices of a think tank, where environmental professionals were testing an educational board game called “Cards Against Calamity.” The game was created by 1st Playable Productions in partnership with the Environmental Law Institute and the National Oceanographic and Atmospheric Administration, and the contests it has spawned have already proved instructive about real-world policy dilemmas.

Since the term serious games was coined in a 2003 paper about the potential to use digital contests in decisionmaking, the industry has become a global colossus, with annual sales soon to total over $9 billion. Serious games aren’t just serious business — they have also been used to educate and engage players of all ages on a wide variety of issues, from the importance of proper nutrition to the experiences of refugees fleeing conflict in Syria. The Army has used games to recruit and train soldiers and the Federal Emergency Management Agency has used them to teach young people how to build an emergency kit.

Depending on the topic and the intended audience, there are many reasons to train and educate with games rather than with more traditional pedagogical tools. It is no secret that reports, memos, and briefs often fail to reach their intended audiences. A 2014 World Bank report found that more than 30 percent of its reports had never been downloaded. Even if they do reach people, studies can be difficult to digest. Their potential to engage — and thus to inform — is limited. And while podcasts, documentaries, and TED Talks may be less dry than reports, they are rarely more interactive.

Games, on the other hand, do more than just throw content at you. For starters, they take advantage of what The Economist called the “insatiable human desire for play.” Beyond reach, games also can teach in ways that reports simply cannot: they can encourage players to test cause and effect, to engage in roleplay and see issues from other perspectives, and to fail and then renew their approach to a problem through adaptation. Games can also provide an opportunity for group learning, which can encourage team-building and increase both social cohesion and the dynamism in the learning experience.

Consider, for instance, “Cards Against Calamity,” in which two to four players, each representing a different stakeholder group in a small New England town, must work together to ensure that their community can withstand a series of shocks and stresses. They do so by playing through alternating preparation and event stages. In the prep stages, players each propose an action, then discuss as a group that action’s impact upon the community and individual stakeholders. They then choose to fund one, multiple, or none of the proposed actions. Importantly, many actions benefit some stakeholder group at the expense of another. Some actions are cheap enough that a single stakeholder could decide unilaterally to fund them, while others require at least some support from every player.

Events can entail anything from a massive hurricane to an influx of hipsters on vacation, but they all force the community to decide how best to handle them. Depending on the event and the choice, some stakeholders’ fortunes will fall, some may rise, and others may be left unaffected.

Each stakeholder’s performance is measured by Personal Resilience Counters; if a stakeholder’s resilience is depleted, it is replenished from a shared pool of Community Resilience Counters. While the winner is the player with the most personal resilience at the end of the game, all players lose if both the community resilience and the resilience of any one player drops to zero. This means that players must consider both their own and the greater good in their decisionmaking.

This wasn’t always an easy task in the game I witnessed. Two of the stakeholder groups represented — commercial fishers and part-time fishers — were natural allies and agreed on most decisions. The interests of the third stakeholder (representing the tourism industry), however, conflicted with the fishers’ in a way that would prove fateful. This mirrors the real world, where conflict between historically dominant natural resource or extractive industries and a nascent tourism industry (which often depends on perceptions of a place as scenic or ecologically pristine) is all too common.

The introductions each stakeholder group made at the start of the game reflected this divide between old and new: the player representing industrial fishing explained that fishing “is the lifeblood of [the] community [and] should stay that way, as it has been for generations.” The player acting on behalf of the tourism industry, on the other hand, said they “have seen how times have changed” and that “the town must capitalize on its picturesque nature [and] reduce its dependence on the fishing industry.” The fourth player represented construction workers and had no opinion on the fishing-versus-tourism feud; they were in favor of keeping the community “growing and building.”

Despite the unavoidable tension between the players, things began amiably enough. The first preparation stage brought a vigorous but civil debate over whether the community should invest in a living shoreline, which would benefit the fishing industry by providing marine habitat and would also provide protection against storms, or in renovations to the town’s hospital, which would increase the resilience of the community generally. Thanks to the construction workers' powerful advocacy, the hospital won out.

This decision was quickly validated when a blizzard struck shortly after, taxing the services that had, fortunately, just been beefed up. The construction worker and part-time fisher (whose day job was as a public school teacher and who thus had a vested interest in the community’s smooth functioning) came together to mitigate this strain. The tourism industry, unfortunately, had to take the storm more or less on the chin, losing a significant amount of its resilience — enough that it needed to dip into the community resilience pool to stay afloat.

The next round revealed the first cracks in the fragile truce between the fishers and the tourism industry. With a smirk at the player representing the tourism industry, the commercial fishers proposed setting a curfew. As this would have dealt another blow to the town’s already-reeling hotels, bars, and restaurants without benefiting the fishers whatsoever, the move seemed to be little more than a malicious attempt to weaken competing interests. Thankfully, cooler heads prevailed (or, more accurately, refused to listen), and instead of implementing the curfew the other players funded the hiring of an additional police officer and the upgrading of the sewer system, both of which grew the community resilience pool.

Almost everyone breathed a sigh of relief when the next event was a Hollywood studio’s deciding to film a movie in the town, a minimally disruptive event with important benefits. While the beach closures it required had a slight impact on fishing, this was largely offset by the much-needed boost to tourism gained from the community’s decision to preserve the film sets.

Debate over the next preparation engendered what were perhaps the game’s tensest moments. Eager to continue its ascent, the tourism industry pushed for construction of a harbor hotel. While this would have benefited its proponent and was thus a slightly less vindictive move than the curfew, it would have been no less deleterious to the fishing industry, which was very concerned about the impact of new construction on critical coastal habitat. However, it was much cheaper to build the hotel than to implement a curfew — so much cheaper that the tourism industry could have decided to fund it on its own, and in fact threatened to, evincing its lack of concern for fishing with the statement, “Tourism is the backbone of the community’s economy, and the community will benefit greatly from the hotel’s construction. As far as impact on fish habitat . . . well, we’ll be careful.” The fishers, enraged at the slight, could only muster “No, fishing is [the backbone], sorry” and a stern look as their response.

Perhaps the glare was enough, though. Instead of building the hotel, the tourism industry advocated for hosting a regatta, which would have boosted tourism slightly less but had no negative effects on fishing. Even when this too failed, the tourism industry chose to fund coastal condominiums, boosting the community’s resilience while only disrupting fish habitat slightly (in which they perhaps took a minor sadistic pleasure). The rest of the stakeholders agreed to fund a new jobs program, boosting both the community’s resilience and that of the trade sector.

The next event almost literally sank the town. A “cinematically huge hurricane,” in the words of the card involved, struck, and both fishing stakeholders failed and had to be bailed out. While the community evacuated and (barely) held on, this was a sign of things to come.

The next preparation stage proceeded smoothly, the stakeholders perhaps brought together by their close brush with disaster. The tourism industry proposed that the fishers harvest different species, which would have been expensive but would have greatly benefited the industry; it was ultimately not funded. Instead, the commercial fishers ended up promoting tourism, and the construction workers and part-time fishers worked together to repair the town’s aging power grid.

It wasn’t enough, though. The next event brought an algal bloom, again crippling the fishing industry. The community resilience pool, already strained by the hurricane, was too empty to rescue the fishers again, and everyone lost. In “Cards Against Calamity,” a major rule is that if one stakeholder loses by running out of resilience when the community pool is too low to replenish them, all players lose.

Though the players were unable to navigate the difficulties successfully, they quickly realized their mistake: worrying about their own interests at the expense of their community and its less successful members. As the player representing tourism put it, “Maybe I shouldn’t have built those condos.” The takeaway was that each part must be robust in order for the community as a whole to be strong.

A 2017 literature review identified as many as 72 unique definitions of community resilience and discovered “no evidence of a common, agreed definition.” While players are unlikely to come away from “Cards Against Calamity” with a discrete definition in mind, we hope that they will have learned that a community will be less affected by disastrous events if it has adequately prepared for them beforehand and helped the community’s least fortunate members.

After the game won a gold ranking at the 2017 International Serious Play Awards, ELI partnered again with 1st Playable Productions to develop a digital adaptation. “Digital Cards Against Calamity” puts a single player in the role of mayor. The fishing village is one scenario, or a player may be responsible for managing a tourist hotspot on the Pacific coast, or a bustling city along the Gulf of Mexico, or almost anything in between. Development of the game continues; eventually, there will be eight playable areas corresponding to the regional fishery management councils created under the Magnuson-Stevens Fishery Conservation and Management Act. This version also allows for the harvesting of gameplay and decisionmaking data, providing valuable insights for policymakers.

In the solo digital version, it is still important to support your weakest stakeholders and to ensure that your community is resilient enough to survive any unanticipated problems. The multi-person card game additionally seeks to achieve something more subtle. It requires players to cooperate rather than compete — an aim of the game that is even more important than its educational goals.

It is our hope that either version will encourage players to think about how their community might best deal with the issues it faces — or at least to start the conversation about possible resilience and opportunity instead of probable catastrophe over a friendly game of cards. TEF

As I watched the U.S. women’s national soccer team play host country France on its way to a record fourth World Cup title this summer, something struck me besides the astonishingly high level of play from our squad: it was really hot, in a country not used to such record-setting heat.

On the day of that quarterfinal, in late June, regional temperatures topped 100°F, remaining above 90° for the evening game. Since that time, Europe has experienced another heat wave, setting all-time records in the Netherlands, Belgium, Germany, and France. Paris hit 109° on July 25 as this column was drafted. These historically temperate regions have one option to manage the warming caused by climate change: air-conditioning.

According to the International Energy Agency, global electricity demand for air-conditioning is expected to triple by 2050, requiring additional electricity capacity equivalent to that of the United States, European Union, and Japan combined. This upsurge in worldwide demand for air-conditioning highlights the increasing importance of reducing emissions from the hydrofluorocarbons integral to modern air-conditioning, refrigeration, and other chilling and insulating uses.

HFCs were developed to replace the ozone-depleting gases targeted by the 1987 Montreal Protocol. The high global warming potential of HFCs, however, means that we have traded one environmental problem for another. Although HFCs represent only one percent of greenhouse gases, their annual growth rate tops eight percent.

At the international level, the Kigali Amendment to the protocol aims to reduce usage of HFCs. Under the amendment, which entered into force this year, countries have committed to reduce the production and consumption of HFCs by more than 80 percent over the next 30 years, avoiding more than 70 billion metric tons of carbon dioxide-equivalent emissions by 2050, representing almost a full degree Fahrenheit of avoided warming by the end of the century.

But how are we going to achieve this goal? Our utilities’ connections to our communities offer an opportunity to think creatively and broadly in tackling this burgeoning source of emissions as we seek to cool a warming world. Seemingly “old-school” approaches like district cooling could see a further revival and play a dual role in the changes necessary to decarbonize our economy while keeping customers safe and comfortable.

Exelon’s home town of Chicago is home to the world’s largest interconnected district cooling system, serving about 100 buildings and 45 million square feet of commercial facilities, office towers, apartment buildings, theaters, hotels, data centers, retail centers, and schools. This system was initially developed as an alternative cooling service that could operate without the ozone-depleting chemicals that the Montreal Protocol sought to avoid. Customers thereby eliminated individual systems and their ozone-depleting chemicals, as well as associated maintenance, and avoided the HFC problem entirely.

Rather than switch from one chemical coolant-based system to another, the Chicago system is based largely on ice storage. Ice storage is particularly advantageous in an urban area like Chicago, where land is at a premium. Ice allows relatively compact storage and allows use of much colder water, which requires smaller equipment at customer locations.

In addition to avoiding HFC emissions, relying on ice storage for cooling also creates tantalizing opportunities for integrating renewable generation and its variable electrical output. Most agree that decarbonizing electric generation will require a substantial buildout of wind and solar generation, even with the retention of our nation’s emissions-free nuclear fleet. While flexible and responsive, renewables are variable in their output and must be actively managed by grid operators. One way to manage this variability is through the expansion of storage technologies. District cooling offers the opportunity to store energy right in the heart of our cities, smoothing the output of clean generation while powering air-conditioning without HFCs.

Reducing emissions of these harmful GHGs will land a powerful blow in the fight to avoid the climate crisis. It also reduces peak electric power demand in the summer, which helps customers avoid expensive charges typical with conventional cooling systems. Just as importantly, it avoids the need to run sources of power generation that are the most pollution-intensive, oil-fired peaking plants, precisely during the times of the year when air quality is most challenged. In sum, district cooling is an opportunity for communities and businesses to pursue creative approaches to emissions reductions and transition to a clean energy economy — while remaining cool even on the hottest days.

America must never forget Superstorm Sandy and the long-lasting devastation it wrought on the East Coast of the United States less than a decade ago. The lessons of that storm need to be heard by policymakers and the public.

The cost of the largest Atlantic hurricane ever was the tragic loss of 159 human lives and $70 billion in damage. Sandy was not so much an environmental disaster as it was a public-safety and economic one. Add in the droughts, heat waves, storms, tornados, floods, hurricanes, and wildfires around the country that year, and, according to the National Climatic Data Center, the total cost to America from weather-related damage was a staggering $120 billion. And recent hurricanes in the Caribbean and Gulf of Mexico have also caused billions in damage to American communities.

The Union of Concerned Scientists forecasts that we should expect today’s once-in-a-century coastal impacts to become once-a-year outcomes by 2100. Experts predict 10 more Sandy-like storms by then, and chances are the Eastern Seaboard of the United States will be slammed by at least one. With flooding from a superstorm, large areas of the Atlantic coastline that are at or just above sea level would bear the brunt of such a weather system. At its outer edges, Sandy was more than a thousand miles wide. Today, two-thirds of America’s population lives within 100 miles of the coast, showing how many are at risk.

The prevailing view among meteorologists is that superstorms are the product of climate change and the attendant hotter and higher oceans that energize such weather systems. At its annual meeting recently, the American Association for the Advancement of Science agreed that climate change is already producing extreme weather. Clearly, we have to prepare for its uncertain and possibly catastrophic effects. Be it sea-level rise and coastal erosion, more frequent and severe droughts and flooding, extreme temperatures, or just plain weird weather, it’s time to plan for what was previously the unexpected and manage what is now the unavoidable.

In the seven years since Sandy, our conversations about climate change have themselves changed. The challenge acknowledged now is not so much about saving the planet from heat-trapping gases as it is about saving us from a warming planet. While clearly these emissions need to be sharply curtailed, with so much carbon pollution already in the air and our traditional fossil-fuel energy production and use patterns locked in for the time being, we have no choice but to live with the consequences. It’s not throwing in the towel to acknowledge as much but, rather, facing the realities of coping with the effects of global warming.

Sure, we need to continue to reduce emissions of greenhouse gases and build renewable energy projects using the sun, wind, and tides. And we need to continue to increase energy efficiency in cars, trucks, utilities, buildings, and appliances. But we also need to adapt to the effects of climate change.

And while the present occupant of the White House continues to call climate change a hoax, there are those of us too busy living with its impacts to engage in such nonsense. That’s why a vulnerable America needs a plan — a comprehensive national adaptation management plan mandated by Congress — that will show us how to lessen weather impacts to our built and natural environments and the human communities they support.

There are a lot of assets that need protection. We need a national plan that assesses the vulnerability of the electrical grid, buildings, roads, airports, dams, water supplies, and sewage treatment plants, the infrastructure that our society depends on, and then recommends how to strengthen these assets.

America needs a plan that recognizes the protective value of our coasts and wetlands, forests and rivers, and then explains how to use their natural resiliencies to buffer people from the disastrous impacts of stronger, more frequent storms as well as changes in precipitation patterns and temperature extremes.

A national strategy also should be coordinated with state adaptation plans, such as that just completed in Massachusetts. The commonwealth’s plan was approved by the Federal Emergency Management Agency as part of its state and national Hazard Mitigation Program. This type of in-synch planning at the state and national levels is critical to climate change adaptation management.

Congress needs to start holding hearings to identify workable strategies and enact them into law, while mandating that federal agencies engage with the states to ensure the safety of their populations and protect their natural resources for future generations.

Pleasant Run is a 27-mile-long waterway that flows through Indianapolis. Despite its bucolic name, it gradually degraded over the past century during a period of unbridled urban development. Sadly, it is now a neglected link in a necklace of parks and boulevards listed on the National Register of Historic Places. Early 20th century urban planner and landscape architect George Edward Kessler designed the green-spaces “to make cities decent places for masses of people to live in.” Now, sprawling city infrastructure and the spread of impermeable surfaces provide few ecological and social services to poor residents of the neighborhood. The parks once offered such amenities. But today Pleasant Run’s interface with people is in the form of health department signs warning against exposure to untreated human waste.

The urban greenway and its watershed — including the surrounding social and ecological activities — are fairly stable and predictable. That condition includes, unfortunately, E. coli contamination when heavy rain causes sewers to overflow during increasingly regular floods. But a group of community leaders and Indiana University researchers is trying to nudge Pleasant Run into a new equilibrium that better serves the people in the area and downstream, even as the climate changes. This new, better equilibrium challenges the popular goal of sustainability, which implies stasis. The dynamism of climate change presents opportunities like transforming Pleasant Run into a new, adaptive system that delivers better outcomes to communities underserved by conservation.

The Clean Water Act mandates that Indianapolis abate stormwater pollution and slow the ever-increasing surges of raw sewage runoff into Pleasant Run after even normal rainfalls. The law mandates treatment before discharging human waste, but the city’s old pipes combine rainwater and sanitary effluent to produce the common problem of combined-sewer overflow. After Indianapolis completes a massive stormwater diversion system to reduce overflows at its wastewater facility, re-engineering Pleasant Run will present an opportunity for making the neighborhood and its residents able to withstand rainfall extremes.

Solving this problem in an enduring manner as the climate changes in coming decades requires understanding the networked social and ecological systems that comprise the community’s people, their housing, workplaces, recreation areas, and schools, and the natural domain they inhabit through the rapidly emerging and evolving concept of resilience. In that regard, SES is a term of art that encompasses the connected social, economic, and environmental relationships involved in such activities as managing farming or manufacturing or, in the case of Pleasant Run, urban stormwater and sewage. Applying resilience to established legal objectives is often assumed to mean maintaining existing conditions by resisting disruptive transformation — the upsetting of the law’s settled expectations. For instance, the Environmental Protection Agency and Fish and Wildlife Service pledge to promote greater resilience in response to climate change (and its more frequent downpours) but generally their specific prescriptions aim to bolster resistance to change. Pleasant Run shows that resilience is equally helpful in framing a program that facilitates positive transformation to new conditions that better serve communities.

Cities like Indianapolis will be the testing grounds for transformative management that aims to shift the role of urban waterways from hidden pipes or open sewers to neighborhood gathering grounds that produce a diversity of goods and services, from picnic areas to community gardens, as well as filtering rainwater and preserving water quality downstream. The promise for environmental law is a shift from objectives that benefit relatively few to new systems that benefit others previously left behind in the narrative of sustainability, including poor and minority neighborhoods that share watersheds. To the extent compliance with the CWA motivates these experiments in urban watershed governance, it is an example of a static environmental law pushing for dynamic changes to an SES.

Resilience describes the continuity of relationships within a system. In 1973 the ecologist Buzz Holling defined resilience as “a measure of the ability of these systems to absorb changes” yet still provide the same function, structure, and identity. The system human-bicycle perfectly illustrates how resilience works and how it may be adapted to address today’s environmental problems. This system ordinarily has two equilibrium states: upright while moving forward or stationary while flat on the ground. The greater the resilience of the human-bicycle forward-motion state, the greater the bump the system can absorb without causing the rider to fall, triggering a phase change to the stationary, flat-on-the-ground state. The design of the bike and the resilience it offered riders on bumpy terrain remained static for well over a century.

But then ingenuity improved human-bike resilience. Forty years ago in Northern California, cyclists began to travel on natural trails, where they encountered rocks and roots that would dislodge the rider of a conventional bicycle. They responded by inventing the mountain bike. It created a whole new industry supplying resilience to riders who choose to leave the system of paved roads and travel to new destinations impossible on an ordinary bicycle. Engineering the system to increase the resilience of the upright, forward-motion state required shock absorbers and disk brakes that enable a mountain bike to smoothly travel a rocky road.

Some climate-change adaptation measures, such as creating coastal berms and buffers, aim similarly to strengthen the resilience of the SES behind the buffers to resist destructive flooding. But resilience in an SES doesn’t have to mean bouncing back to a prior state. Instead, managing resilience may intentionally transform the SES to a new equilibrium condition, one offering new opportunities to communities, many of them disadvantaged by the current equilibrium state.

While it is tempting to dismiss resilience as a meaningless slogan, something like “sound science” a decade ago, there seems no better concept to address the phase changes threatened by climate disruption, which will dash centuries-old settled expectations. Enhancing resilience to resist change is like developing a mountain bike for the bumpy climate ride ahead. Adaptive management, in turn, is the rider’s skill in response to the terrain, deploying the bike’s shocks and brakes to achieve her goals; more on this concept later.

Resilience as an overarching theme for environmental law has other benefits. It can counteract centrifugal tendencies of an otherwise fragmented collection of statutes and doctrines — a longtime goal of environmental reformers. In part because of its defensive grasping for some core principle to claim, environmental law tends toward over-eager embrace of the latest trends. Thus, in the 1980s, sustainability (or sustainable development in the international law context) became a common theme of environmental reform proposals.

Sustainability is a helpful prompt for identifying overexploitation of resources before they crash and for intergenerational equity. But it is opaque when it comes to understanding just what is to be sustained. The very ambiguity that allowed sustainable development to be widely hailed — that it could be interpreted by different interests as maintaining, even advancing, their own needs — undermines its usefulness. Sustaining business productivity, ecological services, and social goods like health care and schools all at once often proves an impossible balancing act. Something has to give. In practice, the short-term exigencies of economic productivity overshadow environmental and other social aims.

In other words, sustainability assumes both that we understand what can be sustained, and that we have the capacity to carry out what is necessary to maintain those conditions indefinitely. But that assumption is not justifiable for the vast majority of human interactions with the environment, especially when that environment is itself changing and humanity is plundering its finite resources. In coining the term SES, Elinor Ostrom extended Holling’s ecological resilience concept by observing the order in the relationship between and among the environment and the people who shape and use it. She generalized the ecological principle to describe resilience as “the amount of disruption needed to transform a system from one stability domain (characterized by a configuration of mutually reinforcing processes and structures) to another.”

Rather than simplify SES into sustained outputs, resilience recognizes that changing conditions (and our understanding of them) are relatively unpredictable. Disruptive change can occur quickly and nonlinearly. As complex as our economy or an ecosystem may be, the interactions between the two in an SES complicates the picture even more. We simply can’t easily forecast when phase changes will come or their direction and magnitude.

For instance, kelp forests are biologically diverse, structurally complex, and highly productive ecosystems that occur in mid-latitude coastal waters that are cold and rocky. When fishing depletes the population of top predators, herbivorous sea urchins may proliferate and eat enough kelp to crash the ecosystem and produce an entirely different state. This occurred along the Pacific Coast after sea otters largely disappeared. But, in the western North Atlantic, after the commercial fishing industry decimated predatory fishes, especially cod, large crabs thrived in the vacant niche. The crabs began reducing the urchin populations, keeping the kelp forests intact. Such are the unpredictable outcomes of social-ecological systems, which make resilience difficult to manage.

The speed with which legal institutions and statutes integrate adaptive management will indicate the degree to which resilience emerges successfully as a framework for environmental law. The example of the kelp forests shows that law needs to recognize that humans always alter nature and are altered by it. Sometimes sustainability and resilience objectives will correspond to the same procedures and outcomes. For instance, the recovery and maintenance of migratory waterfowl is among the greatest sustainability accomplishments of 20th century America. It is also a testament to adaptive resilience.

The tool of adaptive management made the difference in waterfowl survival. It succeeded in maintaining bird populations and hunting within a consistent range of variation. Adaptive management treats actions or policies (such as hunting quotas for waterfowl) as experiments to test hypotheses about how the SES responds to interventions. Adaptive management requires breathing space to allow learning to occur and actions to be revised in response to monitoring. Federal agencies have succeeded in undertaking adaptive management within the framework of the National Environmental Policy Act’s mandates, including taking the fabled “hard look” at proposed actions and alternatives. But it is an awkward fit with the comprehensive rationality and finality of administrative law.

Past success — such as in calibrating hunting rules to maintain waterfowl populations — is no longer an indicator of the future. Prairie potholes of the upper Great Plains, the world’s most productive migratory waterfowl breeding habitat, are drying up because the agricultural economy demands more drainage and because climatic change reduces available precipitation. Law influences drainage through agricultural policy in the Farm Bills and environmental regulation under statutes like the CWA.

At the same time, wintering habitat south of the United States is disappearing under human population pressure. Signals that trigger seasonal bird migrations, such as the length of day, are no longer in sync with food sources. Insect larvae now emerge earlier in the warming spring, before the birds can arrive to eat them. This weakens the ability of birds to survive their journey to breeding grounds and threatens croplands. On top of all that, the number of American bird hunters has declined over the past forty years. That trend results in less habitat-conservation funding generated through mandatory “duck stamps” that the hunters must purchase and affix to their hunting licenses.

Some North American bird migrations may well be an example of a social and ecological system nearing a resilience limit. Without understanding the resilience of the migratory bird SES, efforts to maintain populations will suffer from uncoordinated approaches or neglect of how solutions redistribute social costs and benefits. The NEPA action-forcing mechanism of environmental impact analysis seeks to integrate many different fields of study to create a comprehensive understanding of all the consequences from a proposed course of action (and its alternatives). Today, we need analyses that retain the social-ecological integration of NEPA but provide more iterative adjustments than the front-loaded requirements under that statute and the Administrative Procedure Act.

System resilience is not always good or bad from the point of view of social goals. Most people would say that we should try to maintain North American bird migration in its current state by enhancing resilience through such practices as better water management in the upper Great Plains. But the organizing principle of resilience may lead us to social choices that push other systems across phase-change boundaries — crashing the bike in our analogy. Pathologically resilient systems can saddle management with institutions not only resistant to change but unable to withstand change. The doomed Everglades seems trapped in a web of water governance institutions that thwart the adaptive changes necessary to maintain the unique ecosystem. Yet, pathological resilience sometimes yields to transformation. A legal objective, such as the treatment mandate of the CWA, may promote an action to transform a system into another state, such as the re-plumbing of Pleasant Run. That is like using a mountain bike to instead successfully navigate along a better path.

In practice, conservation often focuses solely on resisting the transformative effects of change even when transformation seems inevitable, such as in the context of the threat to coastal wetlands from sea-level rise. Equating resilience in environmental law with strengthening SESs by resisting phase changes is a blinkered misunderstanding of resilience as sustainability. Instead, adaptive governance to promote transformation will become increasingly important, and not just in ill-functioning urban watersheds. Perhaps our greatest current environmental challenge is decarbonizing energy systems. Resilient approaches to address the challenge, such as ELI’s Deep Decarbonization Pathways Project, employ law reform to drive a transformation in the SES of energy production and use.

Whether at the scale of a local watershed or a national energy system, transformative governance nourishes hope to people previously excluded from environmental decisionmaking. Emphasizing that environmental law is for people — meeting their wants and resolving their disputes — the concept of SES resilience steers away from dualist notions of nature versus society that seldom help the environmentalist cause. Greg Siekaniec, Alaska regional director of the Fish and Wildlife Service, recently commented on authorizing oil leasing in the Arctic National Wildlife Refuge. He said that America’s refuges are dedicated to “wildlife conservation over human use.” A resilience framework would consider wildlife conservation to be an objective for human use. Where dualism sets up false choices, SES links wildlife conservation to human interests.

Isolating the social from the ecological led the Idaho Supreme Court to deny federal reserved water rights for Deer Flat National Wildlife Refuge. Federal public land law reserves to the United States implied water rights needed to avoid frustration of the primary purpose for creating the refuge. President Franklin D. Roosevelt established Deer Flat Refuge to furnish breeding and resting grounds for native birds on islands in the Snake River. As part of Idaho’s adjudication of water rights on the Snake, the court rejected the claim that the reservation required enough water to flow through the river by the islands, during bird breeding season, to ensure that nests remain isolated from the banks. Without those instream flow rights, irrigation upstream of the refuge sometimes lowers water so much that the islands link to the mainland, subjecting nesting birds to predators.

The court held that denying the water rights and allowing the land bridges to form between the islands and the river banks would not defeat the primary purpose of the refuge. It justified its position by explaining that the president intended the refuge to benefit humans as the primary focus. The court wrote that it is “inconceivable that President Roosevelt . . . intended to give preference to waterfowl, or any other migratory bird, over people.” Really, though, the judges shifted the Snake River SES from serving some people who benefit from birds to other people who benefit from more irrigation diversions.

Severing conservation from benefits to people misunderstands the role of wildlife in environmental law. Resilience as an organizing principle of environmental law instead makes it easier to see how the two are inseparable. Hunters of caribou and waterfowl well south of the Arctic National Wildlife Refuge breeding grounds are part of that refuge’s SES. So are birdwatchers and others who enjoy wildlife observation. And, we should not discount the role of wildlife refuges in supporting agriculture itself, by sustaining birds that reduce crop loss by eating insect pests.

The major challenge to resilience as an organizing framework is that the legal fidelity to finality and security comes from real social demands. People like stability. Adults delight when children experience the same parks and fishing streams that they recall from their youth. Lenders want assurances that their investments will be protected from environmental variability. How can we reconcile those — sometimes unrealistic — demands with the fluid adaptation of resilience? And if we do that, what happens to our yearning for sustainability?

A hallmark of system resilience is the capacity to maintain a high level of consistency of behavioral structure in the face of a dynamic environment. That is why it can be easy to confuse resilience with stability. For instance, Pleasant Run currently provides consistently low services to residents in its vicinity. They would prefer a different equilibrium state that allows their children to safely play in the parks surrounding the creek. That is why transformation of the Pleasant Run SES is not just an exciting research or engineering project. It is an experiment in environmental law to better serve citizens.

Other dynamic changes, such as the depletion of species in kelp forests, are unintentional but will nonetheless push systems into new equilibria generating very different goods and services. Resilience offers tools to help us grapple with environmental variability as former standards, such as historical benchmarks (e.g., 100-year floods), become unreliable. High variability and low predictability are probably the greatest challenges for maintaining resilience and adaptive capacity in environmental law. We need to manage for human objectives, but we cannot expect success at every turn. What was natural, such as a particular flood frequency, or native, such as a particular set of invertebrate species, is no longer a reliable guide for management. Resilience, more than sustainability, reminds people that change cannot always be controlled. Change may arrive in sudden bursts creating what California Governor Jerry Brown called “a new abnormal” to describe the 2018 wildfires in his state. Ecosystems may absorb more and more stress and continue to produce services — until they flip into a different state, perhaps in a short time frame. Like wrecking a bike after hitting a rock that is too big for the suspension to handle.

Victor Flatt and Rob Verchick have lamented the repeated use of the word unprecedented in press coverage of Hurricane Harvey. In fact, Texas had already experienced a 40 percent increase in intense rainfall from storms over the past century. In other words, Harvey is the new normal even if, strictly speaking, it lacks a historical precedent. Shortly after Harvey, Hurricane Irma roared into Florida, breaking apart three construction cranes that damaged property as they fell. A decade ago, a state court overturned an attempt by Miami-Dade County to strengthen its regulation of tower cranes, which are currently designed to withstand winds up to 145 miles per hour. The contractors for one of the buildings where Irma destroyed the cranes called the storm “unprecedented” in an effort to shrug off responsibility. Yet, Irma is consistent with the new atmospheric conditions.

There is some hope for law to consider softening its demand for stability. Over the long-term, even the common law shows a willingness to bend to new conditions. Many historians describe the 19th century shift in riparian water rights from a natural flow guarantee to socially contingent reasonable use as an illustration of the common law’s accommodating economic imperatives, such as the industrial revolution in a landscape transformed by hydropower mills. Where and when resistance to phase changes in the SES is futile, resilient law can concentrate on steering a transition from one equilibrium state into another with the least possible collateral damage.

Stasis as implied by sustainability is not an attractive social objective for those repressed by discrimination or poverty. The Indianapolis residents in the vicinity of Pleasant Run may prefer transformation because they see a more prosperous and equitable future under a different social-ecological regime. The possibility of transformation in a resilience framework may help expand the constituency for environmental law to new supporters who can envision how their lives would be improved through adaptive governance rather than the siren call of sustainability. It opens legal debates to new voices, as advocated by environmental justice reformers.

Resilient environmental law must include the option of adaptive transformation of social and ecological systems and alter governance that normally cherishes sustainability. Environmental law, long confined to its own, specialized corridors of power, will be stretched thin to accommodate such challenges. Natural resources agencies, in particular, are generally comfortable with manipulating the ecological side of the SES. They are less willing to address the social dimensions because these elements are outside of their expertise and because their political power generally does not extend that far. Yet, resilient environmental law will need to focus more on social transformations. Very little legal analysis examines this aspect of resilient law, yet better consideration of social change must be a priority for future research. It holds promise to grow the constituency of Americans who recognize how they benefit from environmental law.

Resilience is unlikely to be a flash in the pan. Unlike sustainability, it is a fundamental attribute of the world and not easily confused with outputs only. It is also deeply embedded in the social objectives of climate change adaptation. But the more radical challenges of resilience within our environmental law are twofold.

First, resilience turns away from the futile search for sustainability, or certainty or finality, in systems essentially characterized by high variability and low predictability. Environmental law often serves as our “law of the land” that translates ideas into on-the-ground practices. That translational function demands more candor and experimentation in all environmental decisions. Adaptive management requires softening our commitment to final agency actions and res judicata for the judicial branch.

Therefore, adaptive management poses tremendous challenges for the enforceable substantive standards so closely associated with the 1970s-era magisterial environmental statutes and judicial interpretations of administrative safeguards. Crude rules of thumb, such as bans on discharges without permits or prohibitions on jeopardizing endangered species, must continue to play some role because our knowledge will always fall short of understanding the full repercussions of actions in complex, responsive systems. Burdens of proof in common law and administrative settings need root-to-branch reassessment in light of the resilience framework. Conservation is restraint and thus conservative. But it is not sustainability and should not foreclose transformation. Resilient environmental law helps identify circumstances where sustainability is infeasible or undesirable — or where positive transformation is a possibility, as in the California cyclists who invented a machine able to take them to new destinations.

Second, resilience as a management goal offers a framework for confronting the social drivers of unjust and inadequate outcomes of decades of environmental management that excluded some people. To follow Thoreau and live deliberately today requires we contemplate distributive impacts as moral consequences. Power structures must yield to fairer ways of provisioning social benefits and environmental insults. During World War II, C.S. Lewis wrote that “man’s power over Nature turns out to be a power exercised by some men over other men with Nature as its instrument.” Only the environmental justice strand of environmental law has forthrightly dealt with this longstanding reality. The legal response to environmental change must tackle the social dimension to environmental management. TEF

This article is based on a longer work published in volume 94 of the Indiana Law Journal — Ed.

As a society, we are devoted to the idea of spreading the costs of catastrophic losses. Continuing this commitment in the face of projected increases due to climate change will require ensuring that such programs also create incentives to engage in hazard mitigation.

Margaret Peloso is an environmental and natural resources partner in Vinson & Elkins’s Washington, D.C., office. Kristen Miller is an environmental and natural resources associate in the D.C. office.

Natural disaster response in the United States has long been characterized by the distribution of significant amounts of government funds to aid recovery. These funds are allocated in the form of direct aid in the wake of an event and through subsidized insurance policies before a hurricane, flood, wildfire, or tornado. In fact, our cultural paradigms around sharing the burden of disaster recovery have become so strong that researchers find that individual property owners often choose to live in hazard-prone areas in part because they believe the government will make these areas safe for them or help them rebuild in the wake of an adverse event. This effect is further compounded by the fact that people often misevaluate or even ignore risk, and tend to be under-insured for high-value losses that are rarely experienced.

Against this backdrop, the United States has experienced increasing natural disaster losses from hurricane, flood, and fire events, all of which are attributed at least in part to the impacts of climate change. According to the National Climate Assessment, recent increases in hurricane activity are attributable in part to higher sea surface temperatures. The report notes that floods may intensify in the future as a result of climate change because human-induced warming increases the factors that cause and amplify inundation, such as heavy or prolonged precipitation and storm surges. Wildfires are also impacted, as hotter and drier weather, as well as earlier snow melt, extends the length of the wildfire season and causes fires to burn more acreage. In fact, the impact of extreme weather events can already be seen in the National Flood Insurance Program and the Stafford Disaster relief program administered by the Federal Emergency Management Agency, which collectively required FEMA to borrow approximately $24 billion from the federal treasury to pay out NFIP claims and provide Stafford Disaster relief in the wake of Hurricane Katrina and Superstorm Sandy.

Going forward, climate change will pose two separate but related challenges for the programs that distribute government funds in response to disasters. First, can social insurance be structured such that it remains a financially viable tool to promote resilience and community recovery? Second, how can insurance programs be structured to promote adaptation measures that reduce exposure to extreme events?

An interesting example of the limitations of social insurance arises from the California courts’ attempt to socialize wildfire costs through an expansion of the state’s inverse condemnation law. As this example and others show, the viability of social insurance will be dependent upon the ability of policymakers to proactively structure programs that both engage in risk spreading and promote risk-reduction behaviors.

The role of any insurance product is to spread risk. Insurers remain solvent by collecting more premiums than the losses they have to pay out. They accomplish this in two ways: setting premiums that correlate to the risk of loss, and ensuring risks that are sufficiently diversified that the likelihood of too many claims being made at the same time is reduced. This is particularly challenging when insuring natural disaster events, which often cause losses that are both near total and occur at the same time. When a hurricane storm surge causes flooding, for example, it does not just inundate one house. If an insurer has too much exposure to flood risk, it will not be able to maintain solvency. While insurers can reduce their exposure by purchasing reinsurance and transferring some of the risk to a third party, the ability of insurers to purchase reinsurance will be limited by whether they can increase premiums to cover the costs of such reinsurance programs.

T he problem of limited market capacity to address correlated disaster losses led to the creation of the National Flood Insurance Program in the United States. Prior to the 1950s, commercial flood insurance was available. However, a series of catastrophic floods along the Mississippi River caused many insurers to face significant losses — leading them to either go out of business or exit the flood insurance market. The federal government therefore stepped in to become an insurer of last resort, creating NFIP by statute in 1968.

The program acts as primary insurance for property owners that is underwritten by the federal government. The purchase of insurance under NFIP is required for all property owners who hold a federally backed mortgage in the 100-year floodplain. In theory, NFIP premiums should be set at levels that reflect the risk of flooding at any given property, but there are several factors that result in premiums being heavily subsidized, including the setting of rates based on outdated maps that do not reflect current flood risks.

The structural issues in NFIP were particularly exposed after Katrina and Sandy, when claims on policies vastly exceeded the amount the program collected in premiums. While FEMA is required by statute to repay resultant borrowing, a 2017 GAO report concluded that NFIP is unlikely to generate sufficient revenues to repay these debts. Last year FEMA used new statutory authority to place reinsurance for NFIP, transferring $1.042 billion of risk to the private market to cover payouts exceeding $4 billion. This policy was triggered after Hurricane Harvey, which caused estimated losses to NFIP between $8.5 and $9.5 billion.

The other form of disaster relief at the federal level is the Stafford Disaster Relief Act, which provides aid for the immediate aftermath of presidentially declared disasters as well as for rebuilding. In the case of flood or hurricane events, Stafford works in concert with NFIP to provide funds for rebuilding, but there are limitations on Stafford Relief provided in response to floods. Specifically, the Stafford Act prohibits the use of funds to provide assistance to property owners who were legally required to obtain flood insurance and did not have coverage. There is not a similar statutory provision requiring insurance coverage for recipients of aid after other disaster events, including wildfires.

Prudently, the Stafford Act also has programs to funds to reduce risk, including the Hazard Mitigation Grant Program and the Pre-Disaster Mitigation Program. The first provides post-disaster funds for the deployment of hazard-mitigation measures during rebuilding, although implementation of the program has been uneven. The latter provides grant funding to state, local, and tribal governments for mitigation measures.

The upshot from the combination of the NFIP and Stafford programs is that federal taxpayers will bear most of the costs of disaster recovery (and perhaps an even greater share for non-flood disasters such as fires). In this context, there is an argument that the NFIP program, while flawed, is better than nothing; if taxpayers inevitably foot the bill, it is better for all property owners to pay something in insurance premiums, even if the premiums do not fully reflect risks. In addition, once property owners purchase insurance, the pricing of insurance can be used to create incentives for risk mitigation. NFIP, for example, offers to reduce premiums based upon risk-reduction measures taken at the community level, such as restoring natural functions of floodplains. Because Stafford Relief for other disasters is not tied to similar insurance requirements, the ability of federal policymakers to encourage hazard mitigation for natural disaster risks such as fires is limited to attempting to incentivize action through federal grant programs for hazard-risk reduction.

Several states have also intervened to provide social insurance programs for natural disasters. The most notable of these is in Florida, where the state both participates in the primary insurance market and acts as a reinsurer to provide coverage for hurricane damage. Florida participates in the primary insurance market through a company called Citizens Property Insurance Corporation, created by the legislature in 2002 to provide property insurance to Floridians who are unable to find coverage on the private market. While Citizens is financed by policyholder premiums, catastrophic losses that exceed premiums are financed by assessments that Citizens is statutorily required to levy on all holders of insurance policies in the state — including those who do not purchase their insurance from Citizens — until the debt is eliminated.

Florida is also involved in the reinsurance market through the Florida Hurricane Catastrophe Fund, which provides a way for insurers to increase their capacity by transferring some of their assumed risk to a third party. Florida’s reinsurance intervention occurred in the wake of Hurricane Andrew in 1992, when many private insurers informed the state of their intent to exit the market. Because it wanted to ensure the continued availability of reasonably priced coverage, the legislature authorized the state to create its own reinsurance program, the Florida Hurricane Catastrophe Fund. Relying on its authority to raise funds through the issuance of pre- and post-event bonds, the fund accumulated a balance of $14.9 billion between the years 2006 and 2016, when the state experienced minimal storm activity. This changed in 2017, when the fund reported estimated losses of $2.04 billion from Hurricane Irma. While a significant balance remains even after this loss, the fund warns that it might need to resort to emergency assessments or post-event bonding if a storm of sufficient size were to hit.

The examples outlined above highlight not only the precarious financial state of social insurance programs, a condition that will only worsen if climate change increases the frequency or severity of extreme weather events, but also the failure of these programs to incentivize risk-mitigation behavior. If insured losses increase in the future, the ability of heavily subsidized social insurance programs to maintain solvency will be in question. In addition, policymakers’ decision to provide heavily discounted insurance rates — which would not be available in a competitively priced market — has undermined the function that insurance rates play in signaling the extent of hazard exposure to property owners. These social insurance programs thus create the risk of increasing societal exposure to natural hazards. Therefore, to the extent that social insurance programs are to be maintained, they must be reexamined and modified to meet the twin goals of risk spreading and promoting hazard mitigation.

The need to revisit our social insurance mechanisms is well illustrated by the unsustainable approach that some California courts have taken to wildfire risk. Damage from wildfires in the state has increased over recent decades, especially those occurring during the Santa Ana season, which is characterized by strong, dry winds that cause fires to spread more quickly. The wildfires in Northern California last October were some of the most destructive in state history, killing 44 people and destroying an estimated 8,900 structures.

In response to fires in years past, California property owners have sought to recoup some of their damages by bringing lawsuits against power companies on the grounds that electric transmission and distribution lines and other equipment owned by the utilities played a role in starting the fires at issue. For example, in Barham v. Southern California Edison Company, homeowners argued that power lines ignited the wildfire that destroyed their homes. Finding in favor of such plaintiffs, California courts have held power companies liable for wildfire damages, effectively creating a social insurance regime in which power companies provide additional insurance to homeowners who face losses.

California is unique in this approach. The state constitution requires that the government must pay an owner fair compensation whenever property is taken or damaged for public use under the state’s eminent domain power. Normally, this process occurs when a public entity initiates an eminent domain proceeding. But when the public entity fails to do so, property owners may seek compensation by bringing an inverse condemnation action. As the California Supreme Court has explained, “The underlying purpose of . . . inverse . . . condemnation is to distribute throughout the community the loss inflicted upon the individual by . . . public improvements: to socialize the burden . . . that should be assumed by society.”

The application of this doctrine has been expanded to hold privately owned utilities liable when they damage private property while providing a public service. Courts have explained that while inverse condemnation liability applies only to public entities, privately owned utilities may be held liable as public entities because such utilities enjoy a state-protected monopoly to provide a public service and are afforded some eminent domain authority to construct the power lines that serve customers. As the Barham court explained with respect to the wildfire case against SCE, public utilities are therefore “more akin to a governmental entity.” In the court’s view, because utilities provide “services and functions . . . of vital public interest,” the “loss-spreading rationale” that drives inverse condemnation still applies. “The fundamental policy” driving these decisions “is to spread among the benefiting community any burden disproportionately borne by a member of that community.”

In effect, the state courts have grabbed onto the utility model as a way to spread risk, akin to an insurance program for fire damages. Critical to this policy rationale, however, is the assumption by courts that the loss will successfully be redistributed among the public. In inverse condemnation cases against governmental entities, this makes sense because costs incurred by such entities can be socialized through taxes, thereby distributing the costs across the public.

But this assumption breaks down when the entity incurring the costs is a privately owned entity that does not have the ability to tax. While a utility could theoretically spread costs across its customer base by raising charges, those prices are closely regulated by California’s Public Utilities Commission. As noted by a state appellate court in Pacific Bell v. Southern California Edison — another inverse condemnation case involving a privately owned utility — this tight regulatory control is in large part due to the fact that utilities enjoy state-protected monopolies over services that are essential to the public.

In return, the state regulates the prices that utilities charge their customers. Pursuant to the California Public Utilities Code, the Public Utilities Commission therefore ensures that all charges for services provided by a public utility are “just and reasonable.” To do so, the commission hears general rate case proceedings that determine the costs of operating, maintaining, and financing the infrastructure used to run the utility. Using these numbers, it authorizes the total amount of revenue a utility can collect in order to cover costs as well as a pre-approved profit.

Because electricity rates are predetermined via rate cases, utilities cannot simply adjust their rates when they experience unexpected costs. Rather, they must apply for approval to recover those costs through formal mechanisms established by the commission. Such applications, and the commission’s decisions to grant or deny them, are highly fact-specific and do not guarantee recovery.

It is here that the rationale adopted by the courts in Barham and Pacific Bell for holding utilities liable under inverse condemnation — and the de facto supplemental fire insurance regime — starts to break down. Those courts argued that utilities should be held liable under inverse condemnation theory precisely because doing so would ensure that the risks posed by the utilities’ services would be “spread among the benefitting community.” But, as SCE argued in Pacific Bell, this loss-sharing rationale does not make sense when applied to investor-owned utilities because utilities cannot reliably spread losses among the broader public without guaranteed cost-recovery.

Notably, the Pacific Bell court rejected that argument, stating that it was unpersuaded by SCE’s “implication that the commission would not allow Edison [rate] adjustments to pass on damages liability” from the case. This holding is striking because it indicates that the courts misunderstand key realities of ratemaking law, which simply does not guarantee recovery of unexpected costs. Indeed, last year the commission denied an application by San Diego Gas & Electric to recover costs incurred from similar wildfire litigation. This decision directly negates the Pacific Bell and Barham courts’ assumption that power companies can reliably spread risks of unexpected losses associated with their services across their customer base and, as a result, undermines the doctrinal rationale for applying inverse condemnation liability to privately owned utilities.

This raises the question of why California would turn to the utilities rather than the insurance markets as a mechanism to provide social insurance for fire losses. California does have a legislatively created insurer of last-resort for fires, called the California Fair Access Insurance Requirements Plan. Under the California Insurance Code, all insurers licensed to write property and casualty insurance must participate in the FAIR Plan. The FAIR Plan provides fire insurance policies to homeowners who cannot obtain them elsewhere, and participating insurers bear the losses and expenses of the plan in proportion to their share of the market. However, while insurers are required to provide coverage, homeowners are not legally required to buy the policies. And even those homeowners who do have fire insurance may well find themselves under-insured in the event of a catastrophic loss if they have not purchased additional fire coverage. The courts’ approach to inverse condemnation in these cases exacerbates under-insurance concerns and fails to incentivize risk mitigation, such as zoning restrictions for fire-prone areas.

The literature establishes that most property owners will tend to under-insure for natural disaster risks and fail to take mitigation measures to reduce their hazard exposure. It is not clear why the policy solution to these behavioral economic problems should be to shift the cost of losses to utilities — especially if they are unable to socialize the costs of those losses through rate recovery. As noted above, this is particularly problematic because losses from wildfires, as is true with all natural disasters, are widespread and occur at the same time. Further, unlike an insurance underwriter or a government relief program, utilities providing social insurance through inverse condemnation proceedings have no ability to incentivize investments that will mitigate future wildfire risks. As it stands, California’s current approach to wildfire losses is unsustainable and fails to achieve either the risk spreading or hazard mitigation goals of a social insurance program.

As a society, we have been politically committed to the idea of spreading the costs of disaster losses.
Continuing this commitment in the face of projected increases in such losses due to climate change will require that social insurance programs be restructured to ensure that while they spread risk, they also create sufficient incentives to engage in hazard-mitigation behavior. This can be accomplished both through rate reductions in subsidized insurance programs and also through conditioning receipt of disaster relief for rebuilding on the adoption of hazard-mitigation measures. To be most effective, social insurance programs should be administered in concert with zoning requirements to ensure that taxpayer funds are not being used in a manner that will increase future losses. As currently structured, most programs create a significant moral hazard by allowing property owners to rebuild in disaster areas with full knowledge that others will bear the cost should they lose their home again. On this dimension, California’s current use of inverse condemnation looks particularly inadequate, as neither the utilities nor the state have the ability to condition how any awarded compensation can be spent — meaning there is no way to encourage mitigation.

There are several ways that the programs discussed in this article could be modified to encourage hazard mitigation. For federal and state insurance programs, premiums should accurately reflect risks in order to provide stronger signals to policyholders regarding the hazards of building in certain locations. NFIP, for example, should rely on up-to-date flood zone maps when setting rates. Social insurance programs should also encourage hazard mitigation by offering discounted premiums for such measures, as NFIP does. In addition, state programs should be structured to take full advantage of federal disaster mitigation funds. For example, California’s legislature might consider creating a comprehensive social insurance program that takes advantage of the federal Pre-Disaster Mitigation Program, which provides grant funding for wildfire and utility-line mitigation measures.

Social insurance programs also need to ensure that there is a continued source of funds that can be drawn upon in the event of disaster. As noted, this is a major concern for NFIP, which has put FEMA in debt. The obvious solution is to raise premiums to reflect the actual risk of natural disasters. However, to the extent that this is politically unpalatable, legislators will have to come up with some other funding mechanism. Florida, for example, chose to address this problem by giving Citizens the authority to levy assessments on policyholders in order to pay for any losses that exceed premiums.

Finally, programs should distribute costs in a manner that reflects the likelihood of increasing losses in the future. The current federal system seems designed to provide relief for truly one-in-a-lifetime disaster events that communities could not have foreseen nor prepared for. However, NOAA reports that in 2016, the United States was subject to 16 separate disaster events with damages in excess of $1 billion. Therefore, any reexamination of social insurance programs should ask whether these significant costs are most appropriately spread over the federal tax base as a whole or if social insurance for certain types of risks should be spread across a smaller subsection of property owners who share in that risk, as the California courts seem to have intended. TEF