Welcome to Module 3. I want to start by giving you a sense of my overall goals for this module. I would like you by the end of this module to understand the concept of climate resilience as a goal in addition to climate mitigation. We're going to focus on this by taking a deep dive into a case study of building climate resilience and the way that a set of private firms can act in this space. First, I'm going to provide you with some context. I'm going to talk about the concept of ecosystem services also known as natural capital, and we're going to talk about the vicious cycle that climate change plays with respect to ecosystem services. Second, I'm going to explain how public law addresses ecosystem services and to identify some gaps in public law legal rules. Third, I'm going to offer a basic primer on insurance as a novel form of private environmental governance that has a significant role to play in protecting ecosystem services in the face of threats from climate change. Finally, we're going to do a deep dive into a case study, the concept being that rather than providing an insurance policy for a property like a home or a business instead insurance can cover an ecosystem itself. That's my plan for this module, let's get started. In this module when we talk about insurance, I want to give you an overarching sense of what some of the key questions are. The first question is whether and how property insurance can be designed to provide incentives for investment in nature-based solutions and ecosystem services to address risks from climate change? Today I'm going to focus in particular on the topic of coastal risk. Second, I'm planning to address the question of when nature-based insurance might be preferable to insuring homes or businesses. Third, why insurance? What is it that we gain by using insurance in this context as compared to some other tool of either public or private environmental governance? Finally, the module will conclude by asking the question of how generalizable is the concept of ensuring nature. I'm going to focus as I mentioned on coastal resilience, but there are other contexts in which this approach may be applicable. What is climate resilience? What are ecosystem services and why should we care about them? In Module 1 I gave an explanation of the transition to a net-zero economy by 2050. Largely that presentation focused on the idea of mitigation, reducing or avoiding greenhouse gas emissions so that we can get to a situation in which there is balance in the atmosphere by 2050 and we have not exceeded our carbon budget. Resilience is defined as the ability of a social ecological or socioecological system and its components to anticipate, reduce, accommodate, or recover from the effects of a hazardous event or trend in a timely and efficient manner. What does that mean in the climate context? What is climate resilience? Climate resilience refers to the capacity of organizations, individuals, and societies to live with, adapt to, and become better equipped to handle those climate risks that are already upon us. If today's focus is all about ecosystems, first, I want to be sure you understand what an ecosystem is. An ecosystem is essentially a dynamic complex of plant, animal, and microorganism communities, and the non-living environment that acts as a functional unit. That's the definition that comes from the United Nations Millennium Ecosystem Assessment, but what are some examples of ecosystems? These should all be familiar to you. They include natural resources like pollinating insects, the bees you can see in the image in front of you. They include spatially-delineated areas of nature like forests, wetlands, coral reefs, coastal mangroves, and the global atmosphere, each of which provides services for the benefit of human life. If we know what ecosystems are, what are ecosystem services? Ecosystem services refers to a somewhat anthropocentric notion of ecosystems as providing certain different kinds of benefit for human life. Another way of referring to ecosystem services is natural capital. There are four different types of ecosystem services according to the United Nations Millennium Ecosystem Assessment. They can be divided into provisioning services, regulatory services, cultural services, and supporting services. Provisioning services are in a way the most straightforward. This is the way in which an ecosystem can provide goods for human consumption. One example would be the way in which a forest provides timber which can be used to construct homes, or build a fire, or otherwise participate in various construction projects, or the way in which a river, lake, or the ocean can provide fish for human consumption. The second category of ecosystem services is known as regulatory services. These are ecosystem services in which the ecosystem regulates the environment for human benefit. For example, the atmosphere generates oxygen so that we all can breath. The soils provide nitrogen which is necessary to grow food that we consume. The third category of ecosystem services is perhaps more aesthetic in nature. It's the notion of cultural services. People enjoy camping in the woods, hiking in the forests, swimming in lakes and river. Cultural services refers to the way in which ecosystems provide recreational and aesthetic enjoyment for human benefit. The fourth category is supporting services. This is a form of ecosystem services that provides an indirect benefit for humans. Ecosystems can regulate the land for the benefit of non-human actors like bees or birds who then indirectly support human life. An example of a supporting service might be a habitat that supports birds or bees who then pollinate crops for the benefit of human consumption. One significant challenge about ecosystem services is that they are what economists would call public goods. Public goods can be identified by two key characteristics. The first is that they are non-rivalrous. The second is that they're non-excludable. What do I mean by each of these terms? Non-rivalrous refers to the idea that my use of something does not preclude your use of it as well. I breath air into the ecosystem of the atmosphere and so do you. That's different from say, driving my car which preclude you from simultaneously driving my car. Non-excludable refers to the idea that no one can be excluded from the benefits of the ecosystem. What is the effect of these two characteristics? There tends to be what economists have found under investment in public goods. If I invest in the protection of a public good everyone else around me can free ride on my efforts and I do not exclusively reap the benefits. If I have a car and I take excellent care of my car and I bring it to the mechanic regularly, I benefit from the maintenance that I'm putting into my car. But if we're thinking about an ecosystem like the atmosphere; if I take care to make sure that my greenhouse gas emissions are low, then everyone else who breaths air benefits from my behavior and can free ride on my behavior. Now of course one individual behaving well with respect to the atmosphere may not sound like a very important way of guarding that ecosystem, but you can imagine how that works scaling up if we're talking not about individuals but about nations. Some other examples of public goods other than the global atmosphere include things like national defense or lighthouses. These are examples of goods in which the government invests heavily because everyone benefits from strong national defense. Anyone who's in the ocean or on a river with rocky shoals benefits from a lighthouse even if they don't necessarily contribute to its upkeep. Another key challenge for ecosystem services is that they are extremely hard to value. The one exception to this is the idea of provisioning services like fish and timber. Those can be bought and sold in markets, and therefore they're extremely easy to value. But if we're talking about the benefit that I derive from taking a hike in the wilderness or the benefit that the United States of America derives from the coral reefs acting as natural seawalls along its coast, those are much more difficult to value. These services are not traded in markets, and as a result this raises questions about how much to invest in their protection and restoration if they're harmed as well as what is the appropriate level of regulation to protect them. Despite the difficulties and challenges of valuing ecosystem services that are not things like fish and timber that are traded in markets, economists have actually come up with certain valuation methodologies. These include things like replacement cost. If a wetland provides certain ecosystem services such as the purification of water how much would it cost instead to build a water filtration plant? That might be one way to determine the value of the wetland. Another way to value ecosystem services is based on something like willingness to pay. You could do a consumer survey to ask how much people would be willing to pay to have the benefit of a particular habitat. Again, the challenge with that method is that your average person on the street taking that survey doesn't necessarily know all the benefits that they derive from that ecosystem. A final way that economists have used to value these intangible ecosystem services is known as revealed preferences. If there's an aesthetic benefit that humans receive from living near natural resources like the woods, an economist could compare home prices for homes that are close to this ecosystem with home prices that are further away and attempt to determine how much more consumers are willing to pay to be near an ecosystem. Each of these different methods is an effort to value these services indirectly. Why do we need to value these services? Again, the question of how much value they provide raises important questions for how much protection these services may warrant in the regulatory space and what forms of public law or private governance would be appropriate to protect them. I'd like to give one final preview since I'm going to be focusing on insurance going forward, is that insurance doesn't necessarily face the same problems as public law regulations because insurance can rely on estimates that are much easier to obtain such as for example the cost of restoring a damaged ecosystem rather than the sum total of all of its benefits to humankind.
