Garry Booth comment: Fort McMurray wake-up - FREE

Garry Booth comment: Fort McMurray wake-up - FREE

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If you believe in a vengeful deity, the inferno that threatened the oil sands facilities around Fort McMurray might be seen as a divine signal that Canada should be doing more to combat climate change. Under successive leaders, Canada has been one of the worst performers on the global stage in terms of climate protection.

Wildfires are becoming a big problem in Canada as temperatures rise, with the wildfire season growing longer. Fires are not Canada’s only climate related problem: floods are more becoming more serious as precipitation increases over the country as well.

A vast area of Alberta was flooded in June 2013 leaving economic damages of around C$5bn; the event followed serious floods in 2005 and 2010. Yet Canada’s environmental performance has been lamentable over the years and it has long been a laggard at global summit talks.

According to the latest Climate Change Performance Index (CCPI) put together annually by Germanwatch, Canada came 56th out of 61 countries. The index measures key indicators such as CO2 emissions, decarbonisation progress and the development of renewable energy: Canada sits in the bottom six along with Australia, Japan and South Korea.

But at least Canada is improving its position, helped in part by a more forward looking government under Justin Trudeau that, unlike previous administrations, is ready to initiate policy changes at a federal level. Indeed, it moved up the table two places overall and up 12 places on policy evaluation.

More promising still, Canadian officials surprised everyone at the COP-21 climate talks in Paris last year by supporting an ambitious target of holding temperature rises to 1.5 degrees Celcius.

It’s possible that events like a wildfire causing the mass evacuation of a whole city can help keep up the popular momentum for Trudeau. Though given Canada’s continuing reliance on fossil fuels (like oil extracted from sand), it’s going to be a long haul.

Insured loss could have been monumental

The Fort McMurray wildfire was a potentially foreseeable and significant event that everyone could have prepared for - if they had had the foresight to think about it. Although Nassim Taleb would wring my neck for saying it, the Alberta fire was a grey swan event – as opposed to Taleb’s Black Swan concept. The Port of Tianjin is another good example of a grey swan in the sense that a big explosion in a warehouse is not totally unexpected – even if the overall effect of it was.

Tianjin was the loss that kept on giving, with insured losses estimated at $2bn by the end of 2015 to between $5bn- $6bn more recently (IUMI figures).

A change in the wind direction would have made all the difference at Fort McMurray, pushing the fire through the city and into the oil sand fields. It looks like the insured losses as they stand will put a big dent in the global reinsurance Q2 statement. But imagine how bad it could have been.

I’m no expert but the combination of wildfire and oil processes doesn’t sound like a great mix. The loss to property and in terms of business interruption could have created the grey swan to end all grey swans.

No smoke with fire

It’s easy to think that climate change mitigation measures will always be benign. But it turns out that they can have unexpected consequences, as is happening in the marine business. From January 1, 2015, the global cap on sulphur permitted in marine fuels for ships sailing in prescribed Emission Control Areas was reduced from 3.5% to 0.1%. Globally, all ships will be required to burn marine fuels with a sulphur limit of 0.5% from January 1.

The new edition of Allianz Global Corporate & Specialty (AGCS) points out there have been unexpected safety implications connected with the use of ultra-low sulphur fuel in vessels. Not only have there been power losses and electrical blackouts during critical manoeuvres but machinery claims are going up as well, as parts wear out too quickly.

There have certainly been ships called the Black Swan – but the same AGCS review reveals that the unluckiest ship name is derived from a mythical bird, Phoenix.

The bird of legend self-immolated on a funeral pyre before rising from the ashes to live again. AGCS analysis shows that three vessels with the name Phoenix have been lost over the past decade, making it the unluckiest vessel name.

What’s in a name?

Speaking of vessel names. People in the UK have been exercised by the hoo-ha surrounding the choice of name for a research ship intended to be decided by a competition. “Boaty McBoatface” actually won but was rejected on the basis it is too silly.

Yet a ship – or more accurately – a drone barge with a silly name is quietly getting on with its business. Last month (May), a Space X rocket successfully returned to the barge, which is called “Just Read The Instructions”, after it delivered a cargo into earth orbit.

Space insurance underwriters are impressed by this feat of space engineering but are not sure where it is going to lead them. One Lloyd’s underwriter told me he wonders when he will be asked to insure a secondhand rocket “with one careful owner”.

By Garry Booth -

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