Towards a Resilient Gulf CoastTowards a Resilient Gulf CoastA Utility’s Perspective onA Utility’s Perspective on

Risks, Challenges & OpportunitiesRisks, Challenges & Opportunities

2010 NCSL Coastal Policy Forum2010 NCSL Coastal Policy Forum

October 21, 2010October 21, 2010

Jeff WilliamsJeff WilliamsDirector, Climate ConsultingDirector, Climate Consulting

Agenda

Climate Science Uncertainty Importance of investing in

mitigation and adaptation Opportunities from investing in

clean energy future Opportunities and challenges for

building a resilient coast

Scientific Uncertainty is a reason for action not delay It’s not a question of if man’s activity

will warm the planet (98% of scientists agree that it is)

The uncertainty is over how much impact and when it will happen

The risk is that we maybe approaching tipping points of no return

Bold, urgent action is needed to avoid this risk

Meaningful action takes the worst Meaningful action takes the worst outcomes off the tableoutcomes off the table

Warming is scalable to sea level rise, more intense storms, probability of crossing tipping points

In 2010 we reached 390 ppm CO2 and are adding 2 ppm per year

1 ppm CO2 = 2.1 billion tons CO2 of emissions above what can be removed by land and ocean sinks

When the peak occurs and how steep When the peak occurs and how steep the reduction trajectory is the reduction trajectory is determines how much adaptation determines how much adaptation risk can be avoidedrisk can be avoided

Source IPCC Fourth Assessment Report

In order to stabilize at 400 ppm CO2, global emissions will need to peak within the next five years (by 2015) and then decline thereafter.

Mitigation Pathways to Limit Warming

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20

25

30

35

40

45

50

55

60

65

70

2005 2010 2015 2020 2025 2030 2035 2040 2045 2050

Expected temperature increase

3.0˚C

2.0˚C

1.8˚C

Probability of temperature increase under 2˚C

15-30%

40-60%

70-85%

Peak at 550 ppm, long-term stabilization 550 ppm

Peak at 510 ppm, long-term stabilization 450 ppm

Peak at 480 ppm, long-term stabilization 400 ppm

Source:IPCC WG3 AR4; den Elzen, van Vuuren; Meinshausen; McKinsey Global GHG Abatement Cost Curve v2.0; Project Catalyst analysis

Global GHG emissions and pathways for GHG stability, Gt CO2e,

With warming >20C (3.6oF) probability increases that we’ll reach a point of no return for melting the Greenland ice sheet over the next few hundred years eventually adding 6m (20’) of sea level rise

SOURCE: Stern Review; IPCC, 4TH Assessment Report, Climate Change 2007: Synthesis Report

Climate change may increase those risks, creating huge challenges

Temperature above preindustrial

4. Ecosystem

6. GDP

1 .Weather

2. Water

3. Food

5. Social

1º C 2º C 3º C 4º C 5º C

Scenario A1B

IPCC AR4 worstcase scenarios

Changes in water availability, threatening up to a billion people

Threat to local water supply as glaciers melt

Major cities around the world threatened by sea-level rise

Many more species face extinction

Ecosystems extensively and irreversibly damaged

More than a billion people may have to migrate – increasing the risk of conflicts

Loss of up to 20% of global GDPLoss of GDP in developing countries

Falling yields in many developed regionsFalling crop yields in many developing regions

More intense storms, forest fires, droughts, flooding, and heat waves

Coasts are already experiencing hazards related to climate and sea level rise (very high confidence)

The Business Case

As a company serving the Gulf Coast, Global Climate Change effects put at risk:

• Our customer base

• Welfare of our employees, their families and our communities

• Billions of dollars of investment

18391839 18701870

19931993 20202020

Louisiana coast line loses 24 square miles a year.

Coasts will be exposed to increasing risks over coming decades due to many compounding climate change factors (very high confidence)

Rise in sea level of 1.0 m by 2100;

Rise in sea surface temperature 3oC;

Intensified storms Storm Surge

(Cat 3 = 3-4m); Subsidence 1.0 m by

2100

This can be avoided – We have to be smart how we do it

“We have three choices: mitigation, adaptation and suffering. We’re going to

do some of each. The question is what the mix is going to

be? John Holdren, White House Science Advisor

Real adaptation is substantially more expensive than mitigation

Real adaptation without substantial mitigation is just a cruel euphemism

 Real adaptation by itself is so expensive (and endless) that it is essentially impossible to imagine how a real adaptation bill could pass Congress

The goal should be to choose a mix that minimizes the sum of mitigation, adaptation and suffering costs

Even with today’s climate we need to invest in a more resilient coast

• Creating a 5oC warmer world by 2100

• Irreversible commitment to sea level rise inundating low lying coastal areas

• Increased coastal flooding impacting up to 30 million people/year

• Increased damage from storms impacting up to 15 million people/year

• Global food shortages as adaptive capacity exceeded in low latitudes and yield decreases in higher latitudes

• Increased burden on health from malnutrition, cardio-respiratory and infectious diseases

• Water scarcity for up to 15 million people

• Catastrophic events

What is the cost of doing nothing?

Cost of Not Dealing With Climate Change Now: Illustrative

Do Nothing

Risk Management

5-20% GDP

Loss

1-2 % GDP

Loss

Crisis:

(6-12 Month

Lag)

GDP Loss %

The Cost of Doing Nothing

How do we minimize the total cost of climate change?

Invest in mitigation and resilience– Suffering from climate change could be

5x cost of mitigation (5-20% of GDP);– Mitigation through “technology

mandates are 2x the cost of mitigating using “market mechanisms”;

– Suffering that can’t be avoided through mitigation can cost effectively be avoided through investments in resilience

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

Bill

ion

Met

ric T

ons

1960 1970 1980 1990 2000 2010 2020 2030 2040 2050 2060 2070 2080 2090 2100

Year

US Rest OECD China India Rest of Developing

Global Pathway to Stabilize at 450 ppm CO2 eq (80% below 2000 by 2050)

By 2050

Emissions Need to Be Less than 1960

0

0.1

0.2

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0.8

0.9

1

0

50

100

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500

CO

2 p

pm

CO2 Concentration

17

The electricity sector is responsible for roughly 35 percent of total U.S. GHG emissions. Coal accounts for over 80 percent of the electricity total.

Transport

Electricity

Non-CO2

Industrial

Res + Comm

Oil/Gas

Coal

7053 Million Tons/Yr 2373 Million Tons/Yr

Source: EIA Annual Energy Outlook, 2006 and EPA Inventory of U.S. Greenhouse Gas Emissions Sources and Sinks, 1990 – 2004.

Use market forces intelligently to find the most efficient solutions

EPRI Prism ‘09

“If the U.S. is to substantially reduce ghg emissions over the next two decades while continuing to meet demands of the economy, new low-carbon electricity generation and supporting infrastructure will need to be designed built, and operated”

Prisim ’09 – Technology Targets

Geologic Sequestration for Enhanced Oil Recovery – 17.7 billion bbls in Gulf Coast could be produced with EOR if there were an affordable supply of CO2

EOR provides a opportunity for Gulf Coast region

Can provide lower cost long term secure geologic storage

CO2 captured from vent gas and injected into geologic formations for enhanced oil recovery.

Added revenue stream for CO2

Helps energy security Adds jobs, royalties and tax

revenues Leverages extensive

subsurface knowledge base and jump starts geologic sequestration market

Gulf Coast has capacity to store all CO2 emissions from power generation for 100 years

23

Twin Challenges (Opportunities?) Facing the Electric Power Sector

– Near-Term Retirements

30 to 40 percent, or roughly 150,000 of the 400,000 workers employed in the electric power sector are eligible for retirement or will leave the sector in the next 5 years.

– Long-Term Transition to a Low-Carbon Economy

De-carbonizing the electric power sector will require roughly 150,000 workers to design, construct, and operate the next generation of electric sector infrastructure.

Combined, these challenges represent replacement of 80% of the current electric power sector work force--300,000 jobs.

How Many Jobs?

Jobs to operate & maintain new clean plants needed

• 4-5 indirect jobs for each direct nuclear or CCS job created

Electric Sector Workforce

Pipeline

Recommendations

– 1) Evaluate regional training needs and facilitate multi-stakeholder energy sector training programs across the country

– 2) Improve energy sector data collection and performance measurement metrics and tools

– 3) Identify training standards and best practices for energy sector jobs

– 4) Provide funding support for individuals seeking energy sector-related training and education

– 5) Aggressively focus on revitalizing the math and science skills, education, and career counseling of individuals who have the interest and skills to work in the energy sector

Effectively addressing climate risk through adaptation

First comprehensive analysis of climate risks and adaptation economics along the U.S. Gulf Coast

– Granular, “bottom-up” analysis using a risk framework: Modeled 23 asset classes across residential, commercial,

infrastructure, oil, gas and utility Modeled 800 zip codes across 77 counties Simulated ~10,000 hurricane “years” across multiple

climate scenarios Modeled over 50 adaptation measures

– First time broad range of Gulf Coast stakeholders and experts engaged Discussed with over 100 global, regional academics,

government officials, industry experts and NGOs

Illustration of hurricane paths/ intensities

TXLA

MS AL GA

FL

TXLA

MS AL GA

FL

Gulf Coast Adaptation Study

Three climate hazards were evaluated along the Gulf Coast

Quick Facts on Context of Climate Risks in the Gulf Coast

3131

New Orleans skyline

Going forward, the risk we face is just going to increase, Going forward, the risk we face is just going to increase, given economic growth, subsidence and climate changegiven economic growth, subsidence and climate change

1 Represents cumulative of average expected losses between 2010 and 2030 2 Asset value (replacement cost) for New Orleans buildings are $60 bn

SOURCE: Swiss Re; Moody’s; FEMA; MMS; EIA; OGJ; Wood Mackenzie; Energy Velocity; team analysis; others

To place this in context, To place this in context, ~$370 bn could be used to ~$370 bn could be used to reconstruct New Orleans reconstruct New Orleans buildings six times overbuildings six times over22

2010 – 2030 cumulative losses

2010-20302010-2030

Extreme Extreme

changechange387387

2010-20302010-2030

Average Average

change change 370370

2010-20302010-2030

Today’s Today’s climateclimate 345345

Cumulative annual expected lossesCumulative annual expected losses

$ Billions; 2010 dollars$ Billions; 2010 dollars

Climate change is expected to increase losses over time

However, regardless of climate change, the Gulf Coast faces increase in risks from natural hazards

In the near-term, potentially attractive measures can address almost all the increase in loss and keep the risk profile of the region constant

3535

A large range in cost-benefit assessments exists for the potential portfolio A large range in cost-benefit assessments exists for the potential portfolio of measuresof measures

Note: Costs and benefits refer to net present values

Build all new residential Build all new residential buildings with 110-mph rated buildings with 110-mph rated shingles, applied with adhesive shingles, applied with adhesive strips strips

Improved roof cover, new builds C/B ratio: ~0.3 Cost: $340 M Benefit: $990 M Homes affected: 1.7 M

Increase vegetation Increase vegetation management cycle frequency management cycle frequency and remove hazard treesand remove hazard trees

Vegetation management, distribution

C/B ratio: ~1.0 Cost: $470 MM Benefit: $480 MM Miles affected: 51,000

All existing residential homes in All existing residential homes in the most flood-risk counties are the most flood-risk counties are elevated 10 ftelevated 10 ft

Home elevation, retrofits C/B ratio: ~5.5 Cost: $6.3 Bn Benefit: $1.2 Bn Homes affected: 123,000

3636

Residential/ Residential/ commercialcommercial

11 Building codesBuilding codes

Oil and gasOil and gas

66 Floating production Floating production systemssystems

77 Replacing semi-subs Replacing semi-subs with drill shipswith drill ships

88 Levees for refineries, Levees for refineries, petrochemical plantspetrochemical plants

Infra-Infra-structure/ structure/ Environ-Environ-mentalmental

33 Wetlands restorationWetlands restoration11

22 Beach nourishmentBeach nourishment

44 Levee systemsLevee systems11

Electric Electric utilityutility

99 Resilience of electric Resilience of electric utility systemsutility systems

0.40.4

0.10.1

1.41.4

7.57.5

1.31.3

0.70.7

0.50.5

1.11.1

1.71.7

0.30.3

Loss averted, 2030$ Billions

And there are some key near term actions to protect our region – that are And there are some key near term actions to protect our region – that are cost effective, and will help our economy and our environmentcost effective, and will help our economy and our environment

1 Included despite high C/B ratios due to strong co-benefits, risk aversion2 Total capital investment, non-discounted, across 20 years

55 Improved standards Improved standards offshore platformsoffshore platforms

TotalTotal

C/B ratioC/B ratioxx

0.70.7

1.31.3

1.61.6

0.70.7

0.50.5

3.33.3

0.70.7

3.83.8

0.90.9

CapEx required2

$ Billions

Public fundingPublic funding

Private fundingPrivate funding

1818

2525

11

1212

1211214444 7676

1515

55

1111

1818

1616

Potentially attractive measures can address the increase in annual loss between today and 2030 and keep the risk profile of the region constant

Conclusions

Climate science uncertainty drives the need for risk management initiatives for our region

Overall costs will minimized by bold investments in coastal mitigation and adaptation

There is an urgent need act now to address these challenges that is not being reflected in our political processes

Meeting these challenges will provide opportunity both today and for future generations

Questions ?Questions ?