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freeman-lab committed Jul 22, 2023
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Expand Up @@ -41,7 +41,7 @@ Physical climate risks are relevant to the entire United States economy. Any giv

To narrow scope, the workshop focused on a particular case study about the financial risk to one sector (electric utilities) impacted by one climatic hazard (extreme heat). This focus area was chosen for two reasons.

First, electric utilities serve an important public function through the provision of essential services. Power outages pose serious health consequences, such as temperature-related illness or disruption of care for individuals who rely on electricity-dependent medical equipment.<Cite id='casey.2020' /> <Sidenote>According to the North American Electric Reliability Corporation’s (NERC) 2021 Long-Term Reliability Assessment, long duration weather events driven by climate change threaten reliability when demand for electricity is driven above forecasts and supplies are reduced, especially when extremely hot weather encompasses a wide area for an extended period of time.</Sidenote> Electric utilities have increasingly been impacted by extreme weather events, causing tragic loss of life and significant economic and health consequences. [For example](https://www.mckinsey.com/industries/electric-power-and-natural-gas/our-insights/why-and-how-utilities-should-start-to-manage-climate-change-risk), in 2017, Hurricane Harvey’s strong winds and record-breaking catastrophic flooding knocked down or damaged more than 6,200 distribution poles and 850 transmission structures across Houston, Texas. In California, an [investigation](https://www.theverge.com/2019/5/15/18626819/cal-fire-pacific-gas-and-electric-camp-fire-power-lines-cause) by the California Department of Forestry and Fire Protection found that the Camp Fire – California’s deadliest and most destructive wildfire on record – was caused by electrical transmission lines owned and operated by the Pacific Gas and Electric Company (PG&E).<Sidenote>PG&E [filed for Chapter 11 bankruptcy](https://www.washingtonpost.com/business/2019/01/29/pge-nations-biggest-utility-company-files-bankruptcy-after-california-wildfires/) following the 2017 and 2018 wildfire seasons.</Sidenote> More broadly, according to the [Fourth National Climate Assessment](https://nca2018.globalchange.gov/), utility infrastructure designed for historical climate conditions is more vulnerable to future weather extremes driven by climate change. Preparation for these changes, while crucial, also has associated costs. According to [recent estimates](https://www.mckinsey.com/industries/electric-power-and-natural-gas/our-insights/why-and-how-utilities-should-start-to-manage-climate-change-risk), preparing a typical Southeastern utility for the impacts of climate change will cost between $700 million and $1 billion.
First, electric utilities serve an important public function through the provision of essential services. Power outages pose serious health consequences, such as temperature-related illness or disruption of care for individuals who rely on electricity-dependent medical equipment.<Cite ids={['casey.2020','note.nerc']} /> Electric utilities have increasingly been impacted by extreme weather events, causing tragic loss of life and significant economic and health consequences. [For example](https://www.mckinsey.com/industries/electric-power-and-natural-gas/our-insights/why-and-how-utilities-should-start-to-manage-climate-change-risk), in 2017, Hurricane Harvey’s strong winds and record-breaking catastrophic flooding knocked down or damaged more than 6,200 distribution poles and 850 transmission structures across Houston, Texas. In California, an [investigation](https://www.theverge.com/2019/5/15/18626819/cal-fire-pacific-gas-and-electric-camp-fire-power-lines-cause) by the California Department of Forestry and Fire Protection found that the Camp Fire – California’s deadliest and most destructive wildfire on record – was caused by electrical transmission lines owned and operated by the Pacific Gas and Electric Company (PG&E).<Sidenote>PG&E [filed for Chapter 11 bankruptcy](https://www.washingtonpost.com/business/2019/01/29/pge-nations-biggest-utility-company-files-bankruptcy-after-california-wildfires/) following the 2017 and 2018 wildfire seasons.</Sidenote> More broadly, according to the [Fourth National Climate Assessment](https://nca2018.globalchange.gov/), utility infrastructure designed for historical climate conditions is more vulnerable to future weather extremes driven by climate change. Preparation for these changes, while crucial, also has associated costs. According to [recent estimates](https://www.mckinsey.com/industries/electric-power-and-natural-gas/our-insights/why-and-how-utilities-should-start-to-manage-climate-change-risk), preparing a typical Southeastern utility for the impacts of climate change will cost between $700 million and $1 billion.

Second, extreme heat has a direct relationship to utility operations. [For example](https://www.ncbi.nlm.nih.gov/pmc/articles/PMC7749027/#R11), higher temperatures not only increase electricity demand to provide cooling, but also lower the ability of transmission lines to efficiently carry power, increasing the likelihood of reliability issues, such as rolling blackouts, during prolonged heat events (e.g., heat waves).

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