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The Actuary The magazine of the Institute & Faculty of Actuaries
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News from the Resource and Environment Group

This is the first in a regular column by the Resource and Environment Group (REG) — a member interest group with over 350 members. The aim is to help actuaries with resource and environmental issues as they affect our profession, and suggest how actuarial skills may find new and exciting outlets in working to confront them.

Issues of resource depletion and environmental change are closely linked and is believed to be of fundamental importance to our profession. For example, actuaries should be interested in considering how the volatility and trend of oil prices could affect economic forecasts. Last November saw the launch of the first review of research in these areas: ‘Climate change and resource depletion; the challenges for actuaries’ http://tinyurl.com/64fglkk

Prof Nicholas Stern’s lecture ‘The low-carbon industrial revolution’ at the London School of Economics in March was a thought-provoking introduction to some of the possible consequences of climate change and on what can be done to avoid and mitigate these risks.

Stern summarised the statistics on greenhouse gas (GHG) concentrations, which have increased by over 50% since the 1800s and are expected to increase by a further 75% by the end of the century if decisive action is not taken to reduce GHG emissions. Climate forecasts published by the Intergovernmental Panel on Climate Change (IPCC) indicate that this level of GHG concentrations would result in an increase in temperature with a best estimate of around 5°C. Such an increase in temperature would be a 30-million-year high. This is likely to result in enormous changes including geographical transformations, the migration of vast populations and severe political conflict.

Stern justified the use of the word ‘revolution’ in the Q&A session by explaining that the transition to the new low-carbon economy will be a dislocation or paradigm shift from the existing economic model. Like the first industrial revolution, this too has the potential ultimately to transform our lives for the better.

If Stern is correct then this raises challenges and opportunities for financial services and the actuarial profession in particular. Financing the shift to low-carbon production will involve massive investment. One issue to face as actuaries is: what are the implications for economic forecasts if economics is moving through a paradigm shift?

In the REG we believe that actuaries can successfully adapt to these changes and expand the role of the profession by developing new areas, such as energy investment analysis, where our skill-set is needed. Over the coming months we will explore these issues further in this column.

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More REG content online
Agrotosh Mookerjee reviews two papers recently published in Nature magazine. The first ‘Anthropogenic greenhouse gas contribution to flood risk in England and Wales in autumn 2000’ by Pall et al examines the attribution of a single flood event. The second paper ‘Human contribution to more-intense precipitation’ by Min et al examines the attribution of heavy rainfall across the Northern Hemisphere. Visit www.TheActuary.com/875678