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Preventing Industrial Disasters in a Time of Climate Change: A Call for Financial Assurance Mandates

August 2018

Citation: 48 ELR 10662

Issue: 8

Author: Zachary C.M. Arnold

Financial assurance mandates (FAMs) may help induce coastal industries to invest in climate change adaptation. FAMs require companies to prove that they can pay for the liabilities they may incur—whether by drawing on their own resources or by bringing in a third party, such as an insurer or surety, to pick up the tab. FAMs are familiar tools whose strengths have been demonstrated in practice as well as in theory. Federal, state, and local regulators use them to reduce the risk of catastrophes of all sorts, from nuclear incidents and oil spills to impacts resulting from abandonment of dangerous facilities. History shows that these measures can be effective and reasonable in cost. And crucially, because they are relatively simple to design and enforce, FAMs are particularly appropriate for use by state and local policymakers, making them well suited to an era of federal gridlock and geographically uneven climate impacts. For these reasons, policymakers should require many coastal firms to buy insurance for the harms their operations may cause to others as a result of the coastal impacts of climate change.

Zachary C.M. Arnold is an Associate with Latham & Watkins, L.L.P.

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