Could fracking save Venice?
13. Lifting land, repairing reefs, and keeping the lights on
Note: The views expressed here are the author’s own and do not reflect the views of Energy Impact Partners.
Housekeeping
Last time around, I mentioned that I was excited to share more about EIP’s Frontier Fund soon. Well, that day has arrived! We recently announced the final close of the Frontier Fund, a $485MM vehicle dedicated to deep decarbonization. That’s a lot of capital, and all credit goes to my EIP teammates. I just showed up six weeks ago to help invest it. Speaking of which, you know the drill: if you’re building a company and think we might be a match, drop me a line.
Inflation (not that kind)
When it comes to climate change, we have the luxury of being able to look into the future. While some places are on the front lines of climate change, most are not yet. That means most of us can learn from some other place that has it worse before implementing our own measures. When it comes to fending off sea level rise, our crystal ball is Venice.
The front page of the Washington Post last weekend featured an article about Venice’s recent struggles with the rising Adriatic Sea, while, famously, the ground beneath the city sinks. Long story short, the city built floodgates to protect against unusually high tides, but sea levels are rising faster than expected, so the floodgates are seeing more action than expected. And even with floodgates, parts of Venice still end up flooding, so the city will need to figure out some more permanent solutions. It’s a good article and I’d encourage you to read it.
It’s an interesting problem, but I want to talk about a proposal for a long-term solution mentioned toward the end of the article. To set it up, let’s lay out a few basics.
Venice sees sea-level rise of about 2.5 millimeters per year. There are two components to this, and it turns out their historical contributions are about half and half:
The sea is rising.
The land is sinking, because:
The Adriatic tectonic plate is undergoing subduction,
Venice’s muddy foundation is slowly compacting over hundreds of years, and
Nearby factories withdrew too much groundwater in the 1950s and 60s.
Moving forward, it’s probably fair to assume that the sea level contributions will increase because climate change is happening,1 but the land-related contributions will decrease because we’ve stopped pumping groundwater in the area.
We don’t have much control over tectonic activity or mud compaction, and we’re already trying our best on the whole climate change thing, but maybe we could do better than simply not withdrawing groundwater? From the Post article:
Among the long-term proposals, the most prominent calls for the injection of seawater into aquifers deep underground. Such injections, performed at various boreholes that would be created throughout town, could raise Venice some 20 to 25 cm — in effect wiping away 150 years of sinking and sea change, said Pietro Teatini, one of the hydraulic engineers behind the idea.
Similar injections have been used by energy companies for gas storage, and to help mitigate sinking or otherwise raise land under population centers such as Tokyo and Taipei.
Scientists who spoke to The Post were highly divided about the idea for Venice. One called it “terrible” and worried about how the city’s surface could be raised evenly. Yet others said the idea might work. Testing would first need to be performed on a small scale.
Now this is interesting. We’re pretty good at drilling holes and injecting fluids into them, and if we get it just right, perhaps we could inflate Venice’s way out of a century and a half of sea-level rise.
One of my grand theses about climate tech is that our wealth of subsurface engineering knowledge will prove useful for far more than oil and gas extraction: energy storage, geothermal energy, and increasingly efforts like carbon sequestration, mineral production, and even re-freezing the ice caps. Can we add raising cities from the sea to the list?
It sounds crazy, but we’ve already been hydraulically lifting land for the past few decades. Sometimes it’s been accidental, sometimes on purpose. A 2011 review article by Pietro Teatini (the engineer quoted in the Post) and colleagues highlights 13 examples across four continents. The overarching conclusion is that this is plainly possible.
On top of that, it’s potentially very cheap. Whereas Venice’s flood gate project cost $6B, Teatini projects estimates that a full-scale uplift project would cost just $21MM. Even if he’s off by a factor of 10, it’s still cheaper.
Here’s what a campaign could look like:
On the left, you can see a ring of injection wells surrounding Venice. Those are the small circles where the pressure is highest. On the right, you can see a mesa-like uplift that the authors modeled.
Is there new technology to be built? Given the uncertainty in these models, our capacity for drilling and injecting fluids, and the trillions of dollars in property at stake, I have to think so. Maybe you could build a new kind of subsurface modeling company, or maybe there’s a novel well configuration that could improve on Teatini’s design. Maybe this is fracking’s killer app. This idea doesn’t look that different from what Quidnet Energy is already doing.
There isn’t a market for this, but you could imagine one: if we multiply Teatini’s $21MM estimate for Venice by the number of cities contending with rising sea levels (~570; and most are larger than Venice), it looks like this is an order of magnitude $12B opportunity. There could be other reasons one might want to raise land a little bit: maybe to avoid flooding rivers or to drain land more effectively. There are even plausible exit pathways for startups: acquisition by an oil services company (e.g. SLB, Halliburton, or Baker Hughes), or a state-owned oil company like Eni.
It should go without saying that this isn’t ideal. You’d rather not have sea-level rise, and if you have to accept some, you’d rather treat the causes than the symptoms. But here we are: the oceans have absorbed more than 90% of the excess heat attributed to GHG emissions, and in the best of cases, it’ll take a while for them to cool off. Unless we come up with something new, the future holds more floodgates and sea walls.
Climate insurance
Imagine you own an old log cabin on a nice plot of land out in the country. You visit often, you host friends, and you take care of it well. You’re not perfect – homes are money pits and you can spend as much as you want on them – but you do all right. You know the cabin doesn’t have an infinite lifespan, but you’re hoping it lasts a long while, maybe long enough to hand down to the kids.
Now imagine your good friend, who’s fabulously wealthy and good looking – let’s call him Michael Campos – comes over and gives you some bad news: Actually, your cabin is at risk of collapsing. Because the factory down the road is drawing so much groundwater, the soil isn’t as stable as it was when you bought the place. He knows it’s true because he’s a big nerd and has access to the latest INSAR data, and sure enough, he shows you that your land is sinking. It’s hard to tell how likely a collapse is, but it’s more than you’d like. You’ve got homeowners insurance, but it won’t cover very much in the event of a collapse. Shit.
But then he starts telling you about how devastated he’d be if it collapsed – it’s such a nice cabin; you’ve had such good times there over the years; what would you be handing down to your kids if it collapsed and you couldn’t rebuild? You can sense he’s building up to something and wish he would just spit it out. Eventually, he hits you with some news: he has taken out a new insurance policy on your cabin. He of course does not own your cabin, but he wants to help and has the means. He’s paying the premiums and he’s handling the paperwork, and in the event that your cabin does collapse, the insurance company will pay out to rebuild the cabin and fortify the foundation. All you have to do is say yes when the time comes.
What do you do with that? On the one hand, your pride is a little wounded – that’s your stuff, not his – but on the other hand, what a generous and creative thing to do. But now that you think of it, does he really know what he’s getting into? He’s spent a lot of time there, but doesn’t know the place like you do. Does it matter? He’s clearly good for the premiums. But wait, now your finances are tied to his? What if somehow he falls on hard times and can’t keep the coverage? Now that you think of it, you did hear him muttering something about FTT a few weeks ago. And even if everything works out, is he really aligned with you? I mean, you’re good friends, but not family. Even if he gives you full control when the time comes, there’s a degree of influence there. It’s a strange situation.
Now replace yourself with the state of Hawaii, me with The Nature Conservancy (TNC), your log cabin with coral reefs, and soil instability with severe weather, and you have a thing that is happening:
As climate change makes coastal storms more destructive, an environmental group is trying a new approach to protecting Hawaii’s coral reefs. It could become a model for defending natural structures around the country — if it works.
The plan involves an urgent sequence of actions that, in theory, will unfold like this:
Step 1: The Nature Conservancy, a large environmental nonprofit, takes out an insurance policy for all 400,000 acres of coral reefs surrounding Hawaii’s 137 islands, despite not owning those reefs, which are on public land.
Step 2: If Hawaii experiences a storm strong enough to damage the reefs, the Nature Conservancy will get a payout from the insurance company within about two weeks. (Compared with most insurance policies, that is the approximate equivalent of light speed.)
Step 3: The Nature Conservancy will ask the state of Hawaii, which owns the reefs, for a permit to repair the storm damage. While permission isn’t guaranteed, the odds seem good considering Hawaii doesn’t have the money to do the work itself.
Step 4: If state officials say yes, the conservancy will use the insurance money to pay teams of divers to start repairing the damage. This stage most closely resembles a race: They have about six weeks, starting from the storm. After that, the broken coral dies, further shrinking Hawaii’s best protection against future storms.
On Monday, the Nature Conservancy, which is based near Washington, D.C., completed the first step and bought a $2 million insurance policy on Hawaii’s coral reefs. It is the first insurance policy in the United States for a natural structure, according to the group, following similar efforts in Latin America. The conservancy says that if the experiment is successful, it will look at expanding the model to other states and include other natural features that shield against storms, such as mangroves, wetlands or coastal dunes.
It’s definitely strange, but also pretty innovative? Take out property insurance on things that are important to you but not your property, dutifully pay the premiums, and then should the worst happen, gamble that the party whose things you’ve insured is cool with the arrangement.
It’s easy to see how this is climate-relevant. Much of the stuff threatened by climate change isn’t property in the usual sense: it’s the environment, or a natural resource, or the broad concept of biodiversity. Insofar as these things are property in the traditional sense, they’re the property of governments. And while governments can and do take out insurance policies, they’re not generally going to take out bold and unprecedented ones like this.2 We’ve got ourselves a good old-fashioned market failure. It’s the perfect play for a well-capitalized nonprofit like TNC.
Let’s get under the hood. Under this policy, TNC pays a premium of $110,000, working through insurance advisor WTW, in exchange for $2MM in coverage. The policy covers reefs across most of Hawaii through the end of 2023. It’s not immediately clear to me why $2MM was chosen, but one article notes that reef repair work can cost anywhere between $10,000 to $1.5MM per hectare. The policy is parametric, meaning that payout is automatically triggered once a certain condition is met. Specifically, payouts begin after winds reach 50 knots, and they increase with higher wind speeds. Parametric insurance is an increasingly popular structure, where a key benefit is faster payout: rather than travel out and survey the damage, the insurance company need only verify that the target wind speed was reached. And when it comes to reefs, time is of the essence, since broken coral dies in about six weeks.
This all makes sense, but I can’t help but wonder about a few things:
Who actually underwrote the policy? I’m finding that hard to track down. If you know, drop a comment.
Is Hawaii actually down with this whole thing? From what I can tell, the state legislature did at least discuss it a few times.
How was the premium-to-payout ratio ($110,000 / $2,000,000 = 5.5%) chosen? Presumably, this means that the insurer thinks there’s less than a 5.5% chance that Hawaii experiences a storm with extreme winds in the next year. I would guess they think it’s actually much less than 5.5%, because this is a new type of policy with lots of uncertainty, and they’d like to make a profit.
At a high level, an insurance policy is a bet: the policyholder is betting that bad things are going to happen at some frequency, while the insurance company is betting that bad things are not going to happen as frequently as policyholders think. If TNC is going to financialize ecological concern, I guess it’s good to know that someone will take the other side of the trade.
Power outages
I think we’re going to see more power outages as climate change continues. It’s not a complicated argument:
Climate change leads to warmer averages and greater extremes, both of which degrade physical infrastructure that wasn’t designed for them.
Warmer averages and greater extremes also lead to greater demand for electricity.
More and more power is coming from intermittent renewables, which is a stressor in its own right, and grid-scale energy storage isn’t yet keeping up.
These will collide to create more interruptions and an overall less stable grid.
Utilities are working hard to keep the lights on, of course. But it’s a tall order when, for example, Texas has its deepest freeze in 72 years, lots of energy-generating and -transporting infrastructure freezes up because it wasn’t designed for cold weather, people turn on their electric heaters anyway, and supply can’t meet demand. So it’s not a surprise that, per the US Energy Information Administration (EIA), power outages have indeed increased since 2016:
The EIA notes:
On average, U.S. electricity customers experienced just over seven hours of electric power interruptions in 2021, almost an hour less than in 2020. When major events—including snowstorms, hurricanes, and wildfires—are excluded, the average duration of interruptions annually remained consistently at around two hours per year from 2013 to 2021.
In other words, utilities aren’t scoring more own goals. There are more frequent and severe natural disasters for them to contend with. Consistent with this, the states with the most and longest interruptions were Louisiana (Hurricane Ida), Texas (aforementioned freeze), and Oregon (heat dome, ice storm, Bootleg Fire):
I feel silly saying this, but it’s important to note that power outages are bad. Just as oil and gas are lifelines we can’t yet sever, the grid is the lifeline that we hope largely replaces oil and gas. It’s really important that it doesn’t fail! Economic activity slows, quality of life plummets, and people die when power outages happen. We should not accept more frequent power outages, despite – and because of – increasing climate threats.
It’s also important to note that we can solve most of these problems without new technology: build more poles and wires, winterize pipelines, design larger cooling systems, and so on. But high costs and difficult political and regulatory landscapes can make improvements hard to implement.3 So I think innovation will play a large part in solving this problem.
At EIP, we’re fortunate to back a range of companies working on this – Enchanted Rock, GridVision, Innowatts, and more – but I think we’re looking at the tip of the iceberg. As power outages trend upward, it’s our job to pull them back down. Let’s flatten the curve.
Elsewhere:
Solve for these please: Carbon removal knowledge gaps
Thanks for reading!
Please share your thoughts and let me know where I mess up:
As you might expect, Venice’s sea level rise has sped up in recent years: “Between 1993 and 2019, an average change of about +2.76 ± 1.75 mm/year is estimated from tide-gauge data after removal of subsidence.”
And, for completeness, it’s hard to see a case for a for-profit business to take on this challenge.
One enormous hopeful sign is the passage of tens of billions in funding for grid resilience across the Inflation Reduction Act and the Bipartisan Infrastructure Law.