What are the major market indices for climate change?

Dan Kahan asks me that question.  The Credit Suisse index does not seem very liquid and it is not clear to me if it is still actively traded.  In any case this earlier look at the index implies it is about mitigation efforts, not the extent of warming or climate change per se.  UBS launched an index in 2007, but I don’t see recent activity in the index mentioned in Google.  There are various anecdotal accounts of insurance companies being less willing to cover waterfront property in hurricane-prone areas.

I hit some walls on this one and so I turn it over to you, MR readers.  What are the best market indices — of whatever nature — for tracking the extent of the problem?  I thank you in advance for your assistance.

Comments

Although I know this is probably not useful, how about lobbying efforts of the oil industry as a gauge for climate change?

The coal industry would be a better proxy. The major oil companies, especially the international ones, aren't really opposed to climate policies, and have supported several major iniatives. Exxon, and some US independents, are generally more opposed, but more because of their ties to the Republicans generally, and less because of the details specifically.

What's the differential revenues damage of a climate policy to an oil company versus a coal company? Is there a major difference? If at all I'd think the coal guys would hurt more.

It comes down to coal is much, much easier to replace than gasoline. Nothing will replace using liquid hydrocarbons for fuel for a long time.

I think both are pretty hard to replace, looking at the quantum of primary energy that still comes from thermal power generation.

Besides the oil industry already has reliable, large scale routes from coal to liquid hydrocarbons. So in a pinch, it'd still be viable to retain the end economy based on liquids and move to a coal based upstream. In the long run I suspect that will happen since there's so much more of coal reserves than crude. The coal-to-liquids transition is just waiting for crude to get a little more costlier.

All this, is essentially status quo from a climate standpoint though; I can't see a huge impact of switching either way.

Agreed. A US carbon tax would shift energy consumption from coal to natural gas. This would do wonders for Exxons XTO unit for one. The oil and gas do not feel under any threat from renewables, they know that there is absolutely no way these will ever become a substantial part of world energy supply. Now it would be different if nuclear could get it's act together with such technologies as molten salt and modular reactors being developed. But fortunately for the oil companies there are plenty of useful idiots preventing that from happening.

There's already been a sharp fall in the number of alarmist stories in the media, in line with the refusal of temperatures to cooperate with the IPCC's models.

Subsidies for alternate energy are also winding down in Europe, as the costs become impossible to reconcile with persistent cold winters.

Those are two metrics that come to mind. Free market metrics are difficult to come by because the industry is so drunk on govt money.

Though the best metric is probably the thermometer, and how it compares to alarmist computer models. (The answer is very poorly)

Some people, especially those that know what albedo means, prefer real time satellite observation to a simple thermometer.

From http://nsidc.org/arcticseaicenews/ -

'While the rate of Arctic sea ice loss is normally fastest during July, the warmest month of the year, ice loss was even faster than usual over the first two weeks of July 2013. As a result, on July 15 extent came within 540,000 square kilometers (208,000 square miles) of that seen in 2012 on the same date. The ice loss is dominated by retreat on the Atlantic side of the Arctic, including the East Greenland, Kara and Laptev seas, and Baffin Bay. In the Beaufort and Chukchi seas and much of the Eurasian coast, the ice cover remains fairly extensive, especially compared to recent summers. Compared to the 1981 to 2010 average, ice extent on July 15, 2013 was 1.06 million square kilometers (409,000 square miles) below average.

----------------------

During the first two weeks of July, ice extent declined at a rate of 132,000 square kilometers (51,000 square miles) per day. This was 61% faster than the average rate of decline over the period 1981 to 2010 of 82,000 square kilometers (32,000 square miles) per day. The fast pace of ice loss was dominated by retreat in the Kara and East Greenland seas, where the ice loss rate from July 1 to 12 was -16,409 and -17,678 square kilometers (-6,336 and -6,826 square miles) per day, respectively. The Laptev Sea ice retreated at about half that rate, at -8,810 square kilometers (-3,402 square miles) per day. In contrast, on the Pacific side, sea ice has been slow to retreat. During the first part of July, the rate of ice loss in the Beaufort and Chukchi seas was only -3,375 and -6,829 square kilometers (-1,303 and -2,637 square miles), respectively.'

It's a little sad that there are people who think a few decades of data from the arctic (satellite measurements only began in 1979) are significant in the long history of the planet.

Or that shrinking ice in the arctic is significant but record ice expansion (since 1979) in the Antarctic is not.

Don't take my word for it. The failure of the IPCC models is widely recognized, and there are strong hints that the next IPCC will downgrade climate sensitivity to CO2.

The planet obviously has very effective negative feedback systems to counter CO2, or the world would have tipped into catastrophe many times in the past when ppm hit 7000 and more, and we wouldn't have entered ice ages when ppm was much highe than today.

"It’s a little sad that there are people who think a few decades of data from the arctic (satellite measurements only began in 1979) are significant in the long history of the planet."

What's *really* sad is that there are people who think the phrase "long history of the planet" has any relevance in this discussion.

Yes, the earth will go on regardless of climate change. How and whether humanity does is a different matter.

OK, I looked it up. AFAICT, albedo is basically 'reflectivity' and largely a function of cloud cover.

Also, am I correct in boiling down your lengthy excerpt to "2013 not as bad as 2012", which, even if true, doesn't tell us much, does it?

I keep hearing about melting Arctic ice, but I don't hear about shipping using the Northhwest Passage, something they wanted to do for centuries.

See Craig R.'s link below.

The thermometer seems almost useless because of the huge time-domain system-lags in the atmosphere model. A good climate model is one that is accurate at predicting temperatures a few decades later; for predicting the near-term temperature is a wholly different exercise.

A good climate model is one that is accurate at predicting temperatures a few decades later;

Which indicates the climate models from the early 1990's were not very good as the temperature hasn't gone up nearly what was previously predicted. I think the evidence supports global warming, but it's also pretty clear that the early estimates were wrong on the high side.

Fair enough. I don't know the details, but it's entirely possible that the early models were bad.

Re-insurers. Such as Münchener Rückversicherungs-Gesellschaft.

rising disaster insurance premiums

Are you sure they contain any information, and aren't just reactions to the recent frequency of natural disasters? Insurers could simply be raising premiums if they are paying out more often, and so we would learn nothing new from them.

Plus, even without disaster frequency increases, the buildup of expensive homes on at-risk property (vs older, cheaper homes) will be driving up rates. Much of the east coast beachfront property is being overtaken by million dollar mega-homes and rentals. 10 years ago, that wasn't the case as much. 20 years ago, beachfront property was priced such that the middle class could own it.

20 years ago there was a middle class. (There still is, but you wouldn't know it from only reading this particular blog.)

Great point from wrparks; you would not be measuring the same thing over time.

In addition, in many coastal areas, insurance is not priced as it would be in a free market. There are political influences at work, up to and including subsidies and direct government underwriting. See for example the North Carolina "Beach Plan":
http://www.johnlocke.org/acrobat/policyReports/beach_plan_reform.pdf

That was actually the Dem presentation at the AGW congressional hearings -- look how much claims have increased since 1963! But of course destructive weather can fall while claims rise if the insured value is rising, as others pointed out.

We can already accurately measure natural disasters and the empirical data - not the models - show no increase and in some cases as with hurricanes, a decrease.

If insurance costs are rising its more likely because property values are higher, or people are building closer to storm-prone beaches and other non-climate related reasons.

Isn't it awfully likely that disaster insurance rates are going to be based on how much people are willing to pay, which is going to go up based on their perception of their risks? Which in a nation that is very media dependent and science knowledge poor is not going to reflect reality very closely?

Insurance underwriting as a license to print money? Hmmm.

Works for Warren Buffett

I don't know much about bond markets but NYC's MTA has a new Catastrophe bond which seems like a reasonable fit:

http://www.bondbuyer.com/issues/122_142/alan-rubin-analyzes-nyc-storm-protection-plan-1054022-1.html

http://www.reuters.com/article/2013/07/15/us-mta-bond-idUSBRE96E0WT20130715

I pay most attention to people who have real money on the line- hence observe the actions of shipping companies who are (for the first time in history) willing to go through the Northwest Passage, and insurance companies willing to cover the risk, where they never did before. The cost of doing this is getting competitive with the Suez Canal.

http://www.reuters.com/article/2010/09/04/us-norway-arctic-idUSTRE68318D20100904

That's a good indicator. OTOH, shipping routes are a very easily reversible decision. So I wouldn't see it as a much of a bet on long term outcomes. Shipping companies are only reacting to what they see right now: a feasible shorter route.

Price of land in ALaska.

See trends of global warming on expected shipping routes in this animation by the Economist:

http://www.economist.com/blogs/dailychart/2011/09/melting-arctic-sea-ice-and-shipping-routes

Great link!

How about some measure of the ski industry? Certainly details of their insurance or lack thereof would be a good indicator. Also are any of the resort holding companies publicly listed? If the industry starts to show a downward trajectory in some way because of reduced snowfalls, that could be an indicator.

Reduced natural snowfall leads to more market power at ski resorts that still have or can manufacture snow.

This is the real deal. Many resorts are in the process of being acquired (after downturn) and new owners are having to gauge wisdom of major capex (quad lift, etc). between climate and aging market, a tough biz to be in.

Water trading, water rights. Immigration & citizenship, perhaps - people attempt to move away from dust bowls. Electricity demand during off peak hours - more people running AC at night?

My first thought is Florida real estate. Florida is pretty flat and low elevation, so they should get flooded early. On the other hand, I think holders of FRE will try to ignore the threat as long as possible. Therefore, FRE will remain overvalued until shortly before the end.

My second thought is there is an inherent flaw in the question. It seems to presume climate change is a gradual, near-linear process. That may be wrong. It could come as a sudden pulse, when the methane hydrates in the Arctic permafrost are released in a short period of time.

http://en.wikipedia.org/wiki/Clathrate_gun_hypothesis

Since you said "of whatever nature" - compare ratio of applicants or accepted applicants to undergraduate tenure track positions for (a) specialists in volcanology (or pure statistics, or some other comparable field) vs. (b) specialists in climate science, worldwide. Peter Woit has been doing something similar on his blog for years to answer a different question (looking at accepted applicants in physics teaching slots for string theory specialists compared to non-string theory specialists in order to gauge sentiment regarding perception of string theory intellectual progress).

What about real estate prices in places like Miami that are said to be threatened by rising sea levels? If the price of real estate in these areas drops significantly relative to other parts of the country over the coming decade or two, wouldn't that be a strong market signal that people are taking the risk of rising sea levels seriously?

I would be more inclined to look at the price of farmland in the southern Great Plains area of the US. Warming/drying is going to have a more immediate impact there. Some conflating factors, though. States are imposing more serious restrictions on aquifer withdrawals, and there are some new land uses like wind farms in parts.

The UBS global warming index, because it depends on the difference between realized temperatures and same-year forecasts, will rise through time only if temperatures are persistently higher than future contemporaneous forecasts. So true and universally recognized global warming, which would be reflected in forecasts of higher temperatures, would not cause the UBS index to rise.

I am not familiar with the CS index but it may well suffer from the same structural fault.

The effects of global warming are more pronounced at high latitudes. An easily available metric would be total grain & oilseed farmland in the western Canadian provinces, and possibly the wheat/canola ratio as a function of latitude. Global warming will tend to increase total farmland at the northern margin and shift production from oilseeds to grains in favorable locations.

Crop inputs. Climate change means massive program changes for North American and EU farmers, in everything from drought and storm frequency to fertilizer effectiveness (warmer means organic compounds break down faster) to, especially, pest infestation (warmer means tropical pests migrate to higher latitudes)--all of which changes demand for inputs.

Note that most models have agricultural production increasing for many years before decreasing post 2100 in a global warming scenario. This is due to an increase in rainfall and additional land becoming more productive. CO2 is also a great fertilizer, and already the planet is becoming more green as a result. Check out Matt Ridely http://www.youtube.com/watch?v=S-nsU_DaIZE. And the pest issue is greatly over done. First, they manage to deal with pests quite easily in hot countries at the moment. Just in the US you can easily see that, Texas for instance, is a lot hotter than the Canadian planes, but somehow Texas manages to grow stuff. Secondly there will remain pretty cold winters for many years to come. If the model is that pest are killed off in winter time it doesn't matter to a pest whether its -10 or -20 Deg C, they are still dead.

The problem with virtually all of the suggestions above is that they're far more reflective of changing economic activity than anything else.. Example - disaster insurance premiums/payouts can and do go higher simply b/c more people are living in those areas and have more valuable property to insure/replace even if frequency of disasters lessen.

Or crop inputs - the price of inputs is far more reflective of supply/demand for the underlying crops than incremental weather changes.

Which leaves us....the thermometer.

As it should be, if temp change is what you're seeking to measure.

Me - I'm just happy we're not covered by glaciers anymore - and really don't get why climate change is always assumed to be "bad". Screw that - winter sucks and snow is cold.

good point--although i wasn't meaning input prices, but R&D for new input formulations; irrigation, etc. But thermometer is a good index--i think there is already a market index that includes daily temp at Heathrow....

@Paul

Again tho - R & D expenditures are reflective of crop demand. Irrigation costs are a result of water scarcity. Those are both human driven effects. More people wanting more food, farm policies, ethanol, etc etc etc.

You could look at crops for marginal areas like say Canada, but that'd be a very small amount of the total package.

As for Heathrow - you're correct - as there are for airports all around the world. The site Watts Up With That started out as a means of checking the consistency of thermometer location sitings and techniques. Problems w/ airports, for example, are jet blast, urban heat island effects, wind patterns, etc. Which can all be corrected and accounted for over time.

Range of the nine-banded armadillo

Its "poor tolerance for harsh winters" (per Wikipedia) plus its ease of population growth in habitable areas are a good barometer for actual changes in extended (or at least annual) weather patterns.

The price of coast land in Maine 20 feet above sea level?

I dunno, solar manufacturer stocks?

If you're looking for something to speculate on:

the price of farmland in northern Alberta, Saskatchewan, etc.
the price of refrigerant gases
stock of dike contractors in the Netherlands

I'd go for the spread between Bourgogne DEX and Rhone DEX. The former does well in hot weather, the latter when the temperature are milder (these are indices for French wine prices, respectively Burgundy and Côtes du Rhônes)

here: http://www.idealwine.net/2013/05/07/les-indices-winedex-didealwine-marquent-une-pause-avant-la-campagne-primeur/

Alternatively, the price of agricultural land in SW England where if the temperature increases just a tiny bit, it will be possible to grow Champagne-like wines.

I t hink you mean the SE of England; the bit running under Kent has the same geology as the champagne region.

But the French won't let us call it champagne even if it is exactly the same :-)

Price of real estate around the Great Lakes. Do you recall the scene from "Rite of Spring" in Disney's "Fantasia" where the sun's beating down and the dinosaurs are crawling across a parched landscape to lick the last few drops from the last water hole? That's the Great Lakes.

So to summarise: Insurance Indicators - no go because 1) these are distorted by increasing wealth 2) people react to incentives so if insurance prices do rise, people will take steps (like moving away from coasts or improving structures) to minimize insurance costs.
Agricultural prices in currently warm areas: could go either way. Maybe more valuable as longer growing season, CO2 fertilisation, more rainfall etc
Coastal Land Prices: Distorted by wealth and likely mitigation factors (sea walls are relatively cheap).
Agricultural Prices in cold currently marginal areas: might increase, but what if they are offset by increasing agricultural production in the warmer areas?
What else?

Actually the fact that no-one can really come up with a slam dunk economic indicator is great support for Bjorn Lomborg's point, that, compared will all the other problems that the human race faces, global warming is actually a fairly small impact.

@Chris

Well put and I'd add that global warming is down the list of purely environmental Things To Worry About. Stuff like water access, soil erosion, deforestation, mining tailings water contamination, chemicals in the food stream, etc etc etc are far more pressing issues - and things we can actually Do Something About (effectively)

The first couple of degrees are supposed to be good for us. Any indicators going up?
Maybe Al Gore buying beachfront property.

IPCC seems to be ready to state sensitivity as the low 2* range.
A few more years the likely number will be 1.5* per doubling - not very concerning.

Is it just me, or is this one of the intellectually blinkered and weak MR comment threads ever?

I'm genuinely not trying to be insulting ... but you're all talking past each other about suggestions that are pretty flawed to begin with.

And no, I don't have a better answer. I was just looking for a little better lamppost to look under than what I've already got.

Skimmed the replies above and did not note an entry in regard to the pace of substitutions. Growth rate of smart phones, growth rate of video conferencing, growth rate of Amazon delivery of goods, growth rate of internet advertisement versus negative growth of print advertisement, growth rate of natural gas use by utilities, urbanization, etc. These are all responses to past warming and projected warming; as such, the index would be an inversion of the numbers.

I'd love to see a futures market for global temperatures. Then we could all place our bets. Fun!

I've always thought it's odd that anyone believes 100-year computer simulations of the climate could be predictive within a couple degrees with anything like 90% reliability. There's very little hope that our understanding of global climate is that good. And all those adjustments to past data are awfully convenient...

Comments for this post are closed