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The Market and Current Climate Activity

Most people talk about climate change as something that might happen in the future, but the market effects of climate change are hitting us right now.

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AUG 17, 2022

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Climate change is usually put in terms of what might happen 30 years out. In 2050, water levels will be like this; temperatures will be like that. Projections are being pushed out and consumed a bit like a spectator sport. The more dramatic your assessment, the more red an article paints onto the map, the more hits it gets.

But for market effects, we don’t have to grapple with the panoply of projections. Effects are hitting us right now. Effects related to the supply chain and to energy costs.

Case in point: The drought in Europe.

As things stand right now:

Transportation costs are rising because the low water level on the Rhine is reducing the load for barges by two-thirds.

The nuclear power plants in France are hitting the wall in terms of cooling capacity because they can’t add to the heat of the rivers once the water reaches a pre-determined temperature. So affected by both the low water levels and the hot weather.

Hydropower in Norway is stressed, reservoir supplies have dropped to their lowest level in 25 years. Hydropower is used for 90% of Norway's electricity, and is also exported to Denmark. 

And of course, what is happening with the Rhine and with the power plants in France is happening elsewhere.

For some visuals: 

Here is the Rhine:

Barge on Rhine in drought 2

And here is the branch of the Loire: 

Loire in France

It’s not like we will have to wait until 2050 for the markets to react to the most dramatic effects: The problems for agriculture from heat and drought; the mass migration as some areas become unlivable due to heat, drought, or being inundated; the reduction in labor due to debilitation, even risk of death from heat, these are already manifest and will loom ever larger, by multitudes, down the road.

Once the market wakes up to this as a reality, we will see dramatic price adjustments. With the focus on Covid moving to recede into the rearview mirror, that might occur soon.

But the effect on supply chain and power production are immediate and measurable.

Credits: Photo of the Rhine near Dusseldorf by Ian Fasbender in the Guardian. Photo of the Loire in Loireauxence by Stphane Mahe in the New York Times.

 

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Rick Bookstaber

CO-FOUNDER AND HEAD OF RISK

Rick Bookstaber has held chief risk officer roles at major institutions, most recently the pension and endowment of the University of California. He holds a Ph.D. from MIT.

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