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I've been working as a writer, editor, and website manager on several large financial websites, including Phil's Stock World. My graduate education includes pharmacology, pathology, and law school. I've practiced law in ... more

Hurricanes and Fires: Updated Interview on Climate Change with Jan Dash

Date: Tuesday, September 19, 2017 8:10 PM EDT

All these effects were present with Harvey, which increased the hurricane’s destructiveness. In particular, Harvey did stall, producing record rain and flooding, with horrible consequences. We saw similar effects with Hurricane Sandy in 2012. Unfortunately, It’s a fact: climate change made Hurricane Harvey more deadly.

For Hurricane Irma, the monster wider than the state of Florida, the basic message is the same. Climate change enhances the intensity of hurricanes, making more people suffer and causing more material damage.

Ilene: How have Hurricanes Harvey and Irma disrupted supply chains and how will these disruptions affect the economy?

Jan: Corporate supply chains can be complex and can be broken. A component in a supply chain that goes missing can affect downstream production with negative economic consequences. With Harvey, a substantial fraction of the US chemical industry was thrown off-line. Irma affected the entire state of Florida, including the tourist and agricultural sectors. Recovery from extreme events is very costly, and climate change-enhanced extreme events will increase our costs.

Ilene: Is it a coincidence that hurricanes this summer are occurring in bunches (e.g. Harvey, Irma, Jose, and Katia), or is there a reason?

Jan: There may be periods without strong hurricanes and periods with strong hurricanes. The causes of hurricanes are complicated. However, once a hurricane starts, it can be made worse by climate change.

In general, we are starting to see regular dangerous occurrences of what would have been “100-year events” without climate change. In risk management, this is called “tail risk.”

Ilene: By “tail risk” do you mean that what was once considered unlikely is becoming increasingly more likely?

Jan: Yes. Climate change is increasing the tail risk and, moreover, moving the new average risk up toward the old tail risk, with increasingly bad consequences.

Ilene: While hurricanes are crippling the south, the west is in flames. Western forest wildfires have been increasing since the 1980s and the cost of suppressing them have surged. How unusual is this and how do higher temperatures contribute to the fires?

Jan: Greater temperatures and changes in precipitation due to global warming mean more dry vegetation to burn, which can increase the intensity of fires once they start. California (where I grew up) no longer has a fire season, and fire size has increased. Fire season is now all year long.

Ilene: One stock market “guru” proclaimed a few months ago that because Warren Buffett suggested insurance prices were not factoring in climate change, there was no climate change. I’m not sure if the guru was wrong about Buffett and/or insurance companies, but if so, is that about to change? What are your thoughts on the insurance situation?

Jan: The National Association of Insurance Commissioners (NAIC) recognizes climate change — see the NAIC’s Climate Change and Risk Disclosure and Emerging Risks: Climate Extremes in the U.S. Reinsurance companies are starting to factor in climate change. Munich Re estimates that climate change has already increased the probability of major U.K. flood loss events up to 2-fold.

Property and casualty insurance companies tend to be reactive, simply raising prices and cancelling policies after an extreme event. Ceres, a sustainability nonprofit organization composed of large investors, reports that “while more U.S. insurers are improving their disclosure and management of climate risks, most are still giving it minimal attention, both in terms of risks and opportunities.”

The recent hurricanes may impact parts of the insurance industry and increase the risk of climate change to people who no longer can get affordable insurance.

One salient message is that the insurance industry — along with other industries — is starting to wake up to climate risk. Maybe the guru will also wake up.

Ilene: Are you hopeful?

Jan: Yes. I am optimistic; I have no other choice. I do not want to have a conversation with my grandsons when they get older and ask me “Grampa, what did you do for climate?” and I say, “Well I got depressed and stopped.” I am not going to have that conversation. I will continue to do my best to make sure the world is livable for them and for their grandchildren. I am hopeful that we (humanity) will make the necessary adjustments before it’s too late.

We need to act with more urgency now. The costs of inaction are too great.

Thanks for reading this. You can help.

Jan Dash managed quant/risk groups at Bloomberg LP, Moore Capital Management, Citigroup/Salomon Smith Barney, Fuji Capital Markets, Eurobrokers, and Merrill Lynch. His prior finance and physics academic positions included Adjunct Professor with the Courant Institute (NYU), Visiting Research Scholar at Fordham University (Graduate School of Business Administration), Directeur de Recherche at the Centre de Physique Théorique (CNRS, Marseille, France), and Member of Technical Staff at Bell Labs. He has published over 60 scientific papers, and holds a BS from Caltech in engineering and a PhD in physics from UC Berkeley. The 2nd edition of his book, Quantitative Finance and Risk Management, A Physicist’s Approach, devotes a chapter to climate change and its long-term systemic risk. Jan is also the primary author of the handy list of quick responses to climate contrarian fallacies and the Managing Editor of The Climate Portal.

Ilene Carrie is editor and content manager at Phil’s Stock World, a popular website for learning about investing and option trading strategies.

The opinions expressed in this interview are those of the author and do not necessarily reflect those of any institution mentioned.

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