Hot Miss
Climate Change, Firm Performance, and Investor Surprises
Nora Pankratz, Rob Bauer & Jeroen Derwall
Management Science, forthcoming
Abstract:
We link records of firm performance, equity analyst forecast errors, and stock returns around companies’ earnings announcements to firm-specific measures of heat exposure for more than 17,000 firms in 93 countries from 1995 to 2019. We find that increased exposure to extremely high temperatures reduces firms’ revenues and operating income. A one-standard-deviation increase in the number of hot days decreases revenues (operating income) by 0.6% (1.8%) of the average quarterly revenue (operating income). Moreover, we provide evidence that increased heat exposure impacts negatively on firm financial performance relative to analyst predictions and on earnings announcement returns. These findings indicate that capital market participants do not fully anticipate the economic consequences of heat as a first order physical climate risk.
Unpriced climate risk and the potential consequences of overvaluation in US housing markets
Jesse Gourevitch et al.
Nature Climate Change, March 2023, Pages 250–257
Abstract:
Climate change impacts threaten the stability of the US housing market. In response to growing concerns that increasing costs of flooding are not fully captured in property values, we quantify the magnitude of unpriced flood risk in the housing market by comparing the empirical and economically efficient prices for properties at risk. We find that residential properties exposed to flood risk are overvalued by US$121–US$237 billion, depending on the discount rate. In general, highly overvalued properties are concentrated in counties along the coast with no flood risk disclosure laws and where there is less concern about climate change. Low-income households are at greater risk of losing home equity from price deflation, and municipalities that are heavily reliant on property taxes for revenue are vulnerable to budgetary shortfalls. The consequences of these financial risks will depend on policy choices that influence who bears the costs of climate change.
Climate Change and Commercial Real Estate: Evidence from Hurricane Sandy
Jawad Addoum et al.
Real Estate Economics, forthcoming
Abstract:
We study how professional investors capitalize flood risk in commercial real estate (CRE) markets after hurricane Sandy. We show that New York CRE exposed to flood risk trades at a large, persistent discount. CRE in Boston, which mostly escaped direct hurricane-related damage, also exhibits persistent price penalties. These price effects are driven by asset-level capitalization rates, not building occupancy. Results from a placebo test using real estate prices in Chicago show that our inferences are not driven by coincidental, unrelated price trends for waterfront real estate assets. Our results are consistent with professional investors responding to a persistent shift in the salience of flood risk post-Sandy, even in locations spared by the disaster.
Risk of isolation increases the expected burden from sea-level rise
Tom Logan, Mitchell Anderson & Allison Reilly
Nature Climate Change, April 2023, Pages 397–402
Abstract:
The typical displacement metric for sea-level rise adaptation planning is property inundation. However, this metric may underestimate risk as it does not fully capture the wider cascading or indirect effects of sea-level rise. To address this, we propose complementing it by considering the risk of population isolation: those who may be cut off from essential services. We investigate the importance of this metric by comparing the number of people at risk from inundation to the number of people at risk from isolation. Considering inundated roadways during mean higher high water tides in the coastal United States shows, although highly spatially variable, that the increase across the United States varies between 30% and 90% and is several times higher in some states. We find that risk of isolation may occur decades sooner than risk of inundation. Both risk metrics provide critical information for evaluating adaptation options and giving priority to support for at-risk communities.
Observation-derived 2010-2019 trends in methane emissions and intensities from US oil and gas fields tied to activity metrics
Xiao Lu et al.
Proceedings of the National Academy of Sciences, 25 April 2023
Abstract:
The United States is the world’s largest oil/gas methane emitter according to current national reports. Reducing these emissions is a top priority in the US government’s climate action plan. Here, we use a 2010 to 2019 high-resolution inversion of surface and satellite observations of atmospheric methane to quantify emission trends for individual oil/gas production regions in North America and relate them to production and infrastructure. We estimate a mean US oil/gas methane emission of 14.8 (12.4 to 16.5) Tg a−1 for 2010 to 2019, 70% higher than reported by the US Environmental Protection Agency. While emissions in Canada and Mexico decreased over the period, US emissions increased from 2010 to 2014, decreased until 2017, and rose again afterward. Increases were driven by the largest production regions (Permian, Anadarko, Marcellus), while emissions in the smaller production regions generally decreased. Much of the year-to-year emission variability can be explained by oil/gas production rates, active well counts, and new wells drilled, with the 2014 to 2017 decrease driven by reduction in new wells and the 2017 to 2019 surge driven by upswing of production. We find a steady decrease in the oil/gas methane intensity (emission per unit methane gas production) for almost all major US production regions. The mean US methane intensity decreased from 3.7% in 2010 to 2.5% in 2019. If the methane intensity for the oil/gas supply chain continues to decrease at this pace, we may expect a 32% decrease in US oil/gas emissions by 2030 despite projected increases in production.
Increasing sequential tropical cyclone hazards along the US East and Gulf coasts
Dazhi Xi, Ning Lin & Avantika Gori
Nature Climate Change, March 2023, Pages 258–265
Abstract:
Two tropical cyclones (TCs) that make landfall close together can induce sequential hazards to coastal areas. Here we investigate the change in sequential TC hazards in the historical and future projected climates. We find that the chance of sequential TC hazards has been increasing over the past several decades at many US locations. Under the high (moderate) emission scenario, the chance of hazards from two TCs impacting the same location within 15 days may substantially increase, with the return period decreasing over the century from 10–92 years to ~1–2 (1–3) years along the US East and Gulf coasts, due to sea-level rise and storm climatology change. Climate change can also cause unprecedented compounding of extreme hazards at the regional level. A Katrina-like TC and a Harvey-like TC impacting the United States within 15 days of each other, which is non-existent in the control simulation for over 1,000 years, is projected to have an annual occurrence probability of more than 1% by the end of the century under the high emission scenario.
Regime shift in Arctic Ocean sea ice thickness
Hiroshi Sumata et al.
Nature, 16 March 2023, Pages 443-449
Abstract:
Manifestations of climate change are often shown as gradual changes in physical or biogeochemical properties1. Components of the climate system, however, can show stepwise shifts from one regime to another, as a nonlinear response of the system to a changing forcing2. Here we show that the Arctic sea ice regime shifted in 2007 from thicker and deformed to thinner and more uniform ice cover. Continuous sea ice monitoring in the Fram Strait over the last three decades revealed the shift. After the shift, the fraction of thick and deformed ice dropped by half and has not recovered to date. The timing of the shift was preceded by a two-step reduction in residence time of sea ice in the Arctic Basin, initiated first in 2005 and followed by 2007. We demonstrate that a simple model describing the stochastic process of dynamic sea ice thickening explains the observed ice thickness changes as a result of the reduced residence time. Our study highlights the long-lasting impact of climate change on the Arctic sea ice through reduced residence time and its connection to the coupled ocean–sea ice processes in the adjacent marginal seas and shelves of the Arctic Ocean.
Natural hybridization reduces vulnerability to climate change
Chris Brauer et al.
Nature Climate Change, March 2023, Pages 282–289
Abstract:
Under climate change, species unable to track their niche via range shifts are largely reliant on genetic variation to adapt and persist. Genomic vulnerability predictions are used to identify populations that lack the necessary variation, particularly at climate-relevant genes. However, hybridization as a source of novel adaptive variation is typically ignored in genomic vulnerability studies. We estimated environmental niche models and genomic vulnerability for closely related species of rainbowfish (Melanotaenia spp.) across an elevational gradient in the Australian Wet Tropics. Hybrid populations between a widespread generalist and several narrow range endemic species exhibited reduced vulnerability to projected climates compared to pure narrow endemics. Overlaps between introgressed and adaptive genomic regions were consistent with a signal of adaptive introgression. Our findings highlight the often-underappreciated conservation value of hybrid populations and indicate that adaptive introgression may contribute to evolutionary rescue of species with narrow environmental ranges.
An upper bound for extreme temperatures over midlatitude land
Yi Zhang & William Boos
Proceedings of the National Academy of Sciences, 21 March 2023
Abstract:
Heatwaves damage societies worldwide and are intensifying with global warming. Several mechanistic drivers of heatwaves, such as atmospheric blocking and soil moisture-atmosphere feedback, are well-known for their ability to raise surface air temperature. However, what limits the maximum surface air temperature in heatwaves remains unclear; this became evident during recent Northern Hemisphere heatwaves which achieved temperatures far beyond the upper tail of the observed statistical distribution. Here, we present evidence for the hypothesis that convective instability limits annual maximum surface air temperatures (TXx) over midlatitude land. We provide a theory for the corresponding upper bound of midlatitude temperatures, which accurately describes the observed relationship between temperatures at the surface and in the midtroposphere. We show that known heatwave drivers shift the position of the atmospheric state in the phase space described by the theory, changing its proximity to the upper bound. This theory suggests that the upper bound for midlatitude TXx should increase 1.9 times as fast as 500-hPa temperatures at the time and location of TXx occurrences. Using empirical 500-hPa warming, we project that the upper bound of TXx over Northern Hemisphere midlatitude land (40°N to 65°N) will increase about twice as fast as global mean surface air temperature, and TXx will increase faster than this bound over regions that dry on the hottest days.
Diverse carbon dioxide removal approaches could reduce impacts on the energy–water–land system
Jay Fuhrman et al.
Nature Climate Change, April 2023, Pages 341–350
Abstract:
Carbon dioxide removal (CDR) is a critical tool in all plans to limit warming to below 1.5 °C, but only a few CDR pathways have been incorporated into integrated assessment models that international climate policy deliberations rely on. A more diverse set of CDR approaches could have important benefits and costs for energy–water–land systems. Here we use an integrated assessment model to assess a complete suite of CDR approaches including bioenergy with carbon capture and storage, afforestation, direct air capture with carbon storage, enhanced weathering, biochar and direct ocean capture with carbon storage. CDR provided by each approach spans three orders of magnitude, with deployment and associated impacts varying between regions. Total removals reach approximately 10 GtCO2 yr−1 globally, largely to offset residual CO2 and non-CO2 emissions, which remain costly to avoid even under scenarios specifically designed to reduce them.
Biodiversity Risk
Stefano Giglio et al.
NBER Working Paper, April 2023
Abstract:
We explore the effects of physical and regulatory risks related to biodiversity loss on economic activity and asset values. We first develop a news-based measure of aggregate biodiversity risk and analyze how it varies over time. We also construct and publicly release several firm-level measures of exposure to biodiversity risk, based on textual analyses of firms’ 10-K statements, a large survey of financial professionals, regulators, and academics, and the holdings of biodiversity-related funds. Exposures to biodiversity risk vary substantially across industries in a way that is economically sensible and distinct from exposures to climate risk. We find evidence that biodiversity risks already affect equity prices: returns of portfolios that are sorted on our measures of biodiversity risk exposure covary positively with innovations in aggregate biodiversity risk. However, our survey indicates that market participants do not perceive the current pricing of biodiversity risks to be adequate.
Land Fraction Diversity on Earth-like Planets and Implications for Their Habitability
Dennis Höning & Tilman Spohn
Astrobiology, April 2023, Pages 372–394
Abstract:
A balanced ratio of ocean to land is believed to be essential for an Earth-like biosphere, and one may conjecture that plate-tectonics planets should be similar in geological properties. After all, the volume of continental crust evolves toward an equilibrium between production and erosion. If the interior thermal states of Earth-sized exoplanets are similar to those of Earth—a straightforward assumption due to the temperature dependence of mantle viscosity—one might expect a similar equilibrium between continental production and erosion to establish, and hence a similar land fraction. We show that this conjecture is not likely to be true. Positive feedback associated with the coupled mantle water—continental crust cycle may rather lead to a manifold of three possible planets, depending on their early history: a land planet, an ocean planet, and a balanced Earth-like planet. In addition, thermal blanketing of the interior by the continents enhances the sensitivity of continental growth to its history and, eventually, to initial conditions. Much of the blanketing effect is, however, compensated by mantle depletion in radioactive elements. A model of the long-term carbonate–silicate cycle shows the land and the ocean planets to differ by about 5 K in average surface temperature. A larger continental surface fraction results both in higher weathering rates and enhanced outgassing, partly compensating each other. Still, the land planet is expected to have a substantially dryer, colder, and harsher climate possibly with extended cold deserts in comparison with the ocean planet and with the present-day Earth. Using a model of balancing water availability and nutrients from continental crust weathering, we find the bioproductivity and the biomass of both the land and ocean planets to be reduced by a third to half of those of Earth. The biosphere on these planets might not be substantial enough to produce a supply of free oxygen.