A Convenient Truth
The general consensus seems to be that the globe is getting hotter, with suffocating summers and mild winters. The possibility of water-shortages and even outright droughts is thus enhanced, as is the prospect of stagnant snowfall volumes. Hurricanes and similarly-dramatic events are likely to become more familiar. Whatever the final specific consequences, what´s clear to all of us non-Martians is that the weather has turned trickier, more disturbing, and more unpredictable. Somber times may lie ahead. If Gore´s mayhem-announcing, Oscar-winning documentary and the tons of supporting scientific evidence are in fact on target, we better run for cover.
If the reality of changing climate seems beyond dispute, what is a bit more debatable is whether human actions are behind such modifications. Most experts (real and self-appointed ones) point their fingers at us. But, to be fair, at the same time some minority contrarian voices have protested such overwhelming verdict, relieving humans of ultimate responsibility. Even if we ultimately assume that people are irrefutably guilty for ski-less winters and dry golf courses, an interesting paradox presents itself: while devious humans would have put the planet (and themselves) in jeopardy, they have at the same time brilliantly developed tools that afford economic protection from those very same developments. Just as the earth´s weather may be experiencing artificially-created changes for the first time since Genesis, humankind has for the first time in history the capacity to effectively shelter itself from climate-induced malaise (even the self-inflicted type).
Weather derivatives are those magical tools that can save us from ourselves (or, if you are a Gore-doubting contrarian, from mischievous nature). By providing financial compensation in the event that a certain weather variable deviates from a pre-set level, these products allow companies, governments, and individuals to sleep easier at night. Weather derivatives are available on temperature, rainfall, snowfall, wind speed, hurricanes, humidity, typhoons, sea wave hights, and frost days, among other variables. In essence, then, it is now possible to receive monetary cover if it’s hotter or colder than a certain level, if it rains above or below a certain level, or if it snows more or less than a certain level.
Even without climate change, the usefulness of weather derivatives would be clearly obvious. Few businesses and nations around the world can claim to be insensitive to the fluctuations of the weather. The weather has undeniably critically important economic consequences. Some estimates indicate that four-fifths of all economic activity worldwide is directly or indirectly affected by the weather. The truth is that people have been worrying about the economic effects of weather for centuries, but could not do anything about it (though some civilizations did try offering human sacrifices as a way to placate the gods). Since the late 1990s, weather derivatives can do the job.
From its birthplace in the Houston-based trading floor of, yes, Enron, weather derivatives (now exactly one decade old) have experienced consistent growth and innovation, with the last lustrum having witnessed truly outstanding strength. This is a market that is now highly liquid, accesible, and popular. Without a doubt, weather derivatives are one of the most sensational success stories to have afflicted the economic landscape in recent years. They are a testament to the power to devise solutions to incredibly important, incredibly complex problems. In what may be the most impacting example of such capableness, last year a product was engineered to hedge Ethiopia from the risk of drought-induced famine, in effect a tool designed to save thousands of lives.
Perhaps the most important lesson to come out of the climate change story is what an extremely curious species we humans are. We may have the capacity to alter the divine earthly weather patterns that we inherited and to perhaps even threaten our very existence as a result, but we also have the abilility to engineer awe-striking genius solutions to the problem. While our reckless actions put at risk our livelihoods, our inventiveness and intellectual prowess allow us the comfort of feeling sheltered from ourselves. Humans brainpower and capacity for innovation can thus effectively shield the species from disaster. The realization of such miraculous capabilities is in itself a very potent reason to preserve the habitat that lets us be.
ptriana@profesor.ie.edu
