Hawaiian Electric crisis shows investors still missing physical climate risk
Hawaiian Electric crisis shows investors still missing physical climate risk
Welcome to Callaway Climate Insights. And happy first birthday to the U.S. climate law, the Inflation Reduction Act.
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The collapse in shares this week of Hawaiian Electric Industries HE 0.00%↑ as Maui officials probe the source of the deadliest wildfire in modern U.S. history is a stark warning to investors and political leaders focused on the cost of adapting to climate change over the physical risks of ignoring it.
Hawaiian Electric shares are down almost 70% in the past few weeks, mostly because of the fire probe but also because of publicized troubles with a banking subsidiary, American Savings Bank, tied to this year’s regional bank turmoil. The latest news from Bloomberg and the Wall Street Journal is that the company is talking to financial restructuring firms.
The case is a classic example of how climate risk can quickly spread to investment risk, and in some cases of large companies, to the customers of otherwise unconnected subsidiaries. It comes as regulators and researchers warn more and more that investors are not doing enough to account for climate risk in their holdings and are too focused on worrying about the cost of decarbonization or net zero strategies.
Of course, it’s difficult to forecast a lot of climate disasters. Especially in this Maui case, where a destructive wildfire was fueled by hurricane winds. But that’s why more detailed disclosure information from all public companies must become a priority for companies and their investors alike.
If this summer’s litany of disasters worldwide teaches us anything, it’s that we cannot outwait this risk. More disruption can only be hedged by better disclosure, and investor attention. Something SEC Chairman Gary Gensler should have top of mind as he prepares to release new disclosure rules this fall.
Don’t forget to contact me directly if you have suggestions or ideas at dcallaway@callawayclimateinsights.com.
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Happy Birthday, climate law! How many more will you celebrate?
. . . . As President Joe Biden’s climate law, the Inflation Reduction Act, turns a year old this week, the renewable energy industry is celebrating one of the biggest investment surges in history, with more than $100 billion in new projects announced. But Republican opposition to it, based on spending, is building. And it is a prime target of any new post-2024 Republican administration. Senior Washington correspondent Bill Sternberg breaks down the scenarios for the IRA depending on how the election goes, both in Congress and the White House. . . .
Thursday’s subscriber insights
Why EVs are at the center of a union showdown with automakers
. . . . As more EVs are built in the U.S., there are considerable impacts on the union members that build them. Being simpler, EVs need fewer workers to make them, thus threatening jobs. And now it’s getting near the time when the UAW votes whether or not to strike. Here’s the picture. . . .
$3 billion in new carbon capture deals raise stakes on new tech
. . . . Everyone’s got an opinion on direct air capture (DAC), from a much-needed complement to carbon emissions cuts to giant stalling tactics by Big Oil, but there’s no doubt after this week that it’s coming, and serious money is flowing toward it.
More than $3 billion in new DAC deals were announced, two by the U.S. government for projects in Texas and Louisiana and the latest by energy giant Occidental OXY 0.00%↑ , which is buying Canadian firm Carbon Engineering for $1.1 billion.
Two things for investors to remember about these deals: First, they represent the emergence of big money from oil and Wall Street into DAC, which is bad news for some of the 300 startups founded in the past few years who want to become the next energy giants. Some may be sold to oil companies, but only if they have sufficient scale and proven tech. Think Climeworks.
Second is that the government investment reflects a political hedging of bets on renewable energy, with funds going toward fossil fuel companies just in case they will be needed longer than expected.
None of these firms have proven that carbon capture and storage technologies have anywhere near the ability to scale to offset the record amount of carbon dioxide we continue to put into the atmosphere. But the funds invested, while still small for Big Oil, put its shareholders at last in the position of having to root for climate tech. . . .
In Texas, the only things that are inevitable are death, taxes and renewables (and, probably, EVs)
. . . . Oh, the climate contradiction that is Texas. On the one hand, clean energy projects are booming in the Lone Star State — and they saved it during the recent heat waves — on the other, it is doing its best to halt the rise of EVs with taxes that exceed those of fossil fuel vehicles. What gives? Read more here. . . .
Silicon Valley’s environmental tree — from Fairchild Semiconductor to Locus Technologies
. . . . As environmental software firm Locus Technologies celebrates its 25th year, co-founder and CEO Neno Duplan traces its history back to the dawn of Silicon Valley itself, and the father of technology companies, Fairchild Semiconductor. While some claim almost three-quarters of established tech companies in Northern California can trace their lineage back to Fairchild, the environmental degradation left by the early pioneers in the 1970s and 1980s is less known. How Silicon Valley cleaned up its act in recent decades is a story of reinvention worthy of the great tech entrepreneurs themselves. . . .
Editor’s picks: Low-emission hydrogen production needs to jump 50%, says IEA
Hydrogen’s role in the clean energy transition
Hydrogen is an increasingly important piece of the net zero emissions by 2050 puzzle, the International Energy Agency says. “The key pillars of decarbonizing the global energy system are energy efficiency, behavioral change, electrification, renewables, hydrogen and hydrogen‐based fuels, and CCUS.” According to the IEA’s most recent report, the importance of hydrogen in the net zero emissions scenario is reflected in its increasing share in cumulative emission reductions. “Strong hydrogen demand growth and the adoption of cleaner technologies for its production thus enable hydrogen and hydrogen based fuels to play a significant contribution in the net zero emissions scenario to decarbonize sectors where emissions are hard to abate, such as heavy industry and long distance transport,” the report notes.
Hurricane forecast heightened for the rest of the year
NOAA forecasters say they now are expecting more hurricane activity than normal for the rest of the 2023 Atlantic hurricane season. In a recent update via the National Weather Service, forecasters upped their prediction from the “near-normal” estimate issued at the start of this year’s season. Forecasters believe that current ocean and atmospheric conditions, such as record-warm Atlantic sea surface temperatures, are likely to counterbalance the usually limiting atmospheric conditions associated with the ongoing El Nino event, the agency said. NOAA forecasters have increased the likelihood of an above-normal Atlantic hurricane season to 60% (increased from the outlook issued in May, which predicted a 30% chance). The likelihood of near-normal activity has decreased to 25%, down from the 40% chances outlined in May’s outlook. This new update gives the Atlantic a 15% chance of seeing a below-normal season.
Latest findings: New research, studies and projects
Hedging against climate risk
How can investors manage assets to construct portfolios that hedge against climate risk? These are among the issues considered in Climate Finance, a forthcoming paper from the NYU Stern School of Business. The authors review the literature studying interactions between climate change and financial markets. From the abstract: “We first discuss various approaches to incorporating climate risk in macro-finance models. We then review the empirical literature that explores the pricing of climate risks across a large number of asset classes including real estate, equities, and fixed income securities. In this context, we also discuss how investors can use these assets to construct portfolios that hedge against climate risk. We conclude by proposing several promising directions for future research in climate finance.” Authors: Stefano Giglio, Yale School of Management; National Bureau of Economic Research, Centre for Economic Policy Research; Bryan T. Kelly, Yale SOM, AQR Capital Management, National Bureau of Economic Research; and Johannes Stroebel, NYU Leonard N. Stern School of Business, National Bureau of Economic Research, Centre for Economic Policy Research.
More of the latest research:
Perception of Increasing Wildfire Risk Lowers Appreciation of Residential Real Estate in California
Quantifying the Impact and Cost of Climatic Conditions on Personal Financial and Health Wellbeing
Words to live by . . . .
“The fire was just traveling too fast, and too hot and next thing you know Lahaina town is gone, literally gone.” — Mark Stefl, whose house on Maui in Hawaii burned down, speaking to The New York Times.
Thanks Tom.....we're not really trying to be climate blamers or denying....most of our readers are investors....VCs, fund managers, CEOs, and they are struggling with how to manage this developing type of risk that comes in many forms......climate change is a popular umbrella them for headlines but it's really how to manage the risk AND where to find opportunity (such as battery power or other renewable energy) that we write about. As far as I'm concerned, the climate debate is over. Now it's time to find a way to make money and manage risk in whatever new world we're entering. That's where we start off. Tks again for your thoughts, Callaway.
You know I am trying to give you the benefit of the doubt … such a great resume as a journalist, editor ( although the very political USA Today stint was something that I believe veered it off to the left … to the point where I don’t read it because I already know what they will say) , and I guess TheStreet as well… such a great career.
But… blaming everything on Climate Change, is not going to be a long lasting platform to jump off to confront the future.
That evangel is loosing steam with every knee jerk prediction or reason that is not provable.
From Ted Dansons lament about Miami being under water in 10 years , 20+ years ago… to the daily hysteria of the end of the world ( in 80-90 years) it is not winning converts.
Lies and hyperbole will kill the movement.
I have a long letter that I am editing , that asks you to consider that the truth is good enough is the proper rule for the future road.
Right now the deniers are gaining momentum, the climate extremists are looking increasingly like alarmists without proof except their feelings. ( Yes “science” is not winning out… they are looking like politicians not clinicians) .
There’s a way to make money in the middle… just be the one who tells the truth.