Key Takeaways

• Major hurricanes, specifically large storms over category 3, have a profound impact on gasoline prices. The highest demand for gasoline coincides with the peak of the hurricane season.
• Extreme weather conditions in Brazil "helped push coffee futures to multi-year highs in 2021." As a result, in early 2022, prices hit an almost 10-year high of $2.58 a pound.
• The drought-fueled shortage has doubled the price of corn in western Kansas from $4 to around $8 per bushel.

Introduction

Gasoline

• Fox News (Weather) has put out a warning ahead of the hurricane season in the US. It states that the national average for gas prices is around $4.78 per gallon but "if a hurricane were to impact the critical Gulf states, the price could once again be in record territory."
• Major hurricanes, specifically large storms over category 3, have a profound impact on gasoline prices. The highest demand for gasoline is from late July into early August, which is about a week or two away from the peak of the hurricane season.
• One reason for this is that the country has a history of experiencing major impacts on oil production zones from tropical cyclones. Disaster-struck areas such as New Orleans and Houston are home to "hundreds of offshore oil platforms as well as dozens of refineries." The image below shows that a number of oil and gas platforms were affected by hurricanes Rita and Katrina.

 

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• In 2005, Hurricanes Katrina and Rita "caused the shutdown of significant oil production operations, ultimately driving up costs at the pump." Hurricane Katrina resulted in the loss of a quarter of the total crude oil production in the US, forcing the federal government to "release 20 million barrels of crude oil from the national reserve to stabilize gas prices across the country when they spiked due to reduced supply."
• "Oil and gasoline prices jumped immediately after Katrina due to the widespread damage to energy infrastructure." The article states that as a result of the decline in refining capacity, oil prices rose to nearly $70 per barrel, while gas prices increased by 50 cents per gallon.

Coffee

• According to the Wall Street Journal, the price of coffee is expected to increase further due to the poor harvest in Brazil, the world's largest exporter of coffee. Farmers in Brazil are still dealing with the aftermath of adverse weather conditions in 2021, "where plantations endured first drought and then frost."
• Extreme weather conditions in Brazil "helped push coffee futures to multiyear highs in 2021, in one of a string of disruptions to global commodity markets." The industry fears that if this year's crop drops further than expected, it could "exacerbate an international supply shortfall and help fuel new price gains."
• The article further states that the situation is made worse by the fact that Brazil's arabica coffee production runs in two-year cycles, with a bigger yield (crop) in even-numbered years. The latest forecasts show that Brazil will produce only 35.7 million bags of coffee in the 12 months starting in July 2022, compared to 48.7 million bags two years ago.

 

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• It has been reported that coffee futures surged in 2021 and that in early 2022, prices hit an almost 10-year high of $2.58 a pound. The prices have since dropped to about $2.23 a pound, but remain high compared with recent years. The above graph extracted from Macro Trends shows the sharp rise in coffee prices after 2021.
• Extreme weather (including drought and frost) also contributed to higher prices in coffee shops in the US. In August 2022, Business Insider reported that they grew by 7.6% to an average of $4.90 per cup.
• Another reason that has contributed to increasing prices is that the demand for coffee outweighs the supply. WSJ states that according to the International Coffee Organization, global consumption will run ahead of production for a second year running. Furthermore, according to Fitch Solutions, coffee stocks at Intercontinental Exchange warehouses are at their 100-year low, and this would further contribute to elevated prices.

Wheat and Corn

• A local news source (KCUR) has reported that while Kansas is known for its "waist high, golden wheat, blistering conditions have scorched some of the crops into short, patchy straw" this year. In addition to drought, wheat farmers have also been faced with hail and fungal diseases during the year.
• As a result, industry groups have predicted Kansas, which is among the country's top wheat-producing states, will see a drop in its wheat harvest by 100 million bushels in 2022. This is 30% lower compared to last year’s crop.
• According to the US Drought Monitor, more than 70% of the region is abnormally dry, and "much of the region has been behind on rainfall since September." The article has further reported that the drought is also destroying crops in other parts of the country. For example, experts have predicted that the harvest will reduce by almost half in Oklahoma.
• The local wheat supply has been low due to Ukraine's wheat exports being cut off since the spring of 2022 as a result of its conflict with Russia. The tightening market had pushed wheat prices up by more than 50% this year, and "with drought cutting back Great Plains production (Kansas), those prices could go even higher, eventually affecting the cost of things like bread, flour, and pasta."
• In July 2022, Bloomberg reported that bread prices grew by 12% year-on-year. While inflation was cited as the primary reason, climate change, and extreme weather events such as droughts were also mentioned among contributing factors.
• Another article from KCUR has reported that while corn has been sold in western Kansas for about $4 a bushel historically, the prices have been rising since the invasion of Ukraine, a major exporter of corn. The "drought-fueled shortage" has doubled the price of corn in western Kansas to around $8 per bushel.

Research Strategy

Key Takeaways

• The countries most at risk in the face of natural disaster are located in Africa, and also include Haiti and Afghanistan. Inadequate infrastructure means the impact is much more intense and longer lasting.
• Haiti has 0.7 hospital beds per 1,000 people, while France has 5.9. When natural disasters strike, countries like Haiti struggle more to meet the sudden healthcare needs that people have.
• Poorer people have less access to credit, savings, and insurance, making it harder to survive and rebuild after a disaster.

Introduction

Infrastructure

• Sub-standard housing is more vulnerable to collapse when there is flooding, an earthquake, or other strong forces. Likewise, lower-quality roads (such as dirt roads) are also more likely to be impacted, as is communication infrastructure, and that then has an impact on how easily help can be accessed. Later, it can impact the distribution of food and supplies. Further, poorer regions typically have weaker flood protection infrastructure, insufficient weather forecast systems, dysfunctional drainage, and older buildings that haven't been repaired or updated.
• The World Risk Index ranks 171 countries according to their likelihood of facing disaster as a result of natural hazards like floods, cyclones, or earthquakes. The index and its corresponding study found that, in Africa, there are only 65 kilometers of paved roads per 100,000 people, compared with 832 kilometers in Europe. That means people in Africa have few alternatives if the main road to an affected area becomes impassable. Infrastructure is a key factor in how the index ranks countries, and it found that of the top 15 most vulnerable countries, 13 are located in Africa. The other two most vulnerable countries were Haiti and Afghanistan. Inadequate sanitation and insecure buildings are what made these countries rank the highest.
• "Sufficient and well-built infrastructure, such as high-quality power and transportation networks, can limit the impacts that natural hazards can cause both in terms of loss of life and economic damage. At the same time, the breakdown of nodal points in infrastructure, such as airports or power plants, can also cause impacts that reach far beyond the actual extent of the hazard," said Matthias Garschagen, scientific director of the World Risk Report.

 

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Weaker Social Services

• Health systems in poorer areas can be insufficient already, then very stretched when a natural disaster hits. Further, when people have lower access to vaccines or nourishing food, they are more vulnerable to injuries, illnesses, and the spread of disease.
• Last year, Haiti suffered a 7.2 magnitude earthquake. Haiti has 0.7 hospital beds per 1,000 people (France has 5.9). After natural disasters hit, access to healthcare and water is one of the most critical things. However, in poorer regions, there are simply fewer beds, as well as less healthcare technology.
• A month after the earthquake, healthcare services were still disrupted in the southwest of the country, many hospital buildings were damaged or destroyed, and families with children were scared of seeking treatment at the health facilities still standing. Safe water at the facilities was limited, and the lack of basic health care meant that lives were still at risk sometime after the quake.
• Rural communities particularly struggled to access health care (this was true before the quake, and made worse after it). The limited health care capacity meant tetanus and wound infection was a serious risk. The earthquake also impacted healthcare authorities' ability to identify and treat malnutrition.

 

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Resources for Recovery

• Sustainable recovery in the long term is important after a natural disaster, but often any aid that arrives only lasts a short amount of time. Poorer countries have smaller budgets for rebuilding and repairing after natural disasters. Poorer people have less access to credit, savings, and insurance, making it harder to survive and rebuild after a disaster.
• Natural disasters often mean plans poorer countries had for economic or social growth or development are set back as the small funds available are directed to relief efforts.
• In 2020, Honduras and Guatemala were hit by two severe hurricanes in a row. In Honduras, 4 million people were temporarily left homeless, and hundreds of thousands of homes were completely destroyed. Many people were sleeping in tents or under bridges, and those living conditions made it harder to cope with illness. Having lost all their possessions, continuing to work was also difficult.
• A year later, most of those who lost their homes were still homeless. Most homes were still full of mud and collapsed. Many said that the only help they had received in the past year was a bag of food. Many communities that were completely destroyed, a year later said they hadn't received any assistance from the government and had received some help from one NGO. Without access to food or construction materials, residents haven't been able to rebuild.
• The Guatemalan president requested funds from the UN's Green Climate Fund, saying his country was suffering from climate change, due to the habits of wealthier countries, but lacked the resources to recover. "It is unfair that we have to keep going into debt in order to rebuild our countries, rebuild the infrastructure and repair the damage to agriculture," he said.

Research Strategy

Key Takeaways

• A proposal by Gary Gensler, the chair of the SEC (Securities and Exchange Commission), set out to hold publicly traded companies accountable for their impact on the climate.
• By proposing the development of a mandatory climate risk disclosure rule, Gensler suggested that this would have its own section within the company's annual reports.
• EPA (Environmental Protection Agency) proposed the closure of coal and gas-fired power plants. By implementing stricter laws on the emission of gases such as methane and carbon dioxide, EPA hopes to mitigate the environmental impact and hopefully, the closure of some of these plants.

Introduction

Mandatory Climate Risk Disclosure Rule

•  Gary Gensler, the chair of the SEC (Securities and Exchange Commission) proposed the development of a mandatory climate risk disclosure rule, which will be consistent and comparable across various companies. These comparable metrics could include "greenhouse gas emissions, financial impacts of climate change, and progress toward climate-related goals." Although companies could still disclose this information within their fillings, it was not mandatory or consistent in its implementation. In his statement, he reveals that investors are demanding information so that they can align themselves with companies that meet their needs.
• Gensler suggested adding a section to the annual financial reports published by publicly traded companies: Form 10-K. Following a statement made by Gensler's colleague, Commissioner Allison Herren Lee, three out of every four comments agreed with the proposal of mandatory climate disclosures. Climate activists have also joined investors in supporting the concept of mandatory climate risk disclosure.
• “Companies and investors alike would benefit from the clear rules of the road”. These were sentiments shared by Gensler as he pointed out that there were already companies sharing this information. However, because there is no standard format, it is not possible to offer an apples-to-apples comparison. As a result, Gensler pointed out the need for a standard format that can be used across all companies.
• This proposal has been met with some opposition from Republicans. Hester Peirce, an SEC commissioner and Republican, said the following: “We cannot make such fundamental changes without harming companies, investors, and the SEC. The results won’t be reliable, let alone comparable.” There has also been a looming threat that some opponents would take SEC to court. In a letter to SEC, 16 Republican attorneys general expressed their opposition to these efforts: “Companies are well positioned to decide whether and how to satisfy the market’s evolving demands, for both customers and investors. If the (SEC) were to move forward in this area, however, it would be delving into an inherently political morass for which it is ill-suited.”

Control Pollution from Power Plants

• Coal and gas-fired power plants have a devastating impact on the environment. As the second-largest source of greenhouse gases, EPA had proposed the closure of all these power plants to stop their emissions. However, the Supreme Court overruled EPA and ceased these efforts. This could potentially have a crippling effect on President Biden's efforts in addressing climate change. The court ruled 6-3 in favor of the coal industry.
• President Biden stated the following after the courts made their decision to vote against his efforts: “... another devastating decision that aims to take our country backward.” Chief Justice John Roberts had the following to say: “Capping carbon dioxide emissions at a level that will force a nationwide transition away from the use of coal to generate electricity may be a sensible ‘solution to the crisis of the day.’” In an effort to mitigate the impact of emissions, this battle that began during President Obama's era continues. The Trump administration relaxed some of these rules in its Affordable Clean Energy Rule.
• This agency is now searching for an alternative way to mitigate the impact of these gases. By enforcing stricter limits on other pollutants such as mercury, EPA hopes that the dirtier power plants would close down as other sustainable alternatives emerge. The affected companies would need to address these issues or close them down altogether.
• The most dangerous source of greenhouse gases in the world is carbon dioxide produced from burning fossil fuels. A close second is the release of methane from gas and oil drilling sites. By enforcing stricter laws, EPA hopes to mitigate the release of methane into the atmosphere. Its impact on climate change is adverse, trapping heat in the atmosphere 80 times more than carbon dioxide. These efforts are more likely to withstand any legal opposition in comparison to the power plants.

Research Strategy