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Topic: Investment

[Episode #154] – Japan’s Nuclear Dilemma

Japan was once the third-largest operator of nuclear power facilities in the world, but that came to a sudden end with the largest earthquake to ever hit the country on March 11th, 2011, which caused a massive tsunami that led to the meltdown of the Fukushima Daiichi nuclear power plant, and then to the closure of all 54 of the country’s nuclear plants. In the decade hence, Japan has struggled to plot a new course to get its energy, see-sawing between attempts to restart the plants and relying more on coal and natural gas, while at the same time trying to improve efficiency, conserve energy, and find ways to reduce its emissions to help meet its decarbonization targets under the Paris climate agreement.

Now, the country’s leadership is taking bold steps toward building more renewables and seeking to cut back on its use of fossil fuels, while just a handful of its nuclear plants have been restarted and the future of the rest is very much in contention. It’s a confusing political landscape, and one of the most challenging cases in the world for energy transition, but it also could prove to be one of the most cutting-edge leaders, especially if it can exploit its offshore potential for renewables.

In this episode, Bloomberg reporter Stephen Stapczynski, who has reported on Japan’s energy sector for years, paints for us a coherent picture of Japan’s nuclear past, where it stands now, and how it will obtain its energy in the future.

Geek rating: 2


[Episode #135] – Internalizing Climate Risk

Climate change poses a host of risks to the global economy. From ‘natural’ disasters causing property damage, to climate mitigation measures rendering fossil fuel assets unburnable, to potential impacts of climate change on agricultural production, energy, food, insurance, real estate, and other sectors, it’s clear that private sector companies and all kinds of investments stand to suffer significant losses as a consequence of climate change.

Yet few regulations exist to require these risks to be recognized on balance sheets, or disclosed to investors, unlike many other everyday risks that are subject to such disclosure and protection. A home built in a floodplain and destroyed in a flood, or at a wildland interface and destroyed by a wildfire, has not seen its cost of insurance go up to reflect the rising risk of another loss due to climate change. Pension funds have not been required to evaluate the risk of their investments in oil, gas, and coal companies losing value due to future restrictions on carbon emissions. And entities like the U.S. Federal Reserve have been free to continue lending to fossil fuel producers even as they warn about the damage that climate change is doing to the global economy.

Clearly, it is long past time to recognize the risk of climate change across all sectors of the economy. We must begin implementing ways of measuring those risks, testing portfolios for their risk tolerance, divesting public money from the fossil fuel sector, and start implementing economy-wide ways of pricing carbon emissions.

To that end, in 2019 the U. S. Commodity Futures Trading Commission (CFTC) formed the Climate-Related Market Risk Subcommittee, and tasked it with producing a report to consider what climate-related risks might be; examine whether adequate information about climate risks is available; identify any impediments to evaluating and managing climate-related financial and market risks; ask whether the market can do a better job of integrating climate-related scenarios and use them to stress-test investments; incorporate disclosures of climate risk into financial and market risk assessments and reporting; identify how risks can be managed and disclosed in order to protect the stability of the financial system; and ensure that information about climate-related financial and market risks are internalized into the market.

On September 9, 2020, that report was released. In this episode, we speak with the chairman of the subcommittee, Bob Litterman, founding partner and Risk Committee Chairman of Kepos Capital. Bob has had a decades-long career in risk management, and has been a champion of recognizing and integrating climate risk for many years. We’ll ask him about what the report says, why it’s important, and how its findings might be used to integrate awareness of climate risk into financial metrics and enterprise governance.

Geek rating: 6


[Episode #110] – Death Toll for Petrol

Electric vehicles have many fairly well-known advantages over conventional, petroleum-fueled vehicles. But what most people are yet to realize is the massive energetic advantage an EV can have when powered by renewables over a conventional vehicle powered by oil. In fact, an EV powered by wind or solar can deliver six to seven times as much mobility as a typical car powered by gasoline. This startling finding implies that in the long run, oil prices would need to drop drastically for conventional cars to remain competitive with EVs running on renewables. In fact, the price of oil would have to fall far below the current breakeven price for producing it. In other words, it could mean the end of growth in oil demand. In this episode, we take a deep dive into all the numbers involved in this fascinating analysis by a veteran sell-side analyst with BNP Paribas. Oil producers and automakers ignore these findings at their peril.

Geek rating: 9


[Episode #45] – Climate Science Part 3 – Paleoclimate

In this third episode of our mini-series on climate science, we talk with paleoclimate scientist Robert Kopp of Rutgers University about what Earth’s past climate can tell us about its future, especially where it concerns sea level rise. We also discuss his research on the relationship between climate science and the economy, and how a transdisciplinary approach using natural sciences, social sciences, engineering, and urban planning can help us tackle the challenges that climate change poses to the world’s coastlines…and how tools like the social cost of carbon and appropriate discount rates can help address those challenges, from New Jersey to Florida, no matter what Trump does with federal policy. Finally, we discuss how ratings agencies and risk adjustors need to start factoring in climate risk, and why they haven't so far.

Geek rating: 5