Pascal’s Wager and Climate Change: An Argument for Action

Pascal’s Wager and Climate Change An Argument for Action

G2 Weather Overview Helping businesses and investors make more money by proactively planning for the influence of weather and climate on consumers and business © 2008 G2 Weather Intelligence, LLC. All Rights Reserved © Copyright 2009 All Rights Reserved, G2 Weather Intelligence, LLC

Weather Impact on March Sales •  Example of the influence of temperature on retail sales in March •  Old Navy same store sales change compared to the change in a nationally weighted Cooling Degree Index (weather source: NOAA) •  Warmer temperatures correlates to demand for spring apparel –  ~40% correlation © Copyright 2009 All Rights Reserved, G2 Weather Intelligence, LLC

March Weather Sensitivity by Retailer •  Estimated percentage of March same store sales changes explained by changes in March temperature •  Provides a relative ranking of the weather exposure by retailer during the month of March. •  Based on the period 2001 – 2008 © Copyright 2009 All Rights Reserved, G2 Weather Intelligence, LLC

Weather Impact on April Sales •  Example of the influence of temperature on retail sales in April •  Warmer weather drives increased sales in April •  National temperature change against the average comp store sales of a basket of 53 retailers (source: Global Hunter Securities and NOAA) © Copyright 2009 All Rights Reserved, G2 Weather Intelligence, LLC

The New Weather/Climate Paradigm •  Old Paradigm: “Cope and Avoid” •  Ignore forecasts •  Minimize weather/climate losses •  Avoid blame (“it was the weather!) •  Business as usual •  New Paradigm: “Anticipate and Exploit” •  Integrate forecasts and long-term climate scenarios into plans •  Minimize losses •  Maximize opportunities •  “… know the weather and victory will be total.” Sun Tzu © Copyright 2009 All Rights Reserved, G2 Weather Intelligence, LLC

Trust but Verify: On Seasonal Forecasting, Uncertainty, and Weather Risk Management •  Seasonal forecasts useful for understanding climate trends and anomalies •  Forecasts based on large scale interactions between the ocean and atmosphere •  Financial/operational hedging used to offset the uncertainty inherent in seasonal forecast •  Operational/policy decisions shaped by probabilities and odds vice absolutes © Copyright 2009 All Rights Reserved, G2 Weather Intelligence, LLC

90% Probability Temps Warmer than the Warmest on Record Between 1900 and 2006 David Battisti, University of Washington and Rosamond Naylor, Stanford © Copyright 2009 All Rights Reserved, G2 Weather Intelligence, LLC

The Climate Change Argument “Climate change poses clear, catastrophic threats. We may not agree on the extent, but we certainly can't afford the risk of inaction.” Rupert Murdoch, CEO, News Corp “…the threat of catastrophic global warming is the greatest hoax ever perpetrated on the American people,” U.S. Sen. James M. Inhofe (R-Okla) Photo courtesy of Smiling Pug © Copyright 2009 All Rights Reserved, G2 Weather Intelligence, LLC

Pascal’s Wager (the original hedging strategy) Blaise Pascal: French philosopher who noted that -- •  even though the existence of God cannot be determined through reason, •  a person should "wager" as though God exists, because so living has everything to gain, and nothing to lose source: wikipedia.com © Copyright 2009 All Rights Reserved, G2 Weather Intelligence, LLC

Our Modern Day Wager: Take Action on Climate Change or Not? •  Tim O’Reilly (O’Reilly Media): “…if catastrophic global warming turns out not to happen, the steps taken to avert it are still worthwhile.” •  Major investments in renewable energy •  A new source of high-paying and “sustainable” jobs •  Enhanced national security by reducing dependence on foreign oil •  Mitigated the off-the-books economic costs from pollution •  Renewed our industrial base by investing in new industries rather than propping up old ones •  What is the greater risk? Taking affirmative action to reduce greenhouse gases and being wrong on climate change, or •  Doing nothing and being right? © Copyright 2009 All Rights Reserved, G2 Weather Intelligence, LLC

Going Forward: “Heating Up” the Argument •  It is possible we could be entering into a period of cooling across the populated regions in the Northern Hemisphere •  The Pacific Decadal Oscillation (PDO) is a pattern of Pacific climate variability that shifts phases on at least inter-decadal time scales, usually about 20 to 30 years © Copyright 2009 All Rights Reserved, G2 Weather Intelligence, LLC

A New Trend Toward Colder Weather? ? ? “In general, the climate regime no longer resembles the recent warm spell of the last 25 years. The persistence of the very cold Pacific Ocean of the the last couple of years has resulted in … patterns more similar to the 1950s-1970s. If this “old-school” pattern persists much longer, the global oceans will continue to cool off, and we will likely head into a cooler multi-decadal climate regime.” -- Dr Todd Crawford, WSI Seasonal Forecaster © Copyright 2009 All Rights Reserved, G2 Weather Intelligence, LLC

Contact Information Paul Walsh, Managing Principal –  Email: Paul.Walsh@g2weather.com –  Direct: +1.917.463.4238 –  Mobile: +1.610.246.0623 © Copyright 2009 All Rights Reserved, G2 Weather Intelligence, LLC

Pascal’s Wager and Climate Change: An Argument for Action

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