Can Economists Design Hurricane Stress Tests?

Sarah Bloom Raskin calls for credible public data on climate risk

Above photo: Sarah Bloom Raskin; credit: NCRC / Flickr

Claims that the booming private-sector climate data services industry is hyping its accuracy and failing to deliver equitable, reliable or transparent datasets were addressed by experts in a panel discussion in October.

Hosted by Climate & Capital Media, the event brought together global industry experts, including former US Treasury deputy secretary Sarah Bloom Raskin, to discuss the accelerating private-sector “climate intelligence arms race”. 

Madison Condon, of the Boston University School of Law, opened the panel by presenting her paper, Climate Services: The Business of Physical Risk. Condon’s research has revealed that private climate data analytics firms may be over-claiming the utility of “downscaling” techniques.

Downscaling is the bottom-up process of using location specific information to flesh out aggregate geographical data from publicly available global climate models. Downscaling aims to provide greater granularity and decision-useful information on physical climate risks.

However, Condon argued that downscaling often results in claims that “aren’t particularly scientifically rigorous”. To improve the quality of data, she said more investment is needed in resource intensive catastrophe modelling techniques. 

The panel – which included Climate & Capital Media’s climate editor Blair Palese and moderator Kate Mackenzie – considered how to reform the industry to make it fit for purpose.

The climate intelligence arms race is currently dominated by a small number of corporate players that acquired many early entrants in the space. Palese highlighted the importance of moving away from a corporate black box structure towards transparent, useful and accessible analytics.

Raskin expressed concern over findings that climate analytics are often not validated, authenticated or complete, and stated that she “shudders to think what policy looks like when models being used are not incorporating full climate data”.

In her paper, Condon proposes creating publicly owned and open-source national climate data services. Such services would require federal, state and international agencies to invest in and help build datasets that can be used to integrate climate modelling into financial risk analysis. 

Raskin endorsed Condon’s concept of a public-sector “climate hub”. To enable regulators to price climate risk, Raskin emphasized that the hub should include credible and usable information regarding the exposures and vulnerabilities of assets, communities or municipalities.

The underrepresentation of climate scientists in building climate-finance models was another issue highlighted in the discussion. The panelists stressed the need for interdisciplinary approaches to produce robust data on physical risks.

Referencing the Federal Reserve’s hurricane stress test released early this year, Condon noted that the Fed failed to include climate scientists, resulting in an “expertise breakdown.”

“How did a bunch of economists think that they could design hurricane stress tests?” she asked.

According to Palese, we are “very early in the stages” of climate analytics development, even though climate-induced extreme weather is increasing globally. As a result, data advancements must be secured internationally as well as nationally. 

This requires planning for “what that risk looks like in places where the impacts are most intense”, such in the Pacific Islands region. Planning must, she added, include ensuring affected regions have equal access to risk data, because “they are getting hit hardest and have done the least to create this problem”.

 

Article by Ingrid Walker, who is currently an in-house writer for Green Central Banking, a news outlet which provides the latest news and research at the interface of central banking and climate change. Based in the Netherlands, Ingrid has worked for ten years as a freelance research writer, specializing in transformative justice, green finance, legal analysis and systems reform. They previously worked as a legal researcher at the University of Cambridge, as well as an outcomes analyst for various NGOs focused on criminal justice reform and human rights. Ingrid was also the recipient of Utrecht University’s Bright Minds fellowship for global excellence in 2017.

Article reprinted with Permission as part of GreenMoney’s ongoing collaboration with Climate and Capital Media.