Jo Bates’ work on the Big Data driven financial markets being developed in response to climate change has been published by The Conversation and New Statesman. Read more below.
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| Big agriculture, big data, big weather. Chemophilia |
A new generation of data analytics firms are emerging, using innovations in the field of data science in order to turn vast datasets (‘Big Data’) into exploitable information. As the Financial Times reported, Monsanto’s purchase of Climate Corporation signals the ‘first significant acquisition’ of this emerging ‘Big Data’ industry.
Climate
Corporations’ key offering is a product called ‘Total Weather Insurance’ (TWI), which it currently sells directly to
farmers in the USA. TWI pays out based solely upon observed weather conditions,
rather than crop damage.
In order to
calculate the price of policies and pay-outs, Climate Corporation data
scientists analyse three million new data points a day from 22 datasets using
advanced ‘Big Data’ analysis techniques. The data comes from a range of
third-party providers such as the US National Weather Service, which publishes its data free for
re-use.
Whilst Total
Weather Insurance is a new form of financial product being sold direct to
farmers, what underlies it is not new. Weather derivatives were developed in
the US energy industry by Enron, Koch Industries and Aquila in the mid-1990s. Weather derivative
contracts, which also depend on ‘big’ weather data analytics, can be traded
across any type of weather; however the most popular by far are based on the
divergence of the average daily temperature from 18 degrees.
The
mid-2000s saw massive growth in the weather derivatives market, but it crashed
alongside everything else in 2008. However, the Weather Risk Management Association is hopeful for weather derivatives,
pointing to continuing growth outside the US markets throughout the downturn, growing interest in non-temperature-related weather
derivatives, and increasing interest from outside the energy industry.
Until
recently, UK traders had to purchase weather data from the Met Office in order
to conduct forecast analyses and price weather derivatives contracts. However,
in 2011, the new coalition government yielded to the demands of the financial
services lobby for freely re-usable weather data and announced that, as part of its Open Government
Data initiative, “the largest volume of high quality weather data and
information made available by a national meteorological organisation anywhere
in the world” would be opened for anyone to re-use without charge.
Crucially,
these developments expand the range of players with a financial interest in
continuing climate instability. Whilst the claim is often made that weather
derivatives and similar products balance out the financial impact of weather on
affected businesses, thus smoothing adaptation to climate change, serious
political-economic questions do arise about who actually benefits from these
financial products and this use of ‘Big Data’ analysis.
The model of
paying out based upon observed weather means, in effect, placing bets on future
weather conditions – rather than a business insuring itself against a specific
loss. Clearly, during a time of instability in global weather, there is a lot
of potential profit to be generated from such financial products. The emergence
of this developing ‘Big Data’-driven weather derivatives and risk market is,
therefore, troubling.
It exploits
common threats in order to generate private wealth and favours those in a
financial position to protect their interests at the expense of those most
vulnerable to climate instabilities. Most dangerously, this practice could
reduce the incentive for those profiting from these markets to engage in action
to mitigate climate change.
Longer
versions of this post also appear on The Conversation, New
Statesman and SPERI Comment.
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