String of Global Heat Records Raises Alarm on Climate Change
Comment of the Day

July 07 2023

Commentary by Eoin Treacy

String of Global Heat Records Raises Alarm on Climate Change

This article may be of interest. Here is a section:

Heat this summer has already put millions of people around the world at risk. China is experiencing a scorching new heat wave less than two weeks after temperatures broke records in Beijing. Extreme temperatures in India last month have been linked to deaths in some of its poorest regions, while last week saw a dangerous heat dome cover Texas and northern Mexico.

The extreme weather may put more pressure on global leaders to curb greenhouse gas emissions generated from burning coal, oil and natural gas that trap heat in the atmosphere. The effects of climate change are being exacerbated by the arrival of the first El Niño in almost four years.

It’s likely the world will exceed 1.5C of warming “in the near term,” with efforts on climate action still insufficient, the United Nations’ Intergovernmental Panel on Climate Change said in March in a report summarizing five years of its own research. Global greenhouse gas emissions need to be cut to 60% below 2019 levels by 2035, according to the report, and climate-related risks are rising with every increment of warming.

Eoin Treacy's view

The “dangerous” heat dome over Texas was a non-event for most people living in the region. Every home has an air conditioner. Singapore’s Lew Kwan Yew was well aware of the benefit gained from air conditioning given their hot humid climate. It was a major contributor to economic productivity. Additionally, air conditioning is a great moderator in the spread of malaria which is a growing concern as average temperatures rise in previously temperate zones. (EuropeUSA)

Air conditioners are incredibly energy intensive but are also essential pieces of equipment. To cool my home in the warm summer months, electricity usage doubles and that is with a constant temperature of 76 degrees (24.4 Celsius). Availability of reliable cooling ensures everyone has the opportunity to enjoy the heat up to their individual comfort level. The result is the cost and security of supply of electricity quickly become political considerations as the necessity of increasing demand becomes more urgent.  

Much of Europe has gotten around the need for air conditioning by opting to take long vacations in the summer months and many people have the opinion air conditioning is unhealthy. When I was the ING account manager for Bloomberg twenty years ago, I frequently visited the “sandcastle” head office in Amsterdam. It was lauded as perfectly designed to avoid the need for air conditioning. That was a massive overstatement in my experience. 

As heat peaks rise in Europe, demand for air conditioning will inevitably rise and that is likely to put further pressure on politicians to address the high cost of electricity. Subsidizing inconsistent supply and paying for redundancy systems while people are baking in their homes is not a long-term solution.

The largest growth market for air condition will be in countries like India where urbanisation is rapidly increasing. That creates a linked demand jump in per capita cement consumption which contributes to cities being heat wells.

This trend of electricity usage is inevitable as living standards improve and is independent of the increase in demand arising from the electrification of the transportation sector. The demand growth story for electricity represents a massive investment cycle for utilities which implies higher costs and lower profits.

The Europe STOXX Utilities Index has been ranging below 400 and mostly above the decade-long base since 2019. The challenge for the sector from the upfront cost of increasing supply could represent a significant headwind which is exacerbated by higher yields in the sovereign market outcompeting dividend yields.

Within the air conditioning sector, Johnson Controls International and Honeywell are both steadying from the region of their respective trend means.

Meanwhile Europe appears intent on pursuing a hydrogen driven solution. BMW announced its hydrogen vehicle this week and Thyssenkrupp Nucera successfully IPOed today which is a clear effort to supply investors with a way to invest in the sector. 

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