Page 102 - Carbon Capitalism and Communication Confronting Climate Crisis

88 J. BATES

and the divergence of the average daily temperature from 18 °C. These
products, which are popular with firms in the energy industry, are known as
Heating and Cooling Degree Days (HDD and CDD) contracts (WRMA
n.d. (b)). Over recent years, however, the primary market which provides
derivative contracts to end-user businesses has diversified, and a wider and
more complex range of products are being developed across a range of
weather conditions. One such product is the quantity-adjusting option, or
quanto, derivative which combines weather and commodity price risk
within a single derivative contract. For example, a company could receive a
pay-out on a contract if the temperature is lower than expected, but the
pay-out would be calculated in relation to the price of gas (Risk.net 2010).
Such developments illustrate new innovations in the weather derivatives
market, however overall the success of the market over the last two decades
has been mixed. The weather derivatives market saw massive growth in the
mid-2000s, experiencing both the hedge fund boom of 2005–2006 (no-
tional trading value of $45 billion) and the pre-crash boom of 2007–2008
($32 billion) (Randalls 2010). As with other forms of financial product, the
vulnerability of the weather derivatives market was highlighted when the
market crashed during 2008–2009 and 2009–2010, with only slow signs
of growth by 2011 ($11.8 billion) (WRMA 2009, 2011). These figures,
based upon surveys undertaken by PricewaterhouseCoopers on behalf of
the WRMA, cover the period 2003–2011. No surveys have been published
since 2011, and no up-to-date figures for the size of the market therefore
exist. However, despite the dip in the market, in 2011 the WRMA (2011)
was 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, and more recent industry reports suggest the
market is beginning to expand again (Thind 2014).

GETTING THE DATA TO MARKET
As financial products based on vast indexes of weather observations, traders
in the weather derivatives markets require access to significant amounts of
historical and real-time meteorological data. While there has been signifi-
cant diversification in the sources of data used by market actors in recent
years, data produced by national meteorological agencies is still perceived
to be preferable due to its high quality and public agencies’ substantial
archives of historic data.