Physical climate risk from extreme weather events remains unaccounted for in financial markets. Without better knowledge of the risk, the average energy investor can only hope that the next extreme event won’t trigger a sudden correction, according to new research from the University of California, Davis.

The paper, “Energy Finance Must Account for Extreme Weather Risk,” was published Feb. 17 in the journal Nature Energy, Phys reported.

“If the market doesn’t do a better job of accounting for climate, we could have a recession—the likes of which we’ve never seen before,” said the article’s author, Paul Griffin, an accounting professor at the UC Davis Graduate School of Management.

The central message in his latest research is that there is too much “unpriced risk” in the energy market. “Unpriced risk was the main cause of the Great Recession in 2007-2008,” Griffin said. “Right now, energy companies shoulder much of that risk. The market needs to better assess risk, and factor a risk of extreme weather into securities prices,” he said.

For example, excessive-high temperatures, like those experienced in the United States and Europe last summer, can be deadly. Not only do they disrupt agriculture, harm human health and stunt economic growth, they also can overwhelm and shut down vast parts of energy delivery, as they did in Northern California when PG&E shut down a delivery during fires and weather that could trigger a fire. Extreme weather can also threaten other services such as water delivery and transportation, which in turn affects businesses, families and entire cities and regions, sometimes permanently. All of these strains local and broader economies.

“Despite these obvious risks, investors and asset managers have been conspicuously slow to connect physical climate risk to company market valuations,” Griffin said in his article.

“Loss of property is what grabs all the headlines, but how are businesses coping? Threats to businesses could disrupt the entire economic system.”

Climate-vulnerable locations also factor into risk for energy markets. In the United States, US oil refining is located on the Gulf Coast, an area exposed to sea-level rise and intense storms. Oil refining in Benicia and Richmond, in Northern California, can be exposed to coastal flooding. Energy companies’ transmission infrastructure is located in arid areas, increasing the risk of damage, such as the destruction from recent wildfires in California. In addition, it is not clear insurance will be available to cover such risks. Add to those risks, Griffin said, “litigation, sanctions and even loss of business from the property destroyed.

“The climate litigation risk already priced into energy stocks (after, for example, a protracted ExxonMobil court case in the 1990s) would prove insufficient.”

Extreme weather climate risk, in summary, is hard to predict.

“While proprietary climate risk models my help some firms and organizations better understand future conditions attributable to climate change, extreme weather risk is still highly problematic from a risk estimation standpoint,” he concluded in the article.

“This is because with climate change, the patterns of the past are no guide to the future, whether it be one year, five years or 20 years out. Investors may also normalize extreme weather impacts over time, discounting their future importance.”

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Rebel commander Khalifa Haftar held a meeting with Christophe Farno, the director of the Middle East and North Africa Department at the French Foreign Ministry, in the eastern city of Benghazi on Wednesday, when Farno conveyed the invitation to the rebel commander.

The invitation came on the same day that Libya’s Prime Minister Fayez al-Sarraj ­— the head of the Tripoli-based government — called on the international community to ensure that the agreement reached at a conference for Libyan peace last month was respected.

On January 19, leaders from Turkey, Russia, Egypt, France, Italy, Britain, and the United States, as well as Sarraj and Haftar, attended the UN-backed summit in Berlin to help establish a “permanent” ceasefire between the warring sides.

The final communiqué of the day-long summit urged all the parties concerned in the persisting conflict “to redouble their efforts for a sustained suspension of hostilities, de-escalation and a permanent ceasefire.”

Furthermore, the participants of the summit pledged not to interfere in Libya’s internal affairs and its deadly conflict.

France has supported Haftar in the past along with Saudi Arabia, Egypt, and the United Arab Emirates because it is believed to be relying on oil imports from the regions under his control. The Haftar-led rebel groups and militia forces have almost two-thirds of the country and all oilfields under their control.

Paris is also adamant about maintaining its foothold in the African continent, even in the countries that gained independence from France almost six decades ago.

France played the leading role in a military campaign by NATO that led to the ouster of Libya’s former dictator Muammar Gaddafi in 2011 and plunged the country into the current crisis.

Libya has since then been divided between two rival camps, the internationally recognized government in the capital, Tripoli, and a camp based in the eastern city of Tobruk, which is militarily supported by Haftar’s rebels.

Haftar launched a deadly campaign to conquer Tripoli — the seat of the GNA — on April 4 last year. His forces have been bogged down near the capital.

According to the World Health Organization (WHO), the fighting has so far killed at least 264 people and wounded more than 1,200 others. Libyan officials say Haftar’s forces have attacked residential areas as well.

France has also blocked resolutions at the United Nations Security Council, the European Union, and other international organizations opposing Haftar’s offensive.

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“As both sides agreed to the need to continue the negotiations in order to reach a comprehensive ceasefire agreement, UNSMIL has proposed 18 February 2020, as the date for a new round of talks of the 5+5 JMC, in Geneva,” the UN Support Mission in Libya (UNSMIL) said in a statement published on Sunday, TASS reported.

The first round of the JMC talks, which had started on February 3, 2020, concluded on Saturday afternoon at the Palais des Nations in Geneva, in the presence of the Special Representative of the Secretary-General and Head of the United Nations Support Mission in Libya, Ghassan Salame.

According to UNSMIL, the military commission talks constitute one of the three intra-Libyan tracks UNSMIL is organizing, along with the economic and political tracks.

The mission expressed its appreciation to both sides for coming to Geneva and “for upholding in earnest the responsibilities they had been entrusted with,” adding that the discussions were held in the “professional and positive” atmosphere.

“UNSMIL takes note of the existing consensus around the importance of maintaining the truce that had been announced on 12 January this year, of the necessity to respect it and refrain from violating it,” the statement says.

The UN mission also noted “the widespread consensus” between both sides with regard to protecting the sovereignty and territorial integrity of Libya, defending its borders and safeguarding “national decision-making process and resources from any foreign interference.”

The parties also agree on the need to “stop the flow of non-Libyan fighters and send them out of the country; and to continue the fight against the UN-identified terrorist groups,” such as al-Qaeda, Daesh (also known as ISIS or ISIL), and Ansar al-Sharia.

“Both sides expressed their support to ongoing exchanges of prisoners, returns of mortal remains,” the UN mission said. “While both sides agree to the need to expedite the return of Internally Displaced Persons to their homes, particularly in the areas affected by clashes, a full understanding could not be reached on optimal ways to restore normalcy to these areas.”

Ghassan Salame told a briefing on Thursday that during the JMC meeting, progress has been made on many important issues and we have before us a significant number of points of convergence.”

On January 19, a conference on Libyan settlement was held in Berlin at the level of heads of state and government. In the final document, participants in the conference called for a ceasefire, pledged to refrain from interfering into Libya’s internal affairs, suggested to set up a unified government and launch reforms for restoring statehood. The sides in the conflict also agreed to set up a special commission for ceasefire monitoring.

There are currently two executive bodies operating in Libya – the internationally recognized Government of National Accord, and the transitional cabinet in the east of the country which is supported by the House of Representatives (parliament) and the Libyan National Army.

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