UNIVERSITY PARK, Pa. — Ryan Lewis, assistant professor of finance in the Leeds School of Business at the University of Colorado at Boulder, will give the talk, “The Value of Climate Hedge Assets: Evidence from Australian Water Markets,” at noon on Wednesday, March 19, in 157 Hosler Building on the University Park campus.
In Australia’s Murray Darling Basin (MDB), short term (allocation) and long term (entitlement) water rights are separately traded, centrally reported and disseminated to the public. In his talk, Lewis will discuss how he utilizes this setting to demonstrate three primary findings concerning water rights and climate change risk.
“First, water rights appear to be a climate change hedge — in periods of diminishing supply, allocation cash flows spike as price increases offset quantity declines,” said Lewis. “Secondly, since 2014, entitlement prices in climate-exposed areas have increased approximately 39% more than prices in non-climate exposed areas while allocation prices have remained similar in both areas. These price differences provide a clear market signal about future scarcity and help to define investment opportunities available today to preserve water resources. Thirdly, estimating the allocation cash-flow to rainfall elasticity and extrapolating using the 2050 IPCC rainfall scenarios, I attribute about 21%of the price effect to differences in expected cash flow, and the remainder to a lower discount rate. The premium I estimates equates to a 1.2% lower rate of return for climate hedge or mitigation assets, a critical parameter in climate economics.”
Lewis’ research centers on the pricing of risk in financial markets, with a particular focus on low probability and on long-term events. He received his doctorate from the London Business School and his bachelor of arts degree in economics from Swarthmore College. Prior to entering academia, Lewis worked at a distressed debt hedge fund and in the macroeconomics division at the New York Federal Reserve.
The Initiative for Energy and Environmental Economics and Policy (EEEPI) was established in 2011 with the goal of promoting policy-relevant economics research that lies at the boundary between economic sciences and the study of natural or engineered systems. The EEEPI initiative is focused primarily on the union between energy systems and environmental management and the development of quantitative tools to address decision challenges in these areas. View more information on the EEEPI website.