While appearing on Squawk Box on CNBC last month, Warren Buffett commented about how disasters related to the weather have had an effect on the insurance businesses owned by Berkshire Hathaway. This set many commentators abuzz all over the Internet, and had people discussing whether or not climate change really did have an impact.
Even though it’s not easy to say with complete certainty what the Oracle of Omaha – the CEO of Berkshire Hathaway based out of Nebraska – currently thinks about this particular topic, but he has shared some hints in recent years that he does agree with the science behind global warming being caused by humans.
In an op-ed piece published in 2009 in the New York Times, Buffett stated that “doubling the carbon dioxide we belch into the atmosphere may far more than double the subsequent problems for society. Realizing this, the world properly worries about greenhouse emissions.”
But this has not caused any of the many people who observed this from stating that Buffett’s “Squawk Box” comments in the interview as negative against climate change as a cause for natural disasters. Commenters are even posting about it on twitter.
As Buffett points out in his annual letter to shareholders, his company is actually one of the largest investors in renewable energy like solar and wind power. They even purchased two large California wind farms in October of 2013.
In that same CNBC Squawk Box interview, Buffett discussed the many different risks of extreme weather events from his perspective as the owner of numerous insurance companies, reinsurance companies and as an investor.
We do not mean to get really negative against Warren Buffett, but it’s worth mentioning a number of things that he mentioned in the interview. Let’s take a look at the facts:
1. We have seen few hurricanes in the past few years, so there hasn’t been an impact due to climate change.
In the earlier part of the interview, someone asked Buffett if the extreme weather events in recent years change the way his businesses calculate risk, in particular his insurance companies. Here’s the answer that he gave:
“I think the public has the impression that, because there’s been so much talk about climate, that events of the last 10 years from an insurance standpoint in climate are unusual. The answer is they haven’t. You read about these events, but you were reading about events 30 or 40 or 50 years ago.
“We’ve been remarkably free of hurricanes in the United States in the last five years. So if you were writing hurricane insurance, it’s been all profit. There have been some more tornadoes than normal, but it’s not had any effect so far. The effects of climate change, if any, have not affected … the insurance market.”
As pointed out by the NOAA’s Geophysical Fluid Dynamics Laboratory, it’s too early to say that global warming has already had a major detectable impact on hurricanes from the Atlantic, the storms that will affect the US coastline. So Warren Buffett is not wrong to mention that severe weather has been experienced “30 or 40 or 50 years ago.”
Although there is an emerging study field on whether or not severe weather is impacted by climate change, the majority of scientists studying climate are focused mainly on how these events will change the future over the long-term – how heating with greenhouse gases will impact precipitation patterns, floods, hurricanes and droughts many years from now.
The Intergovernmental Panel on Climate Change has model projections that show us that on a global scale, warming could impact the average strength of hurricanes, making each storm’s potential have a greater destructive power, and also have much higher rainfall rates than storms of the present-day.
2. Major catastrophe risk is no different now than it was just a few years ago.
Because the insurance business is so important to a company like Berkshire Hathaway, and a large catastrophe could have a serious impact on the company’s earnings, Becky Quick of CNBC questioned Buffett again about the information above. Here’s Buffett’s answer:
“I calculate the probabilities in terms of catastrophes no differently than a few years ago,” replied Buffett. And as Joe Kernan, Squawk Box co-host started speaking over him, Buffett added this qualifier: “That may change in 10 years.”
Warren Buffett is very famous for being careful about the things he says when discussing investing in the public (and choosing to not make any predictions about the future), so it’s no accident that he may have intentionally made this caveat. Although, it’s definitely important to take note that severe weather catastrophic events are far from the only area that can and will be impacted by changing climate.
Even though they get much less attention than tornadoes and hurricanes, phenomena of long-term climate change – especially temperature and drought changes – pose some of the biggest risks for human societies in a warming world.
That’s because if no changes are made to control greenhouse gas emissions in the coming decades and years, global warming is expected to trigger irreversible climate pattern shifts all around the world. Where we grow particular agricultural crops will have to move northward, and water sources that millions of people need and depend on today could potentially dry up.
If you’d like to look at an example of how dramatic changes in precipitation could have an impact on water supplies, take a look at the 2013 versus 2014 comparison of Sierra Nevada mountain snowpack, which Californians in the millions depend on for their recreation, agriculture and drinking water. (Link).
Current estimations of today’s global population are 7.1 billion people according to the U.S. Census Bureau. By the middle of the 21st century, projections are likely to reach the 8 or 9 billion mark. As the director of Penn State University Center for Solutions to Weather and Climate Risk, David Titley explains that this potentially creates huge problems for a warming world.
In order to produce the amount of energy that we need and use each day, reliable fresh water sources are essential. This is especially true for cooling coal, natural gas, oil and nuclear energy plants. They’re also equally as important to agriculture and industrial manufacturing, which use the largest amount of water worldwide.
“When you’ve got that many people, it’s only natural that you’ve got to think about where does their energy come from,” said Titley in a talk last month given by the American Security Project. “Where does their water come from? Where does their food come from? It turns out that those three things are really, really linked close together.”
3. In regards to apocalyptic predictions of climate risk: ‘It hasn’t been true so far.’
When Joe Kernan asked Warren Buffett about what he thought of the public’s overall perception on how severe weather events have an impact on the insurance business, Buffett had this to say:
“I love apocalyptic predictions on it, because you’re right, it probably does affect rates. The truth is that writing US hurricane insurance has been very profitable in the last five or six years. Now, the rates have come down very significantly, so we aren’t writing much, if anything, in the US,” stated Buffett, also adding that when it comes to the way weather impacts Berkshire Hathaway, “it hasn’t been true so far.”
It’s important to note here that Warren Buffett’s point of view is only talking about the recent performance of Berkshire Hathaway’s insurance divisions, says Paul Walsh, VP for weather analytics at The Weather Company, which is the parent company of The Weather Channel.
“Warren is speaking in terms of recent history and he’s not making a specific commentary on climate change or the future state of climate/weather related risk,” Walsh said. “He’s not in the business of making scientific predictions – his point of view is actuarial and financial.”
Climate changes that are expected to take place over the long-term future will mean that the world will be much different than it is today due to global warming. Another way of putting it much better is to use the words of Warren Buffett: “In the business world, the rearview mirror is always clearer than the windshield.”