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Water Level Futures

If you want to walk on water, find a frozen pond
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It seems to me that carbon futures and trading are getting at completely the wrong problem.

The thing we truly care about, and that will affect us directly, is not the level of carbon, nor even the temperature, but it is the water level in 10, 50, 100 years and so on.

Therefore, it is this water level that should be traded directly. Thus, shrewd energy companies that secretly believe in global warming can hedge themselves by buying such futures, and such moneys to be used to ameliorate the effects of the rising waters.

Similarly, water level alarmists (or their grandchildren) can make sufficient billions to live well above current water levels by taking money from the stubborn deniers and winning this bet.

theircompetitor, May 12 2014

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       This doesn't sound like a financial instrument so much as a plain old bet. So what's the idea?
ytk, May 12 2014
  

       Yes, many people seem to believe water levels are rising dangerously. Islands disapearing and such. And yet my government told us a couple of years back that there was nothing to worry about.   

       Since then there was nothing in our media about it.   

       I live in the netherlands so it is rather important to us seeing as roughly half of our country is below sea level and we have had terrible flooding in the past.   

       So, drown poor or dry millionair.
zeno, May 13 2014
  

       Sea water level ?
popbottle, May 13 2014
  

       Ytk, future markets are betting, but they also serve a function of managing risk.   

       What better ways for people on both sides of the debate to put their money where their mouth is?
theircompetitor, May 13 2014
  

       This is a long market, & long markets have huge problems.   

       For instance, I'd like to bet $100k that the sea level will rise globally an average of >1.5 meters by 2050.   

       However, to place that bet, I'd have to park 100k for 36 years! The opportunity cost is high (in interest, as well as liquidity for life's changes).   

       And, even worse, it's bad to bet on chaos (& flooding most major coastal cities is indeed chaos) for 3 big reasons:   

       1) Failed promises:   

       Can you really expect promises to be kept during infrastructure & social chaos? "Sorry, the system can't be supported".   

       2) Timing:   

       When a culture is unsustainable, it often doesn't gradually get sustainable, but rather goes off the cliff. As the crisis gets more painful, the entrenched players get more entrenched, until the whole thing collapses. To get your reward, you'd have to cash in just as it's free-falling. Because, up until 11:59PM of the impending doom, everyone will still be betting against you, so you can't resell your future.   

       3) Moral hazard:   

       For those who do believe that the sea level will rise, it creates a perverse incentive to encourage that to happen.   

       For example, if 1,000,000 people believe the sea level will rise, & place financial "bets" to that effect, then that takes 1,000,000 people "off the table". Meaning, those 1,000,000 people, over the next 10 years, may have produced many clever ideas to help, but dismissed those thoughts when they were small, as the thought that would hurt their finances.
sophocles, May 13 2014
  

       //future markets are betting//   

       Not exactly. A “future” represents a promise to deliver some asset or commodity. If I buy pork belly futures, I'm purchasing the right to have some specified amount of pork bellies available to me at a certain location at a specified time. Now, as an investor, it's highly unlikely that I actually want that much pork, but I can take those pork futures and resell them, either to other investors or, ultimately, to a pork processor who really does want that meat to convert into bacon. Of course, I'm hoping the price of pork goes up between now and when I sell the futures. But whether it does or not, I've got to make sure to get rid of my futures before the contract comes due, or else I have to figure out what to do with 47 pallets of hog bellies that's currently sitting in a warehouse in Nebraska.   

       A “bet”, on the other hand, isn't backed by anything except a promise to pay if certain conditions are met. If your card is higher than my card, I'll pay you five dollars. If Green Bay wins against the 49ers, you'll make 3-to-1. Or, in this case, if the sea level rises above a certain height, I'll pay you $X, and if it doesn't, you pay me.   

       In order for it to be a “future”, it has to represent some commodity that can be bought and sold on the open market. The sea level isn't such a commodity. So this idea boils down to “bet on something”. Well, okay, but how is that a novel idea? You could substitute anything you wanted for “water level” and theoretically have a completely different idea.
ytk, May 13 2014
  

       ytk, thanks for that informative explanation, I truly enjoyed the aspects of the futures market I was not aware of as yet, this despite having worked on Wall St. from 1983 through 2004.   

       Carbon futures, and pollution variants thereof, perhaps you've heard of these? They were instituted to combat global warming, and, at the time at least, were a novel idea, despite being somewhat abstract This idea, though somewhat derivative of that idea, is nevertheless both new, and (in my opinion) useful, as it gets at the crux of the issue -- how to make those that don't believe pay, and how to create an ability for those that do believe to protect themselves, both sides thus creating a market.
theircompetitor, May 13 2014
  

       //I truly enjoyed the aspects of the futures market I was not aware of as yet, this despite having worked on Wall St. from 1983 through 2004.//   

       And I'm sure the hot dogs you sold were delicious.   

       //Carbon futures, and pollution variants thereof, perhaps you've heard of these?//   

       Sure. There's nothing abstract about them at all. You're purchasing the right to create a certain amount of additional pollution from a company that has reduced its own pollution, thus creating a financial incentive for reducing pollution and a penalty for failing to do so. The right to emit pollution is the tradable asset in this case. What are you proposing to back your “Water Level Futures”? The right to raise the sea level by a certain amount? That makes no sense whatsoever. How do you even measure that, or enforce regulations regarding how much an individual company has raised the level of the ocean?   

       It can't be a futures market without some underlying asset. What is the asset here? What specific benefit does owning one of these “futures” confer, other than a potential payout if certain conditions are met? If there aren't any, then it's either an insurance policy or a straight up gamble (though it's arguable that there's not any difference between the two), not a future.
ytk, May 13 2014
  

       you're right, [bigsleep], in fact one of the most puzzling aspects of the certainly of climate change has been the refusal of insurance rates to go up.
theircompetitor, May 13 2014
  
      
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