NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

By Ariel Cohen

The fuel crisis spreading across Europe and Asia highlights the weather-related vulnerabilities faced by global energy systems. As wind and solar falter under intermittency, power generation has defaulted to gas, where demand is being squeezed by early-autumn heating and late-summer electric cooling needs across Eurasia. The reverberations of February’s polar vortex in Texas—which froze gas output—continue to be felt as resulting low reserves run dry and Gazprom dithers. The resiliency of energy supply chains is being put to the test—and failing.

Fuel disruptions are one thing; shortages of food could be even more disastrous. Energy and food commodity markets have become increasingly intertwined as surging demand for biofuels pump up grain and oilseed prices. Agriculture is even more vulnerable to climate impact than fuel is; this summer alone saw drought batter the grain belts of North American and Central Asia, while Brazil—a global food product leader—is being ravaged by wildfire, drought, and frost, leaving agriculture markets in turmoil.

To assure the sector’s resiliency, supply chains must be bolstered, risk must be better understood, and new capital must be leveraged to allow the global food system to withstand increasingly severe climate shocks. In short, what is needed is financial innovation.