We actually want to hedge global temperature, which isn’t perfectly related to oil consumption. Is there a better hedge we could use?
Also, climate change would be more related to cumulative oil production, rather than annual. I think it would be better to find something that is more reactive to the warming. One candidate is food. One might think that if climate change negatively hurts food production, it would not be good to invest in. But because demand for food is inelastic, if one were invested in diversified food, total revenue is likely to increase because food price would increase more than quantity would decrease. Food price would also likely increase if there were more population and more animal product consumption, both of which would would be correlated with climate change. Investing in companies with large food storage would be a particularly good hedge against abrupt food catastrophes.
Interesting points.
Also, climate change would be more related to cumulative oil production, rather than annual. I think it would be better to find something that is more reactive to the warming. One candidate is food. One might think that if climate change negatively hurts food production, it would not be good to invest in. But because demand for food is inelastic, if one were invested in diversified food, total revenue is likely to increase because food price would increase more than quantity would decrease. Food price would also likely increase if there were more population and more animal product consumption, both of which would would be correlated with climate change. Investing in companies with large food storage would be a particularly good hedge against abrupt food catastrophes.
True. I tested the correlation between S&P 500 price and cumulative oil production and got r=0.81 (p < 1e-29).
That’s a neat idea. It behaves more like insurance—most of the time it doesn’t do much, but when it matters, it will give you a lot of money.