A new University of North Carolina at Chapel Hill center seeks to demystify the financial risks that environmental events impose on society. The Center on Financial Risk in Environment Systems is a newly launched partnership between UNC’s department of environmental sciences and Engineering, a part of the University of North Carolina Gillings School of Global Public Health, and the UNC Institute for the Environment.
[Photo: Dr. Greg Characklis]
“We are trying to develop new tools and innovative strategies for managing environmental financial risks, and in doing so, encourage more environmentally friendly behavior,” said Dr. Greg Characklis, Philip C. Singer Distinguished Professor in the department of environmental sciences and engineering and director of the new center.
Dr. Characklis has assembled an interdisciplinary team of faculty, postdoctoral researchers and graduate students to identify and characterize financial risk in economic sectors, such as water utilities and power companies, with strong connections between environmental conditions and financial outcomes. This requires developing integrated models of the environmental, economic and engineered systems related to each sector to more fully understand their financial vulnerabilities.
“Water utilities, for example, typically achieve high supply reliability by maintaining a great deal of capacity used only during drought,” he said. “Maintaining this supply has become more difficult as it is increasingly expensive and a burden on the environment.”
During times of drought, utilities must rely on temporary conservation measures to manage resources. These measures reduce revenues at unpredictable intervals, and this financial disruption is exacerbated by the fact that utilities cannot raise prices quickly. Dr. Characklis’ center is developing new tools and strategies for managing this risk, such as financial insurance, that allow for more conservation and financial stability.
Dr. Characklis also pointed to another industry that relies on water levels – inland shipping. Low water levels interrupt barge traffic in places such as the Mississippi River, which in turn drives up costs when the product is moved to an alternate source, such as truck or rail shipping.
“Dredging is the current solution to low water levels, but it is both dirty and expensive. We are developing financial instruments that can mitigate losses due to low levels, and these can substitute for at least some of dredging,” Dr. Characklis said.
For the last several years, Dr. Characklis’ group, formerly the UNC Center for Watershed Science and Management, has received funding from the National Science Foundation (NSF), U.S. Department of Energy and the Duke Energy Foundation, which includes multi-million dollar awards from NSF’s Innovations at the Nexus of Food-Energy-Water Systems and Water Sustainability and Climate programs.
The center also has a number of projects related to water and energy, as well as agriculture.
“Not only will this new center serves as a bridge between the UNC Gillings School of Global Public Health and the UNC Institute for the Environment, the research experiences will provide a unique interdisciplinary training ground for graduate students, which is really exciting,” Dr. Characklis said.