In February 2021, an unusually strong winter storm inflicted ice, snow, and freezing temperatures on several states. It hit Texas particularly hard: widespread blackouts followed as the state’s utilities failed to function normally in the harsh conditions. At the height of the Texas power outage, 4 million people were without electricity and millions more lacked safe drinking water. The crisis resulted in over 80 deaths, with additional lives lost likely still uncounted.
Scientists have cited climate change as a contributing factor to Winter Storm Uri’s severity, and some predict extreme weather events like this becoming more frequent as global temperatures continue to rise. For investors concerned about the environmental effects of fossil fuels, the storm serves as a stark reminder of what can go wrong when society ignores environmental risks. ESG investors can learn from the Texas power outage and use it to inform their efforts to promote climate resilience going forward.
Climate Change Impact Hits Home
The storm created a deadly combination of record cold temperatures and blackouts that left millions without heat. Some victims of the storm died of hypothermia; others succumbed to carbon monoxide poisoning from unsafe generators when electricity from the grid was not available. Three children and their grandmother died in a house fire after their heat had been off for several hours.
Scientists have predicted that climate change will lead to an increase in severe storms and other natural disasters, and some believe that Winter Storm Uri exemplifies the danger. They argue that rising temperatures in the Arctic caused the jet stream to stray from its usual trajectory, which sent cold air and icy storms farther south to areas that usually see milder winter weather.
The breakdown of Texans’ utilities is an indicator that American infrastructure is poorly prepared to cope with unexpected weather events as well as a show of how failing to anticipate and guard against extreme weather can lead to tragic outcomes. Most fatalities from natural disasters linked to climate change occur in developing countries, meaning that many Americans may have lacked visibility into the risks and assumed the US was not vulnerable. The devastation in Texas underscores that environmental disruptions are a global threat—the effects of carbon emissions are not likely to be contained within any single country’s borders.
Businesses and Governments Need to Take Scenario Planning Seriously
Prior to the crisis, Texas’s seasonal risk assessment had considered the possibility that a strong storm might strain the grid. However, it did not predict the extent of the blackouts. The scenario it examined was based on a 2011 ice storm, which had also caused power outages but did not result in as many deaths. Modeling scenarios after previous events in a region is common practice, but it is likely to be inadequate if climate change triggers “black swan” events that drastically depart from typical weather patterns.
Noting the danger of assuming “business as usual,” some researchers recommend planning for climate change with scenario analysis that challenges conventional ideas and accounts for threats to the status quo. The scenarios should be distinct enough to account for diverging future paths without accepting previous disasters as the limit of what is possible.
Investors can voice support for initiatives that help local governments plan for climate change, such as Minnesota’s climate resiliency program, which funds risk planning for cities and tribal nations. They can also encourage public companies to conduct and disclose the results of climate risk assessments through shareholder advocacy. They can apply scenario planning to their own portfolios, too.
Society Cannot Adapt to the Changing Climate without Upfront Investment
Winter Storm Uri exacted a terrible human cost, and in financial terms it may prove to be the most expensive disaster in Texas history. While companies are sometimes reluctant to make the necessary expenditures to prepare for climate emergencies, the cost of allowing a catastrophe to unfold can be far greater than the price of bolstering critical infrastructure in advance.
Retrofitting Texas’s power plants so they can keep running in lower temperatures is not an inexpensive option. Many are not enclosed, which helps them shed heat in warmer weather but leaves them susceptible when temperatures fall. It may be easier to plan for temperature extremes when building new plants or installing new equipment than to winterize existing structures—a lesson that developers in other industries may want to heed when weighing whether to incorporate climate-proofing into their designs.
In addition to highlighting the need for investment in public infrastructure, the Texas power outage points to the importance of energy efficiency on the consumer side of the grid. Investing in sustainable properties and backing initiatives to enhance homes’ climate resilience can reduce demands on the electricity network and could help prevent steep usage spikes during particularly hot or cold periods.
The Public Remains Skeptical of Clean Energy
In the immediate aftermath of the storm, some Texas lawmakers blamed wind and solar energy sources for knocking out large swaths of the state’s power grid. The claim that frozen wind turbines were responsible for the disaster was repeated across segments of the media.
Although the storm sent renewable energy sources offline, wind energy failures were the cause of less than 13% of the power outages. The state’s grid draws heavily on natural gas, coal, and nuclear power suppliers, and output from those thermal sources fell drastically in the frigid conditions. The Electric Reliability Council of Texas found that the drop in output from natural gas suppliers was primarily responsible for the disruptions to the grid.
Fact-checking sites and news organizations disputed arguments against renewable energy that spread in the wake of the disaster. Yet given the growing polarization of US media, those who are distrustful of green energy may prove less willing to accept outlets regarded as overly pessimistic about climate change.
Persuading a broader share of the population of the benefits of wind and solar power may require addressing fears about reliability head on, such as by investing in next-generation battery technology that would allow providers to store more renewable energy in case of disasters and developing innovative grid designs that are better able to match supply from diverse power sources to fluctuating demand.