September 10, 2022
You’ve probably heard of a “snow day”…
But have you heard of a “heat day”?
Climate change is shifting temperature patterns across the country. In response, some schools are introducing “heat days” and closing schools when temperatures get too high.
For example, in Philadelphia, around 100 school buildings do not have air conditioning. As a result, the city’s School District announced an early dismissal on a day approaching record temperatures towards the end of the 2021-2022 school year.
The School District of Philadelphia then announced its “heat day” policy for the rest of the school year: 1) monitor school temperatures when outside temperatures are forecasted to reach or exceed 85 degrees Fahrenheit or a heat index of 90, and 2) decide whether to switch to virtual learning if school temperatures reach or exceed 90 degrees. The School District implemented these measures in the schools without air conditioning, anticipating current installations and updates of air conditioning systems to take two more years.
Zoom in on Philly:
Let’s run a Demex climate assessment on the Philadelphia region. The Demex Trend Score represents a year-over-year direction of changes in summertime heat compared with historical data. A positive or negative score means an increasing or decreasing temperatures, respectively. The Variability Score represents year-over-year fluctuations. A positive or negative score means a higher or lower level of year-to-year changes in summer heat, respectively.
Assessing average annual temperatures, the Philadelphia area is getting warmer with lessening year-to-year variability. In other words, average temperatures are more consistently getting warmer. This is unsurprising given the known rise in global average temperatures associated with climate change.
Trends in average annual temperature don’t tell the full story.
Climate change impacts are hyper-local, with effects varying by location and by season. Average temperatures mask the extremes that can be most impactful including the coldest winter and warmest summer temperatures.
Changes in maximum summer temperatures (the hottest days of the year) around Philly are directly linked to school “heat days.” Unlike average annual temperatures, the area is dominated by decreasing trends in maximum summer temperatures. This means that the hottest days are getting cooler.
What does this mean?
The Demex climate assessment reveals that average temperatures throughout the year are increasing in Philadelphia, but maximum summer temperatures are decreasing.
Demex assessments can be explored in other regions across the globe, revealing some areas with strongly increasing maximum summer temperatures such as the American West as well as parts of the Northeast:
In the Boston region, for example, there are increasing trends in maximum summer temperature, with decreasing variability year-to-year.
The response of Boston Public Schools to extreme heat conditions has been similar to that of Philadelphia. In June 2021, Massachusetts began implementing half and full “heat days” during an intense heat wave. In October 2021, the Boston City Council announced plans to retrofit schools with air conditioning. Boston Public Schools anticipated their process to be completed by the spring of 2022, reaching the two-thirds of the public schools that lack HVAC systems.
Sample Economics for a School District:
Students can’t learn effectively in extreme heat, and conditions aren’t safe for students and teachers. In the face of extreme heat, school districts can mitigate risks by installing air conditioning, implementing heat days, or using a combination of both strategies.
Either strategy will cost school districts. Installing air conditioning requires up-front capital costs, as well as variable cooling costs. Implementing heat days costs school districts in extended school year labor and operations.
To evaluate the economics, let’s assume certain cost parameters for each school.
|HVAC Up-front Installation Cost||$1 million|
|HVAC Daily Operations Cost||$5,000|
|Heat Days Daily Extension Cost||$100,000|
The cost of extending the school year per day (Heat Days Daily Extension Cost) is at face value significantly cheaper than the up-front HVAC installation cost. However, with enough days of extreme heat, the HVAC up-front cost and daily operations cost will be more cost-effective.
For 10.5 hot school days, the total cost of HVAC systems ($1 million installation + $52,500 in daily costs) is virtually equal to the cost of extending the school year for those 10.5 heat days ($1,050,000). For 11 hot school days, the total cost of HVAC systems will be cheaper ($1,055,000) than the cost of school year extension days ($1,100,000).
Evaluating the Sample Economics
To evaluate whether heat days or air conditioning is a better strategy, schools need to account for how many days of extreme heat 1) occur now and 2) will occur going forward in their location.
Using Demex climate assessments, we can determine how many days in the September to June period have historically exceeded 90 degrees in Philadelphia and Boston. The history can be viewed both in terms of the observed dataset (1979-2021) and the dataset detrended using the recent 10-year average.
The average number of days between September and June that reach 90 degrees in Philadelphia is 8.42. The maximum number of days reaching 90 degrees is 19. The city’s generally decreasing trend in maximum summer temperatures can be seen in graph below:
In Boston, where temperatures are generally cooler, the average number of days between September and June that reach 90 degrees is 3.37. The maximum number of days reaching 90 degrees is 11. The city’s recent increasing trend in maximum summer temperatures relative to the full history can be seen in the graph below:
In Philadelphia, the average number of 90 degree days falls below the 11 days required for breakeven costs with air conditioning installation (using our Sample Economics). The data tells us that number will drop in the coming years as climate change shifts hot weather patterns in the region. In Boston, the average number of 90 degree days also falls below 11 days. However, Demex Scores reveal that extreme heat days will be increasingly likely in Boston in the near future, so air conditioning may be the more cost-effective measure.
In Philadelphia, implementing heat days may save the city money in our hypothetical scenario. However, an analysis that merely considers economic factors misses the additional benefits of air conditioning system installation for students and teachers on less extreme warm days.
Although the School District of Philadelphia is equipping schools with air conditioning, this example offers insight into the economic decisions required by many schools, organizations, and businesses in the face of climate change. In this scenario, heat days would still cost the city of Philadelphia’s School District $100,000 a day, which can be a steep price depending on the city’s budget. One potential solution to defray those costs is parametric insurance.
Parametric insurance is a new, innovative form of insurance that is directly tied to a parameter such as temperature. Extreme heat parametric insurance pays policyholders when heat reaches a certain agreed-upon threshold, the “trigger” level. That trigger varies by location to capture what is relatively extreme for any given city. For Philadelphia schools, the trigger has been set by policy at 90 degrees.
A parametric insurance product in Philadelphia could be structured to begin coverage at 8 days, the historical average of extreme heat days. For each day above 8 days, that product could pay out $150,000 to allow the school to recoup losses from extreme heat. For more comprehensive coverage, a product could pay out for any day of extreme heat above 90 degrees.
The Demex Solutions Center platform is a quick tool to structure your parametric insurance product. Example coverage in Philadelphia can begin at 8 days above 90 degrees, end at 15 days above 90 degrees, and pay out $150,000 per day up to a $1,000,000 maximum, or limit. This coverage is quoted at around $428,800.
If there are 9 days of extreme heat above 90 degrees in a school year, under that policy, the city would be paid out $150,000. If there are 11 days of extreme heat, the policy would pay out $450,000 to the city.
Coverage like this example can be structured for any client at their specific locations based on the unique costs and risk preferences. Cost of coverage depends on the “trigger” number of days, payout per day, maximum payout, and the “exhaust” number of days. Whatever a client’s needs or potential losses, Demex can develop a customized solution.
The Demex Group: Delivering Climate Resilience
Demex builds financial solutions for extreme weather events like heat waves. As weather patterns shift and the nature and frequency of extreme weather events change, Demex aims to help municipalities and businesses become climate-resilient.
Demex models climate conditions like extreme heat at individual locations across client portfolios.
- The Demex Climate Center, a free resource, presents trends and variability for weather conditions like extreme heat, cold, rainfall, and snowfall at locations across the world.
- Demex clients receive more sophisticated and localized data analysis calibrated to each specific business or industry.
Demex assesses a client’s changing exposure to conditions like extreme heat, and then calibrates those exposures to client financials to quantify the dollar impact of changing climate risk.
- The Demex Solutions Center is a web-based platform for clients to interact with their climate assessment.
- Assessments are customized and localized for each client.
Demex transfers your climate-related risk through our trusted capacity network. Climate resilience becomes practical with our tech-enabled, data-driven risk transfer solutions that are highly efficient, localized, and easy to implement. Programs like parametric insurance are fully customizable with automated claims processes.
- Demex’s empowered insurance products are tied to a weather parameter of interest, e.g. temperature. Claims are automatically triggered at a pre-defined temperature threshold, and claims are often calculated per unit of measurement (e.g. per degree) up to the policy limit.
- In response to the February 2021 cold snap that cost an estimated $20.8 billion in economic damages across the Great Plains and Texas, Demex developed embedded parametric extreme temperature insurance with our partner Vave for commercial properties across the U.S.
Demex’s climate risk products have been developed to meet clients’ range of needs. We aim to deliver climate resilience at scale, so that clients understand their risks in the face of extreme weather events and policyholders can be appropriately compensated for potential losses.