Mid‐twenty‐first‐century projected trends in North American heating and cooling degree days

Abstract

Heating degree days and cooling degree days are overall measures of the demand for heating and cooling services. These measures serve as indices for financial products known as temperature derivatives (and more generally, weather derivatives), which allow utility companies and other businesses to hedge against weather risks. Weather derivatives are traded on the Chicago Mercantile Exchange, and as of 2011, the size of the weather risk market was estimated to be $11.8bn. Questions linking climate change to weather derivatives naturally arise. In this paper, we estimate trends in the annual projected number of heating degree days and cooling degree days over North America using regional climate model output for years 2038–2068. The regional climate model data are obtained from the North American Regional Climate Change Assessment Program. Two methods are demonstrated, one empirical and data driven, and the other taking advantage of spatial statistical models. Both methods incorporate regional climate model ensemble variability and produce trend estimates across North America. Copyright © 2014 John Wiley & Sons, Ltd.