The weather extremes caused by climate change are well known to have a wide range of consequences across society.  Research from the Potsdam Institute for Climate Impact Research highlights how these impacts can cause economic ripples throughout our supply chains.  What’s more, each ripple is likely to bring ever greater economic losses, with wealthy nations affected more strongly than poorer ones.

“Ripple resonance, as we call it, might become key in assessing economic climate impacts especially in the future,” the researchers say. “The effect of weather extremes in our globalized economy yield losses in some regions that face supply shortages and gains in others that see increased demand and thereby higher prices. But when extremes overlap economic losses in the entire global supply network are on average 20 percent higher. This is what we see in our simulations of heat stress events, river floodings, and tropical cyclones; and it is a most worrying insight.”

Climate impact

The researchers highlight how the impact at a local level is seldom restricted to purely local output losses, with the shock spreading throughout the supply chain.  The researchers found that this impact doesn’t add up in a linear fashion but rather amplifies each other.

What’s more, when analyzing around 1.8 million economic relationships across over 7,000 regional economic sectors, the researchers found that developed countries were far more vulnerable to this than developing countries, due in large part to their sophisticated and connected supply chains.

“The phenomenon of economic ripple resonance means that two separate incidents send shock waves through the world economy, and those waves build up — like a tidal wave,” the researchers say. “Supply shortages increase the demand and that increases the prices. Firms have to pay more for their production goods. In most cases, this will get passed down to the consumer. Since weather extremes happen abruptly, there’s no smooth adaptation of capacities and prices at least for a short period of time. If other suppliers fail, due to economic repercussions of another weather extreme elsewhere, the interfering price shocks are intensified.”

Cascading impact

The researchers believe their findings are important because they illustrate the way in which local impacts can quickly cascade into much more significant damage on a national and international scale.

“If something gets rare, it gets expensive, and if it gets rare worldwide it gets very expensive — clearly, that’s not new,” they explain. “The new thing is the overlap. So far, people mostly looked at the local damage or at most the economic repercussions of one disaster at a time. Now we find that a second disaster happening at about the same time, even if it’s in a different corner of the world, can lead to higher worldwide economic losses.”

What’s more, the researchers believe this holds just as well for consecutive disasters as it does for simultaneous disasters, with an overlap in the economic impact.  It’s a finding they believe makes tackling climate change all the more important.

“By allowing climate change to run wild, we add climate-induced economic losses on top of everything else,” the researchers conclude. “If we do not rapidly reduce greenhouse gases, this will cost us — even more than we’ve expected so far.”