The globalization of climate change: amplification of climate-related physical risks through input-output linkages
Retrieved on:
Mardi, mai 28, 2024
Shift, Carbon, Microeconomics, GVA, SP, Social science, Global value chain, Canadian International Council, Babiker Awadalla, GDP, American Economic Journal, Mathematics, European Economic Review, NBER, Climate change, HFCE, Database, Ecological economics, Nature, Multi, Suez Canal, Employment, Climate, Network, Iams, Temperature, Wildfire, Collection, IGO, Incidence, FD, Greenhouse gas, Weather, A1, Tax, SNB, GVC, Chapter Ten, Demand, World Bank Group, FGL, Environmental change, Financial system, Aerosol, Knowledge, Semiconductor, Engineering, Risk, Classification, Bank of France, Research Papers in Economics, Central bank, GGFC, ArXiv, ECB, International economics, Turner, Reproduction, Element, Haraguchi, Sustainability, Table, Swiss National Bank, World Bank, Journal of International Economics, Note, TRI, PNNL, COVID-19, USD, Senner, IMF, ISSN, Policy, Royal Society, GPD, Springer, Website, Energy, Working paper, Economic Modelling, ZG, Probability, AX, Growth, Journal of Business Research, Biodiversity, The Economic Journal, Greenhouse effect, Abstract, Control, EDS, MDA, Methodology, AP, Food, Disaster risk reduction, GVCS, Trade, Horse, Investment, The Economist Group, OECD, International Monetary Fund, M. A, National academy, Shock, Agriculture, Intermediate, Drought, Intuition, Inventory, Elasticity, Physical, Social, Motion, PDF, Outsourcing, GFCF, Change, Journal of Economic Issues, Soybean, Natural disaster, Greenhouse, TLS, Movement, Heat, CO2, Research, ESRB, GHG, Least squares, Forecasting, Routledge, Face, Input/output, Dell, European Central Bank, Great, Sasahara, Literature, PD, Global Environmental Change, Keen, Wind, MATRIX, Elis James, Kraft Foods, SSRN, Steel, Energy economics, Noronha, Insurance, Data, RCP, Forestry, Building, Health, ISIC, IPCC Fifth Assessment Report, IPCC, F18, Matrix
To address this shortcoming, this paper for the first
Key Points:
- To address this shortcoming, this paper for the first
time combines country-level GDP losses due to climate-related physical risks with a global Input-Output
model. - More specifically, climate-related GDP-at-risk data are used to quantify the potential direct
impact of physical risks on GDP at the country or regional level. - JEL Classification: E01, Q54, Q56, F18
Keywords: Supply chains, physical risk, climate changeECB Working Paper Series No 2942
1
Non-technical summary
The estimation of real-economic damages due to climate change physical risks remains an important
challenge in the face of global warming. - Many economic models make significant simplifications on
the channels of transmission of climate physical risks across the globe, often giving the impression that
the risks for the Euro Area will be relatively small. - In particular, the role of global supply chains in the
transmission and potential amplification of climate related physical risks has received little attention. - This is relevant because climatologists predict that direct impacts from climate change-induced natural
disasters will materialize mainly outside the Euro Area. - Understanding potential real economy losses would also contribute to better portray the risks which
could spill over into the financial system. - Introduction
Recent estimates of real-economic damages due to climate change physical risks do not appear
incredibly worrying, not at least those for European countries. - The ECB climate stress test of 2022 also finds relatively little impact from physical risks.
- Nordhaus? seminal 1991 paper was one of
the first to estimate the effect of climate change on economic output (Nordhaus, 1991). - Second, our paper relates to the literature that has started to analyse the transmission of climate risks
across borders. - In this strand, however, the focus remains mostly on transition risks (Devulder & Lisack,
2020, Frankovic, 2022, Krivorotov, 2022). - Third, we connect to the literature on the study of the propagation of climate physical risks across
borders, which remains underdeveloped. - To
our knowledge this paper is the first to apply IO modelling with physical risks on a global scale. - However, the authors use a general equilibrium modelling approach and estimate
how sectoral changes in productivity due to physical climate risks affect a global, multisectoral,
intertemporal general equilibrium model. - This paper aims at making economic impact assessments of climate change more realistic by
incorporating a key element of globalization. - More specifically, this paper is the first to analyse the
transmission of GDP losses from climate change related physical risks through global country-sector
input-output linkages. - ), this paper makes a first important step towards getting a more realistic
picture of the risks arising from climate change. - The natural hazards
influenced by climate change are many and include floods and inundations, droughts, heatwaves,
windstorms, and wildfires. - Importantly, physical risks do not only have a direct impact on the economy, as cascading or amplifying
effects are also possible through input-output linkages. - In general, the global economy is exposed to physical risks which generate GDP losses.
- Specifically, SPGlobal GDP-at-risk data are used to quantify the potential
direct impact of physical risks on GDP at the country level. - This is done to account
for the fact that the realization of physical risks from climate change reduces both domestic final demand
and production capacity (Feng and Li, 2021). - Figure 2: GDP at risk from climate change-related physical risks, RCP 8.5 scenario
Source: SP Global and ECB3.3 Modelling climate shocks
The IO tables system is initially in equilibrium. - ECB Working Paper Series No 2942
21
Figure 4: GDP-at-risk resulting from IO amplification of physical risks under the RCP 8.5 scenario.
- ECB Working Paper Series No 2942
22
Figure 5: GDP-at-risk resulting from IO amplification of physical risks under the RCP 8.5 scenario.
- However, not analysing the amplification of climate risks through supply chains for
lack of data could lead to a large underestimation of the risks posed by climate change for economic and
financial stability. - Adams, K. M., Benzie, M. & Croft, S. Climate change, trade, and global food security: a global
assessment of transboundary climate risks in agricultural commodity flows. - In this sense, the
exposure to physical risks of direct trading partners is a limited indicator for the amplification of losses
through global value chains.