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The joined-up economic consequences of extreme weather events revealed

The phenomenon of economic ripple resonance means that two separate incidents send shock waves through the world economy, and those waves build up.

Hurricane Ida pummels Louisiana, knocks out power in New Orleans
Hurricane Ida has battered southern Louisiana - Copyright AFP Audu Marte
Hurricane Ida has battered southern Louisiana - Copyright AFP Audu Marte

Weather extremes, which are increasing globally due to greenhouse gas emissions, cause a number of types of disruption. One area in terms of the economy is to damage supply chains. The effects are not necessarily in geographical isolation in that where economic ripples occur close to each other and at the same time then the economic ripples begin interacting.

This means the economic losses from weather patterns can be greater than the sum of the initial events. This effect on supply chains has been observed using computer models, developed by the Potsdam Institute for Climate Impact Research.

By extreme weather events, these include heat stress, fluvial floods, and tropical storms. Such events can cover considerable areas and will interact with different economic sectors and their spiralling supply chains.

For example, consider a weather event that causes the flooding of a factory. The model shows that this is rarely contained to direct local output losses. Instead, in many more cases, the economic shocks propagate in the global trade network.

To illustrate the full ramifications, economists modelled the response of the global network, calculating 1.8 million economic relations between more than 7,000 regional economic sectors.

Assessing this vast array of data revealed an above-average effect of more than 27 percent of extra losses when extreme events overlap compared to when they hit independently from each other.

This is to the extent that a second disaster happening at about the same time, even if it’s in a different corner of the world, drives higher worldwide economic losses across different sectors of the economy.

One method by which the cost increases occur nis due to on-linear price inflation, which is a factor of rising demand. For instance, a company increases its demand to some of its suppliers due to supply shortages caused by an extreme weather event, then the price increases non-linearly as a result of additional production costs.

Given that green policies tend to be seen as costly to industries and countries who implement them, while other sectors opt to do nothing and “free-ride”, this type of research showing the interconnectedness of global networks may contribute to more joined up thinking when it comes to tackling climate responses.

The research outcome appears in the journal Environmental Research Letters, where the research paper is titled “Ripple resonance amplifies economic welfare loss from weather extremes.”

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Written By

Dr. Tim Sandle is Digital Journal's Editor-at-Large for science news. Tim specializes in science, technology, environmental, business, and health journalism. He is additionally a practising microbiologist; and an author. He is also interested in history, politics and current affairs.

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