An Assessment of Direct and Indirect Economic Losses of Climatic Extreme Events

Abstract:

Risk of extreme weather events like storms, heat extremes, and floods has already risen due to anthropogenic climate change and is likely to increase further under future global warming. Additionally, the structure of the global economy has changed importantly in the last decades. In the process of globalization, local economies have become more and more interwoven forming a complex network. Together with a trend towards lean production, this has resulted in a strong dependency of local manufacturers on global supply and value added chains, which may render the economic network more vulnerable to climatic extremes; outages of local manufacturers trigger indirect losses, which spread along supply chains and can even outstrip direct losses.

Accordingly, in a comprehensive climate risk assessment these inter-linkages should be considered. Here, we present acclimate, an agent based dynamic damage propagation model. Its agents are production and consumption sites, which are interlinked by economic flows accounting for the complexity as well as the heterogeneity of the global supply network. Assessing the economic response on the timescale of the adverse event, the model permits to study temporal and spatial evolution of indirect production losses during the disaster and in the subsequent recovery phase of the economy.

In this study, we focus on the dynamic economic resilience defined here as the ratio of direct to total losses. This implies that the resilience of the system under consideration is low if the high indirect losses are high. We find and assess a nonlinear dependence of the resilience on the disaster size. Further, we analyze the influence of the network structure upon resilience and discuss the potential of warehousing as an adaptation option.