Sometimes you just don’t understand how smoothly something has worked so far when it suddenly hangs up and cracks. Many people, for example, should be aware that the global economy is made up of a dense network of supply chains. It wasn’t until the six-day blockade of the Suez Canal by the container ship Ever Given that collective memory was made of just how disruptive this globalized system can be.
This is especially evident in the effects of climate change on the global economy: researchers at the Potsdam Institute for Climate Impact Research found in a study that the economic damage caused by extreme weather conditions can add up to each other – even if they do. occur in completely different places. around the world.
River floods, heat waves and tropical cyclones could trigger a supply shortage in affected regions and at the same time lead to profits in other parts of the world if demand and therefore prices increase there. “But when different extreme weather events overlap, the economic losses across the networked global economy are 20% greater than the combined losses from individual events,” says Kilian Kuhla of the Potsdam Institute for Research on climate impact and lead author of the study.
Contrary to previous assumptions, the effects of extreme weather events not only add up, but can also be mutually reinforcing. Kuhla finds this effect, which the researchers describe as shock amplification, “rather disturbing.” To understand this, they examined 1.8 million economic relationships between more than 7,000 regional economic sectors. The stronger the economy, the stronger the shock of extreme weather conditions. “Rich countries are very dependent on production from other countries and are supplied by many countries – the biggest concern stems from this networking in world trade,” says Anders Levermann, who led the author team. of the study.
It’s also clear to the scientist who will end up taking the most damage if the supply becomes scarce due to the consequences of extreme weather conditions. This makes demand scarce and prices skyrocket. “Businesses have to pay more for products. In most cases, this is passed on to consumers.”
“Climate change is not a problem for the poor, it is a problem for the whole world”
The link between supply, demand and price is not a new discovery, but the effect of superposition and amplification of waves is. This is also due to the economic model “Acclimate” developed in Potsdam for eight years and with which researchers can better understand production shocks along the supply chain than with any other model before. “Previous estimates that the model damage is based on what it was in the past and assume it will remain so in the future,” Levermann said. With the old methodology, climate change is taken into account, but not enough because, roughly, its effects only add up in the models.
Levermann also draws responsibility from the conclusions: “Climate change is not a problem for the poor, it is a problem for the whole world and therefore also for us. The important thing now is to think about how to arm yourself against something as unpredictable as extreme weather events.
When it comes to supply chains, that would mean, for example, rethinking longer storage in larger stores. Diversifying supply chains is even better. Distributing the production facilities of one and the same product all over the world would have a decisive advantage: “There would then no longer be a single supply chain that could break.