Study charts indirect economic losses due to climate change-induced supply disruptions, calls for collaboration

Supply chain disruptions due to climate change could cause a projected net economic loss of between $3.75-24.7 trillion by 2060, according to a new study.

The total gross domestic product (GDP) losses in 2060 are 0.8 per cent under a scenario where the world shifts toward a more sustainable path, 2 per cent if the world follows a medium pathway of future greenhouse gas emissions and 3.9 per cent when there is rapid and unconstrained growth in economic output and energy use.

Of them, losses due to indirect effects are projected to be under 0.1 per cent of global GDP under a more sustainable path scenario, 0.5 per cent under the middle pathway and 1.5 per cent in a world characterised by unconstrained growth in economic output and energy use. Indirect losses refer to production stagnation due to a lack of supply or demand.

“These projected economic impacts are staggering. These losses get worse the more the planet warms and when you factor in the effects on global supply chains, it shows how everywhere is at economic risk,” Dabo Guan from the University College London Bartlett School of Sustainable Construction said in a statement.

Previous studies have focused on quantifying direct mortality and productivity loss due to heat stress.  

However, the new study argued that the indirect losses due to supply chain disruptions have not been fully analysed. 

So, researchers assessed the impact of heat stress on socioeconomic systems to 2060, including health loss (excess mortality due to extreme heatwaves), labour productivity loss (decreased daily labour productivity due to higher temperature and humidity) and indirect loss across 141 regions and 65 sectors worldwide. 

The socioeconomic systems are based on low, medium and high projected global emissions levels. Global temperatures could rise by only 1.5 degrees C over preindustrial levels by 2060 under the best-case scenario, around 3 degrees C in the middle track, and 7 degrees C in the worst-case scenario.

Their analysis showed that in most countries, sectors such as crop farming, construction and mining are the most affected, especially in several African and Asian countries, the study noted.

At high projected global emissions levels, India could see increasingly frequent shutdowns in mining and construction industries due to extreme summer heat stress.

The country’s ferrous metals industry could suffer the most substantial loss in 2060, followed by the non-metallic manufacturing industry. The other vulnerable sectors include construction, crop farming as well as vegetables, fruit, and nuts.

India is likely to be affected directly by high temperatures and indirectly due to close links with countries severely impacted by heat stress.

The entire value chain of India’s food sector, which contributes 13 per cent of its GDP, could be affected by the insufficient upstream supply of raw materials such as palm oil from Indonesia.

India’s raw material suppliers like Indonesia and Malaysia are among those most affected by climate change, the researchers highlighted.

As for developed nations, the European Union countries are projected to see considerable indirect losses due to a reduced production capacity of minerals and food products in their trading partners, especially developing countries. 

Although trade volumes between countries of South Asia or Africa and the EU are relatively small, indirect economic losses in the EU will be amplified when many of those developing countries are affected by heat stress, the report highlighted.

The study makes the case for countries to strengthen collaboration across global relevant supply-chain stakeholders to achieve successful heat stress adaptation as impacts in one country could have ripple effects on dependent nations.

For instance, heatwave impacts on the agriculture and food manufacturing industry in India can further lead to a 0.9–2.3 per cent value-added loss in the US food manufacturing industry.

“If the US were to support India’s adaptation efforts through technology transfer, they would also be indirectly reducing their losses. These considerations could guide policy-makers working towards global cooperation for future climate change mitigation and heat stress adaptation efforts,” the researchers wrote in their paper.

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