The Climate Crunch: Estimating $25 Trillion in Net Losses by Mid-Century from Climate-Disrupted Supply Chains

• Climate change-induced supply chain disruptions forecasted to stagnate global economies over four decades.
• Economies reliant on manufacturing, notably China and the US, to be hardest hit.
• Projected net economic loss of $3.75 trillion to $24.7 trillion by 2060 due to climate-induced supply chain disruptions.
• Increasing global temperatures exacerbate economic losses, with collaboration essential for mitigation and adaptation efforts.

The impact of climate change on international supply chains will cause economies to stagnate over the next four decades, according to a new Nature study jointly led by a King’s researcher.

Economies heavily reliant on manufacturing, such as China and the US, will be most severely hit by the supply chain disruption caused by climate impacts occurring thousands of miles away.

The study, published in Nature, is the first to chart ‘indirect economic losses’ from climate change on global supply chains into regions that would have been less affected by projected warming temperatures.

The report shows losses in global GDP as a result of such indirect costs will increase exponentially over the coming decades. In other words, as climate change progresses, these effects will account for a greater and greater proportion of economic losses.

Dr. Daoping Wang, co-lead author of this research from The Department of Geography, School of Global Affairs, King’s College London, said: “The way heat stress-related costs emerge demonstrates how extensive and diverse impacts from heat stress are propagated through global supply chains, resulting in economic losses to a country or sector that may not be immediately apparent.”

The study looked at ‘direct’ climate impacts such as the health costs from people suffering from heat exposure (including heatwave mortality), and work stoppages when it’s too hot to work, as well as ‘indirect’ economic disruptions cascading through supply chains.

These previously unquantified disruptions in supply chains will further exacerbate projected economic losses due to climate change, bringing a projected net economic loss of between $3.75 trillion and $24.7 trillion in adjusted 2020 dollars by 2060, depending on how much carbon dioxide is emitted.

As the global economy has grown more interconnected, disruptions in one part of the world have knock-on effects elsewhere in the world, sometimes in unexpected ways.

Crop failures, labour slowdowns and other economic disruptions in one region will affect the supplies of raw materials flowing to other parts of the world that depend on them, disrupting manufacturing and trade in faraway regions.

Whilst the economies of small- and medium-sized developing countries in South-Central Africa will suffer disproportionately from the increased mortality caused by heatwaves, and labour productivity losses being felt most acutely in West Africa and Southeast Asia – by contrast, similar sized economies dependent on international trade, such as Brunei, are more exposed to indirect losses.

This is the first study to analyse and quantify the propagation of these disruptions from climate change, as well as their economic impacts.

Dr. Daoping Wang said that as the planet warms, the worse off economically it will become – with compounding damage and economic losses climbing exponentially the hotter it gets.

Negative impacts of extreme heat sometimes occur quietly on global supply chains, even escaping our notice altogether. Our developed Disaster Footprint model tracks and visually represents these impacts, underlining the imperative for global collaborative efforts in adapting to extreme heat.

Dr. Daoping Wang, Department of Geography, School of Global Affairs, King’s College London

The researchers compared expected economic losses across three projected global warming scenarios, called “Shared Socioeconomic Pathways” or SSPs, based on low, medium and high projected global emissions levels.

The best-case scenario would see global temperatures rise by only 1.5 degrees C over preindustrial levels by 2060, whilst the middle track – which most experts believe Earth is on now – would see global temperatures rise by around 3 degrees C. The worst-case scenario would see global temperatures rise by a staggering 7 degrees C.

All projections paint a grim picture of the future economy, but the differences in the paths are significant. By 2060, projected economic losses will be nearly five times as much under the highest emissions path than the lowest.

By 2060, total GDP losses will amount to 0.8% under 1.5 degrees of warming, 2.0% under 3 degrees of warming and 3.9% under 7 degrees of warming.

The team also calculated that supply chain disruptions also get progressively worse the warmer the climate gets, accounting for a greater and greater proportion of economic losses.

Supply chain losses will amount to 0.1% of total global GDP (13% of the total GDP lost) under 1.5 degrees of warming; 0.5% of total GDP (25% of the total GDP lost) under 3 degrees; and 1.5% of total GDP (38% of the total GDP lost) under 7 degrees, by 2060.

Project lead Professor Dabo Guan, from Beijing’s Tsinghua University, said: “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.”

The direct human cost is likewise significant. Even under the lowest emissions path, 2060 will see 24% more days of extreme heatwaves and an additional 590,000 heatwave deaths annually, while under the highest path 104% more heatwaves and an expected 1.12 million additional annual heatwave deaths.

While tragic on their own, this human toll entails economic costs as well, such as increased healthcare costs and production losses stemming from lost labour. These impacts will not be evenly distributed around the world, and countries situated near to the equator will bear the brunt of climate change, particularly developing countries.

Global collaboration in adapting to extreme heat plays an important role in the efficient operation of global supply chains, which means that everyone will benefit from collaboration, whether in low latitudes or high latitudes, said Dr Wang.

He said: “The indirect losses of heat stress highlight the need for countries to strengthen collaboration across global relevant supply-chains. For instance, our results demonstrate that the impact of a heatwave on the agriculture and food manufacturing industry in India will also impact the US food manufacturing industry severely. If the USA were to support India’s adaptation efforts through technology transfer, they would indirectly be reducing their own losses.

“Such considerations could guide policy-makers working towards global cooperation for future climate change mitigation and heat stress adaptation efforts.”

Source: King’s College London