Heat stress threatens energy production in the Middle East. Photo: Power plant in Bayji - Iraq, Wikimedia.
There are observed impacts for almost all physical climate risks today, in particular for heat stress, drought or flooding, extreme weather and sea level change. Below we present six examples that were recently covered in international media. Some are the combined impact of multiple risks.
Financial impacts go beyond physical infrastructure damage and also disrupt worker time or commutes and changes in demand. Supply chains can be particularly vulnerable depending on the region. Via supply chains and multinational companies, sectoral impacts become global in nature, making it insufficient to study a sector in isolation.
Companies that are early movers in adapting to climate change or developing and/or incorporating low-carbon technologies, can benefit. In contrast, those that do not move, risk rising insurance costs and other uncovered costs, and possibly stranded assets.
In Iraq, summer temperatures hit 53°C in 2016. The Iraqi GDP contracted by 10 to 20% during the summer heat in 2016 according to one estimate. Farmers have been struggling with wilting crops, and general workforce productivity has decreased. The government has declared multiple mandatory official holidays because of the heat. Yet many public employees turned up at work anyway because of the air conditioning available at government offices. Hospitals saw an increase in people suffering from dehydration and heat exhaustion. In North Africa, record warm summer temperatures in 2015 and 2016, coupled with chronic shortages of energy and water, inflicted serious economic damage across different sectors.
Meanwhile, a recent study published in Nature Climate Change warns that by the end of this century, the oil heartlands of Abu Dhabi, Dubai, Doha and Iran’s coast will experience higher temperatures and humidity than ever before on Earth, if the world fails to cut GHG emissions. Extreme Tmax events exceeding 45 °C become the norm in most low-lying cities during summer, according to the study. Although it may be feasible to adapt indoor activities in the rich oil countries of the region, the relatively poor countries of Southwest Asia with limited financial resources and declining or non-existent oil production will probably suffer both indoors and outdoors.
BP energy outlook anticipates that increased air conditioning needs will push up energy consumption by 60% by 2035, with 96% of demand still met by fossil fuels.
Coffee production, in particular the world’s favourite coffee crop Arabica – good for 70% of global consumption, is especially sensitive to a changing climate. In the Tanzanian highlands, yields have fallen by 46% over the past 50 years. This is mirrored by the other Arabica-growing nations including Brazil, Colombia, Costa Rica, Ethiopia and Kenya. The crops will need to move 300 to 500 meters further above sea level in order to survive. This may be feasible for producers in Ethiopia and Kenya, but will be difficult for market leaders like Brazil. A switch to Robusta is often discussed as an adaptation strategy, causing a shift in production to countries like Vietnam and Indonesia. Robusta is a higher-yield but lower-quality coffee variety used for instant coffee, and is able to withstand higher temperatures.
In parts of Central and South America, changes in rainfall patterns, as well as extreme rainfall and landslides are a significant challenge. Heavy rain in the first three months can significantly alter the growth pattern of coffee trees, with decreased fruit growth and smaller beans. It also increases vulnerability to pests and disease.
Similar concerns exist for oil palms - one of the world’s most rapidly expanding crops and a major source of vegetable fat used in foods, pharmaceuticals and cosmetics, for cooking and as biodiesel for vehicles, with Indonesia and Malaysia being the primary producers. The increasing frequency of drought in South East Asia has caused declines of 10–30% in production. Scientific studies warn that temperature and precipitation changes might also lead to an increase in fungal diseases.
Summer 2016, flooding in Louisiana forced Exxon Mobil Corp. to shut units at its Baton Rouge refinery, the fourth-largest in the U.S. In Louisiana, marshes, swamps and barrier islands can mitigate flooding, soaking up rainfall like a sponge and reducing storm surge. But as the land erodes, storms advance without a buffer, and Louisiana's flood protection systems become less effective. The state estimates that damage from flooding could increase by $20 billion in coming years, if the coastline is not reinforced. Every year in Louisiana, more than 20 square miles of land is swallowed by the Gulf. At Port Fourchon, which services 90 percent of deepwater oil production, the shoreline recedes by three feet every month.
Statewide, more than 610 miles of pipeline could be exposed over the next 25 years, under a moderate environmental scenario, according to Louisiana State University and the Rand Corporation. The oil and gas sector is already losing an average of $14 billion a year to environmental threats to its infrastructure, according to a study by America’s Wetlands Foundation and Entergy Corp. By 2030, those losses could exceed $350 billion.
A World Bank study identifies New Orleans as one the world’s cities that are most vulnerable to flooding in terms of the overall cost of damage. The IPCC writes in its Fifth Assessment Report that more than half the area’s major highways, almost half the rail miles, 29 airports, and virtually all the ports are subject to flooding with a storm surge of 7m.
In 2011, several industry parks, the airport as well as big parts of the capital Bangkok were inundated. The worst flooding in 70 years was a result of heavy rainfall, tropical storms, in combination with poor drainage. The industrial parks hosted 804 companies, more than half of which were owned or operated by Japanese companies. Roughly a quarter of global hard drive assembly facilities are located in Thailand, as well as producers of electronic components and car manufacturers. It took one to two months to complete discharging from the inundated industrial complexes, causing supply chain and production interruptions for big global computer brands like Acer, Samsung, Lenovo, Apple and car manufacturers like Toyota and Honda. The economic damage of the 2011 flooding in Thailand and globally was estimated at nearly 44 billion USD.
A combination of management and physical constraints conspired to create the flood impacts. Draining or lowering the water reservoirs in anticipation of the floods could have avoided some of the damage. Accurate climate forecasts could have averted the situation or reduced the impact. After the 2011 flooding, the government announced measures to prevent future floods, among others flood tunnels under Bangkok to discharge surplus water. According to the climate change agency of the Thai home department, none of these have been implemented, while it also warns for a repetition of the 2011 floods. Early 2017, Southern Thailand was again hit by unseasonably heavy rain and flooding, causing dozens of victims, shutting down infrastructure and hitting the rubber production.
Surveys show that most of the affected companies want to operate in the same locations. Costs might increase when manufactures ask their suppliers to diversify risk and procurement sources.
Several big European cities are particularly prone to flooding, due to their location and an increased risk for heavy rainfall. Copenhagen, for example, has experienced four major rainfall events in the past six years. The largest, in 2011, caused damage totaling nearly 900 million USD. This does not include direct costs of repairing municipal infrastructure or indirect costs such as loss of earnings, loss of business operation, rising insurance premiums or companies choosing to move away. The Copenhagen Adaptation Plan points out that the intensity of rain with a 10-year return will increase around 30% by 2100.
City governments in Copenhagen and Rotterdam have heavily invested in adapting to the increased flooding risk, turning this into an opportunity for developing new products and services. Copenhagen’s cloudburst plan will update the city’s sewage system and make structural changes to the city’s infrastructure, delaying the infiltration of the water by adding green areas and water basis and by leading the water away from the sewerage system. Total employment of more than 13,000 full-time equivalents with over 230 million USD (DKK 1.6bn) in tax revenues can be created in the construction phase. Building on its own experiences in fighting water, Rotterdam is promoting new products and services across the world, including sea walls, water storage in urban squares and underground parking garages, floating neighbourhoods and pavilions. At present, there are approximately 3600 jobs in the region that are directly linked to climate adaptation. In particular, businesses in the maritime, engineering and delta technology sectors in the Rotterdam region benefit from the increased focus on urban adaptation.
Peabody, the world's largest private sector publicly traded coal company was forced to seek bankruptcy protection in April 2016, under competition from cheap natural gas. Recent years have seen at least 26 US coal companies go into bankruptcy.
EIA forecasts U.S. coal exports will decline by 26% in 2016 to 55 Mt, the lowest level since 2006. Exports are expected to decline by an additional 5% in 2017, reflecting an historic shift in both the coal industry and the electric power sector it serves.
In 2016, for the first time in history, more electricity is produced using natural gas than with coal, while solar generation capacity is growing rapidly with an average annual growth rate of 39%. The US saw investment in renewable energy pick up in the last two years to reach its highest since the peak of “green stimulus” spending in 2011.
Increasingly stringent Environmental Protection Agency (EPA) regulations also plays a significant role in the decline of the US coal sector under the Obama Administration. According to an analysis by Carbon Tracker Initiative, only two of seven influential EPA regulations were designed to tackle climate change, while the other five sought to mitigate other forms of hazardous pollution. Whether these regulations will be upheld by Trump’s EPA is an open question.