New research conducted by the Environmental Change Institute at Oxford University has found that the global economy is at risk of losing over $122 billion in economic activity, with $81 billion of that being from international trade, due to the impact of extreme climate events. The study, published in Nature Climate Change, emphasizes the systemic impacts that can occur within global shipping, trade, and supply chain networks, and how these risks can affect ports and economies worldwide, even if the local ports are not directly affected by the extreme events. The research reveals that approximately $81 billion per year of maritime trade is at risk, and around 60% of this risk is attributed to cross-border knock-on effects, which are effects that occur outside a country’s jurisdiction.
It is expected that regions such as northern Europe, the western United States, Southern Australia, the Middle East, and West Africa will be particularly affected by these systemic impacts. This is mainly due to their dependencies on East Asian ports. The study highlights the significance of considering risks associated with foreign dependencies on ports, as these risks are often overlooked. For instance, when Ukraine grain ports suddenly closed due to the Russian invasion, the spill-over disruptions to dependent ports, trade flows, and global supply chains became evident. Taking all these factors into account, the total potential economic activity at risk amounts to at least $122 billion.
Dr. Jasper Verschuur, the lead author of the research, stresses the importance of quantifying these systemic risks, stating, “This clearly highlights the importance of quantifying these so-called systemic risks, as only looking at localized damage to infrastructure can hide the wider economic losses that could materialize during extreme events.”
Identifying Vulnerable Economies and the Need for Action
The research identifies the top ten most at-risk economies, which include Taiwan, Macau, Hong Kong, and some small island developing states (SIDS). These economies are expected to experience disruptions in more than 0.5% of all final consumption each year, with certain sectors being even more critically dependent on maritime imports. Dr. Verschuur highlights the challenges faced by SIDS, explaining that they rely on a limited number of regional ports that are particularly susceptible to climate extremes, leaving them with limited flexibility to divert goods in case of disruptions.
The research team urges countries to consider implementing regulations to mitigate the potential impacts of climate extremes. They suggest identifying alternative trading routes or partners and enhancing the resilience of port systems to withstand such shocks. Professor Jim Hall, a leading climate adaptation expert and another author of the study, emphasizes the need for global cooperation, stating, “Our research allows policymakers for the first time to evaluate the risk of trade-related disruptions outside their own jurisdictions. We have tried to emphasize that countries need to come together to make sure that risks are addressed across global networks and supply chains.”
Dr. Verschuur further adds, “Adapting ports to climate change, which will be urgently needed in the future, can be considered a global public good, which should help unlock much-needed climate finance in this overlooked sector. Our research can help make the business case for doing so.”
The research builds upon a previous analysis conducted by the same researchers, which revealed that physical damages to ports caused by storms, floods, and other climatic extremes already result in losses of nearly $8 billion per year.
The research highlights the significant economic risks posed by extreme climate events on global trade and economy. By considering the systemic impacts and vulnerabilities of various economies, policymakers can take necessary actions to mitigate these risks and ensure the resilience of global networks and supply chains. Adapting ports to climate change is crucial for the future, and international collaboration is essential to address these challenges effectively.
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