Climate impact induced crisis in Europe: an exploration of scenarios

Submitted by Robin Hocquet | published 9th Oct 2020 | last updated 19th Nov 2020
Flooded street in Venice

Major concurrent coastal and river flooding in Europe could result in widespread destruction of property and cause a financial crisis. Photo: Roberto Trombetta / Flickr - CC BY-NC 2.0

Introduction

Given the reality of globalisation, climate risk is in many cases “borderless” in nature. Climate impacts in one country will create risks and opportunities in other countries, due to cross-border connectivity within regions and globally. 

PlanAdapt, in collaboration with Global Climate Forum, conducted a study on near term climate impacts with significant economic risks for the European economy. The relevance of climate impacts for Europe was explored through the development of qualitative future scenarios. Climate-impact induced crises in Europe may be triggered by climate impacts occurring either within or beyond Europe and can be triggered by both direct physical impacts on people or physical assets and indirect impacts. Indirect impacts refer to all impacts that are not direct physical impacts and can be categorised as supply chain interdependencies and financial system interdependencies.They may be beyond the range of typical experience. 

The report provides orientation regarding potential future developments by examining six scenarios of climate impacts that can trigger social, political, economic or financial crises in Europe in the next decade. The scenarios have been identified through literature review and interviews with domain experts

*Download the full publication from the right-hand column. The key messages from the publication are provided below. See the full text for more detail.
*The study was embedded in the “Transformative responses to the crisis” project by Finance Watch Deutschland and Heinrich-Böll-Foundation that aims at developing scenarios for future economic and financial crisis and creating policy proposals that transform our economic system towards sustainable economies.

Crisis Scenario 1: Major flooding in central and western Europe

  • Scenario: Major river flooding in central Europe or coastal defence failure during a major storm surge in western Europe, causing hundreds of billions in damages.
  • Climate change contribution: Sea-level rise of 4 cm per decade; and increases in precipitation intensity.
  • Exposure: Assets and population in coastal and river floodplains; e.g. €130 billion in physical assets in Germany alone.
  • Critical threshold:
    • Direct impacts: Impacts greater than 1% EU GDP attained for 1-in-250 year flood in Germany, Austria, Czech (€198 billion in damages).
    • Indirect impacts: Overwhelmed disaster risk financing mechanisms lead to slow recovery and depression.

 

Crisis Scenario 2: Drought in southern Europe

  • Scenario: Prolonged drought in southern Europe leads to crop loss, decreased tourist arrivals, and conflict between water users. Social unrest exacerbates the economic impacts leading to economic crisis. 
  • Climate change contribution: Increasing temperature and decreasing precipitation in southern Europe likely across even low emission scenarios.
  • Exposure: Farmers and tourism operators in southern Europe: e.g. tourism contributes more than 10% of GDP in Mediterranean countries, and agricultural is large employer.
  • Critical threshold: 
    • Direct impacts: Agriculture production loss and tourism losses (€30 billion); decreased household water consumption.
    • Indirect impacts: Conflicts and unrest lead exacerbate slowdown leading to economic crisis (€110 billion).

Crisis Scenario 3: European electricity grid vulnerability

  •  Scenario: Power supply failure due to an extreme weather event (e.g. storm, flooding) or a demand peak, during cooling water shortages due to drought and high temperatures.
  • Climate change contribution: Increases temperature and droughts, reducing cooling water availability for energy sector.
  • Exposure: Regions with water scarcity, high cooling water needs and electricity demands peaks e.g. for air conditioning.
  • Critical threshold: 
    • Direct impacts: Relatively small direct impact threshold, if it triggers failure of interregional transmission during period of low production capacity.
    • Indirect impacts: Blackouts longer than a few days, as critical infrastructure breaks down, can trigger crisis.

Crisis Scenario 4: US coastal real estate market collapse

  • Scenario: Flooding induces a rapid drop in US coastal real estate prices inducing a global financial crisis.
  • Climate change contribution: Global mean sea-level rise of 4cm/decade sea-level rise, possibly accelerating beyond 2050.
  • Exposure: US coastal real estate in the 1-in-100 year coastal flood plain ($1.4 trillion); and system-relevant investors exposed to these risks, e.g. as owners or lenders.
  • Critical threshold:
    • Direct impacts: Modest flood events (e.g. Superstorm Sandy, $65 billion in damages) may trigger a major correction across several regional real estate markets.
    • Indirect impacts: Difficult to quantify financial crisis inducing thresholds in advance; depends on exposure of European financial institutions.

Crisis Scenario 5: Global agricultural supply chain collapse

  • Scenario: Extreme weather events in key producing regions and transportation hubs disrupting agricultural trade flows.
  • Climate change contribution: Increase in frequency and intensity of extreme weather events affecting production and transportation networks (e.g. ports).
  • Exposure: Small, open industrialised economies, of which Europe has many, highly dependent on agricultural imports.
  • Critical threshold
    • Direct impacts: Crop losses (greater than $1 billion in value) in multiple world regions due to extreme weather.
    • Indirect impacts: Concurrent with transportation hub disruption, e.g. storm damage and flooding of key ports, leading to food price spikes, and protectionist policy responses

Crisis Scenario 6: Large-scale migration due to conflicts in Africa

  • Scenario: Temperature rises, and prolonged droughts in Africa, and particularly the Sahel region, leads to decreasing agricultural production, which in turn leads to the outbreak of armed conflicts and state collapse. Large-scale migration ensues resulting in a migration crisis in Europe.
  • Climate change contribution: The link between climate and armed or violent conflict is contentious.
  • Critical threshold
    • Direct impacts: One mechanism for increasing conflict risk is that drought leading to agricultural failure can in turn lead to large-scale internal displacement from rural areas to urban centers.
    • Indirect impacts: Indirect impacts that could trigger a migration crisis in Europe  would be migrant arrivals exceeding those of the past decade. A survey of demographics in Sahelian countries, and past experiences in regard to the proportion of migrants that flee conflict and civil war, shows that major conflict in Sahelian countries does have the potential to produce crisis in Europe.

Discussion and Conclusions

The six climate-induced crisis scenarios until 2030 show that threats to Europe arise from a range of different hazards in different parts of the world, and that climate change is already increasing the likelihood of these events.

Climate-induced crisis remain however‚ tail risk‘ events for Europe at least in the relatively near-term. The first one is a tail risk of an event or conjunction of events that can be quantified with some (low) probability, such as flooding events, where adaptation or preparation measures might be calculated. A second type of tail risk‘ events are those for which it is not possible to assign probabilities, such as electricity grid failures and US real estate correction leading to a global financial crisis and conflict migration. Measures to reduce these risks can be taken on a more 'precautionary principle‘ or 'no regrets‘ basis, aiming to adjust systems in such a way as to avoid that these risks materialise at all. 

Another important observation is that for nearly all of the scenarios discussed above climate change interact with one or several other socio-economic conditions in order to produce the scale of impacts needed to induce a crisis. 

The key role played by socio-economic conditions in crisis scenarios points to the need for responses to these crises that do not simply return to business-as-usual, but rather that improve resilience to such events in the future, or avoid their occurrence altogether, i.e. to "build back better". 

Finally, the authors emphasise that a lack of considering long-term resilience in economic recoveries, would leave such recoveries prone to failure, laying the seeds for the next, even more catastrophic collapse.