Project

CLIC- Climate Impact Chains in a Globalized World: a Challenge for Germany

Start of Project 11/2018
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End of Project 04/2022

The project CLIC considers the trans­boundary im­pacts of climate change on eco­nomic activity in Germany. These in­direct cli­mate im­­pacts affect the German economy via trade links. The aim of the pro­ject is to evaluate these effects in order to de­velop re­commen­dations for re­ducing risks and ma­king better use of opportunities.

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Project results

Impacts of climate change like an increase in intensity and frequency of floods or of drought periods are being felt in many parts of the world. Due to the interconnectedness of national economies, climate impacts and extreme weather events in one part of the world can have negative impacts on economic activities in another part of the world – e.g., through the disruption of supply chains. Climate change does have particularly negative impacts on the trade balances of countries with less developed economies whose exports have a high labour intensity. There are many ways to address this issue: policy-makers on a national level can use instruments from development cooperation to increase climate resilience in supplying countries. Via trade policies, removal of tariffs or red tape barriers, policy-makers can support the diversification of trade activities and thereby reduce risks of outside shocks. Instruments, like the EU Taxonomy, that require companies to assess and disclose climate-related risks along the supply chain, can also contribute to reducing transboundary climate risks.

  • Production losses lead to higher prices for consumers, which reduces consumption after disasters, even more so for successive extreme weather events. Interactions between shortages, higher exports and rising prices can lead to economic losses despite higher output.
  • The economic performances of the EU, US and China will be directly affected to different degrees by the various extreme weather events. Resilience with respect to indirect im­pacts also varies widely, due to different trade linkages internationally and among them­selves, as well as heterogeneous economic structures in the three regions themselves.
  • While negative economic impacts from extreme weather events can be observed for all countries, low-income countries are particularly vulnerable to ripple effects. However, even countries that are directly affected by extreme weather events to a lesser extent should be aware of their embeddedness in the global trade network and the potential impact of these on it.

Illustration of project results

Production losses lead to higher prices for con­sumers, which reduces consumption after disasters, even more so for successive extreme weather events. Interactions be­tween shortages, higher exports and rising prices can lead to economic losses despite higher output.

The economic performances of the EU, US and China will be directly affected to different degrees by the various extreme weather events. Resilience with respect to indirect impacts also varies widely, due to different trade linkages internationally and among themselves, as well as heterogeneous economic struc­tures in the three regions themselves.

While negative economic impacts from extreme weather events can be observed for all countries, low-income countries are particularly vulnerable to ripple effects. However, even countries that are directly affected by extreme weather events to a lesser extent should be aware of their embeddedness in the global trade network and the potential impact of these on it.

Main Findings

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  • Negative effects of hot months on exports are already measurable in trade data, effects are particularly strong for labour-intensive exports.
     
  • Negative effects affect low-income coun­tries particularly strongly.
     
  • It is in the interest of the German economy to actively strengthen the climate re­sili­ence of trading partners.
     
  • The disruptions in supply chains in the wake of the COVID-19 pandemic and the emerging reporting obligations on climate risks through the EU taxonomy are good reasons for companies to make their supply structures more climate resilient.

Flagship-Paper

Krichene, H. et al. (2021):
Long-term impacts of tropical cyclones and fluvial floods on economic growth – Empirical evidence on transmission channels at different levels of development. World Development 144: 105475.

Kuhla, K. et al. (2021):
Future heat stress to reduce people’s purchasing power. PLOS ONE.

Kuhla, K. et al. (2021):
Ripple resonance amplifies economic welfare loss from weather extremes.  Environmental Research Letters 16: 114010.

Osberghaus, D. (2019):
The Effects of Natural Disasters and Weather Variations on International Trade: A Review of the Empirical Literature. Economics of Disasters and Climate Change 3 (3): 305–325.

Osberghaus, D., Schenker, O. (2022):
International Trade and Transmission of Temperature Shocks. ZEW Discussion Paper No. 22-035.