The scorching summer showed: global warming is running out of paper

Three rivers, three lifelines, in the three major economies in the world. All three fell almost dry last summer.

In the United States, the Colorado River, with its important freshwater basins, became so low that the federal government imposed restrictions on the use of water for the first time. Arizona Sprout and Wheat Growers could sow lessthe energy supply via hydroelectric power stations was in danger and just kept up.

In China, the Yangtse reached in August the lowest position ever. There the power supply was affected. Hydroelectric power plants could supply less energy, and factories in the economically important province of Sichuan had to close for ten days in August, including those of chip maker Foxconn, lithium battery maker CATL and car makers Toyota and Volkswagen. International supply chains, already hard hit by the pandemic, came under additional pressure.

In Europe, the Rhine also reached its lowest level ever and inland vessels could carry less cargo and sail less fast. That happened just in the year when the river was so necessary for the transport of coal – a necessary evil, in these times of energy crisis.

The combination of drought and heat that simultaneously hit the world’s three largest economic blocs this summer broke records. The Chinese heat wave was the worst in 60 years. Western US has been battling ‘mega drought’ for two decades – scientists say the worst in 1,200 years. Europe experienced the hottest summer ever.

Hot or dry periods are not simply attributable to climate change. But extreme temperatures have more or less matched the increase in global average temperatures, as well as the number and frequency of droughts, according to the latest UN climate report.

Also read this report: Boats on dry land, bottoms that become visible: chug over the dried-up Rhine at ten kilometers per hour

Germany and Sichuan

Temperatures are rising, and so are the economic damage from global warming. Heat and drought amplify today’s trends – peaking inflation and an impending recession.

In Germany, which is heading for a recession due to high energy prices, the low water level of the Rhine further slowed down the economy. It is probably already shrinking. Shipping was hit, and with it the supplies to industry, but companies also had to reduce their production due to a lack of cooling water.

Carsten Brzeski, chief economist at ING in Frankfurt, estimates that German GDP will fall by half a percentage point extra in the second half of this year due to the drought. It is based on a comparison with 2018, when the Rhine was also very low. That year, GDP growth, spread over two quarters, was 0.3 percentage point lower. This year, the damage will be greater, Brzeski thinks. The low water level started earlier and lasted longer. Moreover, this year the Rhine also had to be used for coal supply.

Brzeski’s colleague Iris Pang, chief economist for China at ING, estimated the economic damage caused by power shortages due to the drought in Sichuan. According to Pang, this is around 1 percent of China’s GDP. That equates to about $1,700 billion. Incidentally, the current real estate crisis has a much greater negative effect on the Chinese economy, Pang notes.

The consequences of the scorching summer for GDP and inflation are generally difficult to quantify. It is clear, however, that inflationary pressures have increased as a result. Heat and drought limited the supply of energy and food – the very categories that already contribute most to inflation.

Also read: The great acceleration: how one crisis drives the next

Take the heat in France. Because the water of the river Garonne became so hot (28 degrees, in August), and the water of the Rhone was so low, French nuclear power plants with a lack of cooling water. Some power stations had to reduce electricity production. Norway curbed electricity exports because hydroelectric power plants could not run at full capacity due to the drought.

Olive oil and ketchup

Italian farmers in the Po Valley – the Po, another river that ran dry – have to watch with sadness how their risotto rice is threatened. European crops of sunflowers, soybeans and maize are expected to be 12 to 16 percent below the five-year average, recently suggested the research center of the European Commission. A major Spanish producer of olive oil warned British consumers via the BBC of price increases of 20 to 25 percent, after the scorching heat waves in Spain. Meanwhile, France is experiencing a mustard shortage, according to French media mainly a result of record heat in Canada last year, where most of the mustard seed comes from. The harvest was then half lower. Jars of mustard become in France on Amazon and eBay for extortionate prices (12 euros or more) sold.

This year, nearly three-quarters of farmers in the western and central US are reporting lower crop yields due to the drought, according to a reporter. survey by farmers’ organization AFBF. In now bone-dry California, where many fruits and nuts come from, half of the farmers report having had to remove trees and crops. Tomato processor Ingomar had to increase the price of tomato paste by almost 80 percent, according to Bloomberg news agency. It contributes to the increase in the price of ketchup in American supermarkets: 23 percent year on year.

Similar reports come from China. In a press conference, China’s Statistical Office cited the hot summer as the cause of the rise in food prices, so reported CNN. The prices of fresh vegetables are 12.9 percent higher than last year, meaning that inflation in this food category is “clearly higher” than in recent years.

The climate as a driver

The climate as a factor in economic growth and a driver of inflation – policymakers can hardly ignore it. Isabel Schnabel, influential executive of the European Central Bank (ECB), spoke at the recent monetary conference in Jackson Hole (US) of a “new era of volatility”, or more regular, larger peaks and deeper troughs in economic growth and inflation. Climate change, she said, is “a major driver” of this, in addition to geopolitical instability, among other things. ECB economists are now trying to integrate climate factors into economic models and into the supervision of financial institutions, such as insurers, where the costs of extreme weather precipitate. An ECB survey of large European companies showed that about 80 percent of them had a see increased risk to production disruption due to climate change.

The Federal Reserve, the US central bank, is less advanced with the climate theme than the ECB, but it is starting to get on the agenda there too. from a study by a Fed economist last year showed that periods of economic contraction “could become more likely and more severe” with further warming, especially in emerging countries that already have high temperatures, such as India. The study calls climate change “perhaps the central economic and social challenge of the 21st century.”

Climate is now also central to the International Monetary Fund. It recently published a study that showed that it makes economic sense to invest in the energy transition on a large scale, as this can offset major damage to GDP.

Central banks and institutions like the IMF build on knowledge developed by academic economists. In 1992, for example, the American William Nordhaus came up with the DICE model about the interaction between climate and economy. He received the Nobel Prize for it in 2018, but there was also immediate criticism: Nordhaus in particular would have underestimated the costs of climate change, especially those for future generations.

Range of studies

A range of studies have since been published, partly inspired by Nordhaus’s work, which often conclude: unbridled climate change will cost the world a lot of money, in all kinds of forms. Think of physical damage to infrastructure from wildfires or floods, supply chains interrupted by power outages and productivity loss due to heat.

Estimates of global GDP loss from rampant climate change are fraught with uncertainty and vary widely, from 7 percent see you soon 37 percent in the year 2100.

The damage will be unevenly distributed, both on a global scale and within Europe. Poor and emerging countries are often warm anyway, and they are less resilient to natural disasters. A in Nature published study on productivity loss in Europe during recent heat waves concludes that southern Europe in particular, where temperatures are highest, became less productive in extremely hot years. In a scenario of 2 degrees of warming, Scandinavian countries could actually become a bit richer, according to a research by think tank Bruegel. In a scenario in which the warming is 3 degrees, the whole of Europe, southern Europe loses the most.

These studies are surrounded by a lot of uncertainty. It could all be better: economies can start to adapt to climate change. Or it may disappoint – and aim there recent research in particular. Tipping points, such as the melting of permafrost, cause faster warming and more extreme weather, causing major economic damage. As economists continue to tinker with their models, they have more and more real-time data at their disposal. The summer of 2022 offers plenty to draw on.