Costing the impacts extreme events

In the previous paragraphs the impacts of climate change have been described in terms of a variety of measures; for instance, the number of people affected (e.g. by mortality, disease or by being displaced), the gain or loss of agricultural or forest productivity, the loss of biodiversity, the increase in desertification, etc. However, the most widespread measure, looked for by many policymakers, is monetary cost or benefit. But before describing what has been done so far to estimate the overall costs of impacts, we need to consider what is known about the cost of damage due to extreme events (such as floods, droughts, windstorms or tropical cyclones). As has been constantly emphasised in this chapter these probably constitute the most important element in climate change impacts.

Because the incidence of such extreme events has increased significantly in recent decades, information about the cost of the damage due to them has been tracked by insurance companies. They have catalogued both the insured losses and, so far as they have been able to estimate, the total economic losses -these latter have shown an approximately tenfold increase from the 1950s to the 1990s (see Figure 1.2 and box below). Although factors other than climate change have contributed to this increase, climate change is probably the factor of most significance. The estimates for the 1990s of annual economic losses from weather-related disasters amount to approximately 0.2% of global world product (GWP) and vary from about 0.3% of aggregate GDPs for the North and Central American and the Asian regions to less than 0.1% for Africa (Table 7.3). These average figures hide big regional and temporal variations. For instance, the annual loss in China from natural disasters from 1989 to 1996 is estimated to range from 3% to 6% of GDP, averaging nearly 4%67 - over ten times the world average. The reason why the percentage for Africa is so low is not because there are no disasters there - Africa on the whole has more than its fair share (see box on page 216) - but because most of the damage in African disasters is not realised in economic terms, nor does it appear in economic statistics. Further such averaged numbers hide the severe impact of disasters on individual countries or regions which, as we mention below with the example of Hurricane Mitch, can prove to be very large indeed. Even for the United States, the total economic cost of Hurricane Katrina which struck New Orleans in 2005 has been estimated at around 1% of the United States GDP.

The percentages we have quoted are conservative in that they do not represent all relevant costs. They relate to direct economic costs only and do not include associated or knock-on costs of disasters. This means, for instance, that the damage due to droughts is seriously underestimated. Droughts tend to happen slowly and many of the losses may not be recorded or borne by those not directly affected.

Another reason for treating the information in the box with caution is because of the large disparities between different parts of the world and countries regarding per capita wealth, standard of living and degree of insurance cover. For instance, probably the most damaging hurricane ever, Hurricane

Table 7.3 Fatalities, economic losses and insured losses (both in 1999 US dollars) for disasters in different regions as estimated by the insurance industry for the period 1985-99. The percentage from weather-related disasters (including windstorms, floods, droughts, wildfire, landslides, land subsidence, avalanches, extreme temperature events, lightning, frost and ice/snow damages) is indicated in each case. Total losses are higher than those summarised in Figure 1.2 because of the restriction of Figure 1.2 to losses from large catastrophic events

Table 7.3 Fatalities, economic losses and insured losses (both in 1999 US dollars) for disasters in different regions as estimated by the insurance industry for the period 1985-99. The percentage from weather-related disasters (including windstorms, floods, droughts, wildfire, landslides, land subsidence, avalanches, extreme temperature events, lightning, frost and ice/snow damages) is indicated in each case. Total losses are higher than those summarised in Figure 1.2 because of the restriction of Figure 1.2 to losses from large catastrophic events

Africa

America: South

America: North, Central, Caribbean

Asia

Australia

Europe

World

Number of events

810

610

2 260

2 730

600

1 810

8 820

Weather-related

91%

79%

87%

78%

87%

90%

85%

Fatalities

22 990

56 080

37 910

429920

4 400

8 210

559510

Weather-related

88%

50%

72%

70%

95%

96%

70%

Economic losses

($US billion)

7

16

345

433

16

130

947

Weather-related

81%

73%

84%

63%

84%

89%

75%

Insured losses

($US billion)

0.8

0.8

119

22

5

40

187

Weather-related

1 00%

69%

86%

78%

74%

98%

87%

Mitch, which hit Central America in 1998 does not appear in Table 7.4 as the total insured losses were less than $US1 billion. In that storm, 600 mm of rainfall fell in 48 hours, there were 9000 deaths and economic losses estimated at over $US6 billion. The losses in Honduras and Nicaragua amounted to about 70% and 45% respectively of their annual gross national product (GNP). Another example that does not appear in Table 7.4 for the same reason is the floods in central Europe in 1997 which caused the evacuation of 162 000 people and over $US5 billion of economic damage.

How about the likely costs of extreme events in the future? To estimate those we need much more quantitative information about their likely future incidence and intensity. In Chapter 6, an estimate of a factor of 5 was quoted for the likely increase of the risk of floods by mid twenty-first century (Figure 6.11). A speculative but probably conservative calculation of a global average figure for the future might be obtained as follows. Beginning with the 0.2% or 0.3% of GDP from the insurance companies' estimate of the current average costs due to

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