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Climate change: Erratic weather slows down the economy

Potsdam Institute for Climate Impact Research (PIK)

Research News

If temperature varies strongly from day to day, the economy grows less. Through these seemingly small variations climate change may have strong effects on economic growth. This shows data analyzed by researchers from the Potsdam Institute for Climate Impact Research (PIK), Columbia University and the Mercator Research Institute on Global Commons and Climate Change (MCC). In a new study in Nature Climate Change, they juxtapose observed daily temperature changes with economic data from more than 1,500 regions worldwide over 40 years - with startling results.

"We have known for a while that changes in annual mean temperature impacts macroeconomic growth," explains lead author Maximilian Kotz from PIK. "Yet now, for the first time, we're also able to show that day-to-day variations in temperature, i.e. short-term variability, has a substantial impact. If this variability increases by one degree Celsius, economic growth is reduced on average by 5 percentage-points."

Particularly affected are economies in low-income regions of the global South, as co-author Leonie Wenz from PIK explains: "We find that familiarity with temperature variations is important: Economies in Canada or Russia, where average monthly temperature varies by more than 40°C within a year, seem better prepared to cope with daily temperature fluctuations than low-latitude regions such as parts of Latin America or Southeast Asia, where seasonal temperature differences can be as small as 3°C. This is likely because farmers and small business owners have cultivated resilience against temperature variability."

"Furthermore, income protects against losses," Wenz adds. "Even if at similar latitude, economies in poor regions are more strongly affected when daily temperature fluctuates than their counterparts in rich regions." If the daily temperature deviates from seasonal expectations, fundamental elements of the economy are negatively impacted - including crop yields, human health, sales and operational costs.

Comparing each year's day-to-day temperature variability between 1979 and 2018 with the corresponding regional economic data, the researchers analyzed a total of 29,000 individual observations. "Rapid temperature variability is something completely different than long-term changes," explains Co-Author Anders Levermann from PIK and Columbia University, New York.

"The real problem caused by a changing climate are the unexpected impacts, because they are more difficult to adapt to. Farmers and other businesses around the world have started to adapt to climate change. But what if weather becomes simply more erratic and unpredictable? What we have shown is that erratic weather slows down the economy. Policy makers and industry need to take this into account when discussing the real cost of climate change."

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Article: Maximilian Kotz, Leonie Wenz, Annika Stechemesser, Matthias Kalkuhl, Anders Levermann: Day-to-Day Temperature Variability Reduces Economic Growth. Nature Climate Change. DOI: 10.1038/s41558-020-00985-5.

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