This is the economic cost of extreme weather

Climate change means the frequency, severity and unpredictability of extreme weather events is increasing.

Research analysts at Barclays Corporate and Investment Bank have done a deep dive into the costs and frequency of extreme weather events, and what they mean for people and businesses worldwide.

Barclays' analysts predict that the cost of extreme weather events could nearly double this decade, meaning serious consequences for global industries, economies and policymakers.

From 1970-2019, the number of annual extreme weather events has increased by a factor of five, albeit declining slightly between the 2000s and the 2010s, according to data from the World Meteorological Organization (WMO).

But they are not just becoming more frequent — they are also getting much harder to predict.

July 2021's floods across Germany, Belgium, Luxembourg and the Netherlands generated an estimated $43 billion in damages and approximately 200 fatalities. The level of flooding and damage was unprecedented in this particular region. Abnormally high water levels in rivers — also attributable to climate change — exacerbated the impact of the higher-than-normal rainfall.

In Sudan in 2020, more than 700,000 people were displaced by the most severe storms since 1962. Floods in central China's Henan province killed dozens and displaced more than 250,000 and significantly disrupted economic activity.

While the number of events trended down globally in 2021, North America once again experienced an increase in both frequency and severity. Notably, the winter storm impacting Texas and northern Mexico and the summer heatwave in the Pacific Northwest show just how random event locations are becoming. Similar to events in Europe and Asia, the three hurricanes that made landfall in the US northeast — Elsa, Henri and Ida — were exacerbated by near record-setting rainfalls and resulting high water levels on the East Coast during the summer of 2021.

The Intergovernmental Panel on Climate Change has concluded that it is an “established fact” that human-caused emissions are causing temperature increases, in turn leading to more extreme weather.

The burning of fossil fuels is linked to rising concentrations of greenhouse gases (GHGs), contributing to global temperature rises of 1.2° C above pre-industrial levels. Each of the last three decades have been warmer at the earth’s surface than any preceding decade since 1850. Most of this warming has occurred in the past 35 years, with 16 of the 17 warmest years on record occurring since 2001.

Rising air and ocean temperature are closely connected with rising sea levels, reduced snow and ice cover and changes in circulation between the atmosphere and ocean. These, in turn, influence regional weather patterns, contributing to droughts, floods and tropical storms. Some of these processes also have the potential to release further GHGs into the atmosphere — a feedback loop that can perpetuate warming.

As the frequency and severity of extreme weather events increase, so do their direct economic costs.

While extreme events have increased more than five times over the same number of decades, the cost of extreme events has increased nearly eight times globally, inflation-adjusted, since the 1970s. This equates to cost per event increasing nearly 77%, inflation-adjusted, over the past five decades.

At a macro level, vulnerabilities to storms and floods, increased water scarcity and droughts, disease prevalence, reduced agricultural output and ecosystem changes may all lead to investment risks. Investors should focus on the potential for costly physical damage, lost time and productivity, climate-related migration, supply chain disruptions and an overall increase in uncertainty. Cumulatively, these factors present risks to both short- and long-term growth.

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Urban and coastal areas bear the brunt of costs associated with storms and flooding. Not only does it cost more to repair and replace property in densely built-up areas, but seaside development also contributes to the destruction of natural coastal defences such as mangroves and coral reefs, further increasing vulnerability to extreme weather. More than 40% of people live within 100km of coasts, according to a United Nations estimate.

Rising urbanisation will increase the risk of weather-related costs — cities are predicted to account for 68% of the global population by 2050, up from 55% today. Emerging economies, where urbanisation is rising fastest, are already disproportionately susceptible to extreme weather events.

The increasing frequency and costs associated with extreme weather events underscore the need for mitigation and adaptation. More events will increase uncertainty over the availability of food, goods and labour, which in turn will impact investment, consumption and trade.

This will force policymakers and governments to make some tough decisions in response to weather-related destruction and disruption in the coming decades — and provides impetus to act on the threat of climate change.