Climate change hazards intensifying
Increasing effects of climate change call for better systematic risk management, more adaptation and accelerated decarbonization
After more than 10,000 years of relative stability, the Earth's climate is changing. As average temperatures rise, acute hazards, such as heat waves and floods grow in frequency and severity, and chronic hazards, such as drought and rising sea levels, intensify.
Climate change is already having substantial physical impact at a local level in regions across the world and the affected regions will continue to grow in number and size. Since the 1880s, the average global temperature has risen by about 1.1 C with significant regional variations. The 2017 floods in Hunan province affected 7.8 million people and resulted in a direct economic loss of $3.55 billion. Researchers estimate that climate change made the floods twice as likely.
The increasing level of physical climate risk expected in a high carbon emissions and low mitigation scenario is known as the representative carbon pathway 8.5 scenario. The likelihood of extreme precipitation events is expected to grow more than fourfold in some regions, including parts of China, Central Africa, and the east coast of North America compared with the period of 1950 to 1981. The likelihood of severe hurricane precipitation is expected to double in some parts of the southeastern United States and triple in some parts of Southeast Asia by 2040. Both are densely populated areas with large and globally connected economic activity. This could affect global supply chains, infrastructure and real estate around the world.
By 2050, the number of people living in areas with a non-zero chance of lethal heat waves would rise from zero today to between 700 million and 1.2 billion. (Both numbers do not factor in air conditioner penetration. Today, air conditioner penetration is roughly 10 percent across India and roughly 60 percent across China.) The increase is significant in part because the hottest and most humid parts of the world tend to be among the most heavily populated, and these areas are becoming even hotter and more humid.
The socioeconomic impacts of climate change will likely be nonlinear as system thresholds are breached and have knock-on effects. Most of the past increase in direct impact from hazards has come from greater exposure to hazards versus increases in their intensity. In the future, hazard intensification will likely assume a greater role. Societies and systems most at risk are close to physical and biological thresholds.
For example, as heat and humidity increase in India, by 2030 under the RCP 8.5 scenario, between 160 million and 200 million people could live in regions with an average 5 percent annual probability of experiencing a heat wave that exceeds the survivability threshold for a healthy human being, absent an adaptation response. Ocean warming could reduce fish catches, affecting the livelihoods of 650 million to 800 million people who rely on fishing revenue. In Ho Chi Minh City, a city prone to monsoonal and storm surge flooding, direct infrastructure damage from a 100-year flood could rise from about $200 million to $300 million today to $500 million to $1 billion by 2050, while knock-on costs could rise from $100 million to $400 million to between $1.5 billion and $8.5 billion.
Heavy rare earths, which are mined in southeastern China, offer an example of the potential impact of climate change on supply chains. The likelihood of extreme rainfall in the region sufficient to trigger mine and road closures is projected to rise from about 2.5 percent per year today to about 4 percent per year in 2030 and 6 percent in 2050. Given the commoditized nature of this supply chain, impacts on production could result in increased prices for all downstream players.
Financial markets could bring forward risk recognition in affected regions, with consequences for capital allocation and insurance. Greater understanding of physical climate risk could make long-duration borrowing unavailable, influence insurance cost and availability, and reduce the ultimate value of assets. This could trigger capital reallocation and asset repricing. In China, the 13th Five-Year Plan (2016-20) recognizes this risk and includes developing financial mechanisms through public-private-partnerships.
Countries and regions differ in their exposure to physical climate risk but none are immune and countries and regions with lower per capita GDP levels are generally more at risk. Poorer regions often have climates that are closer to physical thresholds. They rely more on outdoor work and natural capital and have less financial means to adapt quickly. But climate change could also benefit some countries. China is expected to be an agricultural net beneficiary from climate change over the near term, with increasing statistically expected yields and volatility skewed toward positive outcomes. China could see expected yields increase by about 2 percent by 2050 relative to 1998-2017. The annual probability of 10 percent breadbasket failure relative to a 1998-2017 baseline would decrease from 5 percent to 2 percent by 2050, while the annual probability of a bumper year with a 10 percent increase in yield would increase from 1 percent to approximately 12 percent by 2050.
On the other hand, we found a relatively high increase in the risk that some of China's population would live in areas with the possibility of lethal annual heat waves. There's a moderate increase in the risk of effective outdoor working hours annually affected by extreme heat and humidity in climate exposed-regions. We found a high increase in the annual share of capital stock at risk from riverine flood damage in climate-exposed regions and a high increase in the risk that the land surface would change climate classification.
Physical climate risk and its socioeconomic impacts will affect everyone, directly or indirectly. While stakeholders and decision-makers are trying to respond to climate changes, there are three steps that we think they could consider: Integrating climate risk into decision-making; accelerating the pace and scale of adaptation; and decarbonization at scale to prevent a further buildup of risks.
Decision-makers will need to translate climate science insights into potential physical and financial damages. Adaptation can help manage risks, even though this could prove costly for affected regions and entail hard choices. Preparations for adaptation-whether seawalls, cooling shelters, or drought-resistant crops-will need collective attention, particularly about where to invest versus retreat. While adaptation is now urgent and there are many adaptation opportunities, climate science tells us that further warming and risk increase can only be stopped by achieving zero net greenhouse gas emissions.
The author is director of McKinsey Global Institute and senior partner of McKinsey & Company. The author contributed this article to China Watch, a think tank powered by China Daily. The views do not necessarily reflect those of China Daily.
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