Catastrophic Droughts and Their Economic Consequences

Abstract

The effect of climate change on hydrology and water resources is possibly one of the most important current environmental challenges, and it will be important for the rest of the 21st century. Climate change is anticipated to intensify the hydrological cycle and to change the temporal and spatial distribution patterns of water resources. It is predicted to increase the frequency and intensity of extreme hydrological events, such as heavy rainfall and floods, but in some locations also droughts. Water-related hazards occur due to complex interactions between atmospheric and hydrological systems. These events can then cause economic disasters, societal disturbances, and environmental impacts, which can pose a major threat to lives and livelihoods if they happen in places that are exposed and vulnerable to them. The economic impacts of extreme hydrological events can be separated into direct damage and indirect losses. Direct damage includes the damages to fixed assets and capital; losses of raw materials, crops, and extractable natural resources; and, most importantly, mortality, morbidity, and population displacement. All can be a direct consequence of the extreme hydrological event. Indirect losses are reductions in economic activity, particularly the production of goods and services—which will be greatly decreased after the disaster and because of it. Possibly the most damaging hydro-meteorological hazard, drought, is also the one that is least understood and the most difficult to quantify—even its onset is often difficult to identify. Drought is recognized as being associated with some of the most high-profile humanitarian disasters of past years, threatening the lives and livelihoods of millions of people, particularly those living in semi-arid and arid regions. Drought impacts depend on a set of weather parameters—high temperatures, low humidity, the timing of rain, and the intensity and duration of precipitation, as well as its onset and termination—and they depend on the population and assets and their vulnerabilities. While drought has wide-ranging effects on many economic sectors, the agricultural sector bears much of the impact, as it is very dependent on precipitation and evapotranspiration. Approximately 1.3 billion people rely on agriculture as their main source of income. In developing countries, the agriculture sector absorbs up to 80% of all direct damages from droughts. Droughts may be the biggest threat to food security and rural livelihoods globally, and they can increase local poverty, displace large numbers of people, and hinder the already fragile progress that has been made toward the achievement of Sustainable Development Goals (SDGs). As such, understanding droughts’ impacts, identifying ways to prevent or ameliorate them, and preventing further deterioration in the climatic conditions and social vulnerabilities that are their root causes are all of utmost importance.

Sectoral investments to achieve water, energy and land Sustainable Development Goals and enhance climate resilience

“…Climate impacts might define, also for non-water-stressed regions, higher uncertainty in long-term costs than in the short-term. It should be noted that extreme climate events that are reported to increase with global average temperatures such as floods and drought also affect the investment in the water sector (Kim et al, 2023;Pourzand & Noy, 2022). Both costs for building systems that are resilient to extreme events and damages from catastrophic hazards are not fully accounted for in this study and will likely become an important part of the expenditure in the future.…”

Challenges to Water Resource Management—Role of Economic and Modeling Approaches

“…These extreme hydrological events may result in catastrophic effects on individuals (deaths) and communities (destruction of infrastructure). Economic evaluation of such effects and the possible approaches to manage natural resources under catastrophic events have been studied in [25,26] who examined the theoretical foundations for dealing with any catastrophic event, including droughts, and by in [27], who focused only on drought impacts assessment and handling.…”