Wastewater Treatment and Recycling
Driving major global changes to water operations.
How do we calculate the economic impacts of water risk?
This content has been extracted from our Aquanomics report. Read the full report here.
Our Aquanomics report uses global insurance data to project the potential direct losses attributed to water risk (droughts, floods and storms) across eleven geographies. The report calculates the total direct losses caused by water risk type for each region between 2022 and 2050.
The data used was derived from Ortec Finance’s climate PREDICT model which itself comprises several databases including the UN World Urbanization Program, NASA’s Socioeconomic Data and Applications Center (SEDAC), National Centers for Environmental Information’s NOAA climate data, and Munich Re disaster/loss data.
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Quantifying water damage
We conducted a review of relevant literature into the effects of drought, flooding and water-related storm damage on five economic sectors. This was based on a total review of 19 research papers which provided model inputs into the impact of water risk by sector. The findings from the literature review were adjusted to reflect the sectoral composition of the selected regions.
The water risk loss data from stages one and two (estimated direct sector losses) was inputted into the economic model as ‘shocks’ to ascertain the total economic impact of water risk across the eleven focus geographies.
These impacts include:
- Direct effects – from direct losses to different sectors and households (using data from stage two)
- Indirect effects – adjustments to price (including energy price) and government spending, as well as investment impacts caused by the capacity shocks
- Wider effects – impacts on supply chains, international competitiveness, employment, income and consumption
These impacts were then combined and reported in currency terms (total GDP USD losses between 2022 and 2050) and a percentage of annual GDP.
As global heating intensifies, extreme weather events are expected to increase, resulting in greater water risk to countries and regions. Unless otherwise stated, the figures in our Aquanomics study assume a two-degree rise in global temperatures in line with the ‘absolute cap’ in global heating agreed by governments in the 2015 Paris Agreement.
Want to go deeper?
Download the full Aquanomics report to learn more about the economic impacts of water risk and the wider effects on GDP, supply chains and employment.
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