Drought-damage functions for the estimation of drought costs under future projections of climate change

Drought events and their impacts pose a considerable problem for governments, businesses and individuals. Superimposed on this is the risk of anthropogenic climate change. Climate models are increasingly being used to understand how climate change may affect future drought regimes. However, methodologies to quantify economic costs which could occur under these future scenarios are virtually non-existent. In this study, historic drought events were identified in regional precipitation data using the Standardized Precipitation Index, and their magnitude quantified and linked to reported economic costs. Drought damage functions were created for Australia, Brazil, China, India, Spain/Portugal and the USA. Projections of drought magnitude for 2003–2050 were modeled using the Community Integrated Assessment System, for a range of climate and emission scenarios, and future economic costs estimated. Severe and extreme drought events were projected to cause estimated additional losses ranging between 0.04 and 9 percent of national GDP in Australia, the USA and Spain/Portugal under future scenarios of climate change. The combined effect on global GDP from projected long-term drought events in the countries analyzed resulted in additional annual losses of 0.01 to 0.25 percent. This is considered conservative as the analysis is representative of seven countries only; does not incorporate the possibility of successive drought events, or compounding effects on vulnerability from interactions with other extreme events. Furthermore, it excludes indirect economic effects; social and environmental losses; the possibility of increasing vulnerability due to changing socio-economic conditions; and the possibility of irreversible or systemic collapse of economies as the study highlighted that under future climate change drought magnitude may exceed current experience potentially passing thresholds of social and economic resilience. Stringent mitigation had little effect on the increasing impacts of drought in the first half of the 21st century, so in the short-term adaptation in drought “hot spots” will be crucial.