A Scenario-Based Framework for Assessing the Economic Impacts of Potential Droughts

Estimating the potential economic impacts of drought is increasingly prominent in policy discussions on resilience to future population and climate changes. We develop a scenario-based analytical framework for estimating the economic impacts of droughts under a range of assumed climate and policy conditions. The scenarios modeled take account of different assumptions regarding a drought event, including: the source of the drought (green or blue water), temporality, and critically, long-term and short-term policy-making choices. Applying the framework to the UK economy we estimate that, depending on the severity of the drought event and short-term policy choices, the impacts could range from 0.35% to 4.3% of total output in terms of total production. Different long-term policy choices could mitigate the impacts for drought events with similar severity and duration.