Indirect economic losses of drought under future projections of climate change: a case study for Spain

Drought is an economically important hazard for many countries, with the potential to cause large direct and indirect economic losses. Superimposed on this risk is the danger that future anthropogenic climate change poses. The study utilises projected estimates of direct drought losses, for a variety of different climate change scenarios, to assess how input-output analysis could be used to estimate indirect losses. Modifications were made to the adaptive regional input-output model to consider both the severity of individual drought events and the propagation of economic losses over time and applied to a case study of Spain. The study highlights the importance of the distribution of drought severity and direct losses over time when modelling indirect losses, emphasising a need to focus on time steps shorter than a year to model losses more comprehensively. The results suggest that annual drought losses in 2003-2050 could be up to 32 % higher for short-term droughts if indirect economic losses were considered and 57 % higher for longer-term droughts. Indirect losses were shown to increase nonlinearly over time and as emission scenarios became more severe. This suggests that the benefits of stringent mitigation policies in terms of avoided indirect losses may be more substantial than for direct losses in the second half of the twenty-first century. Whilst the estimates presented here are considered illustrative, the study highlights the importance of considering indirect economic losses for providing more comprehensive economic estimates of drought loss under future climate change and for assessing economic benefits of future mitigation and adaptation strategies.