How do we calculate the economic impacts of water risk?

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.