Amplified potential global economic impacts from climate change due to spatially compounding climate extremes

Despite growing evidence that climate extreme events significantly affect local economies, the implications of cross-regional and planetary-scale dependencies in climate extremes remain inadequately understood. This study demonstrates the importance of linking the projected increase in spatially compounding hot, wet, and dry extremes to their economic impacts. Utilizing Earth System Model projections from the 6th phase of the Coupled Model Intercomparison Project, we analyse how planetary-scale and cross-regional dependencies amplify regional disparities in economic value under enhanced global warming. Regions with lower present-day economic wealth are disproportionately exposed to extreme events occurring concurrently with other areas, heightening threats to economic stability. This research illustrates how spatially compounding climate extremes can amplify global and regional consequences, with enhanced greenhouse gas forcing exacerbating regional disparities in economic inequalities.

The study underscores the necessity of considering climate extremes' impacts beyond local scales, requiring an assessment of cross-regional exposures and a deeper understanding of the links between localized impacts and global economic dynamics. Enhanced global warming impacts the association of events across regions, challenging traditional risk diversification strategies. Global catastrophe pooling has been suggested as a means to improve financial resilience; however, intercontinental concurrent exposure, especially to heavy precipitation events in low- to middle-income regions, may limit its effectiveness. Supra-continental economic exposure to climate extremes is also projected to rise, emphasizing the need to evaluate which regions could be included in effective pooling mechanisms. Policy coordination and international cooperation are vital, as spatially compounding climate extreme events demand joint recovery efforts, resource sharing, and comprehensive contingency planning. It is therefore critical that investors and insurers consider the likelihood of concurrent events across multiple regions to manage risks effectively and ensure financial stability.