Multi-hazards in Scandinavia: Economic impacts of compound heatwaves, droughts and wildfires in 2018

In the summer of 2018, large parts of Scandinavia faced record-breaking heat and drought, leading to increased mortality, agricultural water shortages, hydropower deficits, and higher energy prices. The 2018 heatwave, coupled with droughts leading to wildfires, was described as a multi-hazard event, defined as compounding events.

The goal of this presentation is to better understand the economic impact of the 2018 multi-hazard events in Scandinavia. In this analysis, we utilize empirical data to assess the physical impacts in agriculture, forestry, and energy sectors. Furthermore, we evaluate the indirect economic impacts of the 2018 multi-hazard event using a global multi-sectoral and multi-regional Computable General Equilibrium (CGE) model, GRACE (Global Responses to Anthropogenic Changes in the Environment). The GRACE model does not only describe the interactions among producers and between producers and consumers in the domestic region but also considers the interactions between local and global economies through international trade.

Our economic assessment reveals varying and wide-spreading results across sectors and regions, particularly in Europe. The 2018 multi-hazards resulted in reductions in agriculture, energy and forestry output as the direct impacts.  The sectoral-specific impacts also transfer to other sectors in the Scandinavian economy. For example, we find a decrease in manufacturing production caused by reduced intermediate inputs of agriculture, energy and forestry goods. At the same time, we also find an increase in the production of oil and gas due to the substitution effect of less electricity production.

Furthermore, the compound event of 2018 also affected the trade of forestry goods because of the vital role of Scandinavia in the international wood market. This led to a moderate yet widespread effect on GDP losses, affecting not only the Scandinavian region but also trading patterns, particularly in Europe. This result emphasizes the importance of including the market effect of cross-border trade when analyzing the impacts of compound events in the Scandinavian region.

 

This project is supported by the European Union’s Horizon 2020 funded project MYRIAD-EU (Grant 101003276).