Weather extremes and variability can impact economies via perturbation and destruction. The damages are highest when they influence economic growth. Empirical work by Kotz et al. shows a direct link between weather variability and economic production . Some estimates suggest that they enhance income inequality: In general, lower-income populations have been shown to be more vulnerable to adverse shocks and more specifically to extreme rainfall events. While these studies focus on local economic impacts, another strand of literature has shown that indirect trade effects of economic disruptions caused by extreme weather have significant impacts along supply chains, e.g. by Verschuur et al. using a model of the global network of ports. The resulting dynamics of these indirect effects along the global economic trade network are very hard to quantify.

How to study indirect repercussions and their inequality by income

Combining these three strands of research, we used the global dynamic economic network model Acclimate to examine the impact of short-term production disruptions on different income groups. To this end, we combine climate model data and econometric estimates of the effects of temperature and precipitation impacts to generate a time series of economic disruptions for manufacturing, agriculture, and services. These local shock scenarios are propagated by Acclimate, through trade interactions between more than 6000 representative profit-maximising production sites and 1320 utility-maximising consumer groups. As an indicator for economic risk for the five income groups of each region, we use the 10% worst consumption-loss events in each of the 264 simulated world regions. We focus our analysis on

1. Intraregional comparison between low and high income groups within a region, 
2. International comparison between developing economies (low-income countries by World Bank classification), emerging economies (middle-income countries by World Bank classification), and developed economies (high-income countries by World Bank classification),
3. Future changes in these impacts under the next 20 years of warming.

Low-income groups most at risk

We find that through-out the world low-income groups face the highest risks, consistent with previous research which only considered the direct impact of climate on consumers. This is mainly caused by the fact that the share of necessary goods is higher for low income groups which make them less flexible in their consumption pattern and more vulnerable to supply failure.

In contrast, the more diversified consumption of higher income groups allows for the substitution of luxury goods with necessities as a reaction to shocks, potentially leading to secondary price increases that exacerbate the effects for lower income groups.

Emerging economies face local and trade risks

Comparing countries with different overall income levels, we find that emerging economies face the highest level of risk. Contributing risk factors include high exposure to extremes and variability, possibly exacerbated by seasonal rainfall patterns, and reliance on local production for consumption, as opposed to developing countries that are more dependent on imports from developed economies.

Risks increase for all, but the increase is stronger for the rich

Considering the physically committed warming until 2040, we find that risks increase almost globally, but risk increases are heterogeneous. While low-income groups will still face the highest consumption risks, the overall increased volatility in the global economy leads to larger risk increases for high-income groups and the richest countries. While our study neglects adaptation potential, this shows that more extreme weather events and variability will harm everyone, thus stressing the need for effective adaptation. The worsening of risks will continue as long as the stock of greenhouse gases in the atmosphere increases.

Implications for effective adaptation to more volatile weather

We identify several factors that contribute to the inequality of risks across income groups and countries. First, poverty eradication can help reduce weather-related risks for the most vulnerable groups, while efforts need to take into account the additional burden of direct and indirect impacts of weather variability. Second, in an interconnected global economy, local adaptation measures should be integrated with increased resilience along supply chains This may include redundancies within the supply network which will make the supply more expensive, but also more stable. Third, the increasing risks posed by a warming climate provide further motivation for effective and decisive climate change mitigation.

Overall, our study shows that increasing weather variability and extremes will not only cause local damage, but will also have indirect effects along global supply chains. The inequality-increasing effects of these impacts will require increased efforts to eradicate poverty (United Nations’ Sustainable Development Goal (SDG) 1), while the increasing risks from climate change underscore the importance of decisive climate action (SDG 13).