Economic Impact of Droughts

Water scarcity and drought was one of the main environmental policy priorities for the EU Presidency of Portugal in 2007. The Informal Council of Environment Ministers on "Water Scarcity and Droughts" on 31 August and 1 September 2007 in Lisbon was designed to further the debate in the European Union. A paper and presentation by R. Andreas Kraemer supplemented a background paper provided by the Portuguese Presidency and the European Commission "Addressing the challenge of water scarcity and droughts in the European Union" of 18 July 2007.

In his paper, R. Andreas Kraemer focuses on the effects and the economic impact of droughts with regard to ecosystems and biodiversity, agriculture, forestry, the energy sector, public water supply as well as tourism and industry. He furthermore looks at examples of droughts and their economic impact in the US and in Australia and draws conclusions for the European Union.

Some key messages and conclusions from his paper can be summarised as follows:

• Droughts have noticeable economic effects on a range of important economic sectors, and they affect significant shares of the population and the territory of the EU.
• Some sectors are affected for some time (years) after the drought has passed.
• The overall (macroeconomic) impact of most droughts on the national or European-wide economy are relatively small. The example of Australia shows, however, that the effects of widespread severe drought on GDP or total employment can be significant.
• In view of insights from fire ecology, there is a need to consider wildfires in the context of climate and social changes.
• The economic impact of droughts can be as high or even higher than those of weather-related disasters, such as floods or storms.
• At present, only part of the economic impact of droughts is captured. This is shown in relation to the United States and the European Union. Additional efforts should be made to "mobilize" knowledge and data from Member States and sectors, and to produce more complete estimates and aggregations as a basis for EU policy decisions
• Another overall conclusion is that research is needed to improve and integrate scenarios of climate change impacts, up-to-date drought and heat wave knowledge, the ecology of forest and wildfires, human impacts, social and economic changes. Results from such research should allow to better assess future fire regimes with respect to their size, frequency thresholds, intensity, spatial and temporal distribution etc., and responses in the field of landscape management (including burning where and when appropriate), spatial planning, urban sprawl and the rural-urban interface.