GCC states more vulnerable to climate change impact: S&P

K Raveendran

GCC countries could become more vulnerable to the economic and financial impacts of physical risks from climate change over the next few decades if investments in adaptation and resilience stagnate, Standard & Poor’s said in a report.

According to the report titled Sustainability Insights Research: Lost GDP: Potential Impacts Of Physical Climate Risks, on average, about 8% of the GCC region’s GDP could be at risk per year by 2050, mainly to extreme heat and water stress.

The GCC’s economic geography is relatively concentrated, which makes it highly exposed to water stress, extreme heat, and occasional flooding after extreme rainfall. This is because most GDP is created in cities, hydrocarbon-producing facilities, or import/export free zones. Adaptation and resilience measures can help soften or avoid impacts in some cases. S&P Global Ratings believes most GCC sovereigns have significant resources to continue their efforts in this area.

S&P says water stress and extreme heat events are not uncommon in the GCC. Generally, higher temperatures raise energy requirements for cooling, while compounding water stress. There’s also a risk of potential damage from pluvial flooding, which occurs during heavy rainfall.

The region is slowly heating up.   As a proxy for changing exposure to extreme heat, S&P Global Sustainable1’s Physical Risk dataset uses the frequency that the 95th percentile of the baseline daily maximum temperature is exceeded annually. The average annual 95th percentile temperature in the GCC is 42 degrees Celsius (42 C), ranging from 38 degrees in Oman to 45 degrees in Kuwait. This was exceeded on average for the equivalent of two months in 2020. In 2050, the temperature is projected to exceed this threshold for three and a half months per year under a slow transition scenario (SSP3-7.0), absent adaptation. Alongside generally higher temperatures, additional extreme heat events will likely accelerate physical asset degradation and even capital loss rates.

Economies may find it challenging to keep up with increasing demand for water.   Water stress occurs when total water withdrawals within an area exceed the available surface and ground water resources. As the region’s populations expand, the climate warms, and economies develop, water demand will increase. The region’s water stress ratios (projected water withdrawals to total renewable water supply in a given area) are among the highest globally. They are already more than double the 0.4 threshold for high water stress set by the World Resources Institute, according to the Lost GDP report. At the same time, greenhouse gas emissions related to energy-intensive water production could build, without substantial development of power generation from renewable sources.

High surface-water runoff in arid and urban areas can lead to flooding, even during moderate rainfall.   Most of the GCC’s climate is hot desert or dry land, with limited vegetation to absorb rainfall and moisture. These factors expose the region’s main economic centers to pluvial flood risk. A higher incidence of extreme heat could compound pluvial flood risk, increasing the amount of surface-water runoff and precipitation volumes by 2050–absent adaptation–according to the S&P analysis.

Climate hazards add to global economic risks.   The Lost GDP report found that, by 2050, if global warming does not stay well below 2 C, up to 4.4% of the world’s GDP could be lost annually, absent adaptation. This is at least one-third greater than in the Paris Agreement’s scenario–consistent with Shared Socioeconomic Pathway 1-2.6 (SSP1-2.6)–in which 3.2% of global GDP may be at risk annually, according to the report. GDP at risk rises to 5.1% under a limited mitigation scenario, where emissions are high.

Also published on Medium.