How Climate Change is Affecting the Wealthy

Prosperity makes you resilient. High earners also seem to be better protected against extreme weather. This theory is refuted by a recent study. It shows that the risks of climate change are increasing particularly rapidly for rich people.

Heat waves, heavy rain, storms and floods – another summer has come to an end that should have made it clear even to those who prefer to look the other way that climate change is upon us. There are reports of landslides and flooding. Images show the destruction caused by drought and storms.

Global warming is becoming a long-term crisis. Environmental problems are changing trade flows and it is to be expected that production and delivery will be interrupted more and more frequently by extreme weather events. This intensifies the financial challenges for local people and the companies involved in the supply chain. The poorest are particularly affected. However, consumers and high-income countries must expect their risks to increase particularly rapidly.

Supply Chain Shocks Hit the Poorest the Hardest

This is the result of research by the Potsdam Institute for Climate Impact Research (PIK). The scientists looked at consumption risks arising from weather-related disruptions along the supply chain and determined how these will affect countries and consumers in different income groups. For their calculations, they used an updated version of the Acclimate model, which simulates trade relationships from companies to the utility-maximizing end consumer. From this, they created scenarios that show how shocks in production affect global supply chain networks.

Climate change and inequality, the scientists write, are linked in both directions. They confirm earlier studies in that the poorest people in the world suffer the most from climate change. Low-income consumers, who live close to the subsistence level, spend a large part of their budget on daily needs and have no resources to switch to more expensive alternatives in the event of supply shortages and price increases. “For example, rainfall extremes have been shown to enhance inequality,” the study says.

Incomes Offer Less and Less Protection Against Climate Risks

According to the survey, middle-income nations are particularly at risk. On the one hand, because their trade relations are heavily dependent on countries with the same income levels. On the other hand, their production is increasingly disrupted by seasonal climate extremes. Large income disparities in these countries also intensify competition among consumers for goods for daily needs, increasing consumer risks.

The steepest increase in risk will be faced by high-income consumers, even though their wealth makes them particularly resilient. According to the calculations, wealthy people spend a large part of their budget on goods that are easy to replace. They can also afford higher prices for essential consumer goods, even if this puts further pressure on low-income groups. However, the scientists predict that precisely these adjustment advantages will be reduced by increasingly unfavorable climate conditions, and the resilience of the wealthy will dwindle. Macroeconomic risks are also to be expected due to the high share of total consumption accounted for by this group.

What Needs to be Done to Avoid Climate Risks

The study emphasizes the necessity of national adaptation plans. Local measures for avoiding and overcoming climate catastrophes should be extended to the entire supply chain. Trade relations should be diversified, and the dependency on locally produced goods should be loosened. The top priority, however, must be given to the fight against poverty.

This is a partly automated translation of this german article.