WP4: ECONOMY

Results in WP4. Economic Vulnerability of CEE Societies and Economic Impact Assessment

The main objectives of WP4 were

  1. to evaluate economic impacts of Climate Change in CEE economies, as studied in WP 1-3, while concentrating on four economic sectors of main concern, namely agriculture, tourism, energy supply and the public sector, and
  2. to give a quick study of vulnerabilities of the study regions (in a socio-economic vulnerability approach), that exist prior to and independently of hazards related to Climate Change.

Economic Vulnerability to climate change can be defined as a function of Economic Sensitivity, Exposure, and Adaptive Capacity. Exposure and Sensitivity are the determinants of Potential Economic Impacts which increase vulnerability. Adaptive Capacity is the moderating variable in any conceptualisation of vulnerability; high regional or national adaptive potentials reduce the effects of Potential Economic Impacts, thus the level of vulnerability.

Economic Vulnerability = f (Potential Economic Impacts, Adaptive Capacity)

For the purpose of achieving the objectives of WP4, nine case studies were conducted, each one investigating a single economic sector (Agriculture, Tourism, Energy Supply) in a selected region over a certain period of time with the aim of understanding the economic impacts as well as the vulnerabilities related to climate change of similar sectors and regions. Thus, the WP4 case studies determined sector specific economic impacts and explored this issue on a very detailed regional level. The case studies therefore do not yield overall measures of economic vulnerability of any of the regions with respect to the economic sensitivity of all the sectors. But since a comparable method was applied, the sector specific potential economic impacts inform about the relative economic vulnerability of the selected case study regions where, e.g. agricultural case studies were carried out. In addition to this detailed, sector and regional specific work carried out by the case studies, broader, all sector encompassing mappings of adaptive capacity were conducted as well by using two different concepts:

  1. Endogenous Regional Adaptive Capacity (ERAC)
  2. Exogenous adaptive capacity through risk transfer

Regarding concept 1), a comparative analysis was carried out for the entire CLAVIER region (Bulgaria, Hungary, Romania) on NUTS III level by means of cluster analysis. Thereby, the endogenous absorption capacity of regional economies with respect to macroeconomic shocks (e.g. arising due to climate change) was investigated and compared by using indicators such as employment shares, value added, the level and growth of GDP per capita, touristic capacities and accessibility. Figure 1 illustrates the results obtained by the cluster analysis. Depopulating Regions show the lowest endogenous regional adaptive capacity (ERAC) of all cluster regions. Pure Agricultural Regions face a limited ERAC compared to the other cluster types, which holds true for Rural Service Regions as well. The ERAC of Predominately Agricultural Regions is below average but exceeds the samples of Pure Agricultural Regions and Rural Service Regions. Industrial Regions face an ERAC of average level, whereas Tourist Centres show an ERAC level slightly above the average. The ERAC in the Industrial Centres and in the Service Regions is presumed to be the highest among all regions. As shown in Figure 1, Hungarian regions on average reach more advanced ERAC levels than Bulgarian and Romanian regions because of their well endogenous endowments compared to the other regions within the spatial boundaries of CLAVIER.

Figure 1: Identification (clustering) of CLAVIER regions (NUTS III) of similar adaptive capacityFigure 1: Identification (clustering) of CLAVIER regions (NUTS III) of similar adaptive capacity

Concept 2) was investigated within the tenth WP4 case study concerning the public sector and consists in a layer of adaptive capacities that only discerns the three countries on the national level because it deals with the differing risk transfer systems in place for the three countries Bulgaria, Hungary and Romania. The key results of this tenth case study are given below along with the main results of the other nine sectoral case studies.

CASE STUDY RESULTS:

Principally, potential economic impacts of climate change were estimated by applying climate simulations of the regional climate model REMO5.7 for the IPCC emission scenario A1B. However, at least one of the case studies investigating the same sector also conducted economic impact estimations based on simulations of the regional climate model LMDZ for the IPCC emission scenarios A1B and B1.

It is important to stress that the results of each case study are only valid for the case study area and cannot be transferred to other regions. However, what is transferable is the methodology applied.

AGRICULTURE:

Bulgarian Agriculture Case Study (North East Region)

Main Message

Firstly, the effects of climate change—as simulated by the three applied scenarios—on the economic results of crop production in the case study region are positive. The reasons for this are complex and need to be examined additionally. Secondly, the effect of the investigated climate caused change in crop output on the regional economy is again positive, but much more modest.

Quantified economic impacts

Firstly, the impact of climate changes on crop yields, measured as variation of gross agricultural output, is positive. It varies between 11% and 23% for the different climate scenarios. Secondly, the impacts of this climate caused crop yield changes on the regional economy are expected to be positive with increases between 2% and 4% in the total output compared to the baseline scenario (see Table 1).

Table 1: Economic impacts of climate caused crop yield changes on gross agricultural output and total regional output in the North East Region

Scenario
Baseline REMO-A1B LMDZ-A1B LMDZ-B1
Gross agricultural output [mill. €] 1,340.87 1,495.04 1,651.46 1,595.39
Difference to the baseline scenario [%] +11.50 +23.16 +18.98
Total regional output [mill. €] 15,598.67 15,902.11 16,214.95 16,102.83
Difference to the baseline scenario [%] +1.95 +3.95 +3.23

Main message for adaptation

Agriculture is an extremely local specific activity. The main adaptation measures for the North-East-Region are:

  • Firstly, the introduction of a drought resistance crop variety and moisture saving technologies.
  • Secondly, the improvement in data collection and provision on the regional scale.
  • Thirdly, the improvement of the agricultural insurance system.

Romanian Agriculture Case Study (North-Western Region)

Main Message

The case study was carried out for the North-Western region of Romania. Estimated economic impacts (presented below in the quantified economic impact section) are valid >only for this part of the country because of the existence of territorial differences between Romanian regions due to the land structure of the selected area and the specific development levels. Impacts of climate change strongly depend on the crop type; hence, one certain climate parameter may affect different crops in different ways. On the other hand, yield projections are dependent on the climate model used.

Quantified economic impact

Results based on the first scenario using REMO-A1B simulations indicate negative impacts on the region’s economy. Furthermore, decreasing yields are projected to appear in the case of wheat, maize, barley, potatoes and lucerne. Regressions based on the second scenario using LMDZ-B1 simulations indicate positive impacts on the region’s economy, whereas strong increases concerning wheat, maize and potato yields are projected – slight increases for barley yields and decreases of lucerne and clover yields are furthermore expected. The third scenario using LMDZ-A1B simulations indicate minor impacts (slightly negative) on the region’s economy: strong increases regarding wheat yields are projected and decreases will appear in the case of maize, barley, potatoes, lucerne and clover yields (see Figure 2).

Figure 2: Change in crop yields in the North-West region in 2020-2030 compared to the reference period 1975-2000 according to different climate scenariosFigure 2: Change in crop yields in the North-West region in 2020-2030 compared to the reference period 1975-2000 according to different climate scenarios

Main message for adaptation

The overall adaptive capacity of the North-Western region varies between the levels: according to results of the cluster analysis concerning adaptive capacity it is projected to be average and presumably high. Due to the differences between the used climate models for future yield projections and also because of the territorial differences within the borders of the case study area, a uniform conclusion regarding an adaptation strategy can’t be drawn.

TOURISM:

Bulgarian Winter Tourism Case Study (Borovets)

Main Message

Firstly, nevertheless the fact that regression analysis only shows a small change in the number of overnights the overall impact of climate change as simulated by the regional climate model REMO5.7 for the IPCC emission scenario A1B to winter tourism in Borovets ski resort is definitely negative. On the one hand, for the period 2021-2050 much more snow-deficient winters are expected and on the other hand, snow cover during spring is projected to be sufficient only at higher heights (see Figure 3). This means excess accommodation capacity with intensive use of the infrastructure at these higher heights and discomfort for tourists. Secondly, all strategic initiatives to increase the capacity of the resort are inconsistent and should not proceed.

Figure 3: Average snow height in Borovets at the ski zones in 2030-2050 as compared to 2007-2008 (L-Lowest, M-Medium, H-Highest ski zones; differences —; * the first column at each height shows the situation today, the second the future 2031-2050Figure 3: Average snow height in Borovets at the ski zones in 2030-2050 as compared to 2007-2008 (L-Lowest, M-Medium, H-Highest ski zones; differences —; * the first column at each height shows the situation today, the second the future 2031-2050

Quantified economic impacts

The quantified economic impact for the resort is nearly negligible. The reasons for this, with the expectation of negative tendencies of climate change to winter tourism, are twofold:

  • Firstly, at the height of 1,700 and 2,500 m still enough snow is projected for the period 2021-2050 according to the REMO-A1B scenario.
  • Secondly, it is still impossible to quantify the effects of the more intensive cyclic development in snow cover, which is expected to lead to a higher frequency in snow-deficient years in the period 2021-2050. However, with the existing patterns of planning the ski vacancies in advance this could cause a real sharp decline in the number of tourists and respectively is of economic importance for the resort.

Main message for adaptation

The adaptation measures could be defined as short and long term measures. Short-term measures concern the economic agent in the resort which should follow the activities of our local hero (hotel “Samokov”), namely diversifications in the offered services for tourist. Long-term measures concern the municipalities which should try to diversify economic activities and not rely too much on winter tourism.

Hungarian Summer Tourism Case Study (Lake Balaton/Veszprém)

Main Message

Although it is expected to become warmer at Lake Balaton and in Veszprém, which may cause problems in the tourism sector due to increased heat stress, the overall economic impacts of a changing climate could be even positive. Firstly, the number of uncomfortable days is expected to be higher in Budapest than at Lake Balaton, providing incentives for seeking for recovery at the lakeside. Secondly, predicted rising air temperatures are expected to lead to extensions of the peak season and thirdly, the Northern Adriatic Sea, which represents the destination Lake Balaton is directly competing with, is expected to face similar problems due to rising temperatures.

Quantified economic impacts

Depending on the applied climate scenario (REMO-A1B, LMDZ-A1B or LMDZ-B1) the impacts of changing monthly mean air temperatures on tourist arrivals and tourist accommodation expenditures vary slightly. In the case of Lake Balaton, regression results suggest slightly positive effects for the future periods 2016-2025 and 2041-2050 compared to the reference period 1995-2006, indicating climate caused increases in tourist accommodation expenditures between 1% and 2%. For Veszprém, on the contrary, regression results show slightly negative effects for the future periods 2016-2025 and 2041-2050 compared to the reference period 1995-2006, suggesting climate caused decreases in tourist accommodation expenditures of up to around 2%.

Main message for adaptation

The following adaption measures are recommended for Lake Balaton and Veszprém, respectively:

  • Firstly, to overcome the increasing number of uncomfortable days the installation of infrastructure like pools and air conditioning need to be continued with high priority.
  • Secondly, to enhance the attractiveness of shoulder seasons weather independent attractions and infrastructure are needed: Therefore the fortification of qualitative offerings concerning wellness, culinary, wine, congresses, etc. is recommended.
  • Thirdly, to further attract weekend-guests from Budapest (also at shoulder seasons) special offers, cultural events etc. should be increased.
  • Fourthly, to turn the decreasing trend of international tourists the marketing needs to communicate Lake Balaton as a qualitative tourist centre possessing a specific regional image concerning culinary, friendliness, wellness as well as the explanation of the relative advantages the region possesses compared to the Adriatic and the Baltic Sea.

Romanian Winter Tourism Case Study (Predeal, Sinaia)

Main message

The winter tourism sector proves to be vulnerable to climate change in view of predicted changes in the main climate parameters (see Figure 4) influencing in the end the variability of annual snow pack duration in the ski domains and also in view of important further investments on the domain. However, microregional differences in the economic sensitivity could be identified as Predeal seems to be more vulnerable to climate change than Sinaia resort, for instance due to transformations on the tourism market (diversification of the tourism products and orientation to other tourism segments: cultural tourism, business tourism) and finally of the ponder played by winter season within overall tourism activity during the year (see Figure 5).

Figure 4: Variability of winter severity (WSI) in the Prahova Valley – Poiana Braşov area, over 1961-1990 and 2021-2050 (A1B)Figure 4: Variability of winter severity (WSI) in the Prahova Valley – Poiana Braşov area, over 1961-1990 and 2021-2050 (A1B)

Figure 5: The seasonality indexes of tourist arrivals in the period 2002-2007 in the main resorts of the Prahova Valley – Poiana Braşov areaFigure 5: The seasonality indexes of tourist arrivals in the period 2002-2007 in the main resorts of the Prahova Valley – Poiana Braşov area

Quantified economic impacts

Transposing potential climate changes into economic terms it could be noticed that the increase in air temperature without any adaptation measures of the tourism infrastructure and of the tourism offer is expected to generate losses in the tourism performance of each investigated resort. The tourism indicator “accommodation capacity in function” should be seen as an indicator which is correlated with the diversification of the tourism offer and the tourism infrastructure. According to the obtained results, a 1ºC increase in air temperature and no changes in the accommodation capacity in function leads to losses for Sinaia in the amount of about 23,500 € and for Predeal in the amount of around 113,700 € in the winter sports season (November-April). With a constant accommodation capacity in function and an increase in air temperature of 4ºC, losses are predicted to be even higher – about 93,800 € for Sinaia and 454,700 € for Predeal. If the accommodation capacity in function will increase, which means a diversification in the tourism offer, the losses in economic terms will diminish and in some cases be transformed into gains. Thus, in case of a 5% increase in accommodation capacity in function and a 1ºC increase in mean air temperature, Sinaia is expected to gain around 322,900 € and Predeal to gain 276,400 €, and for 4ºC increase in mean air temperature, Sinaia is predicted to gain about 252,700 €, while Predeal is expected to lose around 64,600 €.

Main message for adaptation

Lacking the strategies reflecting the results on the climate change topic and the adequate measures on this matter, the winter tourism sector’s adaptive capacity in Prahova Valley – Braşov area is low at the present moment. However, some of the resorts oriented towards other segments of the tourism market have an increased adaptive capacity. Within the regional economy, depending more on the secondary sector which on its turn suffered an important restructuration process after 1990 and is implicitly economically vulnerable, the winter tourism industry’s sensitivity and adaptability to climate change outstands again as issues of a sector vulnerability at a microregional/local level and could be interpreted as moderate.

Romanian Summer Tourism Case Study (Romanian Black Sea Coast)

Main message

The summer tourism sector at the level of the resorts within the Romanian Black Sea littoral has a much higher dependency on seasonality as compared to mountain tourism. The predicted climate change effects are at the same time both positive (the expected increase in temperature determines an extension of the tourism season in the early June and late September, see Figure 6) and also negative (in the peak period of the tourism season – July & August – the values of the so called Thom’s discomfort index (e.g. Tzenkova et al. 2003) are expected to increase especially after 2020, see Figure 7).

Figure 6: Trends of mean seasonal temperature for the Romanian Black Sea Coast areaFigure 6: Trends of mean seasonal temperature for the Romanian Black Sea Coast area

Figure 7: Number of days in the May-September interval between 1961-2050, in which more than half of population feels discomfort in Constanta County according to the Thom’s Discomfort Index (data source: STAT-CLIMATE-ECA ERA40 and REMO A1B)Figure 7: Number of days in the May-September interval between 1961-2050, in which more than half of population feels discomfort in Constanta County according to the Thom’s Discomfort Index (data source: STAT-CLIMATE-ECA ERA40 and REMO A1B)

Quantified economic impacts

The temperature effect can be quantified by multiplying average tourism expenditure per tourist on the seaside resorts by the marginal change in tourist overnights at the corresponding temperature level and by tourist’s length of stay in the corresponding investigation period. An increase in air temperature in the peak summer season, July-August 1990-2008 from 22ºC to 23ºC could be translated into a gain of +4,095 overnights and in economic terms of 163.800 Euro for the seaside resorts. If the temperature rises even higher positive effects could turn into negative effects. According to the regression results, the overnights, which are considered as a function of linear air temperature and a function of squared air temperature, increase until the temperature of 23.6ºC is reached and then start to decline. If the temperature increases from 24ºC to 25ºC the losses are expected to be around 2,058 overnight stays (-82,320 Euro) and if the temperature rises from 25ºC to 26ºC the losses are projected to be around 3,839 overnights (-153,560 Euros).

Main message for adaptation

Although including a sector sensitive and vulnerable to climate change, the regional adaptative capacity of Constanta County, where the Black Sea Coast is located, is considered to be slightly above the average within the CLAVIER regions. Also the fact that tourism at the Romanian Black Sea resorts overlaps a microregional cluster more developed at the regional level could indicate a higher potential for adaptation. However sectoral adaptation of summer tourism itself is considered to be dependent on the level of development and prosperity of this economic domain and it is obvious in the case of the Romanian Black Sea Coast that its adaptive capacity would increase through sustainable (long-term) investments in the industry.

ENERGY SUPPLY:

Bulgarian Energy Case Study (Nuclear energy in the North West Region)

Main message

Climate change as projected by the three scenarios REMO-A1B, LMDZ-A1B and LMDZ-B1 for the period 2021-2050 will definitely not influence the safety of the Kozloduy Nuclear Power Plant power plant (KNPP), but will cause the diminishing of the cooling efficiency and the decrease of the energy produced in summer as the number of unfavourable days (days with a temperature exceeding 30°C) is expected to increase (see Figure 8).

Figure 8: Average number of days per year with T > 30°C in Kozloduy and difference between past and future climateFigure 8: Average number of days per year with T > 30°C in Kozloduy and difference between past and future climate

Quantified economic impact

Expected economic impacts are insignificant. In monetary terms the expected decrease in electricity production is a small portion of the total annual production in KNPP – about 1%.

Main message for adaptation

Better planning of the regular annual maintenance when unit is shut down – choosing the hottest periods of the year. Thus, in the hottest days (with low cooling efficiency) a unit will be closed for regular maintenance.

Hungarian Energy Case Study (Wind energy in Győr-Moson-Sopron)

Main message

The limitations for a further development of wind farms in Győr-Moson-Sopron are not determined by climate change. Wind power capacity potentials are given in Győr-Moson-Sopron – by now and in future and can be harvested if the institutional settings and the financial incentives are set in the right way.

Quantified economic impact

Comparing the 10 year averages of the scenario period 2021-2030 and the reference period 2003-2012 the mean annual energy yield is expected to be insignificantly reduced by -1.5 percent. Significant changes are estimated to only occur later in the future: between 2031 and 2041 the mean annual energy yield (10 year moving average) is reduced between -5.5 percent and -10 percent (see Figure 9).

Figure 9: Climate change effects (black) (relative difference to the reference period 2003-2012) and their significance (orange). Changes of the wind farm’s mean annual energy yield calculated from daily wind speeds and the current observed technical availability of the wind turbinesFigure 9: Climate change effects (black) (relative difference to the reference period 2003-2012) and their significance (orange). Changes of the wind farm’s mean annual energy yield calculated from daily wind speeds and the current observed technical availability of the wind turbines

Main message for adaptation

Győr-Moson-Sopron is classified as an Industrial Centre. The high adaptive capacity of industry centres is even increased by a productive service sector. The industry is dominated by small and medium sized companies, transition is completed and the regional economy is able to overcome external effects. Thus, the adaptive capacity of the case study region Győr-Moson-Sopron presumably counts to the highest among all CLAVIER regions – adaptation is affordable, in terms of tangible and intangible assets.

Romanian Energy Case Study (Hydropower in Argeş County)

Main Message

Vidraru Reservoir appears to be low impacted by the projected climate and hydrological change under the A1B IPCC scenario until 2050. Still, signals of decreases in the available water resource, reduced run-offs in mountain tributary basins, lower frequency of heavy rainfalls and higher frequency of dry days were noticed over the simulated period (even if they were not showed statistically significant all the time). Figure 10 illustrates the inflow variation at Vidraru Resevoir over 2021-2050 compared to the reference period 1961-1990.

Figure 10: Expected monthly inflow variation over 2021-2050 versus the 1961-1990 reference period and the corresponding change at Vidraru Reservoir (A1B scenario)Figure 10: Expected monthly inflow variation over 2021-2050 versus the 1961-1990 reference period and the corresponding change at Vidraru Reservoir (A1B scenario)

Quantified economic impacts

The expected hydrological change signals in the Vidraru Reservoir have rather low economic implications in terms of future estimated hydropower production (< 5% decrease of annual energy output of Corbeni Hydropower Plant). Vidraru Hydropower Plant counts up to 33% in the overall electricity output of Curtea de Argeş Subsidiary and up to 3% in the overall output of Hydroelectric Company.

Main message for adaptation

Ensure hat climate change is embodied as a priority in the hydropower sector’s policy-making in order to realise an integrated adaptation, by considering the major climatic threats.

PUBLIC SECTOR:

Main Message

The risk transfer mechanisms (e.g. insurance) implemented at the moment in Bulgaria, Hungary and Romania relevant for covering risks of climate change show several limitations, ranging from the inability to generate a risk collective of sufficient size to lacking coordinated risk partnerships between insurers, state and citizens. Lacking insurance possibilities increase the public sector’s vulnerability to extreme weather events. However, a concrete reform process is currently in progress in Romania, where mandatory household insurance covering natural risks is planned to enter into force in January 2010. In addition, Bulgaria is considering its participation in the regional catastrophe insurance program being prepared by the World Bank for South Eastern (and Central) Europe.

Quantified economic impact

As shown in Figure 11, considerable direct damages arose in Bulgaria, Hungary and Romania due to major floods in recent years.

Figure 11: Total direct damage from major floods in recent years in mill. € and in % of GDP (Source: based on the European Union Solidarity Fund Annual Reports and EUROSTAT)Figure 11: Total direct damage from major floods in recent years in mill. € and in % of GDP (Source: based on the European Union Solidarity Fund Annual Reports and EUROSTAT)

Main message for adaptation

A well implemented plan how to spread economic risks from extreme events within the society and/or transfer them from the victims to the financial markets is a fundamental adaptation measure that crucially decides upon how disturbing impacts from climate change will be for the society. Major improvement potentials in the current Bulgarian and Hungarian risk transfer scheme as well as the new Romanian scheme (expected to enter into force in January 2010) are listed below.

Bulgaria:

  • Establishment of a (well coordinated) risk partnership between insurers, state and citizens
  • Generation of a bigger risk collective (e.g. through the introduction of mandatory elements)
  • Establishment of explicit rules for the handling of objects with very high damage frequency
  • Improvement of the planning security regarding the financial involvement of the public sector

Hungary:

  • Establishment of a (well coordinated) risk partnership between insurers, state and citizens
  • Creation of socially acceptable premiums for 100% coverage (the premium rates of the state offered flood insurance are increasing with decreasing values of the buildings and seem rather expensive for small dwellings)

Romania:

  • Better incentives for individual risk prevention (e.g. through the introduction of risk-based premiums and deductibles)

Literature:

  • Tzenkova A., Kandjov, I., Ivancheva, J. (2003): Some Biometeorological Aspects of Urban Climate in Sofia, Fifth Intern. Conf. on Urban Climate, 1-5, September, Lodz, Poland.