El Nino costs trillions in lost economic growth, study shows

WASHINGTON – Damage from El Nino-related extreme weather, in crop losses, flooding, wildfires and civil unrest, can cost tens of billions of dollars in direct impacts over a period of months or a year. New research suggests that the real cost is much higher – in the trillions – because conventional accounting fails to recognise “persistent” shortfalls in gross domestic product that unspool over several years and are harder to identify.

The paper, by Dartmouth Earth system scientists Christopher Callahan and Justin Mankin and published on Friday in the journal Science, comes at an auspicious time. The United States Climate Prediction Centre earlier in May raised odds beyond 90 per cent that an El Nino weather pattern

will form later in 2023.

These episodes, which occur every several years, can bring everything from hot and dry weather to Australia, wildfires to Indonesia, rain to parched East Africa, a lighter Atlantic hurricane season, winter blizzards in the US North-east and mortal heat to coral reefs. 

With the world 1.2 deg C hotter than it was before industrialisation, El Nino now practically guarantees record heat, and the UN World Meteorological Organisation gives a 98 per cent chance one of the next five years will be the hottest recorded. El Nino – technically a warmer phase of the eastern equatorial Pacific Ocean – has become a kind of sneak preview of some extreme conditions that climate change may make commonplace in the years ahead. 

Mr Callahan and Dr Mankin focused on a question broader than immediate, visible weather damage: How does climate variability affect economic growth? El Nino provided them with a kind of natural experiment with which to probe it, a discrete period of change with a long tail that they could track through subsequent years of data. 

The new analysis uses a model that combines economic growth and climate variability from 1960 to 2019 and compares GDP growth around the world before and after El Nino events. The output suggests a “persistent” impact on countries’ economic growth, especially in Peru, where the dynamic was first discovered, and around the tropics. They found that a powerful episode in 1997 and 1998 set world GDP back US$5.7 trillion (S$7.7 trillion) and a 1982/1983 El Nino reduced growth by US$4.1 trillion. 

Consistent declines in growth after events, particularly in highly affected areas “suggests that there is a causal relationship between El Nino and depressions in economic growth”, Mr Callahan said.

El Nino “is not simply a shock from which you recover”, said Dr Mankin, assistant professor in the Department of Geography. “It is a shock that effectively, as far as we can tell, permanently alters your growth trajectory.”

The authors said their findings carry several implications. One is new recognition of just how sensitive countries are to normal climate variability, even without considering global warming. Local extreme weather associated with El Nino aggregates “into a globally persistent macroeconomic effect, implying large and underestimated costs”, they write. 

Researchers have for years debated the relationship between catastrophes and growth. Some disasters, according to a so-called “level effect”, might have no long-term effect on GDP growth. A wind storm might blow in and destroy insured real estate, which prompts lots of reconstruction spending, generates more jobs and as much or more economic activity than there might otherwise have been, the thinking goes. The Dartmouth team in 2022 showed that individual heat waves have temporary effects. 

Mr Callahan and Dr Mankin’s new paper puts El Nino into a different category, that of the “growth effect”, in which quieter harms compound over years. GDP does not return to its baseline growth rate. That is in part because the associated damage is more subtle than razed buildings and flooded coasts.

The most expensive damage evades the senses. For example, a 2022 economic study of 40 years of rainfall found an enormous, hidden effect. Despite general agricultural benefits of wetter conditions, a week or two of additional rainfall can reduce overall economic output by as much as 1 per cent, particularly in developed countries. Other work has shown that hurricanes can still dampen economic growth 20 years later. It is silent, plodding changes like these that contribute the bulk of El Nino’s costs.

“It’s very valuable,” says Dr Anders Levermann, head of the complexity science department at the Potsdam Institute for Climate Impact Research, who co-wrote the 2022 rainfall paper. He is not affiliated with the new Dartmouth report. “It really shows that climate matters, and it doesn’t just matter for coral reefs or biodiversity. It matters for the economy.”

Mr Callahan and Dr Mankin also peer ahead to a future climate scenario, one chosen because it is roughly consistent with current national policy pledges, they write. They use the most recently updated global climate models to project what accumulated El Nino damages might look like this century – potentially US$84 trillion, or a 1 per cent reduction in GDP. 

These projections carry much more uncertainty than the historical analysis. The reason for that is scientists have yet to agree on what global warming may or may not do to the frequency and potency of the El Nino cycle, which with its cooler counterpart, La Nina, make up what is called the El Nino-Southern Oscillation, or Enso. Most climate models suggest El Ninos will become worse, but not all of them, which leaves the average of projected damages with noteworthy uncertainty.

“That presents some real complications,” Dr Mankin says, but to be sure, “El Ninos will continue to occur in the future. And when they do, they have these incredibly costly impacts that we now have a better understanding of.”

In their paper, they recommend more investment in adaptation to El Nino-juiced weather, since many countries appear not to have adapted even to the existing climate. BLOOMBERG