Editing IPCC:AR6/WGII/Chapter-16 (section)

==== 16.4.3.3 Climate Change Impacts, Financial Constraints and Limits to Adaptation ====

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Across regions and sectors, financial constraints are identified as significant and contributing to limits to adaptation, particularly in low-to-middle-income countries ( ''high confidence'' ) (Sections 3.6.3, 4.7.2, 5.14.3, 6.4.5, 7.4.2, 8.4.5, 12.5.1, 12.5.2, 15.6.1, 15.6.3, Figure 16.8, Table 16.4, Section [https://www.ipcc.ch/chapter/16#CCP2.4.2 CCP2.4.2] ). Impacts of climate change may increase financial constraints ( ''high confidence'' ) and contribute to soft limits to adaptation being reached ( ''medium confidence'' ). Table 16.5 details climate impact observations that point to potentially substantial negative impacts on the availability of financial resources for different regions.

At the national level, negative macroeconomic responses to climate change may limit the availability of financial resources, impede access to financial markets and stunt economic growth ( ''high confidence'' ). Economic growth has been shown to decline under higher temperatures ( [[#Burke--2015|Burke et al., 2015]] ; [[#Kahn--2019|Kahn et al., 2019]] , [[#16.5.2.3|Section 16.5.2.3.4]] ) and following extreme events ( [[#Hsiang--2014|Hsiang and Jina, 2014]] ; [[#IMF--2017|IMF, 2017]] ), particularly for medium- and low-income developing countries ( [[IPCC:Wg2:Chapter:Chapter-18#18.1|Section 18.1]] ). The most severe impacts of climate-related disasters on economic growth per capita have been observed in developing countries, although authors note a publication bias in the reporting of negative effects ( [[#Klomp--2014|Klomp and Valckx, 2014]] ). Substantial immediate output losses and reduced economic growth due to extreme events have been observed in both the short and long term ( [[#16.2.3|Section 16.2.3]] ). Estimates of the duration of negative effects of climate-related disasters differ, with some analyses suggesting that, on average, economies recover after 2 years ( [[#Klomp--2016|Klomp, 2016]] ) and others finding negative effects of cyclones to persist 15–20 years following an event ( [[#Hsiang--2014|Hsiang and Jina, 2014]] ; [[#IMF--2017|IMF, 2017]] ). Rising climate vulnerability has also been shown to increase the cost of debt ( [[#Kling--2018|Kling et al., 2018]] ). Rising climatic risks negatively affect developing countries’ ability to access financial markets ( [[#Cevik--2020|Cevik and Jalles, 2020]] ), and their disclosure may result in capital flight (Cross-Chapter Box FINANCE in Chapter 17). Overall, the direct and indirect economic effects of climate change represent a major risk to financial system stability ( [[IPCC:Wg2:Chapter:Chapter-11#11.5.2|Section 11.5.2]] ). These risks and effects may further limit the availability of financial resources needed to overcome constraints, in particular for developing countries.

Sectoral studies indicate that climate impacts will result in higher levels of losses and damages and decreases in income, thereby increasing financial constraints ( ''medium confidence'' ). Yield losses for major agricultural crops are expected in nearly all world regions (Figure 5.7). Decreases in estimated marine fish catch potential and large economic impacts from ocean acidification are expected globally, leading to the risk of revenue loss ( [[IPCC:Wg2:Chapter:Chapter-5#5.8.3|Section 5.8.3]] ). Losses of primary productivity and farmed species of shellfish are expected in tropical and subtropical regions ( [[IPCC:Wg2:Chapter:Chapter-5#5.9.3.2.2|Section 5.9.3.2.2]] ). Economic losses have been observed in the power generation sector and transport infrastructure ( [[IPCC:Wg2:Chapter:Chapter-10#10.4.6.3.8|Section 10.4.6.3.8]] ), including economic losses from floods in urban areas ( [[IPCC:Wg2:Chapter:Chapter-4#4.2.4|Section 4.2.4.5]] ). However, some positive sectoral climate change impacts have been identified for the timber and forestry sector ( [[IPCC:Wg2:Chapter:Chapter-5#5.6.2|Section 5.6.2]] ), for primary productivity and farmed species of shellfish in high-latitude regions ( [[IPCC:Wg2:Chapter:Chapter-5#5.9.3.2.2|Section 5.9.3.2.2]] ) and for agriculture in high-latitude regions ( [[IPCC:Wg2:Chapter:Chapter-5#5.4.1.1|Section 5.4.1.1]] ).

At the household or community level, climate impacts may increase financial constraints ( ''high confidence'' ) ''.'' Impacts on agriculture and food prices could force between 3 and 16 million people into extreme poverty ( [[#Hallegatte--2017|Hallegatte and Rozenberg, 2017]] ). Within-country inequality is expected to increase following extreme weather events ( [[#16.2.3.6|Section 16.2.3.6]] and Chapter 8). Households affected by climate-related extreme events may be faced with continuous reconstruction efforts following extreme events ( [[#Adelekan--2015|Adelekan and Fregene, 2015]] ) or declines in critical livelihood resources in the agriculture, fisheries and tourism sectors ( [[#Forster--2014|Forster et al., 2014]] , [[IPCC:Wg2:Chapter:Chapter-3#3.5.1|Section 3.5.1]] ). Further erosion of livelihood security of vulnerable households creates the risk of poverty traps, particularly for rural and urban landless (Sections 8.2.1, 8.3.3.1), for example in Malawi and Ethiopia ( [[IPCC:Wg2:Chapter:Chapter-9#9.9.3|Section 9.9.3]] ). Levels of labour productivity and economic outputs are projected to decrease as temperatures rise particularly in urban areas ( [[IPCC:Wg2:Chapter:Chapter-6#6.2.3.1|Section 6.2.3.1]] ). At the same time, higher utilities demand under higher urban temperatures exerts additional economic stresses on urban residents and households. Substantial, negative impacts on the livelihoods of over 180 million people are expected from changes to African grassland productivity ( [[IPCC:Wg2:Chapter:Chapter-5#5.5.3.1|Section 5.5.3.1]] ). In Western Uzbekistan, farmers’ incomes are at risk of declining ( [[IPCC:Wg2:Chapter:Chapter-10#10.4.5.3|Section 10.4.5.3]] ). For SIDS, loss of livelihoods is expected due to negative climatic impacts on coastal environments and resources ( [[IPCC:Wg2:Chapter:Chapter-3#3.5.1|Section 3.5.1]] ). Negative effects on households from extreme events can also persist in the long term and in multiple dimensions. Exposure to disasters during the first year of life significantly reduces the number of years of schooling and increases the chances of being unemployed as an adult and living in a multidimensionally poor household ( [[#González--2021|González et al., 2021]] ).

'''Table 16.5 |''' Evidence of climate change impacts affecting availability of financial resources.

{| class="wikitable"
|-
! Region

! Evidence of climate change impacts affecting availability of financial resources

|-
| Africa

| Negative consequences for economic growth and GDP growth rate from higher average temperatures and lower rainfall ( c ) (Sections 9.9.1.1, 9.9.2, 9.9.3)

Economic losses from damage to infrastructure in the energy, transport, water supply, communication services, housing, health and education sectors (observed) (Sections 9.7.2.2, 9.8.2)

|-
| Asia

| High coastal damages due to sea level rise (China, India, Korea, Japan, Russia) ( c ) ( [[IPCC:Wg2:Chapter:Chapter-10#10.4.6.3.4|Section 10.4.6.3.4]] )

Decline in aquaculture production ( [[IPCC:Wg2:Chapter:Chapter-10#10.4.5.2.1|Section 10.4.5.2.1]] )

Loss of coastal ecosystem services (Bangladesh) ( [[IPCC:Wg2:Chapter:Chapter-5#5.9.3.2.4|Section 5.9.3.2.4]] )

|-
| Australasia

| Loss of wealth and negative impacts on GDP (Sections 11.5.1.2, 11.5.2.2)

High disaster costs (observed in Australia, New Zealand) ( [[IPCC:Wg2:Chapter:Chapter-11#11.5.2.1|Section 11.5.2.1]] )

|-
| Central and South America

| High costs of extreme events relative to GDP (observed in Guatemala, Belize) ( [[IPCC:Wg2:Chapter:Chapter-12#12.3.1.4|Section 12.3.1.4]] )

Decrease in growth of total GDP per capita and total income and labour income from one standard deviation in the intensity of a hurricane windstorm ( [[IPCC:Wg2:Chapter:Chapter-12#12.3.1.4|Section 12.3.1.4]] )

|-
| Europe

| Negative combined effect of multiple risks on economy for Europe in total ( b ) (Sections 13.9.1, 13.10.2)

Negative combined effect of multiple risks on economy for Southern Europe ( c ) (Sections 13.9.1, 13.10.2)

High economic costs in agriculture and construction following heatwaves and flooding (Sections 6.2.3.2, 7.4.2.2.1)

|-
| North America

| Small but persistent negative economy wide effect on GDP (observed in the USA and Mexico) ( b ) (Box 14.5)

Economic risks associated with high-temperature scenarios ( c ) (Box 14.5)

Small but persistent positive economy wide effect on GDP (observed in Canada) ( b ) (Box 14.5)

Significant economic costs for urban, natural and ecosystem infrastructure (USA) ( [[IPCC:Wg2:Chapter:Chapter-6#6.2.5|Section 6.2.5.9]] )

High economic damages for a subset of sectors from high warming (southern and southeastern USA) (Box 14.5)

Adverse effects on municipal budgets due to costly liabilities, and disruption of financial markets (Box 14.5)

|-
| Small islands

| High economic costs relative to GDP from extreme events, particularly tropical cyclones (observed) ( [[IPCC:Wg2:Chapter:Chapter-15#15.3.4.1|Section 15.3.4.1]] )

Negative long-term implications of extreme events for state budgets ( [[IPCC:Wg2:Chapter:Chapter-8#8.2.1.4|Section 8.2.1.4]] )

Inundation of almost all port and harbour facilities (Caribbean) ( [[IPCC:Wg2:Chapter:Chapter-15#15.3.4.1|Section 15.3.4.1]] )

|}

Notes:

(a) ''low confidence''

(b) ''medium confidence''

(c) ''high confidence''

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