CASE STUDY

The Emerging Climate-Driven Megadrought and its Tremendous Physical Risk

A megadrought is an extreme and prolonged drought that lasts for 20 years or longer. Human activities, such as burning fossil fuels, deforestation and increased levels of carbon dioxide in the atmosphere, trap more energy from the sun in the atmosphere and are playing a critical role in exacerbating the drought, consequently drying the Southwest areas of the US. Radiative forcing is one of the causes of these severe droughts, which occurs when the Earth's atmosphere captures more energy from the sun. The more energy retained in the atmosphere, the higher the rate of water evaporation.

PHYSICAL RISK

Drought is one of the most expensive natural disasters, and it is estimated that the average annual loss in the United States in 2018 was between USD$10 billion and $14 billion. Few studies have estimated the monetary losses to the agricultural sector caused by drought. Among these studies, one suggested that the mega-drought in the US from 1988 to 1989 had caused the loss of crops worth $15 billion. Analysts at the University of California evaluated the economic impact of the California drought on the US’s agricultural sector from 2014 to 2016 (the most recent mega-drought). They disclosed significant losses in crops, dairy products and livestock, as well as additional groundwater pumping costs, with a combined loss of approximately $3.85 billion. At the same time, some researchers have disclosed that the reduction in crop yields has led to higher crop prices,offsetting the loss from this drought on agricultural revenue.

EFFORTS TO MITIGATE PHYSICAL RISK

International Water Management Institute (IWMI)’s efforts to support nations and regions preparing for climate shocks involve enhancing farmers’ resilience. In recent years, the Institute developed index-based flood insurance (IBFI) product to compensate farmers whose crops have been ruined as a result of floods.

The technology uses satellite data and modelling tools to estimate when the depth and duration of flooding exceed predefined limits, triggering automatic payouts. Between 2017 and 2019, the IBFI scheme supported insurance payouts in India ($22 000) and Bangladesh ($31 500) to 1 306 out of 2 300 eligible farming households, increasing their resilience to floods and minimising their vulnerability to natural hazards. A new trial seeks to build on the success of IBFI by bundling SMS-based weather information, advice on crop and water management methods, and fertilisers together with the insurance product. The trial covered 1 000 households, of which 450 benefited from an insurance payout of $12 500 each.

CHINA’S WATER NEEDS FOR ECONOMIC DEVELOPMENT

China suffers from both too much as well as too little water. Southern parts of China and coastal cities are often flooded from typhoons, storm surges or river/pluvial floods while certain areas experience extreme drought, for example, the middle and the lower reaches of Yangtze River is characterised by alternating periods of drought followed by floods.

Source: Devastating Floods Leave 119 Dead or Missing Across China, July 7, 2020

Over-extraction of groundwater and falling water tables are significant problems in China. There is an average annual groundwater depletion rate of more than 10 billion cubic metres and water resource usage is set to peak in 2030 when the population also peaks. Groundwater extraction can lead to land subsidence. 60 000 sqkm of the ground surface in the country has sunk, with more than 50 cities suffering from severe land subsidence. Further, Asia’s ten largest rivers, including the Yangtze, Yellow, Mekong and Ganges, are fed by seasonal melting, which is being affected by the climate crisis.

INTENSEL’S DROUGHT MODELS

Existing drought models are very simplistic and therefore lead to wrong predictions. Moreover, rainfall data is not collected in most regions in Asia. It is, therefore, very difficult to make any drought analysis on a meaningful grid case.

Intensel Limited, an Asia startup focusing on physical climate risk assessment and predictions, models drought using a combination of several factors including snowmelt and other climate variables.

Source: Intensel Limited

Map showing the Standard Precipitation Index (SPI). It compares January 2019 SPI to the last 30 years. Intensel’s proprietary models use dynamic climate models and as such are able to generate missing historical data. In turn, these data have very high resolutions, making it possible to draw accurate predictions on a fine grid basis.

In addition, Intensel’s dynamic climate models and AI technology is able to generate missing historical data, that is granular but also more accurate as they account for changing trends, increasing variation of weather.

For more details on the technology Intensel uses for drought modelling, please contact Intensel at info@intensel.com.