Virtual water scarcity risk to global trade under climate change
The Fifth Assessment Report (AR5) of the Intergovernmental Panel on Climate Change (IPCC) has concluded that climate change will have significant impacts on global water resources. The risk of production loss due to water scarcity can be transmitted through international trade to distant economies downstream the supply chain. In this research, how climate change may affect the global economy via reducing available water resources in some regions is investigated based on a multi-regional input output (MRIO) model that provides information on the current global economic structure. Key nation-sectors with the greatest virtual water scarcity risk (VWSR) exports are identified under two climate change scenarios, including the Agriculture sectors in Syria, Pakistan, Kazakhstan, India, Uzbekistan, Iran, and China. Improving water efficiency in these sectors is essential for increasing the resilience of the global economy against climate change-induced water scarcity. Nation-sectors with the largest VWSR imports are also identified under the two climate change scenarios, including Food & Beverages sectors, Textiles and Wearing Apparel sectors, and Petroleum, Chemical and Non-Metallic Mineral Products sectors in Saudi Arabia, the United States of America, Russia, Germany, Italy, and China. These are the most vulnerable nation-sectors facing the reduction in foreign water resources due to climate change. Additionally, through comparing the change of rankings of VWSR imports, VWSR exports, and LWSRs at country and sector level, the rankings of VWSR exports are relatively close to LWSRs, while the rankings of VWSR imports are quite different from LWSRs. The evaluation demonstrates that nations should cooperatively manage water resources and be aware of the transmission of virtual water scarcity risk through international trade under climate change. Moreover, nation-sectors with high VWSR imports may reduce the reliance on water-intensive products and diversify importing sources, and national governments can encourage residents to change consumption patterns.