10.1. Introduction and Context

This chapter discusses the implications of climate change on key economic sectors and services, for example, economic activity. Other chapters discuss impacts from a physical, chemical, biological, or social perspective. Economic impacts cannot be isolated; therefore, there are a large number of cross-references to sections in other chapters of this report. In some cases, particularly agriculture, the discussion of the economic impacts is integrated with the other impacts.

Focusing on the potential impact of climate change on economic activity, this chapter addresses questions such as: How does climate change affect the demand for a particular good or service? What is the impact on its supply? How do supply and demand interact in the market? What are the effects on producers and consumers? What is the effect on the overall economy, and on welfare?

An inclusive approach was taken, discussing all sectors of the economy. Section SM10.1 found in this chapter's on-line supplementary material shows the list of sectors according to the International Standard Industrial Classification. This assessment reflects the breadth and depth of the state of knowledge across these sectors; many of which have not been evaluated in the literature. We extensively discuss five sectors: energy (Section 10.2), water (Section 10.3), transport (Section 10.4), tourism (Section 10.6), and insurance (Section 10.7). Other primary and secondary sectors are discussed in Section 10.5, and Section 10.8 is devoted to other service sectors. Food and agriculture is addressed in Chapter 7. Sections 10.2 through 10.8 discuss individual sectors in isolation. Markets are connected, however. Section 10.9 therefore assesses the implications of changes in any one sector on the rest of the economy. It also discusses the effect of the impacts of climate change on economic growth and development. Chapter 19 assesses the impact of climate change on economic welfare—that is, the sum of changes in consumer and producer surplus, including for goods and services not traded within the formal economy.