Abstract:
Severe droughts, which are a direct consequence of climate change, are affecting countries all over the world, causing huge economic losses. Due to record high temperatures and the persistent lack of rainfall Italy's longest river and, one of the country's most important resources, is now drying up.
With a historical analysis of the period from 1951 to 2019, it has been noticed that despite the annual cumulative amount of rainfall has not changed much in recent decades, the water crisis is expanding year after year causing severe economic consequences.
In 2022, we have been testimonies of the several negative records related to climatic conditions that were broken from January onwards, and different economic sectors, such as agriculture, are directly and indirectly affected by it. For example, the scarcity of rainfall has caused interruptions in the production of electricity in the hydroelectric power plants in the Po Valley.
In response to these economic difficulties, the Italian government has promoted substantial financial aid, putting the agricultural market of the Po Valley in the conditions to survive. An additional response to protect firms lies in the insurance market. However, the usage of the catastrophe insurances, created specifically to deal with risks with potentially enormous losses as well as drought, is still not widespread in Italy, despite the number of catastrophic events is increasing and weather conditions not expected to improve in the future.
Several economic models allow us to predict the consequences of policies that do not take into account the environmental issue. Policy makers use these models in order to understand what are the best policies to follow in order to face this urgency. One of these models is the one of the NGFS, where a set of four hypothetical scenarios, from the most optimistic to the most pessimistic, is provided given the level of GHG emission in a time frame.
