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Sector overview - from a macro-economic modeller's point of view

by H. Asbjørn Aaheim, Therese Dokken

Sector Description Impacts


The importance of agriculture on total value of output varies between regions, from a 6 percent share in the Nordic countries and northern parts of central Europe, to 15 and 18 percent shares in the Baltic States and eastern parts of central Europe, respectively (reference to a map) (Dimaranan, 2006). In addition to the direct importance of agriculture in the economy, agricultural products are important intermediates in other sectors, especially in the industry and service sectors.

Climate change has different impacts in regions and on different sub-sectors in the agricultural sector. In total, a small increase in crop productivity is expected in Europe (Alcamo et al., 2007). There are two important factors to take into account when analyzing the climate change effect on crops; increased temperature and increased atmospheric concentration of CO2, the latter to some extent expected to offset the negative effect of increased temperature and decreased soil moisture (Long, Ainsworth, Leakey, Nosberger, & Ort, 2006).


This sector includes private and public services, such as financial, recreation, health and education services. Total value output of this sector is the least in eastern parts of Europe, and highest in Northern Europe (Dimaranan, 2006). 

To what extent the sector will be affected by climate change is hard to predict. However, tourism is an important industry in the European economy. The industry is mainly dominated by small and medium sized enterprises, and is highly interlinked to the rest of the economy, particularly the service sectors. Based on this we assume that changes in the tourism industry will affect the service sector.


The direct economic impacts of forestry in Europe are relatively small, as it is less than 0,7 percent of total value output  in all regions (Dimaranan, 2006). In addition to timber production and other economic activities, forests play an important role in protecting biodiversity, prevent soil erosion and protect infrastructure and settlements from natural hazards, such as rock fall and avalanches (Lexer et al., 2002).

Due to a decrease of current tundra area (White, Cannell, & Friend, 2000) and higher tree lines in mountainous areas (Moen, Aune, Edenius, & Angerbjörn, 2004), forest area is expected to increase in the Northern areas of Europe. In Southern areas on the other hand, number of droughts and fire risk is expected to increase, both in terms of length of season and severity (Arnell, Tompkins, Adger, & Delaney, 2005), and forested area is likely to contract (Metzger et al 2004 in (Alcamo et al., 2007).


Fisheries contribute to less than a half percent of total value of output in all regions except Southern Europe (Dimaranan, 2006). Apart from the Nordic Countries, the value of captures is higher in all regions compared to aquaculture (FAO, 2007).

This sector is likely to be affected significantly by climate change, but the knowledge of biodiversity and ecosystem impacts is still limited. The level of socio-economic costs related to climate change are also uncertain, but they are they are likely to be substantial for enterprises and communities that are highly dependent on costal and marine ecosystems (Alcamo et al., 2007). However, despite limited knowledge, some relationships between climate driven changes in sea and fish stocks are considered to be relatively certain, such as temperature as a determinant of stock production (Dutil & Brander, 2003), species distribution changes (Hiscock, Southward, Tittley, & Hawkins, 2004; Roessig, Woodley, Cech, & Hansen, 2004) and recruitment (Baker, 2005; Clark, Fox, Viner, & Livermore, 2003). Distributions of North Sea fishes have been found to respond markedly to increases in sea temperatures, and climate change is predicted to drive species ranges towards the poles (Perry, Low, Ellis, & Reynolds, 2005).


This sector includes a wide variety of industries, and contributes approximately fifty percent of total value output in all regions (Dimaranan, 2006).

The impact by climate change on the industry sector is mostly indirectly, such as through the supply of raw materials, intermediates, transport etc.


This sector is the sum of sea, air, rail and road transport, the latter including travel agencies.

Starting with the infrastructure, road and rail surfaces might be damaged as temperature and extreme weather events increases (Eddowes et al., 2003; Wooller, 2003). Another effect of increased temperatures is reduced snow cover. At higher altitudes and latitudes, snow clearing is a demanding activity, and some roads are closed during winter season. In case of less snow as climate changes, transport in mountainous areas could be more effective during winter. On the other hand, there are indications that future climate change may increase the number of landslides, and if this will be the case, this will affect the transport sector negatively (Aaheim et al., 2008). Passenger preferences and modal shifts as climate changes are unpredictable, but studies from England predict that public transport may be perceived as more uncomfortable compared to private vehicles as temperature increases, and dry summers could lead to an increase in cycling (LCCP, 2002; Wooller, 2003). Sea transport is likely to be affected as well, as less ice cover and more open waters make new and shorter routes possible, such as the northern sea route, while increased wind, and less ice cover, might increase the height of waves, making challenges for the sea transport (ACIA, 2004). Changes in tourism will affect the transport sector as well, as we assume that 30 percent of tourism consumption is related to the transport sector (StatisticsFinland, 2008).

Energy sectors   

This sector includes production of crude oil, coal, electricity, gas and refineries. The sum of these sectors contribute between 2,5 and 6 percent of total value output (Dimaranan, 2006).

Climate change can affect both demand and production of energy.  Temperature and energy demand is linked in a rather intuitive way; higher temperatures lower energy demand for heating purposes in winter, and increases energy needed for cooling devices, in hot countries in the summer. This will increase the demand for electricity, which is the main source for cooling, and decrease the demand for oil and gas, commonly used for heating (De Cian, Lanzi, & Roson, 2007).
In terms of energy production, electricity production from renewable resources is the ones most affected by climate change. Lehner, Czisch and Vassolo (2005) did a study on hydropower potential in Europe in case of climate change, and found that gross hydropower potential is likely to decrease, with strong regional variability.  Bio energy is increasingly important in Europe, but there are few studies on the impact of climate change on this source of energy. However, at a general level, conditions to produce bio energy is closely linked to productivity changes in agriculture and forestry, so it is reasonable to assume that bio energy follows the same direction and proportions (Kirkinen et al., 2005). Using expected changes in biomass as an indication, we expect bio energy potential to increase in northern parts of Europe, and decrease in southern regions (Fronzek & Carter, 2007). In addition to the renewable resources for energy production, climate change is expected to reduce the availability of summer cooling water needed at thermal power plants. Offshore oil and gas extraction may also be negatively affected by climate change if the frequency of extreme weather events increases (Arnell et al., 2005), while less ice cover opens new opportunities for finding oil and gas.


This is not a separate sector in our macroeconomic model, but rather integrated in other sectors, mainly the service and transport sectors.  The importance of tourism varies throughout Europe, and the economies most dependent on this sector is found in the southern parts (TSA, 2008). Summer is the most important season in all regions, while the relative importance of foreign and domestic tourists varies (Eurostat, 2005)

The total amount spent on travel and tourism will probably not be affected by climate change, but where the money is spent will change (Berrittella, Bigano, Roson, & Tol, 2006). Climate is an important factor when tourists make their choice of destination, including the climate of the source regions (Giannakopoulos, Bindi, Moriondo, LeSager, & Tin, 2005), and changes in the length and quality of tourism seasons will have implications for competitive relationships between destinations and the profitability of tourism enterprises (Simpson, Gössling, Scott, Hall, & Gladin, 2008). Countries closer to the poles are likely to be more attractive for tourists, and at the same time these countries will be more attractive to their own citizens, generating less international tourists (Amelung, Nicholls, & Viner, 2007; J. M. Hamilton, Maddison, & Tol, 2005). A shift towards tourist destination at higher altitudes is also expected (J. Hamilton & Tol, 2007; Simpson et al., 2008). Even though the tourism industry in a country or region is expected to benefit, the cost of changes is likely to be substantial for communities highly dependent on tourism.


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