7.4.2.1 Industry

Industrial sectors are generally thought to be less vulnerable to the impacts of climate change than other sectors, such as agriculture and water services. This is in part because their sensitivity to climatic variability and change is considered to be comparatively lower and, in part, because industry is seen as having a high capacity to adapt in response to changes in climate. The major exceptions are industrial facilities located in climate-sensitive areas (such as coasts and floodplains), industrial sectors dependent on climate-sensitive inputs (such as food processing) and industrial sectors with long-lived capital assets (Ruth et al., 2004).

We define industry as including manufacturing, transport, energy supply and demand, mining, construction and related informal production activities. Other sectors sometimes included in industrial classifications, such as wholesale and retail trade, communications, and real estate and business activities, are included in the categories of services and infrastructure (below). Together, industry and economic services account for more than 95% of GDP in highly-developed economies and between 50 and 80% of GDP in less-developed economies (World Bank, 2006), and they are very often at the heart of the economic base of a location for employment stability and growth.

Industrial activities are, however, vulnerable to direct impacts such as temperature and precipitation changes. For instance, weather-related road accidents translate into annual losses of at least Canadian $1 billion annually in Canada, while more than a quarter of air travel delays in the United States are weather-related (Andrey and Mills, 2003). Buildings are also affected by higher temperatures during hot spells (Livermore, 2005). Moreover, facilities across a range of industrial sectors are often located in areas vulnerable to extreme weather events (including flooding, drought, high winds), as the Hurricane Katrina event clearly demonstrated. Where extreme events threaten linkage infrastructures such as bridges, roads, pipelines or transmission networks, industry can experience substantial economic losses. In other cases, climate change could lead to reductions in the direct vulnerability of industry and infrastructures. For instance, fewer freeze-thaw cycles in temperate regions would lead to less deterioration of road and runway surfaces (Mills and Andrey, 2002). There exist relatively few quantified assessments of these direct impacts, suggesting an important role for new research (Eddowes et al., 2003).

Less direct impacts on industry can also be significant. For instance, sectors dependent on climate-sensitive inputs for their raw materials, such as the food processing and pulp and paper sectors, are likely to experience changes in sources of major inputs. In the longer term, as the impacts of climate change become more pronounced, regional patterns of comparative advantage of industries closely related to climate-sensitive inputs could be affected, influencing regional shifts in production (Easterling et al., 2004). Industrial producers will also be influenced indirectly by regulatory and market changes made in response to climate change. These may influence locational and technology choices, as well affecting costs and demand for goods and services. For instance, increased demand for space cooling may be one result of higher peak summer temperatures (Valor et al., 2001; Giannakopoulos and Psiloglou, 2006). A range of direct (awareness of changing weather-related conditions) and indirect (changing policy, regulation and behaviour) impacts on three different classes of industry is identified in Table 7.2.

In developing countries, besides modern production activities embedded in global supply chains, industry includes a greater proportion of enterprises that are small-scale, traditional and informally organised. Impacts of climate change on these businesses are likely to depend on the determinants identified in the TAR: location in vulnerable areas, dependence on inputs sensitive to climate, and access to resources to support adaptive actions. Many of these activities will be less concerned with climate risks and will have a high capacity to adapt, while others will become more vulnerable to direct and indirect impacts of climate change.

An example of an industrial sector particularly sensitive to climate change is energy (e.g., Hewer, 2006; Chapter 12, Section 12.4.8.1). Climate change is likely to affect both energy use and energy production in many parts of the world. Some of the possible impacts are rather obvious. Where the climate warms due to climate change, less heating will be needed for industrial, commercial and residential buildings, and cooling demands will increase (Cartalis et al., 2001), with changes varying by region and by season. Net energy demand at a national scale, however, will be influenced by the structure of energy supply. The main source of energy for cooling is electricity, while coal, oil, gas, biomass and electricity are used for space heating. Regions with substantial requirements for both cooling and heating could find that net annual electricity demands increase while demands for other heating energy sources decline (Hadley et al., 2006). Critical factors for the USA are the relative efficiency of space cooling in summer compared to space heating in winter, and the relative distribution of populations within the U.S. in colder northern or warmer southern regions. Seasonal variation in total demand is also important. In some cases, due to infrastructure limitations, peak demand could go beyond the maximum capacity of the transmission system.

Tol (2002a, b) estimated the effects of climate change on the demand for global energy, extrapolating from a simple country-specific (United Kingdom) model that relates the energy used for heating or cooling to degree days, per capita income, and energy efficiency. According to Tol, by 2100 benefits (reduced heating) will be about 0.75% of gross domestic product (GDP) and damages (increased cooling) will be approximately 0.45%, although it is possible that migration from heating-intensive to cooling-intensive regions could affect such comparisons in some areas.

In addition to demand-side impacts, energy production is also likely to be affected by climate change. Except for impacts of extreme weather events, research evidence is more limited than for energy consumption; but climate change could affect energy production and supply (a) if extreme weather events become more intense, (b) where regions dependent on water supplies for hydropower and/or thermal powerplant cooling face reductions in water supplies, (c) where changed conditions affect facility siting decisions, and (d) where conditions change (positively or negatively) for biomass, windpower or solar energy production.

For instance, the TAR (Chapter 7) concluded that hydropower generation is likely to be impacted because it is sensitive to the amount, timing and geographical pattern of precipitation as well as temperature (rain or snow, timing of melting). Reduced stream flows are expected to jeopardise hydropower production in some areas, whereas greater stream flows, depending on their timing, might be beneficial (Casola et al., 2005; Voisin et al., 2006). According to Breslow and Sailor (2002), climate variability and long term climate change should be considered in siting wind power facilities (also see Hewer, 2006). Extreme weather events could threaten coastal energy infrastructures (e.g., Box 7.4) and electricity transmission and distribution infrastructures. Moreover, soil subsidence caused by the melting of permafrost is a risk to gas and oil pipelines, electrical transmission towers, nuclear-power plants and natural gas processing plants in the Arctic region (Nelson et al., 2001). Structural failures in transportation and industrial infrastructure are becoming more common as a result of permafrost melting in northern Russia, the effects being more serious in the discontinuous permafrost zone (ACIA, 2004).

Policies for reducing greenhouse gas (GHG) emissions are expected to affect the energy sector in many countries. For instance, Kainuma et al. (2004) compared a global reference scenario with six different GHG reduction scenarios. In the reference scenario under which emissions continue to grow, the use of coal increases from 18% in 2000 to 48% in 2100. In aggressive mitigation scenarios, the world’s final energy demand drops to nearly one-half of that in the reference scenario in 2100, mainly associated with reducing coal use. Kuik (2003) has found a trade-off between economic efficiency, energy security and carbon dependency for the EU.