Climate change risk trap: Low-carbon spatial restructuring and disaster risk in petroleum-based economies

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Abstract The economic risks from climate change can be separated into two categories: physical risks from increased frequency and magnitude of extreme weather and climate events, and transition risks due to rapid decarbonisation leading to stranded assets and shifts in production and the labour market. On the global level, the two risks are widely recognized as trade-offs by the academic and policy literature: rapid decarbonisation increases transition risks while reducing physical risks, and vice versa for a delayed reduction of greenhouse gas emissions. In contrast, little is known about the interaction between the two risks on smaller geographical scales. This paper investigates the interactions between physical and transition risks on the sub-national level for petroleum-based economies. Their strong dependency on the export of fossil fuels requires a more far-reaching economic restructuring to meet both local and global emission targets than most other economies, exposing them to high transition risks. At the same time, the profound economic changes resulting from a low-carbon transition lead to a spatial redistribution of assets and labour, when brown assets and jobs get stranded and new green assets and jobs are created elsewhere. Building on the literature on spatial economic restructuring and climate disaster risk, we show that, unlike the common conceptualisation as a trade-off, physical and transition risk can increase simultaneously on the sub-national level. We call this dynamic the climate change risk trap. The paper provides an empirical illustration of this trap using the example of flash flood risk in Kuwait, a wealthy petroleum-based economy in the Gulf region. It shows how decisions on urban planning and low-carbon economic restructuring have increased flash flood risk. The analysis highlights the importance of considering climate disaster risk and environmental impact assessments in low-carbon transition planning to avoid falling into the climate change risk trap.