New Volcanic Futures

Computable general equilibrium modelling of economic impacts from volcanic event scenarios at regional and national scale, Mt. Taranaki, New Zealand

Economic Impact & Health & Wellbeing | Mount Taranaki | 12.05.2023


The economic impacts of volcanism extend well beyond the direct costs of loss of life and asset damage. This paper presents one of the first attempts to assess the economic consequences of disruption associated with volcanic impacts at a range of temporal and spatial scales using multi-regional and dynamic computable general equilibrium (CGE) modelling. Based on the last decade of volcanic research findings at Mt. Taranaki, three volcanic event scenarios (Tahurangi, Inglewood and Opua) differentiated by critical physical thresholds were generated. In turn, the corresponding disruption economic impacts were calculated for each scenario.

Under the Tahurangi scenario (annual probability of 0.01–0.02), a small-scale explosive (Volcanic Explosivity Index (VEI) 2–3) and dome forming eruption, the economic impacts were negligible with complete economic recovery experienced within a year. The larger Inglewood sub-Plinian to Plinian eruption scenario event (VEI > 4, annualised probability of ~ 0.003) produced significant impacts on the Taranaki region economy of $207 million (representing ~ 4.0% of regional gross domestic product (GDP) 1 year after the event, 2007 New Zealand dollars), that will take around 5 years to recover. The Opua scenario, the largest magnitude volcanic hazard modelled, is a major flank collapse and debris avalanche event with an annual probability of 0.00018. The associated economic impacts of this scenario were $397 million (representing ~ 7.7% of regional GDP 1 year after the event) with the Taranaki region economy suffering permanent structural changes.

Our dynamic analysis illustrates that different economic impacts play out at different stages in a volcanic crisis. We also discuss the key strengths and weaknesses of our modelling along with potential extensions.