Tourism demand, climatic conditions and transport costs: an integrated analysis for EU regions

The objective of this study is to analyse the potential impact of climate change on EU tourism demand and to provide long-term (2100) scenarios to be used in the general equilibrium GEM-E3 to allow for potential interactions with the rest of the economy. The analysis is based on a bottom-up approach to derive country-wide figures making use of detailed regional data. Our study brings three novel aspects to the existing literature on recreational demand and climate. First, we derive region-specific estimates of the impact of climate change based on tourists flows between European regions taking into account regions' specific characteristics regarding the nature of (and degree of specialisation in) tourism activities and related vulnerability to potential climate change scenarios. Second, our long-term projections for tourism demand are based on hedonic valuation of climatic conditions combining hotel price information and travel cost estimations. Such an approach allows us to consider together the climatic aspect of recreational demand and its travel cost dimension. In doing so we are able to estimate differentiated valuations of climate amenities depending on the distance travelled by tourists by region of origin and destination. This in turn allows us to further differentiate the valuation of climatic conditions depending on the time duration of holidays. Third, based on this travel-cost/holiday duration approach we can derive alternative scenarios for adaptation of holiday demand to potential climate change scenarios combining two dimensions related to adaptation: an institutional dimension, by considering alternative hypotheses regarding the monthly distribution of total tourism demand, and a time dimension by considering alternative scenarios regarding holiday duration. Our main results show that the climate dimension play a significant (economically and statistically) role in explaining hedonic valuations of tourism services and, as a consequence, its variation in the long-term are likely to affect the relative attractiveness of EU regions for recreational demand. In certain cases, most notably the Southern EU Mediterranean countries climate condition in 2100 could under current economic conditions, lower tourism revenues for up to -0.45% of GDP. On the contrary, other areas of the EU, most notably Northern European countries would gain from altered climate conditions, although these gains would be relatively more modest, reaching up to 0.32% of GDP. We also find that adaptation in the duration of holiday rather than on the monthly pattern of holiday could potentially mitigate these losses.