The European Union would prefer its wildfires served with a side of competitiveness. Climate change has other plans. The 27-country bloc has spent the past year remolding the European Green Deal, its flagship program for fighting global warming, to align with plans for an industrial renaissance.
New climate legislation must now present a demonstrable economic advantage to pass, while older policies are reassessed and often watered down in a bid to help European companies compete with China and the United States. But this pro-industry pivot is now crashing headfirst into Europe’s climate reality, with this summer’s extremes attesting to a fact highlighted by economists and activists alike: Global warming is bad for business.
“There is still a mindset, which is completely wrong, that there’s a trade-off between the economy and climate policy,” said Bob Ward, policy director at the London School of Economics’ Grantham Research Institute on Climate Change. “And we’ve known for a long time that the impacts of unmitigated climate change are going to cost us far more than any action.”
These past two months have seen countless Europeans losing loved ones to high temperatures, with more than 14,000 people dying during late June’s record-breaking heat wave alone. Nearly a half-million people fled from approaching flames without knowing whether they would have a home to return to, and hundreds eventually returned to ashes. Aside from the human suffering, this summer will also take a toll on Europe’s fragile economy.
The cost of rebuilding from the megafires in Spain and France, as well as the blazes now raging in Greece, will run into the billions. Lost productivity due to heat is costing companies dearly; drought is destroying harvests; and power prices surge as low river levels deprive nuclear reactors of cooling water, bringing Hungary to the brink of an energy crisis.
“We’re seeing already how far-reaching the impact of these events on our economy is,” said Anders Levermann, a climate scientist at the Potsdam Institute for Climate Impact Research. These costs, Levermann and other experts say, should serve as a reminder that efforts to slash planet-warming pollution are a sound investment rather than an economic disadvantage.
“We’re facing so many other crises at the moment, with energy supply and wars and trade, so it’s very easy that climate slips off the agenda,” said Sarah Meier, an expert on climate economics at ETH Zurich. But “from the economic perspective, it would be really important to reduce future damages … The number one prevention strategy is reducing emissions.”
Overheated workers
The persistent climate change-fueled heat that’s plagued Europe since late spring is the driving force behind the economic damage unfolding around the continent.
Some of those losses aren’t visible, except on balance sheets. High temperatures sap output: Workers’ productivity drops as temperatures increase, declining by 2 to 3 percent for every degree above a certain threshold, according to the United Nations. At the same time, energy costs increase for companies as air conditioning demand rises. Insurance group Allianz reckons that this combination will lead to cumulative GDP losses of up to 7 percent between 2026 and 2030, reaching $240 billion for France, $147 billion for Italy, $131 billion for Germany and $120 billion for Spain.
In Germany, productivity losses amounted to at least €6.3 billion during the late June heat wave alone, suggests an early estimate. The successive heat waves, combined with a shortage of rainfall, are now desiccating Europe. Worsening drought is spreading across the continent, wrecking harvests, disrupting transport of vital goods, throttling industrial production and curtailing energy supply.
The obvious impact is on agriculture: European cereals association Coceral says the June heat wave alone has wiped out 9 million tons of grain crops — resulting in a €2 billion revenue loss for farmers, according to one estimate.
When the rivers run dry
Parched rivers, meanwhile, are causing further economic headaches. This week, the Rhine — a key transport artery for goods including coal and chemicals — dropped to its lowest level since record-keeping began in 1880. The situation is forcing barges to reduce their load by up to 80 percent to avoid running aground, snarling supply chains and driving up costs. Industry has warned of disruption, with steel giant Thyssenkrupp telling local media that the company has reduced production due to a shortage of materials getting shipped in.
The low Rhine levels could cancel out Germany’s recovery if the situation persists. “The effects could be strong enough to reduce GDP by 0.1 to 0.2 percent in the third quarter,” Stefan Kooths from the Kiel Institute for the World Economy told national broadcaster ARD. Further east, record-low levels in the Danube are threatening to spark an energy crisis, as the river cannot provide sufficient cooling water to nuclear power stations.
Hungary’s Paks plant, which provides 40 percent of the country’s electricity, teeters on the verge of shutdown and is producing only a tenth of its usual output. The country is bracing for shortages as power prices spike. The Romanian government bought time for its nuclear power plants by blowing up a rock to divert Danube water toward its last operating reactor. The other reactor had to be shut down last week. Local carmakers have volunteered to halt production to cut power consumption.
In Serbia, hydropower is also under strain due to the evaporating Danube, while President Aleksandar Vučić warned that the country’s only oil refinery may have to shutter as shipping faces disruption. In France, meanwhile, Électricité de France shut down three reactors due to the drought and decreased output at other sites due to low river levels.
Fire damage
Then there are the wildfires, which are becoming uncontrollable as climate change increases the odds of tinderbox conditions. Meier from ETH Zurich has studied the impact of wildfires in Southern Europe, concluding that Portugal, Spain, Italy and Greece lost up to €2.1 billion a year from fires between 2011 and 2018.
“Within that time span, we didn’t really see any extreme fires, nothing close to bigger cities, so I think the records we’re seeing this year are telling us that this [study] is going to be a lower-band estimate,” she said. This year, “I’d expect many times this estimate.”
France’s Ecological Transition Ministry estimates that restoring each hectare of forest burnt will cost up to €10,000. As of late July, with the fire season far from over, 465,000 hectares have burned in the EU. And the price tag of reconstruction isn’t the only cost: In fire-stricken Gironde, near Bordeaux, thousands of businesses were forced to close and tourists fled the region.
It’s an “economic thunderbolt that has struck a region that didn’t need it,” said French Finance Minister Roland Lescure.
A drag on growth
Paradoxically, spending on post-disaster reconstruction shows up as GDP growth on national balance sheets. But Meier said that this isn’t the kind of boost economists like to see: “It’s just rebuilding destroyed capital, basically.”
Plus, several studies have shown that global warming is a net drag on growth, noted Levermann from the Potsdam Institute.
“These are the losses that add up year after year, because the money you don’t earn in one year is money you can’t invest the next year and don’t have to generate further growth,” he said.
“This is what we’re seeing right now — when there’s low water, the Heidelberg cement plant [on the Rhine] can’t ship its products out. When Hungary and France have to shut down nuclear power plants, economic activity is hindered,” he added. “And that’s where the really significant damage lies.”
The full impact of this summer’s extremes will likely take months to assess. But they won’t be a one-off: Climate damages will worsen as long as emissions and temperatures continue to rise, say scientists.
There is “a perception that somehow, slowing down [climate action] will benefit us,” said Ward from the Grantham Institute. “But the longer it takes to get to net-zero, the worse the impacts will get and the greater the damage and loss will be.”