2.6 Climate risks to the economy

This briefing covers the direct economic costs of impacts from weather- and climate-related extremes on European society and industry. It also emphasises that the EU and its Member States must take urgent action to prevent large economic losses because of the increase in global warming. The financial aspects of climate change are discussed in briefing 2.8 Climate action financing. How climate change impacts society is discussed in briefing 2.7 Climate risks to society and climate governance is discussed in briefing 2.9 Governance of climate change mitigation and adaptation.

Key policies

Adaptation to climate change is a cross-cutting issue relevant to many sectoral policies. At the EU level, the European Climate Law binds Member States to adopt and implement national adaptation strategies and plans; it also requires them to report on national adaptation actions through the Governance Regulation on the Energy Union and Climate Action.

The EU-wide disaster resilience goals set out priorities for the European Commission and Member States. The EU Civil Protection Mechanism— with the Emergency Response Coordination Centre at its heart — and rescEU serve as an additional layer of protection for Member States and participating countries when extreme weather conditions affect them.

The EU’s Solidarity Fund, which was set up in response to the 2002 floods in central Europe, has provided over EUR 7.4 billion (in current prices) in aid across 107 natural disasters up to February 2024 for EU Member States.

Past trends (10-15 years)

Deteriorating trends/developments dominate

Between 2009 and 2023, EU Member States experienced an average annual increase of 2.9% in 30-year average economic losses (Figure 1). A small number of events cause most of the losses: 5% of the most severe climate events account for 61% of losses, with 1% of these events being responsible for 28%.

Weather extremes impose significant costs, with droughts alone estimated to cost around EUR 9 billion per year. Noteworthy losses include damage costing well over EUR 40 billion from the 2021 floods in Belgium, Germany and the Netherlands (making it the weather- and climate-related event with the largest losses in the EU in recent decades) and the 2023 floods in Slovenia, with related costs totalling 16% of the country’s national gross domestic product (GDP).

Particularly vulnerable areas, such as southern Europe, low-lying coastal areas and the EU’s outermost regions, are climate-risk hotspots. EU economic security is vulnerable to the declining water availability (especially in southern Europe), rising insurance premiums and climate risks affecting international supply chains.

All EU Member States now have adaptation policies in place but urgent action is still needed to tackle climate risks effectively and enhance resilience to reduce economic losses across all Europe. Map 1 shows the countries with the highest losses per square kilometre are Slovenia (EUR 866,467), Belgium (EUR 553,942), Germany (EUR 504,812), Switzerland (EUR 481,820) and Italy (EUR 446,788).

Outlook (10-15 years)

Deteriorating trends/developments are expected to dominate

Every increase in global warming intensifies climate hazards, leading to more frequent and severe disasters that strain the economy through loss of productivity, damage, reduced growth and pressure on the public budget.

Worsening climate impacts could cut EU GDP by 7% by the end of the century, with estimated losses of EUR 2.4 trillion from 2031 to 2050 if warming surpasses 1.5°C. While the EU aims to reduce overall monetary losses from weather- and climate-related events, no specific policy targets currently exist.

By 2050, climate change could cause food prices to rise by 20%. In high-exposure sectors (agriculture, forestry, mining and quarrying, and construction), increased temperatures led to a 0.23% drop in working hours (about four hours per worker per year) in the 1995-2000 period compared to 1965-1994. This decline rose to 0.98% (16 hours per worker per year) in the 2016-2019 period, using the same baseline. By 2100, damage from coastal flooding alone could exceed EUR 1 trillion yearly, affecting 3.9 million people each year.

In the absence of additional adaptation actions, almost all (34 out of 36) of the major climate risks for Europe identified in the European Climate Risk Assessment (EUCRA) and several of them could reach critical or even catastrophic levels during this century in a high-warming scenario.

Studies suggest that without any decisive, transformative action, under 3°C global warming, the EU-27 and UK will face an annual welfare loss of at least EUR 175 billion (1.38% of GDP). This is compared to EUR 83 billion (0.65% of GDP) under a 2°C warming scenario. Losses would be higher in central-southern Europe and especially in southern Europe, where they could exceed 2.5% of GDP annually at 3°C.

The EU Mission on Adaptation to Climate Change supports regions in adopting innovative solutions for resilience by 2030, thereby offering examples of good practice for other regions and local authorities.

The creation of the European Drought Observatory for Resilience and Adaptation marked an important milestone in supporting disaster risk reduction and climate adaptation.

The EUCRA report highlights areas where cross-cutting solutions could systematically remove barriers to climate adaptation. However, it also emphasises the need for urgent, immediate action.

Prospects of meeting policy targets 2030/2050

2030: No specific policy targets

2050: No specific policy targets

Robustness

Evidence-based information on major climate risks, and their potential societal and economic consequences, and the identification of trends for most of the major risks are robust enough to point to the need for urgent action in relation to climate adaptation. The correlations between climate-related risks that are still not widely recognised — such as compounded climate hazards, concurrent events and risk multipliers — underscore the importance of expanding awareness and action in these areas.

Climate change is interacting with a wide range of non-climatic factors and developments, which can both ameliorate and aggravate the direct impacts of climate hazards. The uncertainty related to developing non-climatic risk drivers in determining exposures and sensitivity to climate hazards is not necessarily a problem because it also points to opportunities for increasing our resilience.

Charts/maps

Figure 1. Annual economic losses caused by weather- and climate-related extreme events in EU Member States

Map 1. Total economic losses per square kilometre caused by weather- and climate-related extreme events in EEA-38 countries, 1980-2023