Drowning in the heatwave: The hidden economic cost of Europe’s climate crisis
It was more than hot this summer, any European would say. It was the hottest June in Western Europe ever recorded, July also neared the record-breaking values. Several heatwaves have brought temperatures above 40 degrees Celsius time and again this season, including in places that haven’t seen anything similar in the past. The heat was responsible for more than 35 000 deaths in Western Europe, in Germany that were the most heat-related fatalities over a summer since the beginning of records have. The Danube has reached historic low levels, impeding energy production in nuclear power plants along the riverside, halting transportation, disrupting supply chains. Unprecedented wildfires have pushed more than 300 000 people away from their homes, burning thousands of acres in France, Spain and Greece.
However, there are still people questioning the problematic nature of climate and many of those who acknowledge it, view the effects it has on the weather as to some extent natural. The climatic events that follow the long-term shift in Earth's average temperatures are often related to disruptions and natural disasters, such as wildfires and floods.
And, at prima vista everyone recognizes the physical costs - the destroyed infrastructure and agriculture, the fatalities when such exist, and the effect on human health. But the recent events have shown that extreme heat and drought are increasingly disrupting entire systems on which the whole economic activity depends. Affected were energy generation, transport, agriculture and overall labour productivity. It can be argued that the economic cost of climate change will increasingly come not only from what extreme weather physically destroys, but from what it prevents Europe from producing.
The climate crisis, which is often used as the subjective designation of climate change, denotes the long-term rise in the average temperatures on Earth and the subsequent permanent changes in weather patterns across the world. It is primarily driven by human activities, particularly fossil-fuel combustion, industrial emissions and deforestation. Those increase the global greenhouse effect, acting as the primary driver of the increase in average temperatures.
Outside scientific spaces the term has evolved into “crisis” due to the destructive consequences extreme weather events have on human health, infrastructure and economic output. It manifests through both acute physical risks and long-term environmental shifts.
The destruction costs are indisputably the most notable ones and therefore in an analysis about the effects that the climate crisis has on the economy they cannot be overlooked.
The extreme and long-lasting heatwaves combined with severe drought conditions during the summer exponentially increased the risks of severe wildfires. And those were indeed a problem in southern Europe.
In France at least 115 000 hectares were burned, including 40 000 hectares in the wildfire near Bordeaux, it being the second most devastating fire since World War II that the country has seen. A fire-driven thunderstorm was created that contributed even further for the persistence of the fire, since the lightenings were accountable for starting new fires in areas considered under control. Around 240 private buildings were destroyed and more than 220 000 residents and tourists had to evacuate the area. The air-quality has deteriorated and was dangerously low for a weeks-long period. The government has sent around 2 500 firefighters, 1 500 military personnel and 1 200 police officers and gendarmes to take part. The Nouvelle-Aquitaine region is prone to severe wildfires due to the expansive maritime pine monocultures, which are not only a natural fuel of the fires, but also are the main driver of the French timber industry. Therefore, the Bordeaux wildfire will also have long-term consequences endangering a production sector that employs approximately 30 000 people and accounts for 10 billion EUR in annual revenue for the region.
Spain was also put under a lot of pressure particularly in the month of July - for a two week period more than 140 000 hectares were destroyed, the fire near Ávila was declared the most severe in the country’s history. 80 000 were evacuated and an additional 100 000 were confined inside due to dangerous levels of air contamination. The cost of fire extinguishing operations alone is estimated to be between 1.72 and 3.28 billion EUR, according to Euronews Business. And those numbers do not include the bills for restoration and post-crisis support. Additionally, there are agricultural costs, coming from the loss of land and grown plants.
And there is a major burden on the fiscal system. The costs for fighting the fires are enormous, but the state is responsible additionally for repairing public infrastructure when such is impacted and often it provides financial aid to individuals whose property was affected. A wide insurance gap has transferred the burden from insurers to citizens and the state. Data obtained in the period 1980-2022 shows that only around 10% of losses caused by natural disasters were insured.
However, apart from the evident costs, the destruction of habitats and natural resources carries a hidden economic price. The nearly 500 000 hectares burned by the beginning of August 2026 in the EU resulted in ecosystem-service losses estimated between €0.1 billion and €4.6 billion EUR. A 2023 study found that major fires reduce annual GDP growth in affected southern European regions by between 0.11 per cent and 0.18 per cent and in countries with high sovereign debt extreme wildfires could worsen projected deficits by 1.9% to 2.2% of GDP, potentially threatening their ability to stay within EU deficit ceiling.
Тhe economic cost of wildfires extends beyond the immediate destruction they leave behind. Emergency response, reconstruction, agricultural losses and damage to key industries are compounded by less visible costs such as lost ecosystems and the growing pressure on public finances. As extreme fires become more frequent and severe, what was once treated primarily as an environmental disaster is increasingly becoming a persistent economic and fiscal risk for European economies.
Extreme heat was the main concern during the course of the summer because it not only acts as a prerequisite for the devastating wildfires and the drought, but it affects the workers’ physical and cognitive capacity and can translate directly into lower productivity. Europe is particularly vulnerable due to aging populations and underdeveloped cooling infrastructure. In many Central European areas air conditioning is missing. And to develop it fast during the crisis is difficult due to numerous administrative procedures, many of which completely imped the installment of air-conditioning bodies on the outside of the facades of historical buildings.
The most immediate effects of the heat appear when temperatures move beyond the levels at which the human body can safely sustain prolonged physical activity. For an eight-hour working day, a worker’s core body temperature should remain below 38°C, as higher levels increase the risk of exhaustion, dehydration, impaired kidney function and potentially life-threatening heat stroke. The economic impact is also non-linear. Although moderate warming can sometimes produce modest productivity gains in temperate climates, losses accelerate once temperatures exceed 30°C. Across the 30–35°C range, each additional degree reduces output per worker-hour by around USD 1.30, equivalent to roughly 3% of average hourly output.
These effects are particularly pronounced in agriculture, construction, logistics and manufacturing. Construction presents an especially difficult combination, because workers are exposed directly to outdoor temperatures while using heat-generating equipment and working around concrete and steel structures that reflect heat. Research published in Nature Cities and highlighted by the Harvard T.H. Chan School of Public Health estimates heat-related productivity losses of between 29.0% and 41.3% on outdoor construction sites. Heat exposure can also make work more dangerous. Data from Washington State shows that every 1°C increase in the daily maximum humidex is associated with a 0.5% increase in traumatic workplace injuries, partly because of sweaty equipment, fogged safety gear and slower reaction times.
And the problem is not restricted to outdoor work. Employees in coal mines, greenhouses and manufacturing facilities without adequate cooling can experience similar physiological strain. At the same time, prolonged heat exposure can cause irritability, reduced concentration and higher error rates, affecting both office workers and employees in safety-critical positions.
The consequences can continue even after working hours. Nighttime temperatures are rising faster than daytime averages in many regions, while total sleep time lost due to heat is usually reduced. In 2024 the lost sleep times reached a record of 8.7%, amounting to as much as 12 additional hours of lost sleep per person annually in the most affected areas. Poorer sleep then translates into cognitive impairment and cardiovascular strain, while exposure during commutes can further increase fatigue.
Taken together, these effects can develop into a wider economic problem. By 2030, the ILO projects global working-hour losses equivalent to 80 million full-time jobs and USD 2.4 trillion in annual economic losses. Heat stress can therefore operate as a negative supply-side shock, reducing output while simultaneously contributing to higher prices and unemployment. Over a sustained five-year stress scenario from 2026 to 2030, cumulative GDP losses could reach 5–7% in highly exposed economies, including an estimated USD 240 billion in France, USD 147 billion in Italy and USD 120 billion in Spain. Lower productivity can additionally compress company margins and expected returns on capital, discouraging investment and reducing future productive capacity, turning the immediate effects of extreme heat into a longer-term economic drag.
The extreme heat during the summer was accompanied by significantly reduced rainfall, creating severe drought conditions across large parts of Europe. One of the clearest signs of the drought was the rapidly falling level of the Danube, Europe’s second-largest river. Record-low water levels were observed along different sections of the river, with the decline continuing throughout August. In Hungary for example new records were measured, while downstream in Romania and Bulgaria the levels were so critical that long-forgotten remains were discovered - the ruins of an ancient roman bridge, as well as the skeleton of a prehistorical mammoth. The decline was not an isolated local problem but part of a wider deterioration of conditions along the river. The combinations of prolonged heat, limited rainfall and persistently falling water levels left stretches of one of Europe’s most important waterways unusually shallow and have impacted key industrial sectors.
Transport and logistics networks across Europe are particularly exposed, as they depend both on natural conditions, such as navigable river levels, and on infrastructure that was not necessarily designed to withstand prolonged thermal extremes. The resulting disruptions can act as a negative supply-side shock. Goods become more difficult and expensive to transport, deliveries take longer, and the additional costs often translate into consumer prices.
One of the clearest examples is inland waterway transport. On sections of the Rhine south of Duisburg and Cologne, cargo ships have been forced to operate at only around 20% of their normal draft capacity. Moving the same quantity of goods therefore requires cargoes to be divided between several partially loaded vessels, resulting in substantial freight surcharges. The disruption is particularly significant for Germany, where the Rhine serves as an important route for raw materials, fuel products and manufactured goods.
Similar difficulties have emerged along the Danube. Barges were also forced to operate with lighter loads and reduce the amount of transported goods. Exporters consequently have to rely more heavily on alternative road and rail transport, transferring part of the pressure from the river network to already constrained land routes. The result is not simply slower river traffic, but a wider logistical crisis involving trucks, trains, storage facilities and ports.
This pressure is especially important around Romania’s Port of Constanța and Bulgaria's Port of Varna - major export hubs for agricultural goods moving through the region. The timing of these disruptions has increased their effect as they coincide with the peak season for Romania’s wheat, barley, rapeseed and corn harvests, while the same corridor is also important for Ukrainian agricultural exports that usually come into Europe through the Black sea corridors. Disruptions along the Danube route tightens the availability of grain on international markets at a time when the region remains an important part of global agricultural trade. Increased transport costs and uncertainty surrounding deliveries have already contributed to higher wheat futures prices in the European commodity markets. Countries dependent on imported grain may increasingly turn towards alternative suppliers, including the United States, Canada and Australia, to compensate for less reliable shipments from the region. In this way, the exceptionally low river levels can gradually develop into a broader supply-chain problem.
Heat also affects the physical infrastructure on which land transport depends. Roads represent approximately 89% of heat-exposed transport assets, while prolonged high temperatures can soften asphalt and cause rutting and faster deterioration under heavy vehicles. Railways face a different problem. Steel tracks expand under extreme heat and can eventually warp, thus increasing the risk of derailments. A single derailment is estimated to cause around $1 million in damage, even before possible fatalities or hazardous material leaks are considered. To reduce these risks, railway operators in countries including Germany and Austria have had to introduce speed restrictions or temporarily suspend services during periods of extreme heat, what has led to railroad schedules' unreliability.
The disruption becomes even more serious for temperature-sensitive supply chains. Cold-chain failures already cost the pharmaceutical industry an estimated $20–35 billion annually, while temperature deviations of only 1–2°C can make biologics, insulin and vaccines ineffective. Agricultural products face similar risks, as heat accelerates spoilage, particularly at vulnerable transfer points between different modes of transport.
Together, these problems create wider economic consequences. Delayed deliveries of raw materials can prolong manufacturing cycles and reduce output, while higher transport costs can eventually be passed on to the end consumers.
The energy sector represents another major channel through which the extreme heat has translated into economic costs. The problem is two-sided, the high temperatures and low water levels restrict electricity generation at the same time as demand rises because of increased cooling needs. This creates a particularly difficult imbalance for European electricity systems, where a large share of generation still depends on water for cooling the power plants.
The effects have been particularly visible in nuclear power generation. France, Europe’s largest nuclear producer, faced severe problems as high river temperatures complicated the cooling of reactors. Environmental regulations limit the temperature at which cooling water can be discharged back into rivers in order to protect aquatic ecosystems. By 12 July, 29 GW, or 43% of French nuclear capacity, was unavailable, with at least 11 GW attributed specifically to forced outages or environmental problems related to the heat.
Low water levels created similar difficulties elsewhere in Europe. Along the Danube, output was reduced at Hungary’s Paks and Romania’s Cernavodă nuclear plants, which normally provide around 40% and 15% of their countries’ electricity respectively. Bulgaria came particularly close to a more serious disruption. The Danube fell to within just 10 centimetres of the minimum level required by the Kozloduy nuclear plant, putting a facility responsible for around two-fifths of Bulgaria’s electricity supply on the brink of an emergency shutdown. In Switzerland, meanwhile, a reactor had already been forced to shut down in June because river temperatures had become too high for effective cooling.
The problem was not limited to nuclear generation. Low water levels in Poland’s Vistula river forced the Kozienice and Połaniec coal plants to reduce production, removing 1.3 GW of capacity from the system. Hydropower was also directly affected by the drought, with EU production falling to its lowest July level in at least a decade. Seven of the Union’s eight largest hydropower producers generated less electricity than their respective five-year averages. In Italy, low levels of the Po river created concerns that as much as 32% of the country’s thermal power fleet could be constrained. Even solar power, which provided an important buffer during the crisis and supplied around 25% of EU electricity in June and July, becomes less efficient under extremely high temperatures.
These supply problems emerged precisely when electricity consumption was being pushed upwards by the heat. Once temperatures rise beyond 30°C, cooling demand increases, with electricity consumption surging by approximately 1.2% for every additional degree. During the 2026 heatwaves, daily electricity demand rose by as much as 26% above seasonal averages in Hungary, 22% in Italy, 11% in France and 8% in Spain.
The imbalance was reflected in electricity markets. Solar generation helped contain prices during daylight hours, but as production declined in the evening, cooling demand remained high and grids became increasingly dependent on more expensive gas-fired generation. Electricity prices consequently climbed above €900/MWh in Hungary in late June, while France and Italy recorded peaks of €313/MWh and €285/MWh respectively – their highest levels since the 2022 gas crisis.
Beyond the immediate pressure on consumers and businesses, constrained electricity production and higher prices are estimated to have reduced EU-wide GDP growth by between 0.12 and 0.15 percentage points in 2026, reflecting the fact that weather abnormalities have long-term effects on the economy.
The economic consequences of the 2026 heatwave may not end together with the summer. Climate risks are increasingly becoming interconnected, with periods of extreme heat and drought potentially followed by very different but equally disruptive weather conditions. One factor adding to this uncertainty is the development of El Niño towards the end of 2026. Unlike an isolated weather event, El Niño affects atmospheric circulation on a global scale, altering rainfall and temperature patterns across different regions. Current models indicate that this year it could become exceptionally strong, with sea surface temperature anomalies potentially exceeding the +2°C threshold associated with a “Super El Niño”. Some projections suggest it could even become the strongest event recorded in the last 155 years.
Its significance is amplified by the already elevated temperatures of the oceans. Changes in tropical Pacific temperatures can affect weather patterns far beyond the Pacific itself. Increased rising motion of warm and unstable air over unusually warm waters releases large quantities of moisture into the atmosphere, which can intensify storms in some regions while contributing to drought conditions elsewhere.
For Europe, one of the main concerns is the increasing possibility of rapid transitions between climatic extremes. Warmer air can hold substantially more moisture, increasing the amount of water available for intense precipitation once weather conditions change. This contributes to what is sometimes described as “weather whiplash”, when prolonged dry periods are followed by episodes of exceptionally heavy rainfall.
The economic risk therefore extends beyond the individual cost of either heatwaves, wildfires or floods. Extreme rainfall can overwhelm drainage networks and other infrastructure, producing reconstruction costs comparable to those caused by prolonged heat and fires. The scale of this exposure was already demonstrated by Spain’s 2024 floods, the worst in Europe in five decades, where reconstruction costs were estimated at approximately 0.7% of national output.
The growing frequency of extreme climatic events and their variety that is limited by the season means that their economic impact can no longer be treated as a series of isolated shocks. Instead, climate extremes are becoming a persistent source of economic risk, with each new disruption adding to the costs left by the previous one.
It could be argued that Europe is relatively well equipped to deal with the economic consequences of the climate crisis. And many of those who are rather sceptic about climate change do. For them such events are normal and not a thing to worry about, since they are not entirely new phenomena and countries are still able to adapt and overcome their disastrous consequences. Developed infrastructure, extensive insurance systems and strong social safety nets give European economies considerably more room to absorb temporary disruptions than many other parts of the world.
This argument, however, becomes less convincing when extreme weather is no longer treated as an isolated event. The assumption that future climate shocks will remain temporary and exceptional proves to be false, since the intensity and the frequency in the last decades has increased. Climate-related extremes caused an estimated €822 billion in economic losses across the EU between 1980 and 2024, with roughly one-quarter of the total occurring in only the final four years. Only heat-stress events have increased sevenfold since the 1980s.
The greater economic risk for Europe does not lie in handling single events, but in heatwaves, droughts and wildfires becoming more frequent, more severe and increasingly likely to occur simultaneously across different regions and sectors.
One limitation is the relatively small share of climate-related losses actually covered by insurance. As already demonstrated by the wildfire losses, this leaves governments and households carrying much of the remaining burden. And while for now public budgets compensate through emergency spending and social protection, repeatedly doing so reduces the fiscal resources available for longer-term adaptation. Measures intended to soften the immediate economic impact can consequently make it more difficult to finance the infrastructure needed to reduce future losses.
Europe therefore has substantial capacity to adapt, but that capacity is not unlimited. If climate-related losses repeatedly affect several sectors and regions at once, the question becomes less whether European economies can withstand a particularly severe summer and more whether existing systems can continue absorbing such costs as they become increasingly recurrent and budgets get smaller and smaller.
The economic implications of climate related extremes extend beyond the immediate losses. Since heatwaves, droughts and the disruptions they create are becoming recurrent, climate exposure increasingly has to be treated as a structural economic risk. This changes the role of adaptation. Rather than being an additional category of environmental spending, investment in resilience becomes closer to essential economic infrastructure, expenditure is necessary to protect productive capacity, transport networks, energy systems and ultimately national output.
Combined with energy constraints, logistics disruptions during the summer of 2026 are estimated to contribute to a cumulative Eurozone GDP impact of approximately -1% in 2026, equivalent to around €180 billion and potentially enough to erase expected annual growth. And to that direct costs for handling wildfires, as well as output decrease due to lower productivity should be added. Economic output declines when extreme heats are recorded. A comparison of GDP growth rates and average annual temperatures for the period 2014-2024 in Europe shows exactly this correlation, including when we don’t consider 2020, since the decline then came as result of the COVID-19 crisis.
The growing costs of adaptation also create a difficult question of who will ultimately pay for climate-related losses. The scale of the investment required is already considerable. According to the European Environment Agency, making only the agriculture, energy and transport sectors sufficiently climate-resilient could require between €53 billion and €137 billion annually until 2050, compared with current adaptation spending of around €15–16 billion. This leaves an annual funding gap that could reach €120 billion.
The implications also reach monetary policy and the financial system. Many of the effects discussed above like lower agricultural output, reduced electricity generation and higher transport costs operate as supply-side shocks. Research cited by the ECB suggests that, under future warming scenarios, extreme summer heat could increase food-price inflation in Europe by around 1.8 percentage points compared with a world without climate change. This creates a particularly difficult environment for monetary policy, since central banks may be confronted with weaker economic growth and higher inflation at the same time.
Climate exposure is also beginning to influence lending. In the ECB's Bank Lending Survey for the second quarter of 2026, banks reported that physical climate risks contributed to tighter credit standards for firms. This could create an additional problem for businesses in vulnerable regions as the companies that need capital to adapt their facilities and operations to increasingly extreme conditions may simultaneously find financing more difficult or expensive to obtain.
There is also little reason to expect this pressure to ease. The WMO estimates an 86% probability that at least one year between 2026 and 2030 will surpass 2024 as the warmest on record.
Under those conditions, adaptation becomes less a question of environmental ambition and more one of basic economic risk management, but its completion seems to be impossible to fund in the current economic situation. Until priorities shift from covering costs after a disaster occurs towards taking preventive measures to limit destruction, the losses will continue to grow.
The summer of 2026 has shown that the economic cost of the climate crisis goes much further than the damage that can immediately be seen and calculated. Wildfires destroyed land, homes and infrastructure, but at the same time the extreme heat reduced labour productivity, drought restricted important transport routes and low water levels created additional problems for electricity generation. And these effects do not exist independently from one another, they interact with each other and may deepen the crisis. Until now, European countries have generally had the financial and institutional capacity to deal with such events, which is also one of the reasons why their longer-term economic significance can easily be underestimated. But the main concern is no longer whether Europe can recover from one particularly severe summer. It is what happens when similar summers stop being particularly exceptional.
Eventually temperatures will fall again, the wildfires will be extinguished and the water levels of the Danube will rise. The most visible signs of the summer will be gradually erased, but many of their economic consequences will not disappear with them. Businesses will still have to recover lost production, governments will continue paying for reconstruction and support, while at the same time more money will be needed to prepare infrastructure for the next extreme event.
And there is increasingly less reason to assume that this next event will be far away. As the climate crisis deepens, the conditions that made the summer of 2026 so economically disruptive become more likely to return, whether again in the form of heat and drought or through entirely different extremes. The real challenge may therefore not be one disastrous summer, but the accumulation of disruptions that economies have less and less time to recover from. Because the Danube has already started to rise, but the more difficult question is whether Europe will use the time before it falls again to prepare for what comes next.