Heatwaves, droughts, and floods that struck Europe over the past summer caused an estimated €43 billion in immediate economic losses, according to a new study by the University of Mannheim in collaboration with economists from the European Central Bank.
The researchers looked at the true cost of climate change in a broad sense: not only the direct and tangible destruction of homes and crops, but also indirect effects such as disruptions to rail transport and reduced labor productivity during extreme heat. Using meteorological data and economic modeling, they calculated that the macro-economic costs could rise to €126 billion by 2029.
The authors stress that their estimates are “conservative,” since several major events—such as the record-breaking wildfires in Southern Europe last month—were not included in the analysis.
Unequal Impact Across Europe
The damage is not evenly distributed. Low-income regions and those with higher temperatures are hit the hardest. Spain, France, and Italy, which faced prolonged heatwaves and drought, each recorded losses exceeding €10 billion this year alone. In the medium term, these costs could rise beyond €30 billion per country.
Central and Northern Europe saw less immediate damage, but floods are becoming increasingly common there as well, suggesting that the costs of climate change will continue to mount across the continent.
Long-Term Consequences
The study also highlights the long-term drag on productivity. Four years after a drought, a region’s GDP is on average 3 percentage points lower than before. In the case of flooding, GDP remains 2.8 percentage points lower.
These findings underscore how climate extremes are not only an environmental challenge but also a profound economic threat—one that will shape Europe’s future growth and resilience in the years to come.
Most analysts overestimate energy demand and underestimate technological advances
Conventional wisdom suggests decarbonizing the global economy will be exorbitantly expensive, but this is a misconception.
New analysis reveals the cost of transitioning to clean energy is far lower than predicted, primarily due to overestimated energy demand, underestimated technological advancements, and the failure to account for inevitable investments in energy infrastructure regardless of its source.
@roelthijssen
Key Points:
Overblown Cost Estimates
Many models assume rapid emission cuts, high energy demand, and inflated economic growth. Adjusting these assumptions significantly lowers cost projections.
Cheaper Technology
Advances in renewable energy, such as solar and wind, have drastically reduced costs, making clean energy investments more affordable.
Business-as-Usual Comparison
Even without decarbonization, the world would still invest heavily in energy infrastructure, minimizing the additional costs of going green.
Optimistic Outlook
Incremental costs of achieving a 2°C warming limit are as low as 0.5% of global GDP annually, challenging narratives that green transitions are financially unfeasible.
Despite bottlenecks, such as high costs in poorer countries and political inefficiencies, decarbonization is affordable and crucial.
While limiting warming to 1.5°C may be unrealistic, staying below 2°C is achievable with lower-than-anticipated costs.
Addressing climate change remains a manageable and necessary challenge.
Something remarkable is happening in China. With potentially significant consequences for Europe. Last week, The Economist reported that the fall in profitability of Chinese companies has never been as severe as it is now.
Well, you might think they would go bankrupt. But that doesn’t happen. The influx of the Chinese government continues, and these companies keep producing. China is creating ‘overproduction’ to keep its own economy going. The country produces large quantities of electric cars, solar panels, and wind turbines. This drives prices down significantly. Good for the consumer, good for the sustainable energy transition.
What exactly is wrong with this? A lot.
Because it’s more than just the consumer and the energy transition. Every society needs an industrial base to provide everyone with decent work: whether local or migrant, man or woman, theoretically or practically educated. Not only to give everyone an income safely, but especially to give everyone a decent place in a community: meaningful work, self-confidence, a social network. This fact often remains underexposed in the industrialized rich Western economies. China has realized this and has industrialized at breakneck speed. It is not just about increasing consumption; it directly involves the core of society. This affected millions of people and gave rise to a middle class. It became the vital breeding ground for discontent in industrial states like Ohio, Michigan, and Wisconsin. It was precisely from these areas that the victory of Trump in 2016 emerged.
The new wave of overcapacity that China is creating will hit Europe especially hard.
America has since better shielded its own industry with its industrial policy, the Inflation Reduction Act (IRA), which includes higher energy prices. The blow will be even greater here. Chinese overproduction is much larger, and Europe has already lost twice as much production. Moreover, the social fabric in large European countries has been showing deep cracks. The rise of extremist rights in France and Germany and the shocking results in England illustrate this. And this process threatens to accelerate further.
Europe must come out of this. It is precisely here that the consensus was based on globalization for a long time. The idea was always that purchasing power would increase and that as a result, everyone would have better things: things that are made elsewhere that are the best (read: cheapest). Yes, but that only works if you have your own industry for everything that is needed.
Yet in 2019, when the European Commission laid the foundation for its Green Deal, it was written that what was needed was a massive scaling up of the production of wind turbines, solar panels, and electric cars in the European Union. Not to mention the question of where all those things would come from. Europe didn’t realize that at the time, but that should have been the purpose of the new green industry.
Five years later, three times the amount of production has been outsourced worldwide. Then Russia invaded Ukraine, and it became clear that raw materials for our prosperity were not subject to the laws of Friedman but rather to the laws of Putin and Xi. In response, China is accelerating its own industry.
The European Commission has now realized that and has come up with the ‘Net Zero Industry Act.’ A European answer to the American IRA. But where the IRA is well-funded with an estimated $2 billion annually, the money and ambition in the European Industry Act is completely lacking.
The coming months must bring about change.
Europe must allow the green industrial revolution to take place here and show China where to go. Not because of the climate. But primarily because society demands it. An agreement must be made between the ECB president and the European heads of government to direct their policy towards prosperity in their own countries. How much industry is needed for that? How much prosperity must come from that? Europe must now take that step. Otherwise, the Chinese will keep shouting that there’s no alternative. But that can’t last much longer.
In Europe, for the first time over a six-month period, more electricity was produced from solar and wind than from fossil fuels.
Electricity from solar panels and wind turbines grew to 30 percent of total production in the European Union over the past six months. At the same time, production from fossil fuels fell to 27 percent. The remaining electricity is generated from sources such as hydro and nuclear power.
In thirteen EU countries, more electricity was generated from solar and wind than from coal and gas. This milestone was reached for the first time in Germany, Belgium, Hungary, and the Netherlands.
Can the most polluting country save the climate?
Experts are optimistic about the speed of the energy transition, with China playing a key role.
The fact that, for the first time in Europe, more electricity is being produced from solar and wind than from fossil fuels over a six-month period is a milestone, but it only concerns electricity, which accounts for 20 percent of our energy demand.
Although electricity from solar and wind is increasing and the demand for electricity is decreasing, the price of electricity is barely falling. As long as gas plants are still needed, the electricity sector suffers from high gas prices. This is because the price depends on the most expensive generation method, which is often gas plants. These are used when wind and solar are not available.
The bottleneck in the use of solar and wind energy is mainly in storage. Currently, we can hardly store electricity temporarily when demand is lower than production. This is a pity because it means we “waste” a lot of electricity.
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