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The Scorching Price of Climate Change: How Extreme Heat Has Burned a $16 Trillion Hole in Global Economy

It’s no secret that the wave of extreme heat sweeping the globe has a devastating impact on the economy, forcing businesses to shutter and employees to hunker down at home. However, the true fiscal impact of these searing temperatures is only beginning to come to light, revealing a much steeper cost than initially imagined.

“Research has largely been centered around the effects of extreme heat on health, mortality rates, and work productivity, particularly in sectors like agriculture and construction,” says Justin Mankin, Associate Professor of Geography at Dartmouth College. Thanks to cutting-edge climate models and fresh economic data, we can now begin to measure the exact toll extreme heat has on our global economy.

From 1992 to 2013, our world lost a staggering $16 trillion on average due to extreme heat caused by climate change, according to a study co-authored by Mankin. The economic hit was more severe in economically disadvantaged tropical countries, where it represented up to 6.7% of GDP per capita. Wealthier regions, by contrast, experienced a 1.5% dent in GDP per capita.

This disparity shines a spotlight on the uneven burden of climate change, as wealthier nations, which are the primary polluters, leave poorer countries bearing the brunt. Economies in low-income countries are more susceptible to extreme heat and other calamities as they often rely on agriculture, employ outdoor workers, and have fragile energy infrastructure.

The study also throws into sharp relief the high cost of inaction.

“The economic impacts of extreme heat are only a fragment of the total economic costs of climate change,” says Mankin. “This indicates that our economy, and subsequently our well-being, is more climate-sensitive than we previously understood.”

We’ve been feeling this sensitivity keenly, especially through July, projected to be the hottest month ever recorded.

In the United States alone, heat-induced dips in labor productivity cost the nation a hefty $100 billion per year, a figure set to double by 2030 and consume an estimated 0.5% of GDP, according to a study by the Adrienne Arsht-Rockefeller Foundation Resilience Center. This economic blow is worsened by declining farm yields and adverse health effects.

Texas faces a potential $9.5 billion cut to its gross state product this year, which equates to a 0.47% slower growth rate.

In Southern Europe and North Africa, countries like Italy, Spain, Greece, and Tunisia have endured a grueling summer. The heatwave is deterring tourists and compelling workers to abandon their posts.

The European Union lost over $600 trillion due to extreme weather events between 1980 and 2021, with heatwaves contributing to 13% of the costs, reports the bloc’s environmental agency.

These costs may well escalate, warns Mankin.

“With average temperatures on the rise, we’re set to witness more extreme heat in more places,” he cautions. “What makes the current heat extreme is the sheer number of people it’s affecting. The heat is persisting longer and spreading across larger regions.”