How an era of extreme heat is reshaping economies

The Acropolis has stood above the city of Athens for centuries, its ancient walls and pillars withstanding war, siege and conquest. But as temperatures crested 40C across southern Europe this month, Greece’s top tourist attraction briefly fell victim to extreme heat.

Officials shut the site for several hours during the hottest parts of the day, after holidaymakers queueing to enter required medical attention.

The Cerberus heatwave — named after the three-headed dog who guarded the gates to hell in Greek mythology — has shone a spotlight on just how vulnerable the Mediterranean’s huge tourism industry is to the heatwaves that are becoming increasingly common in Europe. 

But the economic impact of what experts warn could be a new era of record-breaking heat goes far beyond tourism. Industries ranging from construction, to manufacturing, agriculture, transport and insurance are all bracing for changes to the way they do business as high-temperature days become more routine because of climate change. 

Scientists are clear that extreme weather events, including heatwaves, will become more frequent and intense with every fraction of a degree of warming. In July, with average temperatures already at least 1.1C hotter globally than pre-industrial levels, swaths of the US, Europe and Asia sweltered under “heat domes.” Record highs were reached from China to Italy.

Business leaders and policymakers are now counting the cost of shuttered companies and decreased productivity. A study published by academics at Dartmouth last year found that heatwaves, brought on by human-caused climate change, cost the global economy an estimated $16tn over a 21-year period from the 1990s.

Extreme heat is “pulling down our growth,” says Kathy Baughman McLeod, director of the Adrienne Arsht-Rockefeller Foundation Resilience Center at the Atlantic Council, and “dragging down our economies . . . the runways are buckling, metros are closing, restaurants have to shut down because the kitchen staff are too hot.”

But those costs are likely to spiral in coming decades as economies reorient themselves for peak seasons of ever more extreme heat, to mitigate against the risks and disruption they will bring.

“Extreme heat is one of the very serious consequences of climate change,” says Dan Jørgensen, Denmark’s climate minister. “The very tragic news is that this is probably only going to get worse.”

Too hot to work

One of the main reasons that extreme heat poses an economic threat is because it makes it harder to work. High temperatures go hand in hand with low productivity.

In hot conditions, human beings typically “work slower, we take on more risk, our cognitive function decreases”, says Laura Kent of the Institution of Mechanical Engineers, a professional association which recently produced a report on how industry will need to adapt to extreme heat.

A study by the International Labour Organization, the UN agency for workers, projected that by 2030, the equivalent of more than 2 per cent of total working hours worldwide would be lost every year, either because it is too hot to work or because workers have to work at a slower pace. 

Around 200mn people in cities today are at risk from extreme heat, a number that is expected to grow eightfold by 2050, according to Sachin Boite, director of climate resilience at the C40 network of mayors pushing for environmental action.

Yet few countries have a maximum temperature for when work must stop. In the UK, for example, where extreme heat has not historically been a problem, there is only a recommended threshold for stopping work in cold, not hot, temperatures.

The poorest and least able to cope are often hit hardest by extreme heat — with productivity losses often concentrated in jobs where wages tend to be lower than average. 

Outdoor workers — especially those in agriculture or construction — are particularly at risk of death, injuries, sickness and reduced productivity because of heat exposure, according to the ILO. Between 1992 and 2016, 285 construction workers in the US died from heat-related causes, about a third of all the country’s occupational deaths from heat exposure, according to academic research.

But those working inside are at increasing risk as intense heatwaves become more frequent, including the world’s 66mn textile workers, who often work inside factories and workshops without air conditioning. Many are situated in the global south, where peak temperatures are even more extreme and dangerous. 

After British Columbia in Canada suffered a devastating heatwave in 2021, heat-related workplace injuries requiring compensation increased by 180 per cent when compared to the previous three-year average, according to research. More than a third of those came from indoor workers, compared to 20 per cent on average.

The impact of extreme heat on workers has become “an issue of human rights,” says Italy-based environmental economist Shouro Dasgupta, and one that calls for stronger labour protection policies.

“The right to a safe and healthy working environment is a human right [that] is being eroded,” he adds. “Governments will need to step in.”

Sectors at risk

Beyond the consequences of extreme heat on their employees, industries are being forced to rethink more existential issues, such as where their businesses are based and how they operate.

The construction industry is one area that might require a radical reinvention, says Daisie Rees-Evans, who works on policy at the Chartered Institute of Building, a professional body.

“Not only do extreme weather conditions impact construction work on sites but it actually impacts material,” she says. 

Steel can warp in hot conditions, while concrete becomes difficult to work with and sets much more quickly — leaving it more prone to cracking and affecting its strength and durability. There is also the risk concrete will spoil before it can be poured. 

All of this adds up to additional costs for the sector, says Rees-Evans. Companies faced with having to reorder materials such as steel that warped often find themselves battling with other companies who also need to repurchase goods, driving up prices in the process.

Any delays to projects can also come with additional costs, including fines levied for exceeding the agreed completion date, she adds. 

Manufacturing is another sector that faces significant changes. Factories and warehouses “are just not designed for the temperatures we are seeing now and expected to see,” says Kent of the mechanical engineers’ association. 

This means that equipment might not work as effectively or wears out more quickly, which comes with higher operational costs. “A vast majority of our industry rely on some sort of heating or cooling process,” she says. “If you are heating or need to cool down to a certain temperature and the ambient temperature is already hotter, that difference is harder to overcome.”

At the same time, the availability of water can come under intense pressure during periods of higher heat — a huge problem for the industrial sector, which needs water for functions from cooling and transportation. 

Along the Rhine, one of Europe’s most important waterways, companies have faced disruptions due to low water levels for three out of the past five years, including in 2018 when barges struggled to travel, hitting fuel and chemical supplies. 

“For the longest time, we have put industries next to rivers,” says Johanna Lehne, programme lead at climate consultancy E3G, but companies are now faced with questions about where they should be based and what they are able to produce. 

Then there is the risk to infrastructure. Heat stress is “going to shorten lifespans”, says David Carlin of the UN Environment Programme Finance Initiative. That affects everything from train tracks to roads and airports. “Not only do you have potential infrastructural damages like bridge collapses, but you also have the need to replace these things faster, which is increasing costs.”

For agriculture, extreme heat can result in decreasing crop yields, fuelling rising prices and food insecurity in the process. Research from Arsht-Rock found corn, the most widely produced US crop, is losing about $720mn in revenue annually because of extreme heat, which will increase to a projected $1.7bn by 2030. 

As work becomes riskier in a range of sectors, insurance costs will rise. Climate change “will significantly shape how the sector will choose to manage and absorb risks,” says Mohammad Khan, general insurance leader for consultancy PwC’s UK arm.

According to data from reinsurer Swiss Re, heat-related catastrophe losses for insurers, such as crop failures from drought or wildfire damage to properties, amounted to $46.4bn in the five years to 2022, up from $29.4bn in the previous five years.

In California, one of the areas most affected by wildfires, some big US insurers have pulled back. Allstate cited the growing bill from wildfires as among the reasons it paused selling new home insurance policies in California last year. State Farm, another big home insurer, warned of “rapidly growing catastrophe exposure” when it did the same earlier this year.

That has fed a growing debate about the affordability of insurance for both individuals and companies as climate change effects intensify, with more people falling into public safety nets. 

Adapting for change

A couple of generations down the line, humans will have to find new ways to adapt their societies as temperatures rise ever higher.

Climate pledges made by countries put the world on track for temperature rises of between 2.4C and 2.6C by 2100. This is far ahead of the 1.5C threshold after which scientists have warned of potentially irreversible changes to the planet and devastating consequences for citizens. 

“This [extreme heat] is not going to go away anytime soon. It’s going to be more frequent, it’s going to be more intense, it’s going to be longer as well,” says Carolina Cecilio, policy adviser at E3G. 

Some countries are waking up to the issue. Greece appointed its first chief heat officer in 2021, while Spain said earlier this year it would ban outdoor work during periods of extreme heat.

Companies are introducing measures such as using “misting” on animals and employees to keep cool. Others are switching working hours, trying to do more at night or during the early hours of the morning — although this can be met with objections from local governments and residents. 

As the world warms, so-called passive cooling is likely to become more important for economies, says Kent. 

Many of the materials that buildings and roads are made from — such as tar and concrete — absorb and retain energy from the sun’s rays, warming their surroundings, while factories and warehouses are often found in industrial parks that lack green spaces and allow heat to build up.

Cost effective solutions included “cool roofs” that are painted white to reflect the heat, or adding shade through the use of “overhang” on buildings or increased tree cover.

Rees-Evans says construction firms are starting to use AI to factor forecasted weather into a project’s running order. This would allow them, for example, to hold off ordering steel if they expected a prolonged period of hot weather was on the cards. 

Internationally, adaptation is expected to be high on the agenda of the international COP28 climate negotiations. Politicians are increasingly looking at how money can be raised to help countries, especially those in the global south, deal with extreme temperatures because of climate change. 

But Baughman McLeod says businesses and policymakers needed to act now to prepare for extreme heat. A big rethink of our economies may be needed, she says, as countries that depend on tourism see visits plummet during peak seasons, or companies can no longer do business for key months of the year. “There is not a solution for every place, but there is a solution for every person.”