Stockholm (NordSIP) – As announced by the 2021 EU strategy on adaptation, the European Environment Agency (EEA) together with many partner organisations, published its first European Climate Risk Assessment (EUCRA) report in March.
The report identifies 36 climate risks with potentially severe consequences across Europe across five risk clusters, which it assesses in terms of risk severity, policy horizon (lead time and decision horizon), policy readiness and risk ownership, before identifying priorities for EU policy action.
The Fastest Warming Continent
Globally, 2023 was the warmest year on record, with average global temperature between February 2023 and January 2024 exceeded pre-industrial levels by 1.5°C. According to the report, this reality is particularly acute in Europe which is the fastest-warming continent in the world.
Despite the implementation of wide-ranging climate reforms, the EEA warns that climate hazards are expected to increase during this century, “even under optimistic scenarios compatible with the Paris Agreement”.
The Cost of Climate Change
The severity of extreme rain and recent years have seen catastrophic floods in various regions has increased. “Extreme precipitation and large-scale floods took place in Germany and Belgium in 2021 (€44 billion damage and more than 200 deaths), Slovenia in 2023 (damage estimated at around 16% of national GDP), and Greece in 2023 (submerging its breadbasket region). These events caused severe, direct impacts on settlements, infrastructure, agriculture and human health. They also led to wider economic impacts in the affected regions and major fiscal challenges at national levels, and stretched the limits of the existing EU Solidarity Fund.”
Southern Europe is particularly at risk from decreases in overall rainfall, more severe droughts and wildfires, which will hurt ecosystems, forestry, agriculture, water supply, human health, energy security, transport services, tourism and the wider economy. “The record-hot summer of 2022 has been linked to between 60,000 and 70,000 premature deaths in Europe,” the report warns.
The EEA warns that if additional policy action is not taken, the analysis suggests that “economic damages related to coastal floods alone might exceed €1 trillion per year by the end of the century in the EU.”
Risk Analysis
Beyond the review of the cost of climate change so far, the EEA report goes on to analyse specific at-risk sectors and potential policy actions that could help mitigate these dangers.
The report considers five clusters of interrelated risks focusing on food, ecosystems, infrastructure health and the economy and finance.
Climate change is a complex issue, with shocks spilling over from one sector or region to another. No single climate change risk is static.
The EEA characterises climate change as a risk multiplier that can exacerbate existing risks and crises, potentially allowing them to “cascade from one system or region to another, including from outside world”. According to this study, “several climate risks have already reached critical levels”.
The report gives several examples of these dynamics and the importance of robust systems. “For example, unsustainable land use and water management, biodiversity loss, eutrophication and pollution increase ecosystems’ vulnerability to climate hazards. Well-maintained infrastructure with built-in redundance is less likely to fail during an extreme event than ageing infrastructure that was already at its limit under past climate conditions. Strong health services with robust heat-health action plans are less likely to be overwhelmed during a heatwave or climate-related infectious disease outbreak than health services that are struggling on an everyday basis,” the EEA argues.
Considering economic and financial risks, the report highlights the burden that climate change puts on European solidarity mechanisms, noting that “risks to European solidarity mechanisms are already at critical levels and require urgent action”. Reviewing the economic and financial transmission channels through which climate change might operate the EEA highlights a number of dangers.
The real estate and insurance sectors are particularly exposed to climate change risks, leading to rising economic losses, increases in insurance premia, widening protection gaps, and increased vulnerability among low-income households and other disadvantaged groups.
For investors, the destruction caused by the increased incidence of extreme weather events will erode asset value or potentially wipe it out entirely. Moreover, the EEA warns that climate stress tests probably underestimate the cascading and compounding risks from climate change. Climate change also burdens public finances by lowering tax revenues, increasing expenditure, lowering credit ratings and increasing the cost of borrowing. Sectorally,
Policy Tools
In line with its assessment of the effect of climate change on interrelated risks, the report also provides a discussion of policy shortfalls and potential avenues for policy reform across these five clusters.
On the food front, and despite ongoing EU efforts, the EEA argues that the consistency and coherence of key EU policies affecting food production and security needs to be improved. “The key EU policies related to food production, the CAP and the common fisheries policy (CFP), do not address climate risks and adaptation needs adequately,” the EEA says. To address this issue, the report recommends mainstreaming and clarifying the options available to Member States under the CAP, as well as further integrating risks to aquaculture and fisheries into the CFP, among others.
Regarding the economy and finance cluster, the report highlights the contributions of the taxonomy and corporate disclosures, but adds a number of other suggestions. “EU policies should introduce dedicated financial- and market-pull mechanisms to incentivise business-led adaptation. (…) Public finance resilience in Member States needs to be strengthened through financial and insurance instruments. EU-level policy response must ensure a robust increase in the resources of the EU Solidarity Fund, the Union Civil Protection Mechanism and other solidarity mechanisms. These should also be used to incentivise higher adaptation action at the national level. These policies should also introduce or reinforce insurance and climate-resilient debt instruments to mitigate the impacts of extreme weather on public finances and the wider EU financial system.” [emphasis added]
The report is a call to action, warning that “if decisive action is not taken now, most climate risks identified could reach critical or catastrophic levels by the end of this century. Hundreds of thousands of people would die from heatwaves, and economic losses from coastal floods alone could exceed €1 trillion per year.”
