Dangerous Drought and Heartless Heatwave: Climate Change and the UK Economy

The full brunt of climate change was felt by the UK this summer, with the mercury hitting a record-breaking 40.3C in the quaint village of Coningsby, Lincolnshire on the 19th of July. Not only is the sheer value of this problematic, but also the frequency with which these records are being set, with the previous record being set on the 25th of July 2019, just three years prior.


In fact, of the top five hottest UK days on record, four have been set in the past three years. And of the top ten, seven of the hottest days have occurred since the turn of the millennia. Consequently, other climate change-related weather extremities are appearing with greater frequency. Climate models predicting global temperature increases ranging from +2.0C to +4.0C also show catastrophic impacts on drought frequency, increasing their probability of occurring by 86% to 146% respectively[i].


Direct impacts on the Economy

Heat plays an important role in labour productivity; studies have also found that a ‘one-degree increase in the ten-day temp average’ increases the probability of absenteeism by up to 5%[ii]. Reduced productivity across the aggregate economy reduces output and is accompanied by sluggish growth, especially in economies that aren’t suited for extreme heatwaves, like the UK. Globally, heatwaves impeding productivity may reduce the aggregate number of hours worked by ‘more than 2%’, as estimated by the International Labour Organization[iii]. This situation would see economic costs rise to around £2.1trillion in reduced labour output and inefficient resource use.


Damages to transport sectors are also likely to impact productivity levels. As we have witnessed this summer, such extreme heat can cause the steel on railways to expand and buckle, leading to widespread delays and cancellations across rail networks. Inefficiencies in travel reduce productive hours throughout the day, can increase stress through supply chains, and lead to reduced overall economic activity.


As the frequency and duration of these heatwaves rise, the risk of accompanying drought can pose a growing threat. Unlike the more widespread effects of heatwaves, drought in the UK poses a different threat. Although not as abrasive as the scorching heat, the lag between dry, hot seasons and drought means that we can anticipate their arrival to a degree, though they carry their own consequences, specifically within the agriculture sector.


Cost of drought

As the frequency of rainfall throughout summer falls, the harm to crops will rise. Strategies to counteract the adverse effects may limit the damage, however, this provides another channel for increasing costs. Implementing new irrigation systems, or any other forms of drought protection, will increase the cost of harvests and subsequently be reflected in observably higher domestic food prices.


Studies have estimated that, within the UK and EU, droughts are responsible for approximately €9 billion in yearly economic losses. Yet, this figure is expected to rise as the grip of climate change tightens. Even with economies adapting to the changes in weather patterns and exposure to extreme weather events such as heatwaves and droughts driven by a limited +1.5C increase above pre-industrial temperatures, annual losses from drought are estimated to rise by over 30% to €12 billion[iv]. Another industry affected by reduced water availability is the energy industry, whether this is a direct availability issue in hydroelectric production, or for the coolant used in other forms of energy production. The reduced supply of energy will have a knock-on effect on price levels within the economy, putting upward pressure on inflation.


Who will be most affected?

Although widespread, the harm caused by climate change is likely to affect some specific groups within the UK, especially those on low incomes. Unlikely to be able to afford expensive air conditioning, hardest hit by regressive inflationary pressures due to rising food and energy prices, climate change poses a huge financial risk.


The elderly and youngest demographics are also at an elevated risk of undesirable climate-associated outcomes. Heat-related death spikes are concentrated within the elderly groups, and the temperature exacerbates other age-related health conditions. Across the three hot spells in July alone, deaths were up 7% more than the July average, causing additional stress on the NHS and further costs. As for the youngest individuals within the economy, studies are in agreement that increased exposure to heat makes it harder for students to concentrate, thus, hotter school years lead to lower grades and can impact the overall lifetime earnings of those pupils[v].


What next?

The uncertainty that the future holds is concerning. Nations must move away from short-term fixes in the form of hosepipe bans, and instead promote infrastructure investments that mitigate the risk of drought and limit the harm of heatwaves. Other adaptations, like air conditioning in public buildings, may also help to reduce damage to productivity caused by the heat but might prove too costly for implementation.


Whether the government will incentivise these investments is an entirely different issue, with investment within the water supply industry being historically dire. In terms of new sources, there have been no new reservoirs opened in the past 30 years despite the population increasing by 10 million. While in terms of existing infrastructure, reinvestment within the pre-existing systems has come under heavy scrutiny, it may come as a shock that over 3 billion litres of water are lost to leaks every day (approximately a fifth of the total volume used)[vi]. With a sobering risk of England’s water running out by 2040, serious infrastructural changes are needed in order to defend the UK from preventable economic and social catastrophes caused by climate change.

 

Edited and Reviewed by Tanish Bagga.

 

References/ Further Reading: [i] https://www.metoffice.gov.uk/about-us/press-office/news/weather-and-climate/2021/climate-change-shifting-uks-high-impact- [ii] https://epic.uchicago.edu/news/hot-temperatures-decrease-worker-productivity-economic-output/ [iii] https://www.weforum.org/agenda/2022/07/heat-waves-economy-climate-crisis/#:~:text=And%20beyond%20the%20immediate%20threat,%E2%80%9D%20points%20out%20Phys.org. [iv] https://www.carbonbrief.org/increasing-droughts-will-drive-billions-in-economic-losses-in-europe/ [v] https://www.hks.harvard.edu/announcements/when-heat-student-learning-suffers [vi] https://committees.parliament.uk/committee/127/public-accounts-committee/news/115817/england-faces-serious-risk-of-running-out-of-water-within-20-

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