Economic fallout of extreme heat: Who bears the financial burden

As global temperatures rise, the implications of the climate crisis, particularly in the form of increasing heat, are becoming increasingly evident. The world is witnessing more frequent and severe heat waves, which impact public health, economic productivity, and environmental stability. This intensifying heat crisis necessitates a critical examination of who bears the most significant financial burden: The State, industries, or consumers. Understanding how the costs of rising heat are distributed across these groups is crucial for developing equitable and effective responses to the climate crisis.

The economic impact of rising heat is substantial. According to a study published in Nature Communications, heat-induced productivity losses could cost the global economy over $2.4 trillion annually by 2050. This figure does not include additional costs such as health care, infrastructure damage, or agricultural losses, all of which are exacerbated by rising temperatures. For instance, in 2023, record-breaking temperatures impacted major cities worldwide. Phoenix, Arizona, experienced temperatures exceeding 110°F (43°C) for over 31 consecutive days, while several European countries faced heat waves that disrupted economic activities and public services. In India, the situation is equally severe. Cities like Delhi and Mumbai have faced extreme temperatures exceeding 45°C (113°F), with the 2023 heatwave in Delhi reaching 49°C (120°F). This intense heat has disrupted daily life and strained the city’s energy infrastructure due to increased demand for cooling.

Governments are on the frontlines of addressing these challenges. Public health systems, emergency services, and infrastructure require reinforcement to cope with the effects of heatwaves, which places significant strain on state budgets. Rising temperatures increase the prevalence of heat-related illnesses such as heat exhaustion, dehydration, and heatstroke, particularly among vulnerable populations including the elderly, children, and those with pre-existing health conditions. For example, the European heatwave of 2003 resulted in over 70,000 deaths, overwhelming health care systems. In the United States, the Centers for Disease Control and Prevention (CDC) estimates that extreme heat causes approximately 700 deaths annually, a number expected to rise as temperatures continue to climb. In India, the situation is similarly dire. The 2023 heatwave in Ahmedabad saw a significant increase in heat-related illnesses and mortality rates, prompting emergency health responses. The costs associated with treating heat-related conditions, expanding healthcare capacity, and implementing preventive measures such as cooling centres and heat alerts require substantial government funding.

The impact of rising heat extends to public infrastructure, which is increasingly vulnerable to extreme temperatures. Roads, railways, and bridges can suffer damage such as cracking or buckling, necessitating costly repairs and upgrades. In India, where heat waves have become more severe, infrastructure resilience is a significant concern. During the 2022 heatwave, the high temperatures contributed to the deterioration of roads and increased rail disruptions. To address these issues, Indian cities have implemented heat action plans that include building shaded areas, expanding water access, and retrofitting public spaces with cooling systems. Similarly, in the United States (US), cities like Miami and Los Angeles have appointed chief heat officers to manage city-wide responses to heatwaves. These measures underscore the growing role of governments in managing the impacts of heat but come with considerable financial burdens.

Industries also face substantial costs due to rising heat. Business operations, worker productivity, and supply chains are negatively impacted by extreme temperatures. The International Labour Organization (ILO) projects that by 2030, heat stress will cause a 2.2% loss in global working hours, equivalent to 80 million full-time jobs. Sectors reliant on outdoor labor, such as agriculture, construction, and manufacturing, are particularly vulnerable. In India, where agriculture is a major economic sector, heatwaves have already reduced crop yields and forced laborers to cut back on working hours. For example, the severe heatwave in 2019 led to a 12-17% drop in productivity across various sectors. Additionally, the ILO estimates that India could lose up to 5.8% of its working hours by 2030 due to heat stress, translating to a loss of 34 million full-time jobs. The increased demand for energy due to higher cooling needs also places additional pressure on industries, as seen during the 2021 heatwave in Texas, which caused widespread power outages and significant financial losses for businesses.

The global supply chains are also affected by rising temperatures, particularly in industries dealing with temperature-sensitive goods. For instance, a heatwave in California in 2020 disrupted the supply of fresh produce across the US, leading to increased food prices and reduced availability. Similar disruptions have occurred in India, where heatwaves have impacted the supply of perishable goods, contributing to higher food prices and shortages. The increased cost of maintaining temperature-controlled environments further drives up operational costs for businesses globally.

Ultimately, consumers bear a significant portion of the costs associated with rising heat. Households face higher prices for goods and services, increased energy bills, and diminished economic opportunities. As heatwaves become more frequent, the need for cooling drives up electricity bills. In the US, extreme heat is expected to increase household energy costs by eight-10% annually in the coming decades. Low-income families, who already spend a larger portion of their income on energy, are disproportionately affected. In India, rising electricity demand due to increased use of air conditioning has put immense pressure on the energy grid, leading to higher costs for consumers. Additionally, rising food prices due to reduced agricultural yields further strain household budgets. The World Bank estimates that climate change could lead to a 10-20% increase in food prices by 2050, which will put additional financial pressure on consumers, particularly in developing countries where food insecurity is already a significant issue. Water scarcity, exacerbated by rising temperatures and droughts, will also drive up water prices. Cities like Cape Town, South Africa, have already experienced increased water costs due to climate-induced scarcity, and similar scenarios are likely to become more common as rising temperatures exacerbate water shortages globally.

In summary, while the costs of rising heat are shared among the state, industries, and consumers, the greatest financial burden often falls on consumers. Governments invest in infrastructure and health care to mitigate the impacts of heat, but these costs are often passed down to individuals through taxes and higher prices for goods and services. Industries facing productivity losses and increased operational costs typically offset these by raising prices for their products. Vulnerable populations, including low-income households, the elderly, and those in climate-vulnerable regions, experience the most severe effects of rising heat. As temperatures continue to rise, it is imperative for policymakers to develop strategies that protect these vulnerable groups and promote sustainable practices across all sectors to address the root causes of the climate crisis.

This article is authored by Ananya Raj Kakoti and Gunwant Singh, scholars, international relations, Jawaharlal Nehru University, New Delhi.