Environment, energy and research
| Author | Directorate-General for Parliamentary Research Services (European Parliament) |
| Pages | 95-119 |
Europe’s two trillion euro dividend: Mapping the Cost of Non-Europe, 2019-24
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ENVIRONMENT, ENERGY AND RESEARCH
16. Climate change
Potential economic benefits of meeting the 2° C target:
under assessment
Key proposition
Climate change due to human economic activity is changing weather patterns on our planet, with
increasing economic, social and environmental consequences. To limit the negative effects of this
phenomenon, the international community, with the EU as a front-runner, has committed to
maintain the temperature rise this century to well below two degrees Celsius above pre-industrial
levels. It is estimated that in Europe alone the total reported economic losses caused by weather
and other climate-related extremes between 1980 and 2016 have already amounted to over
€436 billion.359 Recent, though not exhaustive, research on climate change costs360 estimates the
potential benefits from EU mitigation policies at around €160 billion per year. This would be the
additional loss, in terms of consumer welfare, for the EU if the temperature were to rise above two
degrees Celsius by the end of the century. This can be argued to be the cost of missing the EU target,
given that limiting the temperature rise to below two degrees Celsius is the central objective of EU
climate policies.
Moreover, research reveals further serious environmental and societal impacts - such as river and
coastal flooding, droughts, affecting not only crops and farmland, but also transport and critical
infrastructure, as well as causing human mortality from heat - which suggest that the total costs of
inaction could rise to €240 billion per year. In this context, southern European regions appear to be
much more vulnerable to climate change and would bear a larger share of the costs.
More detailed analysis of potential benefit
A 2018 report by the European Commission’s Joint Research Centre, Climate in Action in Europe,
(PESETA III final report), analyses a series of direct effects of climate change, focussing on two
periods: the end-of-the-century >3ºC global warming level (GWL) (high warming scenario), and the
sectorial impacts are then used as inputs in a computable general equilibrium model that allows
heterogeneous climate impacts to be incorporated in a single structure, and to include indirect
effects occurring through market mechanisms.362 Not all the impacts could be consistently
359 European Commission, Report from the Commission to the European Parliament and the Council on the
implementation of the EU Strategy on adaptation to climate change, COM(2018)738, November 2018.
360 Calculation based on J C Ciscar, et al., Climate impacts in Europe: Final report of the JRC PESETA III project, Joint
Research Centre, 2018.
361 J C Ciscar, et al., 2018, op.cit.
362 This is subject to a number of assumptions: for more detail, see J C Ciscar, et al., 2018, op.cit.
EPRS | European Parliamentary Research Service
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integrated in the economic model. Those which are taken into account are agriculture, energy,
labour productivity, and river and coastal floods. The economic impact is measured as welfare loss
as a percentage of GDP.363
Figure 10 shows that the high temperature scenario is estimate d having a negative impact of about
1.9 % of GDP (a loss of about €240 billion per year). If, by contrast , the temperature increase can be
maintained under two degrees Celsius, the economic loss can be limited to about 0.6 % of GDP
(about €79 billion per year). It is assumed that the potential ‘avoided loss’, under the low
temperature scenario, is the cost of non-Europe, namely, about €160 billion per year. Two major
caveats need to be entered: first, as the authors of the study clearly indicate, one should be cautious
in interpreting the potential benefits from mitigating measures, since the study covers a limited
number of impacts; second, interpreting this figure as cost of non-Europe means assuming that the
capacity to keep temperatures under two degrees Celsius can be ascribed entirely to EU climate
policies.
Figure 10: Cost of high warming scenario and of 2° Celsius scenario
in percentage welfare change (share of EU GDP)
Source: J C Ciscar, et al., Climate impacts in Europe: Final report of the JRC PESETA III project, Joint Research Centre, 2018.
Another 2018 report364 (COACCH) carried out a review of the existing economic analysis of the costs
of climate change in the EU. It looked at those sectors that are particularly vulnerable to climate
changes impacts including - but not limited to - water supply, coastal flooding, agriculture, forestry
and transport. Although the report acknowledges the limitations and data gaps, it argu es that there
is no doubt that inaction will generate large costs in the EU. The economic costs will be significant
363 The model used is quasi-static, meaning that the results cannot be interpreted as changes in growth rates, but rather
as a one-off change in the welfare level.
364 The Economic Cost of Climate Change in Europe: Synthesis Report on State of Knowledge and Key Research Gaps,
COACCH: Co-designing the assessment of climate change costs, May 2018.
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