Climate change, heat stress and labour productivity: A cost methodology for city economies

Produced as part of the Understanding green growth and climate-compatible development CCCEP research programme theme

Cities are particularly vulnerable to heat waves. Despite this, no comprehensive methodology has been developed to assess the costs of heat stress on city economies either currently or under future climate change scenarios. Here, we develop a cost methodology that integrates urban climate modelling with labour productivity and economic production. It is designed to be tailored by policy makers and transferable from one city to another. As such it provides a potentially powerful policy tool for assessing the exposure of different economic sectors and the key mechanisms resulting in urban production losses under climate change. Results show that the impacts of heat on the urban economy are highly variable and depend on characteristics of production, such as the elasticity of substitution between capital and labour, and the relative size of different sectors in the economy. We estimate that in a warm year in the far future (2081-2100), the total losses to the urban economy could range between 0.4% of Gross Value Added (GVA) for London and 9.5% for Bilbao in the absence of adaptation. The averted losses due to adaptation measures such as behaviour change, air conditioning, ventilation, insulation and solar blinds range from -€114 million to over €2.3 billion. The methodology demonstrates the substantial impact that climate change could have on different sectors of the city economy, such as the financial services industry in London.