How extreme heat hurts the economy

SUMMER this year, will probably be one of the hottest on record as dozens of cities in the West experience all-time high temperatures.

Here are four ways extreme heat hurts the economy – and a little good news.

1. Growth takes a hit

Research has found that extreme heat can directly hurt economic growth. For example, a 2018 study found that the economies of US states tend to grow at a slower pace during relatively hot summers. The data shows that annual growth falls 0.15 when the average summer temperature is just above normal.

Labourers in weather-exposed industries such as construction work fewer hours when it’s hotter. But higher summer temperatures reduce growth in many industries that tend to involve indoor work, including retail, services and finance. Workers are less productive when it’s hotter out.

2. Crop yields drop

Agriculture is exposed to weather: After all, crops grow outdoors. While temperatures up to around 29-32ºC can benefit crop growth, yields fall sharply when the mercury rises further. Some of the crops hit hard by extreme heat include corn, soy beans and cotton. These reductions in yields could be costly for agriculture.

A prominent example was the collapse of the Russian wheat harvest in response to the country’s 2010 heat wave, which raised wheat prices throughout the world.

3. Energy use soars

When it’s hot, energy use goes up as people and businesses run their air conditioners at full blast. A 2011 study found that just one extra day with temperatures above 32.2ºC increases annual household energy use by 0.4%. More recent research shows that energy use increases the most in places that tend to be hotter, probably because more households have air conditioning. This increase in electricity use on hot days stresses electric grids right when people depend on them most.

4. Education and earnings suffer

A long-term impact of increasingly hotter weather involves how it affects children’s ability to learn – and thus their future earnings.

Research has shown that hot weather during the school year reduces test scores. Maths scores decrease more as the temperature rises beyond 21ºC. Reading scores are more resistant at high temperatures, which this research claims is consistent with how different regions of the brain respond to heat.

One study suggested that students in schools that lack air conditioning learn 1% less for every 1ºC increase in the school year’s average temperature. It also found that minority learners are especially affected by hotter school years, as their schools are especially likely to lack air conditioning.

Lost learning results in lower lifetime earnings and hurts future economic growth.

Air conditioning can offset some of these effects.

For example, studies have found that having a working air conditioner means fewer people die, student learning isn’t compromised and extreme heat outside during pregnancy doesn’t hurt foetuses.

Not everyone has air conditioning, however. While heat waves are shown to induce more households to install air conditioning, it’s hardly a panacea. By 2100, higher use of air conditioning could increase residential energy consumption by 83% globally. If that energy comes from fossil fuels, it could end up amplifying the heat waves that caused the higher demand in the first place.

In other words, as temperatures rise, economies will continue to suffer.