Climate risk for EU economic security: an illustration from the energy sector
The past few years have shattered long-standing global and European weather records in unrelenting fashion. Notably, 2020, 2023 and 2022 were respectively the first, second and third hottest year on record on the European continent since measurements first began in 1850. These temperature increases have been accompanied by a rise in climate hazards, including heatwaves, extended droughts, heavy rainfall, rising sea levels, and floods. In 2022, Europe experienced its worst droughts in at least 500 years and in 2023, extreme precipitation and large-scale flooding in Slovenia caused direct damages estimated at a staggering 16% of the country’s GDP. As underscored by the first ever European Climate Risk Assessment (EUCRA) published by the European Environmental Agency in March, the frequency and intensity of these extreme events is expected to grow further over the coming years and decades, even in the most optimistic decarbonisation scenarios in line with the Paris Agreement.
Measuring, correctly assessing, mitigating and adapting to climate risks will be vital not only for societal and environmental reasons, but also for EU economic security. The 2022 energy crisis following the Russian invasion of Ukraine may help to illustrate why. While the main cause of the energy shock was unequivocally the sudden and substantial reduction of gas supplies from Russia, what further exacerbated the situation were the extreme droughts in the summer of 2022. These led to a 19% year-over-year fall in EU hydro generation, with its share in the electricity mix declining from 12% in 2021 to 10% in 2022. Together with lower-than-usual nuclear output due to outages in the French nuclear fleet – in part linked to high temperatures in rivers used for reactor cooling – the decline in hydro pushed gas consumption for electricity higher at a time when markets were already extremely tight. The consequent more-than-tenfold increase of EU electricity and gas prices over the summer of 2022 should serve as a telling indicator of how climate hazards can pose a risk to economic security.
In the context of the clean energy transition, the importance of accounting for climate risk gains additional relevance. Indeed, hydro and nuclear are both seen as key sources of flexibility to accommodate the variable output of solar and wind farms in the decarbonised power system of the future. At the same time, the expected increase of extreme weather events is set to make EU hydro and nuclear generation more unpredictable. The September 2023 floods in Greece and its devastating impact on solar power farms in the region of Thessaly demonstrate that the risk of climate hazards in the energy sector is hardly confined to nuclear and hydropower generation either.
In addition to risks to the resilience of critical raw material and clean tech supply chains, mapping these climate risks to different sources of energy supply will be critical to shoring up the resilience of Europe’s energy systems and therefore the EU economy as a whole. As stated also in the EUCRA report, tools such as the Critical Entities Resilience Directive adopted in 2022 should be used to the fullest in assessing and enhancing the resilience of critical entities such as power plants. In this endeavour, member states must consider the cross-border dimension of the climate risks to which their electricity networks are exposed and even more so of the national measures taken to mitigate and adapt to those risks.
