“The effects of climate change have a real cost for the Luxembourg economy, and it is important to take preventive adaptation measures, given that certain studies suggest that the cost of climate inaction is likely to exceed the cost of increasing adaptation to the effects of climate change,” the draft strategy plan for adapting to the effects of climate change presented on 7 February 2025 by environment minister (CSV).
According to a study by the IPCC, climate change could lead to a loss of between 10% and 23% of global GDP by 2100 if no mitigation measures are taken. So, according to the IPCC model, if Luxembourg’s GDP is €96bn, a 10% loss would represent €9.6bn by 2100. With a more pessimistic scenario of 23%, this could rise to €22bn. The World Bank has also developed its own, less pessimistic model, which suggests a cost of 4% of GDP by 2050 in the event of “strong inaction.”
In other words, taking no action to counter climate change or to learn to adapt to its many impacts is likely to be costly, and the environment ministry seems to have understood this. It is also banking on a cross-cutting, holistic strategy involving other ministries, such as economy and finance.
Furthermore, according to a survey by the European Investment Bank, 79% of Luxembourg residents have already experienced at least one extreme weather event in the last five years, underlining the importance of investing in adaptation measures to avoid even higher costs in the future. According to the World Bank and the OECD, every euro invested in adaptation should yield between four and ten euros in savings, failing which the impacts will be numerous… and costly.
Other impacts
In economic terms, the impacts of climate change are already foreseeable. The lack of resources, particularly natural resources, is likely to have an impact on certain water-intensive activities, or on river freight, for example, due to water levels that are too low to navigate. If water becomes scarcer, it will become more expensive, and this will also have an impact on food prices and consumer purchasing power. A concrete example of the water issue is that of data centres, where the use of water for cooling “could represent a major challenge in the future,” says the government in its strategy plan. “There is a need to assess ways of reducing water consumption and recovering excess heat in data centres.” The question also arises for specialist sites, particularly those classified as Seveso or high industrial emissions. "Seveso and high industrial emissions industries can have a considerable impact on the environment. Increasing their resilience is therefore essential, and climate risks for these industries need to be assessed, particularly during the commodo/incommodo procedure,” says the document.
The insurance market, for its part, is already being affected by the intensification of climatic impacts, which are likely to increase insurance premiums, widen the protection gap and amplify economic losses. According to the professional association of insurers and reinsurers established in Luxembourg, the floods of 2021 cost €120m, to which must be added the damage from previous years, bringing to around €230m the claims generated by natural disasters in recent years. There was also the damage caused by the storms and tempests of June 2024, which cost insurers €24m. To deal with this on a long-term basis, many insurers are calling for the introduction of a public/private model, like the Spanish one.
Banks may also be exposed, and the government intends to carry out an analysis of the risks to which they may be exposed, particularly through their loan portfolios. This mainly concerns the risk of flooding, but also the risk of drought. “Although some banks analyse this risk individually, it would be appropriate to have an overall view of the physical risks for the banking sector,” says the new strategy, as detailed by the environment minister. “The CSSF will have a role to play in this process.”
Encouraging businesses
Still on the economic front, climate change could also have an impact on productivity, particularly in agriculture and viticulture, where yields are likely to fall. In 2024, for example, agricultural crops suffered greatly from excessive rainfall, with disappointing cereal yields. In winegrowing, the late spring frost and fungal diseases prevented winegrowers from achieving the Moselle’s multi-year yield. The frost also had an impact on fruit crops. It should be noted that 2024 was also the warmest year on record in ten years, averaging 10.6°C, or 0.7°C warmer than the reference period.
But in terms of the impact of climate change on productivity, farmers and winegrowers will not be the only ones affected. The construction industry, too, is likely to face higher construction costs to adapt buildings and higher insurance premiums against climate risks. So the government wants to better inform private sector companies about how to reduce the risks and encourage them to take action. “This,” says the national adaption plan, “could take the form of adapting production processes to increase resilience to the disruptions of climate change, integrating new technologies that improve working conditions in the face of heat waves, or optimising the resource efficiency of production processes, for example in the face of climate change. The commitment of any company to improve its impact on the climate would be on a voluntary, participatory and, where appropriate, incentive basis.” The plan makes reference to a corporate climate convention such as the French have.
Finally, the impact on public finances is also mentioned in the government’s new strategy. Without prior measures, spending on relief and reconstruction following climatic events is likely to be higher than if the country knows how to anticipate these events. To this end, the environment and finance ministries are planning to set up a database with the aim of closely monitoring expenditure linked to extreme weather events. “The compilation of information on expenditure by all the ministries and administrations will make it possible to ensure better overall monitoring of the state’s annual expenditure linked to extreme weather events and to be able to observe changes in this expenditure over time,” says the government strategy.
This article in French.