In recent years, different parts of the world have been experiencing record-breaking heat waves and droughts. Once thought of as rare occurrences, Europe has already experienced multiple unprecedented high temperatures and prolonged periods of drought. When extreme heat and drought happen at the same time, also referred to as compound dry-and-hot events (CDHE), adaptive capacities can be exhausted, leading to a magnitude of impacts larger than the sum of its parts. For example, the CDHE event that occurred in Europe in 2022 is estimated to have been a one-in-100-year event and has caused over 60,000 premature deaths. Future projections show more frequent occurrence of such compound weather events.

This Brief presents findings from recent research providing evidence that compound heat and drought events, indeed, have a larger negative impact than when the two events happen independent of each other.

Poor households are more likely to live in areas and neighbourhoods highly exposed to heat and droughts and are more vulnerable to negative impacts due to the larger share of damages relative to total assets compared to richer households. Poor households also have limited financial resources and are faced with unequal costs in obtaining basic services and financial resources to cope and recover, therefore making them less capable of adapting to income shocks compared to richer households. With every income shock, poor households have fewer resources and fewer options to avoid future impacts, thereby turning short-term impacts into long-term effects and pushing them into a poverty trap.

 

To explore the effect of heat waves and droughts on household income and poverty, household level income data from the European Union Statistics on Income and Living Conditions (EU SILC) were combined with high-frequency temperature data from the ERA-5 global dataset and monthly drought indicators from the global Standardized Precipitation-Evapotranspiration Index (SPEI) database. After introducing a novel approach of disaggregating heat wave indicators to those that occur during drought months, a fixed effects econometric model was applied to estimate the average impact on annual household income per heat wave day and per drought month. The results of the econometric model were applied to changes in the frequency of heat waves and droughts under three climate scenarios: 1.5 °C global average temperature increase corresponding to Article 2 of the Paris Agreement, 2 °C to compare the impacts of a half-a-degree increase in global mean temperatures, and 2.7 °C corresponding to the current climate policies.

Historical impact

European regions do not experience the same frequency of heatwaves and droughts. Based on historical climate data, the frequency of heatwaves, droughts and CDHE differ in each subnational region. The data (presented in the maps of Figure 1) show that regions of southern Europe are exceptionally frequented by all three types of hazards, and Cyprus is among them due to its semi-arid climate.

Given the frequency of historical events, income was reduced substantially due to CDHE, heatwaves and droughts. Historical impacts (i.e. the income of period 2004-2022 compared to a counterfactual of no heatwaves nor droughts) of about 4% reduction in household income have been found in Europe on average, with a maximum of 10% reduction in some Spanish regions. The poorest quintile on average across Europe has experienced a reduction of 7.3% in household income due to heatwaves and droughts, or 2.7 percentage points worse than the richest income quintile.

The effect for Cypriot households was above the EU average: It is estimated that 5% of the average household income was lost due to heatwaves, droughts, and CDHE. Impacts are strongest for the first income quintile, i.e. for the poorest 20% of Cypriot households, where the income reduction was about 9%. This means that historical experiences of heatwaves, droughts, and compound heatwave and drought events already reduced Cypriot incomes by about 1000-1500 Euros per year for the poorest 20% of the households.

Given the frequency of historical events and the disproportional distribution of income, the implication to poverty incidence of CDHE, heatwaves and droughts needs careful attention. In this research, three different definitions of poverty thresholds were used to determine the poverty incidence – details can be found in Schleypen et al. (2026). Due to the change in income distribution driven by heatwaves, droughts, and CDHE, the at-risk-of-poverty (AROP) incidence increases by 1% on average in Europe; the corresponding increase in AROP incidence for Cyprus was estimated quite low, at 0.1-0.5%.

Income losses and higher poverty incidence due to future climate change

With higher levels of global warming, an increase in the occurrence of heatwaves with drought is expected, which depends on the degree of global and regional warming. If global warming is limited to 1.5°C above the pre-industrial period, the study estimates an average reduction in European income of 7.4% compared to the historical period. Among the most affected in Europe is Cyprus, with an estimated reduction of 12%. The negative impacts on income become worse as global warming increases. In comparison to the 1.5°C scenario, scenarios of 2.0°C and 2.7°C warming lead to a reduction in Cypriot household income of 21% and 54%, respectively. In other words, most of the growth in the average income of the Cypriot population expected in the coming decades due to economic growth risks being eroded because of additional heat and drought to occur due to climate change.

At the same time, climate extremes hinder European countries in achieving their European Pillar of Social Rights target of reducing poverty by at least 15 million by 2030. Due to the disproportional distribution of negative impacts on household income, with the poorest quintile having the largest burden, the occurrence of heatwaves, droughts, and CDHE increases inequality and have implications on future AROP incidence. The study finds that under a 1.5°C, 2°C and 2.7°C scenarios, heatwaves, droughts and CDHE will cause an increase in at-risk-of-poverty rate of 11%, 13% and 24% in Europe – 5%, 9% and 49% in Cyprus respectively.

Keeping in mind that the latter scenario (2.7°C global warming) is currently the most plausible one, and with a current percentage of 14.9% of Cypriot households at risk of poverty based on EU SILC data of 2025, the number of households at risk of poverty could rise to 49%, or almost half of all households, due to climate change in the coming decades.

 

 

Conclusions and policy implications

The findings of the study reported here corroborate the results of another recent pan-European study carried out for the European Economic and Social Committee, highlighting that Cyprus is expected to be among the countries with the most severe negative impacts on vulnerable households due to climate change because household expenditure on food, electricity and health services will increase. These expenditure categories are regressive, i.e. poorer households spend a larger share of their income on them. Negative effects on labour productivity and possibly gradual loss in the value of household property can also be expected. Reinforcing such findings, the European Central Bank has recently underlined that lower-income households will be particularly affected by climate-related risks, which – in addition to obvious social equity concerns – poses risks to prices and financial stability.

Overall, the findings presented in this Brief underline the importance of combining both climate change adaptation and mitigation measures: On the one hand, public policies must help vulnerable households adapt to the inevitable climate change that is already taking place; on the other hand, authorities must continue promoting measures that reduce emissions and alleviate the dependence of Cyprus on imported fossil fuels, because this dependence again impacts low-income households more strongly than the rest of society. An important ingredient of such policies is ensuring climate-resilient buildings and neighbourhoods for the most vulnerable households; this is a measure that addresses both mitigation and adaptation. In the coming years, financial support will be available for building renovations under the European Social Climate Fund, but additional financial resources must be devoted by Cypriot authorities especially for households at risk of poverty as well as more specifically households vulnerable to energy poverty.

The cost of climate policies is often considered to be high, but essentially such policies will protect the Cypriot economy by helping it avoid much higher costs from growing climate change impacts. In short, climate policies lead to a more resilient and equitable society and are good economic and social policy for Cyprus.