Canada offers lesson in the economic burden of climate change

Canada’s wildfires have burned 20 million acres, covered Canadian and American cities in smoke and created health problems on both sides of the border, with no end in sight. The toll on the Canadian economy is only beginning to sink in.

The fires have increased oil and gas activity, reduced available timber harvesting, put a damper on the tourism industry and imposed countless costs on the national health system.

These losses are emblematic of the pressures being felt more widely as countries around the world experience disaster after disaster caused by extreme weather, and they will only increase as the climate warms.

What long seemed like a distant worry has broken into stark relief in recent years, as billowing smoke has filled large swaths of North America, floods have washed away neighborhoods and heat waves have strained the power grid. It entails billions of dollars in costs, and also has longer-term repercussions, such as insurance companies withdrawing from markets prone to hurricanes and fires.

In some early studies of the economic impact of rising temperatures, Canada appeared to be better positioned than countries closer to the equator; warming could allow longer farming seasons and make more places attractive to live in as winters become less harsh. But it is becoming clear that increasing volatility – ice storms followed by fires followed by intense rain and now hurricanes on the Atlantic coast, unusual this far north – is wiping out any potential gains.

“It’s been faster than we thought, even informed people,” said Dave Sawyer, chief economist at the Canadian Climate Institute. “You couldn’t model this if you tried. We’ve always been concerned about this escalation of injuries, but it’s so devastating to see it happen.”

Nevertheless, Mr. Sawyer and his colleagues tried to model it. In a report last year, they calculated that climate-related costs would rise to C$25 billion by 2025, cutting economic growth in half. By mid-century, they predicted a loss of 500,000 jobs, mostly from excessive heat that lowers labor productivity and causes premature death. Then there are the increased costs for households, and higher taxes required to support government spending to repair the damage – especially in the north, where thawing permafrost is cracking roads and buildings.

It is too early to know the cost of the ongoing fires, and there are several months left in the fire season. But consultancy Oxford Economics has predicted it could reduce Canada’s economic growth by between 0.3 and 0.6 percentage points in the third quarter — a big hit, especially since employment in the country has already slowed and households have more debt and less savings than their neighbours. in the south.

“We already think we’re heading into a downturn, and this would only make things worse,” said Tony Stillo, director of economics for Canada at Oxford. “If we were to see these fires really disrupt transportation corridors, disrupt power supplies to major population centers, then you’re talking about even worse consequences.”

Estimates of the overall economic burden are based on damage to specific industries, which vary with each disaster.

The recent fires have left some lumber mills idle, for example, as workers have been evacuated. It’s not clear how extensive the damage will be to forest populations, but provincial governments tend to reduce the amount of timber they allow to be harvested after large fires, according to Derek Nighbor, executive director of the Forest Products Association of Canada. Pine beetle infestations, which have flared up as milder winter temperatures fail to kill the pests, have limited logging in British Columbia.

Although lumber prices have been depressed in recent months as higher interest rates have weighed on housing construction, Canada is facing a housing shortage as it works to bring in millions of new immigrants. Reduced availability of firewood will make the housing problem more difficult to solve. “It’s safe to say there’s going to be a supply crisis in Canada as we work through this,” Mr. Nighbor said.

The tourism industry is also being hit, as the fires broke out just as operators were entering the crucial summer season – sometimes far from the fires. Business plunged in the peninsula town of Tofino, a popular whale-watching destination off Vancouver Island, when the only freeway access was cut off by a fire two hours away. The road has since reopened, but only one lane at a time, with drivers having to wait up to an hour to get through.

Sabrina Donovan is the general manager of Pacific Sands Beach Resort and chair of Tofino’s local tourism promotion organization. She said the hotel’s occupancy dropped to about 20 percent from 85 percent during June, and few bookings came through the rest of the year. Employers typically house their employees in the summer, but after weeks without customers, many workers left for jobs elsewhere, making it difficult to maintain full service in the coming months.

“This last fire has been pretty devastating for the majority of the community,” Donovan said, noting that the Coast had never in her career had to deal with wildfires. – This is something we now have to think about in the future.

Regardless of the severity of a particular episode, costs increase as disasters move closer to critical infrastructure and population centers. That’s why the two most expensive years in recent history were 2013, when major flooding hit Calgary, and 2016, when the Fort McMurray fire wiped out 2,400 homes and businesses and crippled oil and gas production, the area’s main economic driver.

This year, most of the burning has been in the countryside. While some oil drilling has been disrupted, overall damage to the oil industry has been minor. The bigger long-term threat to the industry is falling demand for fossil fuels, which could displace 312,000 to 450,000 workers over the next three decades, according to a TD Bank analysis.

But there is still a long, hot summer ahead. And the insurance industry is on alert, having watched the rising claims in recent years with alarm. Prior to 2009, insured losses in Canada averaged about C$450 million a year, and now routinely exceed $2 billion. Major reinsurers pulled back from the Canadian market after several crippling payouts, increasing rates for homeowners and businesses. That’s not even factoring in the life insurance costs likely to be incurred from excessive heat and smoke-related respiratory ailments.

Craig Stewart, vice-president of federal affairs for the Insurance Bureau of Canada, said climate issues had become a primary concern for the organization over the past decade.

“Back in 2015, we sent our CEO across the country to talk about the need to prepare for a different climate future,” Stewart said. “At the time, we had the Calgary floods two years before in the rearview mirror. We thought, ‘Oh, we’ll have another event in two to three years.’ We could never have imagined that we now see two or three catastrophic events in the country per year.”

That’s why the industry pushed hard for the Canadian government to come up with a comprehensive adaptation strategy, which was released at the end of June. It recommends measures such as investing in urban forests to reduce the health effects of heat waves and developing better flood maps to help people avoid building in vulnerable areas. Fire and forestry experts have called for the Forest Service, decimated by years of austerity, to be restored and for prescribed burns to be scaled up – all of which cost a lot of money.

Mike Savage, the mayor of Halifax, doesn’t need to be convinced that the spending is necessary. His town had the biggest fire loss this spring, with 151 homes burned. This accident came on the heels of Hurricane Fiona last year, which left large parts of the coast under water. Mr. Savage worries about the fate of the isthmus that connects Nova Scotia to New Brunswick, and the power systems that now peak in the hot summer instead of the freezing winter.

“I certainly believe that when you invest in mitigation there is a dramatic positive impact from those investments,” Savage said. “It’s going to be a challenging time. To think that we got through this fire and said, ‘OK, it’s good, we’re done,’ that would be a little naive.”

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