Canada Offers Lesson in the Economic Toll of Climate Change
Fires in Canada have burned 20 million acres, upending oil, lumber and tourism industries. Credit: Renaud Philippe for The New York Times
Wildfires are hurting many industries and could strain households across Canada, one of many countries reckoning with the impact of extreme weather.
Those losses are emblematic of the pressure 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 a faraway concern has snapped into sharp relief in recent years, as billowing smoke has suffused vast areas of North America, floods have washed away neighborhoods and heat waves have strained power grids. That incurs billions of dollars in costs, and has longer-reverberating consequences, such as insurers 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 for longer farming seasons and make more places attractive to live in as winters grow less harsh. But it is becoming clear that increasing volatility — ice storms followed by fires followed by intense rains and now hurricanes on the Atlantic coast, uncommon so far north — wipes out any potential gains.
“It’s come on faster than we thought, even informed people,” said Dave Sawyer, principal economist at the Canadian Climate Institute. “You couldn’t model this out if you tried. We’ve always been concerned about this escalation of damages, but seeing it happen is so stark.”
Nonetheless, Mr. Sawyer and his colleagues did try to model it out. In a report last year, they calculated that climate-related costs would mount to 25 billion Canadian dollars in 2025, cutting economic growth in half. By midcentury, they forecast a loss of 500,000 jobs, mostly from excessive heat that lowers labor productivity and causes premature death. Then there are the increased costs to 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.
The recent fires have forced some lumber mills to idle. It’s not clear how widespread the damage will be to forest stocks.Credit: Jen Osborne for The New York Times
It is too early to know the cost for the current fires, and several months of fire season remain. But the consulting firm Oxford Economics has forecast that it could knock between 0.3 and 0.6 percentage points off Canada’s economic growth in the third quarter — a big hit, especially since hiring in the country has already slowed and households have more debt and less savings than their neighbors to the south.
“We already think we’re teetering into a downturn, and this would just make things worse,” said Tony Stillo, director of economics for Canada at Oxford. “If we were to see these fires really disrupt transportation corridors, disrupting power supply to large population centers, then you’re talking about even worse consequences.”
Estimates of the overall economic drag are built on damage to particular 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 widespread the damage will be to forest stocks, but provincial governments tend to reduce the amount of timber they allow to be harvested after large blazes, according to Derek Nighbor, chief executive of the Forest Products Association of Canada. Infestations of pine beetles, which have flared up as milder winter temperatures fail to kill off the pests, have curtailed logging in British Columbia.
Although lumber prices have been depressed in recent months as higher interest rates have weighed on home construction, Canada is confronting a housing shortage as it works to bring in millions of new immigrants. Reduced availability of wood will make its housing problem more difficult to solve.
“It’s safe to say there’s going to be a supply crunch in Canada as we work through this,” Mr. Nighbor said.
The tourism industry is also being hit, as the fires erupted just as operators were going into the crucial summer season — sometimes far from the fires. Business plunged in the peninsula town of Tofino, a popular destination for whale watching off Vancouver Island, when its only highway access was cut off by a fire two hours away. The road has since reopened, but only one lane at a time, and drivers need to wait up to an hour to get through.
Sabrina Donovan is the general manager of the Pacific Sands Beach Resort and the chair of Tofino’s local tourism promotion organization. She said that her hotel’s occupancy sank to about 20 percent from 85 percent in the course of June, and that few bookings were coming through for the rest of the year. Employers commonly house their staff during 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 most recent fire has been pretty devastating for the majority of the community,” Ms. Donovan said, noting that the coast had never in her career had to deal with wildfires. “This is something we now have to be thinking about in the future.”
The wildfires could depress spending when households are already strained.Credit...Jen Osborne for The New York Times
Regardless of the severity of any particular episode, the costs mount as disasters get closer to critical infrastructure and population centers. That is 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 hamstrung oil and gas production, the area’s main economic driver.