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Canada’s Parliamentary Budget Office just did something important and long overdue. For the first time, the country’s official financial watchdog quantified the costs of climate change for Canada’s economy, showing that worsening climate impacts are a drag on economic growth. This is a crucial step in beginning to reduce the economic risks Canada can expect in a warming world.

There’s still a long way to go, however, and recent moves by Australia and the United Kingdom can point us in the right direction.

In Canada, our long-term economic projections are largely based on historical averages of productivity that do not account for the fact that the climate is now changing rapidly, bringing with it more frequent and costly disasters. Those projections therefore implicitly assume a future without further climate change impacts, despite the fact that this future has been foreclosed by continued emissions growth. Moreover, climate impacts receive only cursory treatment in government budgets.

This is a problem, because it obscures the very real costs of climate change to the Canadian economy and means that the economic benefits of reducing emissions and improving resilience are not captured; instead, only the costs of these policies are seen. The result? We underestimate the economic benefits of proactive climate policy and debate the costs of action rather than the costs of inaction.

In addressing this problem, we can look to peer countries that are further ahead in reckoning with climate costs. While both Australia and the U.K. still have more to do, they have made important strides.

Australia’s recent budget details the impacts climate change will have on government finances, and it’s not a pretty picture. These impacts include reduced productivity, damaged infrastructure and pressure on government spending. The budget also analyzes the risks and opportunities in the global energy transition. Further, Australia has committed to increasing capacity in the Treasury to model the economic impacts of climate change going forward. This is a key step that will enable the government to integrate an understanding of climate risks into policy and spending decisions.

Canada should follow suit starting in the next federal budget, detailing the climate impacts we can expect and integrating a transparent assessment of these risks into policy and spending decisions going forward.

In the U.K., meanwhile, the Office for Budget Responsibility now includes the impacts of climate change in its assessments and incorporates some of these impacts into its baseline projections. Canada’s Parliamentary Budget Office should follow suit, building upon its recent report by integrating climate impacts into the baseline economic forecast. Similarly, 2022 should be the last year that the federal budget notes climate change as a risk that is unaccounted for in long-term projections.

Not accounting for climate change is no longer a viable option: the costs of climate change are here, they’re significant, and they’re already draining the public purse. Research undertaken by the Canadian Climate Institute reveals that Canada can expect $25 billion in losses by 2025 from the warming experienced since 2015, relative to a stable-climate scenario — an amount equal to half of projected GDP growth in 2025. By 2050, losses could rise to $100 billion and wipe out half a million jobs. The devastation wrought by more frequent and extreme disasters is already costing governments billions.

The combined pressure of slower growth and higher costs force governments into a choice between larger deficits, cutting services or raising taxes, as more of the budget is consumed by climate damages. But there is much governments can do: the same report finds that lowering emissions globally and investing in adaptation here at home can cut those costs by three-quarters.

Accounting for the costs of climate change should be a priority for any government that seeks to responsibly manage the economy.

Don Drummond is an economist at Queen’s University, a C.D. Howe Institute fellow-in-residence and an expert panelist with the Canadian Climate Institute. Sarah Miller is an adaptation research associate with the Canadian Climate Institute.

Published in The Ottawa Citizen