Canada’s wildfires have burned 20 million acres of land, blanketed Canadian and US cities in smoke and raised health concerns on both sides of the border, with no end in sight. The toll on Canada’s economy is only slowly becoming apparent.
The fires have upended oil and gas operations, reduced available timber harvest, dampened the tourism industry and imposed unimaginable costs on the national healthcare system.
These losses are emblematic of the pressures that will continue to be felt as countries around the world experience catastrophe after catastrophe from extreme weather events, and they will only increase as the climate warms.
What long seemed a distant concern has become far more significant in recent years, as smoke plumes have engulfed much of North America, flooding has swept away neighborhoods and heatwaves have strained power grids. This costs billions of dollars and has longer-lasting consequences, such as insurers pulling out of hurricane- and fire-prone markets.
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 more attractive places to live as winters become less severe. But it’s becoming clear that increasing volatility – ice storms, followed by fires, followed by torrential rains and now Atlantic seaboard hurricanes, which is unusual so far north – is wiping out any potential gains.
“It’s been evolving faster than we thought, self-informed folks,” said Dave Sawyer, chief economist at the Canadian Climate Institute. “You couldn’t model that if you tried. We’ve always been concerned about this escalation in damage, but it’s so sickening to watch it happen.”
Nonetheless, Mr. Sawyer and his colleagues have attempted to replicate it. In a report last year, they calculated that climate-related costs would rise to CA$25 billion in 2025, halving economic growth. They predict 500,000 job losses by mid-century, mainly due to excessive heat, which lowers labor productivity and leads to premature deaths. Add to that the higher cost to households and higher taxes needed to support government spending to repair the damage — particularly in the north, where thawing permafrost is tearing away roads and buildings.
It is too early to determine the cost of the current fires, and the fire season is still several months away. But consultancy Oxford Economics has forecast it could slow Canada’s economic growth by 0.3 to 0.6 percentage points in the third quarter — a big hit, especially as the country’s hiring has already fallen and households are more indebted and have fewer savings than their neighbors to the south.
“We already think we’re going into a downturn and that would only make things worse,” said Tony Stillo, economics director for Canada at Oxford. “If we were to see these fires really disrupt transportation corridors and cut power to large population centers, then we’re talking about even worse consequences.”
Estimates of the overall economic burden are based on damage to specific industries, which vary by disaster.
Recent fires, for example, have caused some timber mills to shut down as workers have been evacuated. It’s not clear how extensive the damage to forest stands will be, but provincial governments tend to reduce the amount of timber they’re allowed to harvest after large fires, according to Derek Nighbor, executive director of the Forest Products Association of Canada. Pine beetle infestations, which have increased as milder winter temperatures don’t kill the pests, have curbed logging in British Columbia.
Though lumber prices have fallen in recent months as higher interest rates have weighed on housing construction, Canada is facing a housing shortage as it works to attract millions of new immigrants. The reduced availability of wood makes it more difficult to solve the housing problem. “It’s safe to say there will be a supply shortage in Canada as we work through this,” Mr Nighbor said.
The tourism industry has also been affected, as the fires broke out just as operators headed into the crucial summer season — sometimes far removed from the blazes. Business in the peninsular town of Tofino, a popular whale-watching destination off Vancouver Island, collapsed when a fire cut off the only freeway service two hours away. The road has since reopened, but only one lane at a time, and motorists must wait up to an hour to get through.
Sabrina Donovan is General Manager of Pacific Sands Beach Resort and Chair of Tofino’s Local Tourism Promotion Organization. She said her hotel’s occupancy rate fell to about 20 percent from 85 percent in June and that few bookings were received for the rest of the year. Employers typically house their staff in the summer, but after weeks without customers, many workers left to work elsewhere, making it difficult to maintain full service in the coming months.
“This recent fire has been quite devastating for most of the community,” Ms Donovan said, noting that the coast has never had to deal with wildfires in her career. “We have to think about that now in the future.”
Regardless of the severity of a particular event, costs increase as the disaster approaches critical infrastructure and population centers. That’s why the two costliest years in recent history were 2013, when severe flooding hit Calgary, and 2016, when the Fort McMurray fire destroyed 2,400 homes and businesses and shut down oil and gas production, the region’s main economic engine .
This year, most fires occurred in rural areas. While some oil wells were halted, overall damage to the oil industry was 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 an analysis by TD Bank.
But there’s still a long, hot summer ahead. And the insurance industry is on the alert, having watched with concern the escalating claims in recent years. Prior to 2009, insured losses in Canada averaged around CA$450 million per year, today they routinely exceed US$2 billion. Major reinsurers withdrew from the Canadian market after several crippling payouts, resulting in higher prices for homeowners and businesses. That doesn’t even include life insurance costs likely to arise from excessive heat and smoking-related respiratory disease.
Craig Stewart, vice president of federal affairs at the Insurance Bureau of Canada, said climate issues have become a key concern for the organization over the past decade.
“In 2015, we sent our CEO across the country to talk about the need to prepare for a different climate future,” Stewart said. “Back then, we had the Calgary floods two years earlier in our rearview mirror. We were like, ‘Oh, in two to three years we’re getting another event. We never imagined that we’re now seeing two or three catastrophic events in the country a year.’
Because of this, the industry pushed hard for the Canadian government to deliver a comprehensive adaptation strategy, which was released in late June. She recommends measures such as investing in urban forests to reduce the health impact of heatwaves and developing better flood maps to help people avoid construction in vulnerable areas. Fire and forest experts are calling for the restoration of the forest service, which has been decimated by years of austerity measures, and the expansion of mandatory burnings – all of which cost a lot of money.
Halifax Mayor Mike Savage doesn’t need convincing that the spending is necessary. His city was the largest city to experience fire damage that spring, with 151 homes burned. This disaster followed last year’s Hurricane Fiona, which inundated much of the coast. Mr. Savage worries about the fate of the isthmus connecting Nova Scotia to New Brunswick and the energy systems, which now peak in the hot summer instead of the cold winter.
“I firmly believe that investing in climate action can have dramatic positive impacts,” said Mr. Savage. “It will be a challenging time. To think we’ve survived the fire and to say, “Okay, that’s good, we’re done,” that would be a bit naïve.”