Canada’s wildfires have destroyed 20 million hectares, smoked Canadian and American cities and caused 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 disrupted oil and gas operations, reduced available timber harvests, dampened the tourism industry and imposed innumerable costs on the national health system.
Those losses are symbolic of the pressure felt more broadly as countries around the world experience disaster after disaster due to extreme weather, and they will only increase as the climate warms.
What had long seemed a distant concern has been sharply relieved in recent years, as billowing smoke engulfed large swathes of North America, floods washed away neighborhoods, and heat waves strained power grids. That incurs billions of dollars in costs, as well as longer-lasting consequences, such as insurers pulling out of 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’s becoming clear that increasing volatility — ice storms followed by fires followed by heavy rainfall and now hurricanes on the Atlantic coast, unusual so far in the North — is negating any potential gains.
“It’s moved 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 have always been concerned about this escalation of damage, but it is so grim 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 $25 billion by 2025, cutting economic growth in half. By the middle of the century, they predict a loss of 500,000 jobs, mainly from excessive heat that lowers labor productivity and causes premature deaths. Then there are the higher costs to households and higher taxes needed to support government spending to repair the damage – especially in the north, where thawing permafrost is cracking roads and buildings.
It’s too early to know the cost of the current fires, and the fire season is still several months away. But the consultancy Oxford Economics has forecast it could drain between 0.3 and 0.6 percentage points of Canada’s economic growth in the third quarter – a big hit, especially as 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 going into a recession, and this would only make things worse,” said Tony Stillo, director of economics for Canada at Oxford. “If we saw these fires really disrupting transportation corridors and disrupting power to major population centers, you’re talking about even worse consequences.”
Estimates of overall economic resilience are based on damage to particular industries, which vary by disaster.
For example, the recent fires have shut down some sawmills as workers have been evacuated. It’s not clear how widespread the damage to forest resources will be, but provincial governments tend to reduce the amount of wood they harvest after major fires, said Derek Nighbor, CEO 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.
While lumber prices have been under pressure in recent months as higher interest rates weigh on homebuilding, Canada faces a housing shortage as it tries to attract millions of new immigrants. Due to the reduced availability of wood, the housing problem will be more difficult to solve. “It’s safe to say there will be a supply crisis in Canada as we work through this,” said Mr. Nightbor.
The tourism industry is also affected, as the fires broke out just as operators entered the crucial summer season – sometimes far from the fires. Trade collapsed on the Tofino Peninsula, a popular whale-watching destination off the coast of Vancouver Island, when the only highway access was closed by a fire two hours away. The road has since reopened, but only one lane at a time, and drivers have to wait up to an hour to get through.
Sabrina Donovan is the general manager of the Pacific Sands Beach Resort and the president of Tofino’s local tourism promotion organization. She said her hotel’s occupancy rate fell from 85 percent to about 20 percent during June and few bookings came in for the rest of the year. Employers usually house their staff during the summer, but after weeks without customers, many employees moved elsewhere, making it difficult to maintain full service in the coming months.
“This most recent fire has been quite devastating to the majority of the community,” Ms Donovan said, noting that the coast had never experienced bushfires in her career. “This is something we now have to think about going forward.”
Regardless of the severity of any given episode, costs add up as disasters move closer to critical infrastructure and population centers. That’s why the two costliest years in recent history were 2013, when Calgary was hit by major flooding, 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 fires occurred in rural areas. While some oil wells have been disrupted, damage to the oil industry is generally minor. The bigger long-term threat to the industry is declining 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 another long, hot summer ahead. And the insurance industry is on alert, having watched with alarm the increasing claims of recent years. Prior to 2009, insured losses in Canada averaged about $450 million Canadian dollars per year, and now routinely exceed $2 billion. Major reinsurers pulled out of the Canadian market after several crippling payouts, driving up prices for homeowners and businesses. That’s not even counting the life insurance costs likely to be incurred from excessive heat and smoke-related respiratory illnesses.
Craig Stewart, vice president of federal affairs for the Insurance Bureau of Canada, said climate issues have become a primary 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,” said Mr. Stewart. “At the time, we had the Calgary floods two years earlier in the rearview mirror. We thought, ‘Oh, we’re going to have another event in two to three years.’ We could never have imagined that we are now experiencing two or three catastrophic events a year in the country.”
That is why the industry has been urging 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 that help people avoid building in vulnerable areas. Fire and forestry experts have called for the forest service, decimated by years of budget cuts, to be restored and prescribed burns to be scaled up – all of which is costly.
Mike Savage, the mayor of Halifax, doesn’t need to be convinced the spending is necessary. His city was the largest to suffer fire losses this spring, with 151 homes burning. That disaster came on the heels of Hurricane Fiona last year, which flooded much of the coastline. Mr. Savage worries about the fate of the isthmus that connects Nova Scotia to New Brunswick, and about the power systems that now peak in the hot summer instead of the frigid winter.
“I certainly believe that when you invest in mitigation, there is a dramatic positive impact from those investments,” Mr Savage said. “It will be a challenging time. To think we’ve come through this fire and say, ‘Okay, that’s good, we’re done,’ that would be a little naive.”
