The Dollars and Cents of a Changing Planet

Ashleay: Welcome to iA Financial Group's “In Your Interest podcast” in summer mode, where our goal is still to share with you the essentials of economic news and its impact on your finances. I'm your host, Ashleay in vacation mode—so away from the studio—but still in the company of my colleague, Sébastien Mc Mahon, our Senior Economist and Chief Strategist. So, Sébastien, is it true that climate change is coming for our wallet? Can you tell us what we should do to offset these rising costs?

Sébastien: Yes. Climate change is a very important topic in the summer of 2023: forest fires, floods, Greek islands being evacuated. There's been a lot of things on the news that remind us that climate change is not just something to worry about in the future; climate change is here and is having a real impact on our lives. So right off the bat, there's a study that I'm using here from the Canadian Climate Institute, stating that within the next three years—so by the end of 2025—each Canadian could be $700 worse off per year due to escalating climate change. So it's not like you're going to be writing a $700 cheque, but the cost of living will amount to about $700 a year more. And we're already starting to pay for some of these extra costs. We recorded a podcast recently on food inflation, reminding everyone that it's not just about local factors like the profit margins of retail chains, but it's also reflecting the fact that climate change is putting pressure on our global supply chain. For example, it's becoming harder and harder in certain countries to harvest grains and stuff like that, which is really pushing the grocery bill higher around the world. So, this inflation is eating into your purchasing power, making you worse off because of changes we’re already seeing to the climate. In addition, those with homes and cottages that are in flood-prone areas or maybe in areas where there's more risk of forest fires could see a significant increase in insurance premiums related to climate change. These are things that we're already hearing about, but it could be more common over the next few years. We could, at some point, face tax hikes to pay for climate damages, to tackle the economic cost of dealing with all of these worsening natural disasters at some point. So this may impact the federal the provincial budgets and it will impact your taxes. The need for more resilient, greener infrastructure may arise and Governments may have to tax more to pay for the cost of climate-proofing our infrastructure. So you could be looking at all these costs. Some are here now, but others are—you know when you look into the future, you can easily see the path for climate change costing more and more and taking more money out of your wallet. So, this is the direct cost, but climate change is very much a problem now and it's already causing a drag on the economy. When you think about implicit costs—meaning a lost opportunity—, well, we’re already seeing that the economy is growing slower as a result of climate change. We can think about all of the resources that were used this summer to tackle the forest fires: This money could have been used in more productive ways to create jobs, to create growth. So, it's already making the economy grow slower. And these are the impacts that we're already facing. Research by CCI shows that as soon as 2025—so maybe in about two years from now—climate-induced damages will be slowing Canada's economic growth to the tune of about $25 billion annually. So that's $25 billion less growth compared to a scenario where climate change would not have been an issue. And this is equal to about half the expected annual growth of our economy. In other words, it's slowing the pace of the economy by 50%, which becomes huge numbers when stacked up over the long run. And beyond 2025, damages will escalate to potentially half a million jobs being wiped out by 2050 because of that. To be clear, this is not referring to jobs lost, but less jobs will be created: about 3 million jobs by the end of this century. So the economic cost is significant, it’s real and it’s likely going to grow. This is a very important topic. And remember, there are investment opportunities in green infrastructures and decarbonization efforts and all of that to think about too. But this was just a teaser, let's say, because this summer the impacts of climate change are everywhere in the news. We’ll be sure to tackle this topic in more detail over the next season here on the podcast.

Ashleay: Well, thank you, Sébastien, and thank you everyone. If you enjoyed this episode, we invite you to share it with your friends and family or give us your opinion on the listening platforms Apple, Spotify or Google podcasts. And if you feel liked it, send us your comments and suggestions on our social media platforms or by email at social@ia.ca. Thanks and see you next week for our next episode. Love this podcast? Want to know more about economic news? Follow our “In Your Interests” podcast, available on all platforms. Visit the Economic News page on ia.ca or follow us on social media.