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Canada faces enormous physical costs from climate change. This makes net zero a great place to invest.
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Canada faces enormous physical costs from climate change. This makes net zero a great place to invest.

Two men wearing baseball caps position a solar panel on a roof.


Canada has been having a lot of discussions lately about the financial costs of achieving the country’s climate targets. Rightly so. The situation is urgent, and we must act now.

It will take a concerted effort to combat climate change, which will affect all sectors of the economy. While there will be tremendous economic opportunity and many new jobs in the green economic, there will also be significant disruptions in the workforce and major economic challenges.

We in finance like to look at both ends of the ledger. When one considers the damage to your finances, Canadian economyThe potential for fires, floods and melting ice caps, as well as loss of biodiversity, is what climate change will bring, making it very worthwhile to invest in greenhouse gas reductions.

Climate change has an impact on economic prosperity

In a new studyMy colleagues and I published a paper together with the Institute for Sustainable Finance. We argue that every day that climate change isn’t addressed, economic value is lost. Existing economic models agree that investment and change are necessary to avoid losses. There are still questions about how much value will be destroyed and how fast.

Our study modeled the physical risk to Canada and how much capital output might be lost under different warming scenarios. It was done between now, and the end of this century. Our study found that Canada’s cumulative cost would be $5.5 trillion if the climate were to heat 5 C by 2100 in a business-as usual scenario. This is assuming no new international mitigation measures for greenhouse gases.

That’s a big number. And it’s a lot higher than the damage we would see under a scenario where global warming is kept to 2 C, which we estimate to be around $2.8 trillion.

Two men wearing baseball caps position a solar panel on a roof.
Toronto workers install solar panels on a roof.

This is just the financial cost. It doesn’t take into account the suffering that will result from climate-related disasters to the lives of people who lose their homes, livelihoods, and even their lives.

Our study further revealed that physical damages are more costly than the investments required in reducing greenhouse gas emissions. In fact, the difference could be up to $45.4 trillion more than the investment. And this doesn’t even consider the potential economic benefits of transitioning to a low-carbon economy.

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Canada’s future in low-carbon economies: Canada faces the risk of losing sustainable finance

Yes, it is true that Canada can’t fight climate change on its own, and that it’s a global effort. Canada, a wealthy, industrialized country, has the opportunity to be a global leader and help us meet our climate change goals. Your net-zero targets.

It is important to act quickly

There is also an incentive to act now as we face inflection points in coming decades that will make it more difficult.

Our study showed that the cost of climate change damage is expected to rise gradually until 2050. At that point, there will be a sharp increase in all scenarios. There is an exponential rise in damage by 2070. These dates correspond with two of the important target dates for net zero that were noted by the Intergovernmental Panel on Climate Change (IGPCC) in its reports.

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Insurance is not enough: Governments must do more to ensure natural disaster resilience

Despite increased attention being paid to climate change, there has been little progress. It is becoming apparent that We are not moving at a fast paceTo limit global temperature rise to 1.5 C above preindustrial levels by 2100 IPCC estimatesOthers have suggested that, if the world meets all its commitments, then we are more on track for a 3 C warming scenario. There is a real danger that global warming will rise further.

This is bad news Canada, which is at twice the rate of global average warming and is highly vulnerable to the climate change impacts. But until now, we haven’t had an effective assessment of the physical risks and the potential capital cost to Canada.

We have a lot to lose. It should be obvious that tackling climate change will not only pay off in terms of avoiding physical damage, but also more.


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