A giant fireball is visible as a wildfire rips through the forest by Highway 63, 16 kilometres south of Fort McMurray, Alta on May 7, 2016.JONATHAN HAYWARD/The Canadian Press
Canada's economy is already taking a hit from global warming, including more frequent droughts and forest fires plus a burst of carbon-tax-induced inflation, a top Bank of Canada official says.
"Climate change and actions to address it will have material and pervasive effects on Canada's economy and financial system," deputy governor Timothy Lane said in a speech in Montreal Thursday.
The effects so far are relatively small, but will become more severe over the longer term. Mr. Lane cited federal government-sponsored research that estimates the annual costs to the Canadian economy will reach $21-billion to $43-billion within four decades. He said Canada is particularly at risk because it's a major oil and gas producer, manufactures autos and aircraft, and consumes more energy per capita than many other countries.
"Adapting to a lower-carbon economy will likely mean more profound structural changes for Canada than many other countries," he said.
Over the longer term, it's a "near-certainty" that the economy will grow more slowly than it otherwise would due to the effects of climate change, Mr. Lane said.
Climate change is a "downside risk" that will hang over the economy for some time, leaving the central bank in reaction mode, he added.
"We can react to events as they occur," he said. "But we cannot build them into our economic forecasts or adjust our monetary policy in advance because each is unique and unpredictable."
The cost of a warmer climate is already being felt, according to the central bank. Mr. Lane cited last year's devastating forest fires in Alberta, which subtracted about a percentage point from economic growth in the second quarter, as well as the mountain pine beetle infestation in western Canada's forests and the mining industry's inability to depend on some winter ice roads.
The central bank acknowledged this week that a burst of inflation in January was directly attributable to new carbon pricing policies in Alberta and Ontario.
But Mr. Lane said these carbon taxes will have only a transitory effect on inflation.
Mr. Lane said that carbon pricing also has direct "negative consequence" as consumers and businesses pay the price of reducing carbon emissions.
Mr. Lane acknowledged that carbon taxes "could result in a loss of Canadian competitiveness." But the impact can be mitigated by using the revenue to lower other taxes and by encouraging more efficient energy use.