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Canada's economy would be less hurt by climate change than other countries, Moody's says

Consulting firm Moody's Analytics says climate change will take a heavy toll on the world's economy, but not all countries are likely to pay an equally heavy price.

Consulting firm says climate change will come with winners and losers, economically speaking

A woman drinks water during sunset as a heatwave hits Cagnicourt, France, last month. The Moody's report says developed, northern hemisphere economies such as France's will fare comparatively better as the planet warms. (Pascal Rossignol/Reuters)

Consulting firm Moody's Analytics says climate change will take a heavy toll on the world's economy, but not all countries are likely to pay an equally heavy price.

In a new report, Moody's tried to assess the economic impacts that would entail if some of the more dire predictions of climate change come to pass in the coming decades. The report is based on the extensive report that the Nobel Prize-winning Intergovernmental Panel on Climate Change put out last fall, in which the UN agency laid out a number of dire predictions for what may be in store for the planet's climate in the years to come.

The main takeaway of that report is that it is basically already too late to hold the global temperature rise to just one degree Celsius — and concludes much bigger temperature rises are quickly becoming more likely, if not inevitable.

The IPCC report concluded that the economic impact of a two-degree rise in global temperature could be as much as $69 trillion US, and even limiting the rise to 1.5 degrees would come with a $54-trillion price tag.

The Moody's report took a deeper dive into those scenarios, and tried to break down how different parts of the planet would see their economies impacted by a hotter climate. Broadly, the Moody's report breaks the impact of a hotter planet into six areas:

  • Rising sea levels. 
  • Human health effects.
  • Heat effect on labour productivity.
  • Impact on crop yields and agriculture.
  • Tourism.
  • Energy demand.

Moody's then looked at all those factors, and tried to come up with the likely economic impact based on how bad things get. One scenario assumes the global temperature rises by one degree in the next century. A second assumes an increase of 1.9 degrees. A third assumes a 2.4-degree rise, while the most dire scenario assumes a 4.1-degree average increase.

As Moody's crunched the numbers, one trend quickly became clear: emerging economies in parts of the world that are already generally warm fare worse. Bigger, industrialized economies in the northern hemisphere generally fare better.

If the more dire predictions come to pass, no country will be hit as hard as Saudi Arabia, by Moody's calculations. "As the second largest oil producer in the world, Saudi Arabia is the most negatively affected country by climate change. Not only does it get hit on tourism and productivity, but the reduction in oil prices limits government revenue," the report says.

If the most dire scenario comes to pass, Saudi Arabia's economy will be more than 10 per cent smaller in 2048 than it would otherwise have been. Even under the best case scenario of just a one-degree uptick in temperature, the Saudi economy is expected to be 0.6 per cent smaller than it would otherwise be, three decades from now.

The Moody's report, by its own admission, didn't factor in the impact of natural disasters, such as Hurricane Florence that hit the North Carolina coast and produced this scene last summer. (Jonathan Drake/Reuters)

The second-most hard hit economy would be Hong Kong, largely because the Chinese territory is expected to lose a lot of valuable real estate to higher sea levels. "As sea levels rise, and destroyed land cuts rents, weaker income growth results in weaker consumer spending," Moody's said.

Among large economies, India is hit harder than anyone. Because of the country's large itinerant labour force "the country suffers greatly from the heat stress impact channel," Moody's said. "Agricultural productivity also falls, and the hit from human health effects is roughly equivalent to the hit from agriculture."

The impact on China, meanwhile, is fairly modest, with a loss of between -0.19 per cent in the best case scenario for the climate, to -0.62 per cent for the worst.

Other big losers are clustered in Southeast Asia, the Middle East and Africa, including Thailand, the Philippines, Malaysia, Kuwait, Indonesia, Russia, and Egypt, all of which can expect tough times ahead as the planet warms.

Winners and losers

But not only will some countries not have to pay as heavy a price, some are poised to actually come out ahead. That's a list that includes Canada. Across all temperature scenarios, Canada's economy is poised to eke out small gains, according to Moody's.

That's because when all the changes to things like tourism demand, crop yields and the growing season are factored in, there's a slight net positive.

Assuming a one-degree rise, Moody's forecasts a Canadian economy that's about the same in 2048 as it would otherwise be. If the impact is 1.9 degrees, the GDP impact inches up to 0.16 per cent. At 2.4 degrees, it's 0.1 per cent. And if the temperature rises by four degrees in the next three decades, Canada's economy is projected to be 0.3 per cent greater than it would otherwise have been.

The forecast for the U.S. is a bit of a wash, as the most optimistic temperature increase would hurt the U.S. economy to the tune of 0.9 per cent, while the most dire would see a 0.8 per cent expansion. "But it would be too simplistic to say that climate change does not hurt the U.S.," Moody's said, noting that some parts of the country would be badly hurt by disasters and rising sea levels, whereas others would benefit.

Canada and the U.S. aren't the only countries to come out relatively unscathed, in the economic aggregate. No country fared better than Luxembourg, where the economy is forecast to grow by between 0.45 and 1.07 per cent, across all scenarios.

By Moody's own admission, the report doesn't calculate a number of climate change impacts that are likely to affect the economy, including the increased likelihood of expensive natural disasters. The costs of those storms are already enormous, and growing quickly. 

As Moody's notes, "every dollar that federal lawmakers appropriate for disaster relief is a dollar that could have otherwise been spent on [programs] or rebated as a tax cut. Natural disasters drain the federal government of resources and exacerbate the nation's fiscal situation."

Nor does Moody's tabulate the economic impact of geopolitical risk from things like climate refugees.

"Slower economic growth in the most affected countries could prompt residents of those countries to relocate," Moody's said. "If the degree of emigration is large enough, it could put strain on certain countries that are receiving the immigrants," Moody's said, noting how immigration has already become a thorny political issue in the U.S.

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