The financial repercussions of climate change are already significant and it is time to integrate these risks into the management of Québec’s public finances.
Posted at 7:00 a.m.
This is the message, accompanied by an overview of best practices and a roadmap, that the Institut du Québec (IDQ) transmitted in its report submitted in December to the Quebec Ministry of Finance and that it published on January 26.
“It had been bothering me for some time, I had been thinking that there is no study in Quebec on the impact of climate risks and their cost in terms of adaptation,” says Mia Homsy, co-author of the report Integration of climate risks in Québec’s public finances and President and CEO of IDQ, a non-profit organization that publishes studies on socio-economic issues in Quebec.
The IDQ had submitted the project to the Quebec Ministry of Finance (MFQ) in response to the consultative call that the latter had launched to university economists in 2021.
“At the start, I candidly thought that we would be able to come up with something in figures, then think about the right tools to integrate this data into the budgetary framework”, continues the president.
PHOTO FRANÇOIS ROY, LA PRESSE ARCHIVES
Mia Homsy, co-author of the report Integration of climate risks in Québec’s public finances and President and CEO of the IDQ
Ambitions had to be restrained. “We are not at all able to have an overview of the risks and costs. We are much more at the stage of recommending to the government, like what is being done elsewhere, to initiate a truly structured [sur le plan] of the main risks, to qualify them, to quantify them, in order to then integrate them more formally into its budgetary framework. »
The effects of climate change are already being felt in more ways than one, and it is necessary to switch from reactive mode to preventive mode, advises Mia Homsy.
“There are more and more heat waves, she gives as an example. We must ensure that we provide our schools and hospitals with suitable air conditioning. We must expect that there will be erosion of the banks, roads that will probably no longer exist in 20 years. These thoughts need to be made. You can’t be passive, you have to be proactive. »
Two-tier risks
The risks for public finances are of two kinds. Transition risks are associated with the costs of shifting to a greener economy. Impact risks refer to the effects and consequences of climate change.
The 2017 and 2019 floods have already had a significant impact on the Public Security portfolio – financial assistance totaled $506 million – but several other departments must also plan for the impacts of climate change on their expenditures and revenues, argue the authors.
Crop insurance payouts due to the 2018 summer drought amounted to 60 million, an all-time high. Forest fires affect forest royalties.
“These are items of state income and expenditure that depend a lot on the climatic situation,” underlines Luc Belzile, principal economist at IDQ and co-author of the study.
The priorities
The IDQ study reviews the measures put in place by various countries that have already taken action to integrate climate risks into their budget process.
Switzerland, for example, has adopted a qualitative approach that allows it to report, without quantifying them, fiscal risks in its budget documents.
Other countries, such as Austria, Germany and Denmark, “go a little further by modeling the risks at the macroeconomic level to see what we can expect, in numerical and monetary terms, as an impact on State revenues and expenditures”, emphasizes Luc Belzile.
Failing to include climate risk management in all portfolios, the Quebec government should give priority to those where expenses and revenues are most exposed.
Thus, the IDQ report notes that the Quebec infrastructure plan (PQI) “does not formally consider the climatic hazards of the future”.
With regard to the costs of climate transition, the IDQ points out that the intermediate stages and the impacts by sector of the Plan for a green economy 2030 are not determined there, nor are its effects on public finances.
A roadmap
The report proposes a four-step roadmap, “inspired by all the practices that we saw elsewhere in the world”, indicates Luc Belzile.
First, the government will have to keep a watch on the rapid and incessant developments that occur in this area.
Then, in a qualitative approach, the departments and bodies will have to determine the most significant risks to which they are subject.
“In the subsequent stage, it is a question of engaging in more quantitative analyzes where we would be able to model the various impacts and the risks of transition”, adds Luc Belzile.
Finally, these quantified and modeled risks will be integrated and taken into account in public finances and the budgetary process.
“Quebec hasn’t missed the boat, comments Mia Homsy, but we have to start acting now so that we can do it in a structured and organized way. »