Chapter5- Canada in a Changing Climate: Sector Perspectives On
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CHAPTER 5: INDUSTRY INDUSTRY Lead Authors: Paul Kovacs and Jason Thistlethwaite (Institute for Catastrophic Loss Reduction) Contributing Authors: Daniel Scott (University of Waterloo), Bob Oliver (Pollution Probe) Recommended Citation: Kovacs, P. and Thistlethwaite, J. (2014): Industry; in Canada in a Changing Climate: Sector Perspectives on Impacts and Adaptation, (ed.) F.J. Warren and D.S. Lemmen; Government of Canada, Ottawa, ON, p. 135-158. TABLE OF CONTENTS Key Findings ...........................................................................................................137 1. Introduction ........................................................................................................138 2. Economic Context ..................................................................................................138 2.1 Insurance ................................................................................................138 2.2 Tourism ..................................................................................................139 2.3 Residential Construction .................................................................................139 2.4 Manufacturing ...........................................................................................139 2.5 Trade .....................................................................................................140 3. Overview of Findings from Past Assessments ........................................................................140 4. Risks, Opportunities and Adaptation ................................................................................142 4.1 Insurance ................................................................................................142 4.2 Tourism ..................................................................................................146 4.3 Residential Construction ..................................................................................149 4.4 Manufacturing ...........................................................................................152 4.5 Trade .....................................................................................................153 5. Conclusions and Moving Forward ...................................................................................154 References ............................................................................................................155 KEY FINDINGS There is relatively little published research describing climate impacts on Canadian industry, or assessing industry’s response in terms of adaptation, despite some potentially significant economic implications. The impacts of climate change and the adaptive actions taking place are best documented in the more weather-sensitive industries, such as property insurance and tourism. There are potential opportunities through expanded markets and products for these sectors if they successfully implement adaptive actions. For the industry sector as a whole, available information indicates: • Industrial activity is sensitive to variation in weather and extreme events, with considerable differences in the types and extent of impacts on production, operations, and revenue between and within sectors. • Changes in industry practices have been predominantly reactive, responding to variation in the weather or extreme events, rather than proactive anticipation of future climate change. Examples of adaptation tend to be isolated rather than representative of a clear trend within the sector. • Adaptive actions implemented by industry vary widely by sector, and may be under-reported for strategic reasons. Tourism and insurance could take advantage of potential opportunities through adaptive actions. • There is little published research about indirect impacts of climate change on industry, such as changes associated with consumer demand, supply chains, real estate or other assets, adaptation by other sectors, legal liability or government regulation. • Barriers towards effective adaptation include limited information on local impacts to businesses, uncertainties about the costs and benefits of different adaptive actions, and limited market demand for the implementation of adaptation. Chapter 5: Industry 137 1. INTRODUCTION This chapter assesses the impact of variation in weather and indirect impacts, including changes affecting consumer weather extremes on Canadian industry, and prospects for preferences, government regulation, or financial and legal adaptation to reduce the risk of adverse impacts or realize liability associated with ineffective or lacking response to the potential for gain both currently and under anticipated climate change. For the most part, industry has yet to develop climate change. It focuses on five industries – property effective adaptive approaches to reduce sensitivity to these insurance, tourism, residential construction, manufacturing, impacts. There is evidence, however, that industry does and trade – and does not address industries discussed respond to existing extreme weather and climate variation elsewhere in the assessment, including power generation, through adaptive actions, such as changes in building codes forestry and mining (Chapter 3), agriculture (Chapter 4), or supply-chain management, which could be used to health care (Chapter 7), and transportation (Chapter 8). promote adaptation to climate change. Climate change also offers market opportunities through the provision of new Available adaptation research tends to focus on sectors services and products for some sectors, but realizing these with clear relationships with ecosystems or inputs that are opportunities is contingent on effective adaptation. sensitive to climate change, such as agriculture, forestry and water management (Willbanks et al., 2007). There is relatively little published research concerning other service or goods producing sectors. This chapter provides a sample of industrial activity in these other sectors in Canada. Some, such as insurance and tourism, have growing bodies of Canadian and international research, while others such as residential construction, manufacturing and trade remain under- analyzed. Proprietary concerns about disclosing information that could hurt competitiveness has been cited as one reason why there is not more information available on adaptation strategies across industry (Agrawala et al., 2011). Of the sectors discussed in this chapter, insurance and tourism are most exposed to climate change impacts, and are the most advanced on developing adaptive actions. Manufacturing and residential construction are less exposed to these impacts, and have only recently started to consider climate change adaptation. Trade markets are arguably the least vulnerable of the sectors discussed, and there is very little evidence that export sectors are developing adaptive actions (Figure 1). Climate risks for Canadian business include direct impacts, FIGURE 1: The exposure of each sector to climate change impacts, such as damage or costs linked with extreme weather, and compared to their observed adaptive actions. 2. ECONOMIC CONTEXT In 2011, Canada’s Gross Domestic Product (GDP) grew to services, and tourism. Tourism and insurance account for exceed $1.7 trillion (Industry Canada, 2011). About one third 5 to 15 percent, respectively, of the service industry in of Canadian production is in goods producing industries Canada (Industry Canada, 2011). – including agriculture, oil and gas extraction, mining, forestry, construction and manufacturing. Manufacturing and construction account for the majority of goods production in 2.1 INSURANCE Canada (75 percent by sales) and are assessed in this chapter. About two thirds of Canadian production and employment is Insurance companies had $116.6 billion in income in 2011, in service industries – including banking and insurance, the ninth largest of Canada’s 22 industries (Statistics Canada, retail trade, transportation, schools, hospitals, other public 2012a). Insurance includes a number of different sub-sectors 138 Canada in a Changing Climate: Sector Perspectives on Impacts and Adaptation including life and health, and property and casualty insurance Province and 2011 Gross Domestic 2011 Tourism companies. Some insurance sectors, such as life insurance, do Territory Product (2002 Employment (Jobs) not currently appear sensitive to variation in the weather (Mills Constant $) et al., 2001). However, property insurance, and to a lesser extent Newfoundland $316M 8136 auto insurance, experience significant swings in costs and earnings with weather variation. In fact, weather damage claims Prince Edward Island $121M 2866 have recently emerged as the largest expense for property Nova Scotia $683M 16 636 insurance companies in Canada (IBC, 2012a; McBean, 2012). New Brunswick $438M 12 090 Climate change and the potential increase in the frequency Quebec $5357M 130 018 of severe weather has emerged as a significant priority Ontario $9797M 226 781 for property insurers (McBean, 2012; Robinson, 2012). Manitoba $903M 22 628 The property insurance sector also provides risk-transfer services that generate economic incentives that support Saskatchewan $677M 18 063 adaptation throughout the economy. For these reasons, Alberta $3063M 69 308 this chapter focuses on the Canadian property insurance British Columbia $4913M 96 877 sector. Property insurance companies have been operating in Canada for more than 200 years. Several hundred companies Yukon/Northwest $147M