Bank of Canada plans new tools to assess climate impact on economy

By Julie Gordon

OTTAWA (Reuters) – The Bank of Canada said on Wednesday that it will develop new models and data sources to better understand how climate change is impacting Canada’s economy, and said it would include these findings in its quarterly forecasts to help markets price risks.

The central bank, in a release tied to the UN’s COP26 global climate summit, said it will assess how more frequent severe weather events and the transition to low-carbon growth affect Canada’s potential output, the labor market and inflation.

“Climate change and the transition to a low-carbon net zero economy will have significant macroeconomic consequences, touching every region and sector of the Canadian and global economies,” the bank said in a statement.

“It will also have implications for structural change, the growth of potential output, and price stability,” it said.

Increases in the frequency and severity of extreme weather events, along with the low-carbon transition, pose significant risks to Canada’s financial system and the central bank will aim to help markets price those risks, the bank added.

It committed to four steps, including developing new models and data sources, evaluating the Canadian financial system’s exposures to climate risk and to measure, mitigate and report on its own operational risks related to climate change.

The Bank of Canada also pledged to work with domestic and international partners on issues like climate disclosures and the climate transition for countries with large resource sectors, like Canada.

Canada is the fourth-largest oil producer in the world, with much of its output coming from the carbon-intensive oil sands.

(This story corrects final paragraph to show Canada is world’s fourth-largest oil producer, not fifth)

(Reporting by Julie Gordon in Ottawa; Editing by Andrea Ricci)

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