Climate adaptation experts are urging more support to help Canadian municipalities assess and redress their climate risk, as a new study warns that U.S. municipalities are increasingly exposed to a vicious climate-debt cycle.
The US$4.2-trillion municipal bond market currently funds over 70% of U.S. infrastructure debt financing and has long been considered the "safe-as-houses" path for municipalities in that country to finance big projects like water treatment plants.
For decades, both bond-issuing municipalities and investors have proceeded with confidence that municipal tax bases would secure stable, predictable debt repayment and returns.
But that assumption is now increasingly threatened as climate impacts undercut property values, and in turn, those all-important municipal tax bases, says a recent analysis [pdf] by Northeastern University's Sustainability and Data Sciences Laboratory (SDS Lab) in Boston.
U.S. communities that are both cash-strapped and highly vulnerable to climate impacts are in particular peril of what the SDS Lab researchers call the "climate-debt doom loop."
Ever more exposed to climate impacts, such communities see property values, and therefore tax bases, shrink, even as their borrowing costs increase, leaving them less able to fund infrastructure improvements that might protect them.
Canadian municipalities don't yet rely much on the bond market to finance infrastructure, so the spectre of a "climate debt doom loop" is likely not keeping many policymakers up at night.
Primary municipal revenues "remain property taxes, development charges, water and sewer fees, investment income, and provincial and federal grants/transfers," the Royal Bank of Canada says in its Winter 2025 review [pdf] of Canada's municipal bond market.
But the country's bond market is growing. Market trading volumes reached their highest level on record in 2024 at C$49.4 billion, an increase of nearly 20% over 2023 volumes, reports RBC. In 2014, the sector was valued at just C$26.3 billion.
Importantly, the debt issuances now in play are considered very safe bets: "prudent fiscal management, modest debt loads, and capacity to raise tax revenues are some of the reasons for the persistently strong credit of the sector," the report states.
The U.S. is currently US$3.7 trillion short of the $9.1 trillion required to bring its infrastructure back into a state of good repair, while Canada's infrastructure deficit is currently estimated at around $270 billion, says the Federation of Canadian Municipalities (FCM).
In both countries, there is widespread expert consensus that climate change poses an existing and rapidly increasing threat to public infrastructure.
"Aging systems are strained and increasingly vulnerable to flooding, fires, sea-level rise, and extreme heat," writes the Canadian Infrastructure Council, which oversaw the publication of Canada's first National Infrastructure Assessment in November.
"At the same time, new infrastructure is often built, or even rebuilt, without sufficient consideration for long-term risks, including climate resilience," the council adds.
The costs of such neglect will be high. "Without proactive adaptation, climate impacts could cost the Canadian economy $78 billion annually by mid-century, even under a low-emissions scenario," warned the Canadian Climate Institute (CCI) in a May 2023 report.
Meanwhile, the benefits that will accrue from proactive adaptation are manifold. Estimates of benefit-to-costs ratios range as high as 15:1 "when indirect macroeconomic benefits are included as well as direct avoided costs," the CCI report added.
But effective climate adaptation requires that communities have a detailed sense of their particular climate risks. For too many Canadian municipalities, limited capacity and expertise keep that knowledge out of reach.
Of the 53 municipalities evaluated in Climate Reality Canada's latest National Climate League report, only 25 had climate adaptation plans. Of those 25, 13 have populations greater than 100,000.
"When we work with smaller municipalities, there may just be one person covering everything, from roads to buildings to water, with no expertise, no budget, no resources," Kathyrn Bakos, managing director of finance and resilience at the University of Waterloo's Intact Climate Centre on Climate Adaptation, told The Energy Mix.
"No fault of theirs. It's just the situation they're in," Bakos added.
So the Intact Centre produced a series of free resources to help capacity- and expertise-strapped communities adapt to climate impacts as best they can, including:
A Municipal Flood Risk Check-Up tool consisting of 50 questions to help communities assess and reduce their exposure to flood hazards;
Municipal Flood Risk Check-Up Training Videos to help staff maximize the value of the check-up tool;
Two infographics designed to help Canadian households get a handle on their flood and wildfire risk and learn how to build resilience.
Meanwhile, applications for admission to the Waterloo Climate Institute's Municipal Climate Adaptation Certificate program are now open, with courses beginning in June.
Since it seriously entered the climate fight back in 2016, the federal government has allocated $41.8 billion to climate mitigation and $4.1 billion to climate adaptation. Latest estimates call for $5.3 billion per year to help municipalities build and rebuild climate-resilient infrastructure.
The municipal bond market may be assuming a bigger role in local climate resilience, after Ottawa and Toronto issued sustainable/green bonds totalling $220 and $200 million, respectively. Both bonds list climate adaptation measures as eligible projects.
But in today's green/sustainable market, funding for local resilience remains thin on the ground because, unlike mitigation-focused bonds, adaptation is "hard to monetize," Ryan Ness, director of adaptation research at the Canadian Climate Institute (CCI) told The Mix.
Whereas a measurable cash flow can be determined from, say, savings that accrue from energy efficiency projects, the same cannot be said when it comes to resilience measures designed to protect against climate impacts that "might happen next year, might happen in 25 years."
Ness said accredited resilience bonds may yet become available in Canada, adding that the CCI is helping to establish clear guidelines for such a financing tool.
For now, a concerted effort is being made to attract more private investment directly into the climate adaptation space. CCI has a deep dive [pdf] into the topic, and the Co-Operators insurance company is tackling it through its Resilience Acceleration Lab.
Source: The Energy Mix
