Study on the impacts of climate change on municipal finances in Quebec

Municipal finances are vulnerable to the physical risks of climate change. However, the extent of this problem remains poorly quantified in Quebec, even today.

The purpose of this study is to measure the impact of climate change on the budget items of all Quebec municipal organizations by generating a broad overview of the current financial capabilities and limitations in three ways:

1.  Identifying and analyzing the vulnerabilities of municipal finances to climate-related hazards

2. Quantifying the risk of climate change on key municipal budget items

3. Recommending measures to increase Quebec municipalities’ financial resilience to the challenges of climate change

To quantify municipalities’ revenue and expenditures, the University of Sherbrooke research chair in taxation used an approach to presenting results similar to the Portrait des finances publiques locales au Québec [portrait of municipal finances in Quebec] (2020). 

This approach reflects the diversity of the financial situations of municipalities based on their population size. The trends of the main revenue sources and expenditures describe the details specific to the budget items as well as their possible interactions with a climate risk. The nature of the risk is discussed, supported by facts reported in the media or in the scientific literature.

Based on the findings of the Portrait des finances publiques locales au Québec, the identification and measurement of the historical vulnerability of budget items was carried out. To capture the expected impacts of event-based risks and chronic risks, two approaches were used, particularly because the data in the financial reports produced by the municipal organizations did not allow the interaction between the various financial and climate indicators to be measured for chronic risks.

Summary of methodological approaches to estimate the expected impacts of climate change on municipal finances. Only available in French.

Our statistical analysis of extreme weather events reveals that it is impossible to draw a definitive conclusion on the generalized vulnerability of Quebec municipalities’ revenues. Nevertheless, numerous research studies demonstrate the negative effect of physical climate risks on real estate, which is closely linked to the dynamics of property taxation. In addition, the overview of municipal finances shows little room for organizations to generate revenue independently. It also demonstrates taxpayers’ wish to live in a municipality with balanced finances. However, this may become increasingly difficult due to sustained (and sometimes unpredictable) increases in spending.

Thus, the revenue recommendations are more focused on enabling the organizations to meet the rising costs of climate change than on offsetting potential revenue losses. The cost of climate change to municipalities will be in the billions for years to come. 
The table below presents the main recommendations based on the findings of our study. They aim to strengthen the resilience of municipalities and of Quebec society.

These recommendations are organized based on three principles, which are identified in the left-hand column.

Annual per capita cost of climate change for municipal infrastructure: 2025-2035 (available in French only).