Canada's carbon pricing poses a $256 billion financial risk for borrowers and banks
- Media Manager
- Jun 11, 2023
- 1 min read
Phys.org
Written By: University of Waterloo
Published: June 12th, 2023
By putting a price on the cost of carbon, the Government of Canada aims to curtail greenhouse gas (GHG) emissions, but it comes with an increased risk for financial lenders and borrowers with high carbon emissions.
In a first-of-its-kind study, University of Waterloo researchers analyzed the effects of Canada's carbon price regime on the economy. The results indicate that as carbon costs rise, high-emitting carbon industries such as mining and energy are at the greatest risk of default, with total assets of $256 billion at risk of being lost and almost a quarter of the Canadian GDP exposed to climate risk.
The study exposes the grave uncertainty facing the Canadian economy and the value for financial lenders and regulators to assess carbon emissions and carbon price scenarios as part of the credit risk assessment procedure.
"Canadian banks are deeply involved in lending to carbon-intensive clients and have increased lending to those companies by billions of dollars despite their public commitments to support global climate goals," said Adeboye Oyegunle, Ph.D. candidate in the School of Environment, Enterprise and Development. "If we are not proactive, these investments could create increased costs, default rates and bad debt when you put these investments into context of the changing market and new government regulations."
