Economic Impacts of Flooding

Flooding is Canada’s most costly type of natural disaster [i]. Flooding is responsible for extreme damage and destruction to property, public areas, and the environment which incurs enormous costs for government. In addition to damage costs, flooding results in lost productivity, reduced hours worked, and losses in GDP, due to the need for resources to be put toward recovery efforts and away from daily activities.

In 2015, the Parliamentary Budget Office reported that flooding cost the Federal “Disaster Financial Assistance Agreements” (DFAA) program $673 million between 2005-2014 [ii]. Between them, Alberta, Saskatchewan, and Manitoba represented 80% of DFAA weather costs over that period. It is worth noting that these costs do not represent the full cost of flooding, only the federal taxpayers’ contribution to those costs. The costs are also increasing as the number of catastrophic weather events increases, due to a changing climate. In previous decades, “the cost of weather-related disasters was roughly equivalent to one per cent of Canada’s annual gross domestic product (GDP) growth. In the last decade, disaster costs have climbed to between five and six per cent of annual GDP growth.” [iii], p.iii. A 2020 report suggests that that some 836 thousand (~7.7%) Canadian properties are at a “high risk” of flooding [iv], Table 1.

Estimating the costs of flood damage is very difficult. Typically, effects are grouped into either “Tangible Direct Damage” effects, such as physical damage to which a dollar value can be assigned, or “Intangible and Indirect Damage” effects, such psychological trauma and loss of life to which assigning a price-tag is more difficult. This page will not dive into the technical details underlying such estimates, but a useful background report can be found here [v]. Some examples of the issues considered in each group follow.

Tangible Direct Damage

Infrastructure damage

Infrastructure damage refers to the obvious damage to things such as buildings, roads, bridges, urban infrastructure, and private property, etc. Some of these losses may be insurable through flood insurance or covered by taxpayer-funded disaster recovery programs, such as the federal DFAA mentioned above, or provincial and territorial programs, such as Alberta’s Disaster Recovery Program [vi] or Ontario’s Disaster Recovery Assistance [vii].

Temporary or Permanent Loss of Business/Wages

When catastrophic flooding occurs, normal economic activity is severely disrupted. For example, in the Southern Alberta June 2013 flood, businesses along the Bow, Elbow, Highwood, and Oldman Rivers, as well as local tributaries, were forced to shut down and evacuate. Southern Alberta’s largest city centre, downtown Calgary, was forced to shut down for nearly one week in order for flood waters to recede and for the area to be considered safe for re-entry. While many Albertans were able to continue working remotely or from home, many industries, such as the service industry, were unable to work from home, resulting in lost revenue and wages. Analysis from Statistics Canada found that in the final two weeks of June, approximately 300,000 Albertans (13.5% of the employed population in Alberta) lost 7.5 million hours of work [viii]. Total hours lost by each industry is shown below:

Given the amount of work hours lost due to the June 2013 flooding, the Government of Alberta could determine that approximately $485.3 million in real GDP was lost in the final two weeks of June [x]. In addition to the economic losses experienced by businesses, local charities and non-profits also saw a decline in financial support as donations went to flood relief instead.

While wage and productivity losses are most pronounced in the immediate period of a flood, some businesses find recovery takes many months, or they simply never re-open. The impacts of flooding can be devastating for any city, region, or country, and the resultant economic losses can be damaging to the overall economy and well-being of citizens. However, the recovery and rebuilding efforts that occur after a flood may compensate for lost revenue and/or business that occurred during the flood.

Intangible and Indirect Damage

Indirect damage includes things such as “costs of evacuation, employment losses, administrative costs, net loss of normal profit and earnings to capital, management and labour, general inconvenience, etc.” [xi], p.7.

Increase of Business

Paradoxically, flooding (or any other disaster) can also be good for some businesses. Southern Alberta’s June 2013 flood resulted in an increase in business outside of the flood zone and, despite negative economic impacts, resulted in a GDP boost for Alberta, due to reconstruction efforts [xii], p.4. Businesses located outside the flood-impacted areas or evacuated zones may have experienced an increase in business, as flood-affected businesses were unable to provide goods and services. While the flood had direct negative impacts on Alberta’s economy, indirect impacts increased business activities both outside of the flood zone and after flood waters receded.

However, as a general principle, investing in mitigation to reduce disaster risk is significantly more cost-effective than paying the costs of the damage after the event [xiii], [xiv].

Sources:

[i] Natural Resources Canada, 2022, Flood mapping.  https://natural-resources.canada.ca/science-and-data/science-and-research/natural-hazards/flood-mapping/24223.  Accessed 2023-05-02.

[ii] Office of the Parliamentary Budget Officer, 2016, Estimate of the Average Annual Cost for Disaster Financial Assistance Arrangements due to Weather Events.  https://qsarchive-archiveqs.pbo-dpb.ca/web/default/files/Documents/Reports/2016/DFAA/DFAA_EN.pdf.  Accessed 2023-05-02.

[iii] Canadian Institute for Climate Choices, 2020, Tip of the iceberg: navigating the known and unknown costs of climate change for Canada.  https://climatechoices.ca/wp-content/uploads/2020/12/Tip-of-the-Iceberg-_-CoCC_-Institute_-Full.pdf.  Accessed 2023-05-02.

[iv] The Geneva Association, 2020, Flood Risk Management in Canada: Building flood resilience in a changing climate. https://www.genevaassociation.org/sites/default/files/frm_canada_web.pdf.  Accessed 2023-05-02.

[v] Natural Resources Canada, 2021, Federal Flood Damage Estimation Guidelines for Buildings and Infrastructure.  https://publications.gc.ca/collections/collection_2021/rncan-nrcan/M45-124-2021-eng.pdf.  Accessed 2023-05-02.

[vi] Alberta Disaster Recovery Program.  https://www.alberta.ca/disaster-recovery-programs.aspx.  Accessed 2023-05-02.

[vii] Ontario Disaster Recovery Assistance.  https://www.ontario.ca/page/apply-disaster-recovery-assistance.  Accessed 2023-05-02.

[viii] Government of Alberta, 2013, Impact of Southern Alberta Flooding on Hours Worked and GDP . https://open.alberta.ca/publications/impact-of-southern-alberta-flooding-on-hours-worked-and-gdp.  Accessed 2023-05-02.

[ix] Ibid. p.2

[x] Ibid. p.3.

[xi] IBI Group, 2015, Provincial Flood Damage Assessment Study City of Calgary: Assessment of Flood Damages.  https://open.alberta.ca/dataset/6dc8a8d0-d963-42e7-ada0-3bd90c6ea2e7/resource/06e9ddfd-173b-412c-bfcf-58dc8bae129b/download/pfdas-calgary-main.pdf.  Accessed 2023-05-02.

[xii] Government of Alberta, 2013, Impact of Southern Alberta Flooding on Hours Worked and GDP . https://open.alberta.ca/publications/impact-of-southern-alberta-flooding-on-hours-worked-and-gdp.  Accessed 2023-05-02.

[xiii] World Bank, 2022, Economics for Disaster Prevention and Preparedness: investment in Disaster Risk Management in Europe make economic sense.  https://documents1.worldbank.org/curated/en/873811622437677342/pdf/Summary-Report.pdf.  Accessed 2023-05-03.

[xiv] National Institute of Building Sciences, 2020, Mitigation Saves: mitigation saves up to $13 per $1 invested.  https://www.nibs.org/files/pdfs/ms_v4_overview.pdf.  Accessed 2023-05-03.