How Will We Cover the Costs of Climate Change?
Development and Innovation The need to upgrade water infrastructure is clear, but how we can we ensure we finance these projects in the most sustainable manner possible?
As Canadians, we expect high-quality water systems that are operated in a fiscally responsible manner. However, it’s going to become more and more difficult for utilities to “balance the books”, given the climate change challenges that lie ahead.
Some problems, like Canada’s aging water infrastructure, have been years in the making. Yet fixing it will cost billions of dollars, and it’s a problem that we can’t keep putting off. When infrastructure fails, service levels, public safety, and costs can be impacted. Energy costs have also skyrocketed, with some utilities facing 70 to 140 percent increases. Water and wastewater utilities in the City of Toronto use more than two million gigajoules of energy per year — these increases add up.
Utilities also need to consider future risks. The potential impacts of climate change, such as flooding, freezing, wildfire, or drought, can carry huge price tags for recovery, repair, and rebuilding.
Municipalities that have experienced climate extremes are preparing for this new reality. As Rob Spackman, Director of Water Resources at the City of Calgary, explains, “We are investing in measures to reduce disaster risks and strengthen resilience for future climate conditions. Rainfall intensity is increasing, so reducing existing exposure and preventing further exposure is integral to our decision-making process. Calgary is currently upgrading the gates on Glenmore Reservoir to increase storage along the Elbow River, which is critical for both flood and drought conditions. Our community drainage improvement program also aims to reduce the risk of storm water flooding.”
Currently, the model most utilities use to finance their systems follows a fee-for-service format. Though households and businesses pay for the water they use, the current rates may not cover all costs — particularly as Canadians adopt water conservation. These rates are based on consumption, so when people use less water, utility revenues decline. The bulk of the costs for water and wastewater treatment remain consistent, independent of volumetric use. Given the reality of escalating costs and the future risks of climate change, the current funding model is no longer sustainable.
To mark World Water Day on March 22, Canadian Water Network (CWN) released a new report on the financial sustainability of Canada’s water systems. This report looks at current utility practices and identifies a menu of opportunities for government regulators and utilities to consider, including new rate structures, building climate change resiliency into financial planning, finding energy savings, reducing gaps in system knowledge, improving asset management data, and adopting advanced metering technology.
Canada’s water and wastewater utilities will need to squeeze on both ends — finding cost savings but also spending more. As they pivot to new approaches, municipalities will need to invest wisely and proactively. These are collective investments that will impact all of us, which is why Canadians should read the CWN report and engage with local city councillors and utilities to ask and answer two fundamental questions: “What is water worth?” and “How will we pay for the systems we want and need?”