June 25, 2014
An Economic Impact Assessment of Future Low Water Levels in the Great Lakes and St. Lawrence River
If future Great Lakes and St. Lawrence River water levels remain near the low end of the historic range for sustained periods, what could this mean for the enormous regional economy that depends on the Great Lakes and St. Lawrence River? A new Mowat Centre study conducted for the Council of the Great Lakes Region (CGLR) assesses the possible long-term economic impacts on five of the region’s key economic sectors. We conclude that this impact could be considerable, potentially reaching $18.82 billion by 2050.
Following nearly three decades of higher than historic average water levels throughout the Great Lakes and St. Lawrence (GLSL) basin, water levels fell dramatically across the region in 1997-8. During the period between 1997-8 and 2012-3, for example, water levels in Lakes Superior and Michigan-Huron were substantially below historic averages. In January 2013, Lake Michigan-Huron reached its lowest levels since the United States and Canada began coordinated measuring and tracking of water levels in 1918.
Though less dramatic, lower water levels were also experienced in the rest of the basin over the same period. Water levels in the St. Lawrence River were below historic averages for 78 per cent of the total months between 1998 and 2012. Water levels in Lake Erie dropped below historic averages between 1998 and 2004, and since then have remained around historic averages, markedly below the preceding higher water period. Even the closely regulated Lake Ontario saw some of its lowest levels since regulation began in the 1960s during this period.
Water levels have rebounded to some degree throughout the region since 2013, aided in large part by the extensive lake ice coverage and snowfall and cooler temperatures this past winter across the basin. But it is unclear whether or not this rebound will constitute an end of the low water trend, or if it represents an outlier event, as recently suggested by National Oceanic and Atmospheric Administration’s (NOAA) Great Lakes Environmental Research Laboratory.
The continued health of the basin is crucial to the people of North America. The Great Lakes themselves contain about 20 per cent of the world’s surface freshwater supply, providing drinking water to some 40 million households. More than 3,500 species of plants and animals inhabit the basin, making it a unique and diverse ecosystem.
The basin’s ecosystem is obviously important to the entire continent, but the economic footprint of the region is also immense, with economic output of USD $4.9 trillion, accounting for 28 per cent of combined Canadian and US economic activity. Simply put, the lakes and their waterways bind together a complex economic, social and environmental system. We know, for example, that a prolonged and sustained decline in water levels would have significant impacts on the region’s ecosystem. But what would the economic impact of low water levels be?
However, according to the Great Lakes Integrated Science and Assessment Centre, a consortium between Michigan State University and the University of Michigan, “most climate models project that evaporation from the Great Lakes will outpace increases in precipitation,” and that “with more water leaving the basin than there is returning, the result could be less water remaining in the Great Lakes.”
Using a plausible and realistic worst-case future water levels scenario that projects water levels mostly at the low end of the historic range, we quantify the likely economic impact for the region’s key economic sectors. Our analysis suggests the economic impacts attributable to low water levels will be significant.
Our approach to economic analysis in this report is methodologically cautious, recognizing that data is unavailable in some sectors. However, given the variability and complexity of the basin, and given the data available and the uncertainty surrounding the state of hydro-climatic modelling, it is likely that our results underestimate the impacts of low water levels.
For instance, our study did not look at indirect impacts, nor could we include an economic analysis of how low water levels will impact manufacturing, commercial fishing, human health, ecological services, and other non-market goods, due to methodological reasons.
Nevertheless, the estimated direct economic impact of low water levels in the future in selected sectors is sobering: $9.61B over the period from the present through 2030 and $18.82B over the period from the present through 2050. The sectors that would be most affected include:
» Recreational boating and fishing
$6.65B total through 2030 and $12.86B total through 2050.
» Commercial shipping and harbours
$1.18B total through 2030 and $1.92B total through 2050.
» Hydroelectric generation
$951M total through 2030 and $2.93B total through 2050.
» Residential waterfront property values in Ontario municipalities adjacent to GLSL shores
$794M total through 2030 and $976M total through 2050.
» Rural groundwater users
$28M total through 2030 and $35M total through 2050.
Although many of these impacts would be felt across the basin, different parts of the region would experience impacts in varying degrees in line with historical experience to date, depending on factors such as local climate and water conditions and the local economic mix. Towns, cities, and regions that rely more heavily on the shipping industry, on recreational boating and fishing activities or seasonal cottagers, and on hydroelectric generation, are the most vulnerable. For example:
» Jurisdictions relying on hydroelectric generation from the Niagara River, the Welland Canal, and Lake Ontario shores could face $951M through 2030 and $2.83B through 2050 in costs to replace lost hydroelectric production.
» Residential property owners in Ontario municipalities adjacent to the shores of Lake Huron could see property value losses of $403M through 2030 and $612M through 2050; those on the Ontario shores of Lake Erie could see losses of $340M through 2030.
» Lake Erie harbours could see $292M in added dredging and maintenance costs through 2030; Lake Michigan harbours could see $142M in similar added costs through 2030.
» Lake Huron marinas could experience $23M through 2030 and $69M through 2050, and Lake Michigan marinas could experience $18M through 2030 and $46M through 2050, in
added dredging and maintenance costs.
» Iron ore shippers and producers, who have a strong presence around Lake Superior, could face losses to shipping capacity estimated at $220M through 2030 and $465M through 2050.
» Coal shippers and producers in the region could face losses to shipping capacity estimated at $190M through 2030 and $373M through 2050.
The prediction of water levels is inherently difficult, and the estimation of economic impacts necessarily contains assumptions and uncertainties. Nevertheless, policy makers, experts and stakeholders have begun weighing the potential policy and engineering responses to water levels fluctuations. The International Joint Commission (IJC) has already carried out significant work on this front, and we rely on the Commission’s work in our report.
We hope our report will serve as a foundation for dialogue and future work on possible responses to fluctuating water levels. Given the high stakes to the regional economy and to many local economies, decision-makers, business leaders and residents of the basin need the best available guidance on the risks associated with different water futures so they can make prudent decisions about adapting to and/or mitigating the impacts of variable fluctuations in water levels.
Areas for Future Action
» Better scientific data collection and improved accessibility to this data.
» Significant investment in new equipment and technology to provide more extensive and sensitive monitoring of climate factors affecting GLSL water levels.
» Enhanced partnership, collaboration, and exchange between government, the scientific community, and the private sector in driving required data collection and monitoring as well as coordinated solutions.
» Deepening the GLSL’s stock of economic impact data through new research that assesses impacts based on recent projections and especially of a realistic worst-case high water levels scenario, and through research into additional key sectors such as manufacturing or commercial fishing.
» Continued consultation and planning on the part of decision-makers that takes account of future water levels uncertainty by planning for increased adjustability and for worst-case scenarios.
» Further analysis of potential responses to water levels fluctuations, and especially an analysis of the costs and benefits of different options for action.
» Private sector participation and leadership in robust contingency planning and in the implementation of adaptive behaviours in the various potentially affected sectors.
June 26, 2014