When Canada faced the threat of an out of control deficit in the 1990s, we made tough decisions to put the country on a sound economic foundation. Today we are rightly proud of those decisions. Taking steps such as shifting to a more efficient tax system demonstrated our ability to turn what could have become an economic regret into an economic opportunity.
It's not difficult to see how climate change poses a similar challenge for our country: if we grapple with the threat in a smart way, we can create huge opportunities for our future; if we ignore the problem or put our efforts into inefficient and ineffective approaches we face economic, and environmental, ruin.
The long-term threat from climate change is significant and abundantly documented. A recent report from the International Energy Agency warns that, without serious global action in the next five years to reduce greenhouse gas emissions, the world is on track for irreversible and catastrophic climate change. Such climate change could wipe out up to 25 per cent of Canada's wealth due to impacts ranging from flooding of coastal communities to the decimation of our forests by insects and fires. In comparison to the three per cent drop in gross domestic product that Canada experienced during the recent financial crisis, it is hard to fathom a loss that is almost an order of magnitude greater.
Our economy is also facing the short-term risks of being penalized by other nations that are frustrated by Canada's inadequate response to climate change. As evidence that this risk is real, look no further than the United State's recent rejection on the Keystone XL pipeline or Europe's efforts to set stronger fuel quality standards. Exposing our economy to the policy choices of other governments is risky business, and that risk will only get bigger unless we demonstrate a willingness to do our fair share.
The promising side of this story is that we can protect ourselves from both of these risks to our economic prosperity if we act quickly and assertively. Unfortunately, our actions to date have not, and will not, spur the necessary changes in our economy. The federal government's current approach to deal with the problem is to eventually regulate greenhouse gas emissions sector by sector. While this will be a good fit in some situations, a complete reliance on regulations will ultimately be a very expensive approach that will likely result in Canada falling short of its emissions reduction commitments.
Elsewhere in Canada there are good examples of approaches that will help us achieve our climate change objectives while also strengthening our economy. For example, British Columbia's carbon tax is shifting over one billion dollars per year across the province's economy to encourage clean energy investments. Ontario's Green Energy Act is another approach that is dramatically increasing investment in climate change solutions, like wind turbines and solar panels. In both cases, provincial governments are sending clear market signals that investments in clean energy will be cost-effective and communities and businesses are responding with creative, entrepreneurial solutions. Canada's challenge is to scale-up these success stories and coordinate them across the nation to produce a truly national response to climate change.
We don't have to look any further than Europe's financial turmoil to imagine what our country could be dealing with today if we had not had the fortitude to deal with the deficit fifteen years ago. Instead of having the flexibility needed to work our way out of a financial dilemma using homegrown methods, we'd be stuck with bad debt and austerity packages imposed by the international community. Now is the time to heed the warnings and learn from previous lessons: acting to avoid catastrophic climate change is not a risky bet but, in fact, a wise investment in Canada's future.
