It’s time for an agreed climate change scenario so adaptation planning can advance

28/04/2017

Note:  Technical terms are marked with a * and explained briefly in the Glossary.


If you read one report on adaptation this quarter, make it the one just issued by the Investor Group on Climate Change (IGCC, Australia/NZ). From Risk To Return: Investing In Climate Change Adaptation looks at the potential for – and challenges to – investment in adaptation in Australia, whether by public or private sector actors or combinations of these.

That the report features Australia – according to ND GAIN’s index one of the most adaptation-ready countries in the world – is a telling indicator of just how far there is to go, even in the most developed countries, to meet the financing needs that climate change is already generating.  And to achieve the policy and mindset advances that will have to occur if we are to create the massive innovations in financing that will be needed to mobilise these investments in effective and equitable ways.

 

Dr Zsuzsa Banhalmi-Zakar, Lecturer, Corporate Environmental Management at James Cook University in Australia

The lead author of the report, Dr Zsuzsa Banhalmi-Zakar of James Cook University, [1] explained that much of her contribution to the report follows on from some earlier work she had conducted funded by the National Climate Change Adaptation Research Facility (the organisation that was also behind CoastAdapt that we reported on recently). This came together with work being undertaken by IGCC on adaptation and investment, including a previous report on the adaptation risks to investment across key industry sectors.

In September 2016, IGCC[2] brought together around 50 attendees from government, science and finance for a workshop looking at the key question of how to increase investment into adaptation outcomes “and it was clear,” Banhalmi-Zakar says, “that this was the first time these different stakeholders had sat down together on an issue like this.  Traditionally, local government in Australia has little contact with the private sector, and investors don’t really have any understanding of the mindset of government at the local level or the policies impacting their operations. And past history with public/private partnerships* has resulted in ‘debt aversion’ on the part of local governments.  But what came out of the workshop was a real sense that there is the kind of creativity and openness to collaboration out there that will be needed if we are to find common solutions to the problems.”

How do you assess the value of trees?

Looking to root the workshop in practical problem-solving, one of the case studies (also described in the report) was the Melbourne Urban Forest Strategy, a proposed scaling up of an existing initiative in the City of Melbourne to the city’s 32 councils.  “The Urban Forest could reduce heat in the city by 4-6 degrees,” Banhalmi-Zakar says, “and that’s a huge counter when downtown can be 7 degrees hotter than outlying areas.”  The excessive heat Australia increasingly suffers from has obvious effects on power and water usage, economic output and human and animal health (and even lives).  So, as Banhalmi-Zakar points out, “those trees have a value for everyone, businesses as well as private citizens.  The problem is, how do you assess that value?  How can you propose the planting or maintaining of trees as an investment with a return, when that return isn’t directly measurable in cash terms, though it clearly has a cash impact in the end?”

(That individuals, and not just in Melbourne, valued the trees was not in doubt.  The City’s means of identifying each tree was to give them an email address, so people could report problems with the tree if they spotted them.  Inevitably, given the human need to upend even the best-intentioned bureaucracy, people started writing to the trees, on subjects ranging from loneliness to their exam results to the Greek debt crisis.)

Actually, everything can be monetised

There are things to be learned here, as Banhalmi-Zakar says and IGCC’s report also makes clear, from the impact investing world. “Investors there are starting to get some real methodologies in place for measuring returns that aren’t directly financial,” she explains.  “The problem at the moment is that we can’t properly identify or measure who benefits from projects, and local governments, for example, cannot capture the concept of community benefit financially on a wider scale than through rates and services provided.  So they can’t take account of the intangibles and they typically don’t, as a result, provide any incentives – like adjustments to rates – for community-based adaptation or resiliency projects to get underway.”

Seawalls on the Gold Coast under construction. Image: IPWEA (Institute of Public Works and Engineering Australia)

Who pays for projects is also presently rather arbitrary, Banhalmi-Zakar tells us.  “Down the same strip of coast, you could get some seawalls built by the owners of private homes and some protection for less grand domestic property paid for partly by residents and partly by local government. And then a raised road paid for entirely from public funds, even though businesses clearly also benefit from it.”

“So we need to look,” she goes on, at how local government is allowed to raise their revenues, and whether these revenue streams should be varied or expanded when they related to climate change (see box).  Right now there is a general aversion to debt at the local government level, both imposed from above and the result of a longstanding caution.” (This is a problem that local government faces in many places, as we reported in our recent piece on cities.)

Dr Banhalmi-Zakar on who pays:

Our research reveals that it is unlikely that all adaptation initiatives can be funded fully via the private sector. Some projects will never be able to be packaged in a way to be attractive to the market – such as adaptation or resilience plans or capacity building, but even some types of soft and hard structures as well. So we believe that public funding should be utilised for these initiatives first and foremost.

There may be a range of initiatives that could be funded via private sector financing in part. In these cases the revenue generating component of a project should be separated from other activities and realised through private sector finance, allowing the rest of the scheme to be funded from public sources. So for instance, a council-led development plan to upgrade the esplanade along the beach should also include a coastal protection plan to refurbish an existing road, build new seawalls and a beach nourishment program. The two initiatives should be combined and a portion of the revenues from selling/leasing the land (maybe even a road toll) should be earmarked to fund climate-proofing the town. I actually believe there are examples of such trade-offs already, but Australia’s lack of policy-support for planning for climate change prevents more widespread application.

Insurance not the silver bullet

Insurance is the tool that is most often cited as the way ahead for adaptation.  “But the problem with insurance, Banhalmi-Zakar says, “is that, firstly, no insurance product covers sea level rise (because it’s a slow-onset change that is certain to occur) and second, policies usually just cover replacing something of equal value or merit. They don’t promote building back a structure to higher standards to withstand the future impacts of climate change, like higher rainfall, risk of flooding, wind speeds, sea level rise, and so on. Essentially the adaptation – or what’s also called the resilience – feature of the project will not be covered by insurance.”

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One example she cites where this provision has been made is the Queensland Betterment Fund, an initiative triggered in 2013 after a number of extreme events. “Here a combination of state and federal funding was used to cover the additional costs that arose as a result of building back the infrastructure to higher standards climate-wise, for example ensuring that a road will not be washed away during the next extreme weather event (which certainly won’t be in a hundred years, more like one or two!). This is a great example, but it’s limited to projects where the additional costs of adaptation can be identified.”

This principle – of accounting for future risk reduction from infrastructure that has resiliency built in  – underlies one of the financing innovations that is beginning to be developed, resilience bonds. (We will return to this topic in a future piece but there is a good report here.

Main conclusions of the IGCC report

We need data, and for that we need an agreed climate change scenario we can all work to

All of which brings us to the issue of data, one we have raised in previous pieces on adaptation and is echoed by Dr Banhalmi-Zakar.  “There is very little out there apart from some data on the costs of disasters. There are no comprehensive estimates on the cost of climate change impacts in Australia and the likely level of investment required for adaptation measures, which makes cost-benefit analysis of climate change adaptation at an aggregated level impossible to quantify.”

A first step to creating such estimates, she notes (again echoing calls we have reported elsewhere) would be to agree on a climate change scenario, such as a 2 or 3 degree temperature rise, that everyone would work to.   “Let’s just agree one scenario, so that we can all get on with it on a common basis,”  Banhalmi-Zakar argues.

And while we’re at it, let’s find some agreed way of measuring the impacts of adaptation or resilience, she suggests. “One way to do this would be to frame adaptation as a risk-reduction initiative, so we could create a measure of ‘avoided risk’, similar to the measure of ‘avoided emissions’ in relation to mitigation projects. A number of different types of issues would make up ‘avoided risk’. For example, you could project the reduction in the number of days that a port or airport or shopping precinct is not operational due to extreme weather events – in turn reducing business disruption – or savings from reduced insurance premiums by cyclone-proofing buildings.”

We would add a third suggestion, called for by the “Call to Action on Climate Finance” launched by nine climate-focussed organisations ahead of Paris.  This is for the development of a standard categorisation for climate actions, including adaptation.  That way, specifications for cyclone-proofed buildings in Australia could be lined up with specifications elsewhere and, just as has happened with renewables, costs would fall as the standardisation of materials and techniques rose.

Biography

Dr Zsuzsa Banhalmi-Zakar is an environmental scientist, with corporate experience in environmental management. She is interested in how high-quality environmental science can be embedded into corporate and government decision making through understanding how environmental issues impact financial performance.  Over the last ten years, she has studied how environmental events materialise as financial risks and opportunities in the finance sector and, in the last few years, has researched how these institutions respond to the varied challenges of climate change through adaptation measures.

About IGCC

The Investor Group on Climate Change (IGCC) is a collaboration of Australian and New Zealand institutional investors and advisors, managing over $1 trillion in assets under management and focusing on the impact that climate change has on the financial value of investments. IGCC aims to encourage government policies and investment practices that address the risks and opportunities of climate change. For more information, visit www.igcc.org.au and @IGCC_Update

[1] A substantive contribution was also made by Crystal Fleming of IGCC, Dr David Rissik of NCCARF and investors who are members of the IGCC Adaptation Working Group.

[2] With the support of the Business Adaptation Network (BAN) and NCCARF

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4 thoughts on “It’s time for an agreed climate change scenario so adaptation planning can advance

  1. Прекрасно. Представляете о каком масштабе идёт речь. И основная работа имеет потенциал не одного государства, а каждого государства мира. И теперь остаётся определить правильно выбранное направление для основного производства. Вот все ругаются на тяжелую промышленность, но кто сказал что умы перестали работать и что нет развития. Не зная о чём идёт речь, и уже делаются поспешные выводы. И выводы массы населения сошлись в виде одного направления. Господа вы не правы, это уже оскорбление возможностей Человека. Да понятно мало информации но это ли повод всё выводить на смысл бессилия. А как же труд?

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