November 23rd, 2024

Physical climate risks set to surge, putting billions in assets and infrastructure at risk: Report

Urgent adaptation measures crucial to counter uneven impacts across sectors and society

According to the report, a sea-level rise of 30cm (anticipated to occur between 2045 and 2070) could expose an additional $6 billion worth of buildings to at least a 1% chance of coastal flooding each year, compared to the $12.5 billion at the current sea level.
According to the report, a sea-level rise of 30cm (anticipated to occur between 2045 and 2070) could expose an additional $6 billion worth of buildings to at least a 1% chance of coastal flooding each year, compared to the $12.5 billion at the current sea level.

A joint report by the Treasury and Ministry for Environment -- Climate Economic and Fiscal Assessment 2023 -- cautions that New Zealand must prepare for increasingly significant economic consequences of climate change as the nation's assets and infrastructure confront escalating physical risks. Even under the most optimistic global emissions scenario, physical climate risks are predicted to worsen throughout the century, with potentially considerable costs and economic consequences.

By the numbers: According to the report, a sea-level rise of 30cm (anticipated to occur between 2045 and 2070) could expose an additional $6 billion worth of buildings to at least a 1% chance of coastal flooding each year, compared to the $12.5 billion at the current sea level, according to the report which was published on Thursday.

Economic resilience: Modelling by the Treasury suggests that New Zealand's economy is relatively resilient to droughts and storms. The modelled simulations indicate that increasing the frequency of severe and moderate droughts could cause GDP to be 0.5% lower in 2061 than the assumed counterfactual trend. A scenario with increased storms and/or floods estimates a 0.7% decrease. By comparison, the 1997 to 1998 El Niño event's drought resulted in a GDP loss of 0.9%.

Climate-sensitive sectors, such as agriculture, forestry, fisheries, and tourism, as well as those relying on physical infrastructure networks, will be more directly exposed.
Climate-sensitive sectors, such as agriculture, forestry, fisheries, and tourism, as well as those relying on physical infrastructure networks, will be more directly exposed.

Uneven impacts: The impacts of physical risks will not be evenly felt across sectors or society. Climate-sensitive sectors, such as agriculture, forestry, fisheries, and tourism, as well as those relying on physical infrastructure networks, will be more directly exposed.

Insurance challenges: Households in areas more exposed to physical risks, like coasts and floodplains, will disproportionately suffer from worsening insurance affordability and availability. Reserve Bank analysis estimates that 2.5% of mortgaged properties across surveyed banks would be in the flood zone with a 50cm sea-level rise.

Māori communities at risk: Māori communities may experience disproportionate or unique impacts due to their high representation in primary industries and the potential threat to culturally significant sites, taonga species, and aspects of mātauranga Māori.

Regional disparities: Some localities and regions will be more impacted than others, particularly those dominated by primary production or with a high percentage of population and assets located in low-lying coastal areas.

What's next: Although New Zealand is considered less vulnerable and better positioned to adapt to climate change impacts compared to many other jurisdictions, primarily due to strong institutions and economic and fiscal resilience, the nation's adaptation response will greatly influence the long-term economic impacts arising from physical risks. Decisions by present and future governments on adaptation policies and the support of functioning financial and insurance markets will affect the size of these impacts and when they might occur.