Thursday 14 March 2019

Climate Change creates risks for Australia’s financial stability warns Reserve Bank deputy governor


The Guardian, 12 March 2019:

A deputy governor of Australia’s central bank has issued a stark warning that climate change poses risks to financial stability, noting that warming needs to be thought of by policymakers and business as a trend and not a cyclical event.

As a debate over coal and energy fractures the Morrison government, Guy Debelle warned a forum hosted by the Centre for Policy Development on Tuesday that climate change created risks for Australia’s financial stability in a number of different ways.
“For example, insurers may face large, unanticipated payouts because of climate change-related property damage and business losses,” he said. “In some cases businesses and households could lose access to insurance.

 “Companies that generate significant pollution might face reputational damage or legal liability from their activities, and changes to regulation could cause previously valuable assets to become uneconomic.

“All of these consequences could precipitate sharp adjustments in asset prices, which would have consequences for financial stability.”

Debelle noted Australia had traditionally come at the climate change debate largely through the prism of its impact on agriculture, but he said the changing climate created “significant risks and opportunities for a broader part of the economy than agriculture – though the impact on agriculture continues to be significant”.

He said policymakers and businesses needed to “think in terms of trend rather than cycles in the weather”.

“Droughts have generally been regarded, at least economically, as cyclical events that recur every so often. In contrast, climate change is a trend change. The impact of a trend is ongoing, whereas a cycle is temporary.”

He said there was a need to reassess the frequency of climate change events, and “our assumptions about the severity and longevity of the climatic events”.

He said the insurance industry had already recognised the frequency and severity of tropical cyclones and hurricanes in the northern hemisphere had changed, and this reassessment had prompted the sector to reprice how they insure and reinsure against such events.

“We need to think about how the economy is currently adapting and how it will adapt both to the trend change in climate and the transition required to contain climate change,” Debelle said.

He said the transition path to a less carbon-intensive world was “clearly quite different depending on whether it is managed as a gradual process or is abrupt”.

“The trend changes aren’t likely to be smooth. There is likely to be volatility around the trend, with the potential for damaging outcomes from spikes above the trend.”
Debelle noted the United Nations’ Intergovernmental Panel on Climate Change had provided “strong evidence” that another half degree of warming was likely in the next 10 to 30 years.

He said work from the Bureau of Meteorology and the CSIRO pointed to an increase in the frequency of extreme weather events, and noted “extreme events may well have a disproportionately large physical impact”.

“There is also a greater possibility of compound events, where two or more climatic events combine to produce an outcome that is worse than the effect of one of them occurring individually,” Debelle said.

“Combined with the increased volatility, this increases the likelihood of nonlinear impacts on the economy.”

Debelle said assessed through that lens, climate change-induced shocks to the economy would be “close to permanent” if droughts were more frequent and cyclones happened more often. “That situation is more challenging to assess and respond to.”

On 13 March 2019 ABC News reported that a leading climate analyst warns that extreme weather risks mean nearly 1 in 10 Australian houses may be uninsurable due to climate change within the next few generations, that is in est. 30-90 years.

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