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.”
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.
