Australia's Reserve Bank addresses financial risks from climate change - a topic which the Morrison Government continues to ignore

The Northern Rivers region of New South Wales has three very valuable natural assets - a coastline with numerous beaches, many unregulated rivers and a predominately rural landscape which is interspersed with large forested tracts of land.

This month the Reserve Bank of Australia reminded us that the financial contribution these assets make to our regional economy are at increasing risk from the impacts of climate change.  

Reserve Bank of Australia, Financial Stability Review – October 2019,
Box C Financial Stability Risks From Climate Change:

Climate change is exposing financial institutions and the financial system more broadly to risks that will rise over time, if not addressed. According to the Intergovernmental Panel on Climate Change (IPCC), it will take significant effort to limit global warming to 1.5°C above pre-industrial levels, as targeted in the Paris Agreement. Even if targets are met, this level of warming is likely to be accompanied by rising sea levels and an increase in the frequency and intensity of extreme weather (including storms, heatwaves and droughts). Some of these outcomes are already apparent (Graph C.1). These changes will create both financial and macroeconomic risks.[1]

This box focusses on the financial risks arising from climate change, particularly for Australian financial institutions. These risks can be classified as either:

* physical: disruptions to economic activity or reductions in asset values resulting from the physical impacts of climate change; 

* transitional: the impact of changes in regulation or pricing introduced to facilitate a transition to a low-carbon economy; or 

*liability: an inadequate response to these risks also raises the potential for reputational and legal risk. 

While climate change is not yet a significant threat to financial stability in Australia, it is becoming increasingly important for investors and institutions to take account of and manage these risks. 

Climate change poses some material risks to Australian financial institutions 

The physical effects of climate change can have a significant impact on Australian financial institutions. As an example, inflation-adjusted insurance claims for natural disasters in the current decade have been more than double those in the previous decade. This impact is likely to grow over time. 

An increase in the frequency and severity of natural disasters will increase the incidence of damage to, or destruction of, physical assets that are insured or used as collateral. Assets that are exposed to increasing physical risk (such as property located in bushfire-prone or coastal areas) could decline in value, particularly if these risks become uninsurable. Climate change could also reduce certain types of business income that is used to service loans. Examples include changing rainfall patterns that result in lower or less predictable income from agriculture, more frequent storms disrupting supply chains and therefore sales, and damage to natural assets that reduces tourism income. 

Insurers are most directly exposed to the physical impacts of climate change. This can arise through natural disaster claims, crop insurance, and health and life insurance. While insurers can increase their premiums to reflect higher risk, it is difficult to accurately price new and uncertain climate risks. If insurers under-price these risks, it could threaten their viability in the event of extreme weather events resulting in very large losses. On the other hand, over-pricing would impede the risk pooling function provided by insurance and unduly limit economic activity. Even if correctly priced, more of these risks may become uninsurable, forcing households, businesses or governments to bear this risk. 

Banks (and other lenders) are also exposed to physical risks because climate change can result in a decline in the income or value of collateral that they are lending against. Such effects can go beyond the industries directly affected by climate change (such as agriculture and tourism), to the households and businesses that rely on income from those industries. 

Australian financial institutions that have exposure to carbon-intensive industries – such as power generation and mining, or to energy-intensive firms – will also be exposed to transition risk. 

Transition to a lower carbon economy can also affect institutions with exposures to individuals and communities reliant on these industries. Sudden or unexpected regulatory change could quickly lower the value of such assets or businesses, some of which may become economically unviable or ‘stranded’. Such regulatory changes could either be domestic or come from abroad, given the carbon intensity of Australia's exports. Transition risk could also arise if large investment in technologies allowed new entrants to displace established but emissions-intensive practices, or if consumer preferences shifted rapidly towards ‘green’ products. If such changes occur abruptly, and certain sectors or firms face large losses, there could be broader dislocation in financial markets, despite the opportunities created for some firms from these changes. Transition risk will be greatest for banks that lend to firms in carbon-intensive industries and to individuals or businesses that are reliant on these firms. Other financial institutions investing in carbon-intensive industries, such as superannuation and investment funds, are also exposed to the risk that climate change will diminish the value of their investments. This could occur both through direct investments in carbon-intensive industries, or indirect investments in banks that lend to these industries. 

Financial institutions may also face reputational damage if they are seen to be contributing to climate change or failing to manage climate risks. This could affect an institution's ability to retain customers and raise funding. Firms also face legal risks if directors fail to address the potential exposure of their firms to climate-related risks, according to the Hutley opinion (a landmark legal opinion on directors' duties in relation to climate change under Australian law).[2]

Climate risks are challenging to manage and there are significant data gaps.

Australian financial institutions have become increasingly aware of the financial nature of climate risks and are taking steps to assess and manage their exposure to physical and transition risks. But it is difficult to map the impacts of climate change to changes in asset values and financial losses. The risks from climate change are particularly difficult to assess because of their long-term nature and complexity. These risks involve a great deal of uncertainty due to unknown future policy responses and the possibility that feedback loops and tipping points may lead to greater and/or more rapid physical impacts than is currently expected. Climate risks also have the potential to be correlated across regions, requiring institutions to reassess the benefits from geographical diversification.

Read the remainder of this section here.

Australian Politics 2018 to 2019: as good an explanation as any

This is an excerpt from a version of the speech delivered by RMIT University Adjunct Professor Barrie Cassidy at the Capitol on 3 October 2019:

Consider this. The Labor Party in Australia has now won a 
majority of seats in the House of Representatives, where 
governments are made and unmade, a majority just once in 
the last 26 years. Once since Paul Keating won the 1993 
election. That once was Kevin Rudd in 2007. Julia Gillard 
didn’t do it. She won minority government only. And in May 
Labor failed again. Not against well-established Liberal Party 
heavyweights like John Howard and Peter Costello – but 
they lost to a government led by Scott Morrison, a 
government that Morrison himself described as ‘The Muppet 
Show’. And a government that lost so much talent from its 
front bench when so many moderates simply couldn’t go 
on any longer. 

So why? What happened? What’s going on? 

So much of went wrong for Labor is only transparently 
obvious after the event. But it’s obvious just the same. First 
and foremost, their agenda was too ambitious – too cluttered. 
Kevin Rudd won with a single-minded attack on work choices. 
Paul Keating with an attack on John Hewson’s Fightback 
document, Bob Hawke with a non-specific promise of bringing 
Australia together. 

Labor this time had a myriad of policy and political approaches. 
A combination of poor planning and poor salesmanship led to 
hundreds and thousands of people who will never see a 
franking credit in their lives, fearing they were about to lose 
something. Fearing it to such an extent that, faced with a blunt 
choice – franking credits or increased childcare benefits – they 
chose the franking credits. 

Now franking credits are unsustainable and at some stage 
something will have to give; the numbers in just a few short 
years from now will be compelling. The cost will grow 
exponentially. There will have to be at the very least a trimming 
of the benefits.

But having said that, it wasn’t sensible to go so hard right off 
the bat at the problem, and it wasn’t sensible to put the policy 
out so far ahead of time. It went out in isolation from the upside
 – the benefit to community – the revenue … the money that 
would then flow to other priorities. 

Here’s the evidence for that. The Age and the Sydney Morning 
Herald, to their credit, put out these numbers themselves. They 
surveyed their own papers and what did they find? The dental 
plan that was to be paid for with the franking credits policy – 
that got 10 mentions; the cancer funding, virtually free cancer 
treatment for older Australians – that got 21 mentions. 
Franking credits ... 700. 

That’s how big a start that issue – the negative issue – got over 
the positive. 

Same with negative gearing. It wasn’t just the policy shift – but 
what in their minds it represented. 

To so many it was an illustration of Labor’s inability to manage 
the economy; to threaten economic welfare. 

A huge lesson: you can’t take anything away from people 
without a very good reason. If it’s hard to explain then it’s easy 
to exploit. But more than that, the policies left Labor exposed to 
a government campaign built around higher taxes. They built a 
fear that taxes would go up across the board, to such an extent 
that an internet-led scare campaign around death taxes even 
got traction. 

In retrospect, Labor would have been better off running a far 
narrower campaign built around climate change and wages. 
The rest could have waited until after the election. That is not 
to say Labor should be forever gun-shy: too timid now to 
address long-term budgetary problems that negative gearing 
and franking credits represents. They should not be gun-shy. 

As I said, those issues will have to be dealt with, by either a 
Labor or a coalition government. But more gradually, certainly 
initially impacting on fewer people. 

But what we are seeing right now is a Labor Party knocked 
about by a shock loss and in real danger of overreacting … 
ready to abandon so much; a party that now seems hesitant to 
take on the government even on some of the bigger issues. 

Herein lies the dilemma now for Labor. Research has shown 
that at the last election – if that election had just been held in 
Victoria, NSW and the ACT – Labor would have won 48 seats 
to 37. That’s probably not surprising. But throw in SA, 
Tasmania and the NT – a large part of the country – and Labor 
still wins 57 seats to 43. Now add the capital cities of Brisbane 
and Perth – still Labor by 67 seats to 54. That only leaves the 
rural and regional seats of Queensland and WA: but there are 
a lot of them. 25 in fact – and 23 of those went to the Coalition. 
That put the Coalition comfortably in front. 

Now I’m not suggesting in any way that skewers the result. It 
doesn’t. The people in those rural areas are Australians too. 
Their vote counts in the same way as those in the capital cities. 
The point though is this. That demographic carried it for the 
Coalition. The rest of the country voted marginally Labor. 

So how does Labor deal with that? What do you say to 
Queenslanders? I recall 30 years ago saying to Bob Hawke: 
I’ve noticed when you’re in WA you remind people that you 
were educated there; when you’re in SA you remind them that’s 
where you were born; when you’re in Victoria you talk about 
your ACTU days; and now as PM you spend most of your time 
in NSW. What are you going to say to Queenslanders? And 
he said with a twinkle in his eye. I could tell them that’s where 
I’ll retire! 

But the serious dilemma now for Labor is essentially this. 
Do they abandon policies because regional Queensland hates 
those policies? Do they appease Pauline Hanson and her ilk? 

Do they make compromises simply aimed at winning back a 
share of that vote? Do they appease the regions of Queensland 
but in the process risk looking and sounding wishywashy in 
other parts of Australia? 

One answer surely is to be true to yourself. Back yourself to 
grow the vote in the rest of Australia; without abandoning 
Queensland altogether. Sort out what you stand for and be 
resolute behind those values. 

Labor lost the last election, sure, but by and large they died 
on their feet. If they’re not careful they’ll over analyse and die 
on their knees at the next one.

Read the full speech here.

13th Byron Bay International Film Festival, Australia’s independent showcase, 18-27 October 2019

Echo NetDaily, 4 October 2019:

In two weeks time, the Northern Rivers’ biggest movie festival event 
will unfold in cinemas screening a massive 125 feature-length and 
short films.

The 13th Byron Bay International Film Festival Australia’s 
independent showcase for cutting-edge films, documentaries and 
VR experiences has announced its official programme selection 
for 2019 to screen across 10 days in a diverse set of venues in 
Byron Shire and the Tweed.

Highlights of the event include screenings of The Cave, dramatised 
account of the rescue of the team trapped underground in Thailand 
last year, a documentary following Freestyle Footballers from all 
corners of the world; Gloomy Eyes a VR film narrated by Collin 
Farrell; In My Blood It Runs, an up-close study of a gifted, 
questioning 10 year old Aboriginal boy, Dujuan Hoosan; A Son of 
Man – Oscar nominated for Best Foreign Language film, featuring the real life characters, unscripted and shot purely by drone in the 
Amazon jungle; Honeyland, the most awarded film in Sundance; 
Out Deh – The Youth of Jamaica portrays the daily struggles of 
three young Jamaicans searching for a way to create bright 
futures for themselves; Live Baby Live sees iconic band INXS’s 
legendary 1991 Wembley Stadium tour restored

The festival will feature 22 documentaries, 17 dramatic features, 
20 music videos, 78 shorts, 10 films by young Australian 
filmmakers and a mind-blowing range of over 15 Virtual Reality 
experiences were chosen from more than 1000 films submitted 
from all over the world.

The 13th Byron Bay Film Festival runs from October 18-27 at 
the Palace Cinema, the Byron Community Centre, Pighouse 
Flicks and venues in Brunswick Heads and Murwillumbah......

Palace Cinema 'phone number is (02) 6680 8555 for screening 
details/booking information.

Nationals MP for Page Kevin Hogan avoids questions about Coalition Government-Indue Limited's punitive cashless debit card for welfare recipients

Clarence Valley Independent, 2 October 2019:

The latest federal budget underwrote $128.8 million over four years, from 2019-20, to fund the trial rollout of the Cashless Debit Card (CDC), including the provision of “funding to expand the Cashless Debit Card to a fifth site”.

Test areas are located in the Ceduna region in South Australia (from March 2016) and the East Kimberley (from April 2016) and Goldfields (from March 2018) regions in Western Australia.

In January this year, a trial commenced in the Bundaberg / Hervey Bay region in Queensland – the Clarence Valley local government area is statistically much the same as Hervey Bay’s, according to the 2016 census, apart from the valley being home to a larger indigenous population.

“This proposal is expected to have a positive impact on regional Australia by reducing alcohol consumption, illegal drug use, and gambling in communities and providing improved technology for participants subject to welfare quarantining,” the Department of Infrastructure, Transport, Cities and Regional Development website states.

Another Clarence Valley publication recently ran a headline with Page MP Kevin Hogan reportedly saying the implantation of the cashless welfare card is a “no brainer” an described his position as an “impassioned defence” of the CDC.

With the possible rollout of another trial area and the similarity of Clarence Valley LGA’s census data to the Hervey Bay area, the Independent sought Mr Hogan’s thoughts, preparing several questions (with context provided) and putting them in an email, along with an invitation to speak directly about the issue, which Mr Hogan declined.....

Read the full article here.

Australian Home Affairs Minister calls for welfare payments to be stopped for climate change protesters

The six-person protest in Creek Street, Brisbane
Image: Daily Mail

According to an interview with 2GB radio shock jock Ray Hadley, Australian Minister for Home Affairs & Liberal MP for Dickson Peter Dutton is not happy with six climate change protesters belonging to Extinction Rebellion blocking Creek Street, Brisbane, for one hour and forty minutes on Wednesday 2 October 2019.

He also took exception to the fact that the magistrate they appeared before did not record convictions after all six entered guilty pleas.

Of course in the end Dutton sheeted home the blame for this incident to Queensland Labor governments appointing magistrates who were too tolerant of civil disobedience – just as he did in 2016 after Magistrate Trevor Morgan said he would probably be proud if it were his daughter taking part in protest action.

It seems Dutton hasn’t forgotten those protesters who climbed on his electoral office roof in 2016.

The New Daily, 3 October 2019: 

Home Affairs Minister Peter Dutton has called for climate change protesters to be “named and shamed”, jailed and have their welfare payments stopped. 

Warning protesters in Queensland are “putting lives at risk”, Mr Dutton said the fines are not good enough after the activist group Extinction Rebellion caused traffic chaos in Brisbane. 

“The community expectation is that these people are fined or jailed and they should be jailed until their behaviour changes because they are putting lives at risks. They are diverting police and emergency service resources from tasks they should be undertaking otherwise,” Mr Dutton said. 

Speaking on radio 2GB, Mr Dutton was then asked by host Ray Hadley if the protesters should have their welfare payments stopped because they are “bludgers sticking themselves to roads”. 

“Well, I agree, Ray,” he said….. 

Mr Dutton urged people to surveil the protesters and distribute their images. 

“People should take these names and the photos of these people and distribute them as far and wide as they can, so that we shame these people,” Mr Dutton said. 

“They are acting outside of the law. Let their families know what you think of their behaviour.” 

“They keep turning up week after week because a slap on the wrist is just not working.” 

Mr Dutton also called for mandatory sentencing of protesters disrupting traffic and shutting down cities….. 

“But you know raiding farms, climbing on to the roof of my electoral office and then get told by the magistrate he would be proud of her if it his daughter had done it.

The Saturday Paper, 4 October 2019:

A number of Liberal National Party MPs have supported Home Affairs Minister Peter Dutton’s call to strip welfare payments from climate protesters and jail them. Employment Minister Michaelia Cash told The Australian ($): “Taxpayers should not be ­expected to subsidise the protests of others.” Other supporters include ($) Scott Buchholz, the assistant minister for road safety. Their backing comes after Dutton agreed with the 2GB radio host Ray Hadley that welfare payments of climate protesters should be cut and added: “they should be jailed until their behaviour changes”.  The Greens leader, Richard Di Natale, told the ABC that Dutton was starting to “sound more like a dictator than he is an elected politician. Because somebody says something that he doesn’t like, that he doesn’t support, he’s saying we’re going to strip away income support.” Some activists have taken leave from their jobs to protest against government inaction on climate change. The Morrison government is also seeking to require Newstart recipients who fail drug tests to use cashless welfare cards.

Centre-based childcare costs have risen in NSW Northern Rivers region in 2019

According to the federal Dept. of Education's Child Care in Australia report for March quarter 2019, a total of 1,940 Clarence Valley children were enrolled in either centre-based child care, family day care or after school care in the March Quarter 2019. This is a decease in total enrolments on the December 2018 quarter figures.

A further 7,280 children were enrolled in the Richmond Valley region and 4,390 in Tweed Valley. These figures represent an modest increase in enrolments for both Richmond and Tweed valleys.

The average centre-based child care fee per hour in the Clarence Valley was $9.13 (up 11.9% on March 2018), in the Richmond Valley coastal region $9.19 (up 6.3%) and in the hinterland $8.89 (up 6.2%), while the Tweed Valley per hour charge was $9.01 (up 9.5%).

The official fee cap for centre-based childcare is $11.77 per hour and the national average out of school hours care fee is $9.95.

Out of school hours care fees were not recorded for the Clarence Valley as less than 5 children were recorded, but these fees went down in Richmond Valley coast and hinterland as well as in Tweed Valley by -3.9%, -0.3% and -4.6% respectively.

Remembering that Clarence Valley local government area population at the 2016 national census contained over 8,000 children 14 years of age & under and in the December quarter 2018 report there were 1,990 children enrolled in childcare, I find it rather strange that Nationals MP for Page Kevin Hogan blames the recent price rise on "increased demand" for services when valley enrolment numbers were down by 50 children in January to March 2019.

Groundwater plays a critical role for rivers worldwide and many aquifers are in trouble

National Geographic, 2 October 2019:

There’s more fresh water hidden below Earth’s surface in underground aquifers than any other source besides the ice sheets. That groundwater plays a critical role for rivers worldwide, from the San Pedro to the Ganges, keeping them running even when droughts bring their waters low. 

But in recent decades humans have pumped trillions of gallons out of those underground reservoirs. The result, says research published Wednesday in Nature, is a “slow desiccation” of thousands of river ecosystems worldwide. Already, somewhere between 15 and 21 percent of watersheds that experience groundwater extraction have slipped past a critical ecological threshold, the authors say—and by 2050, that number could skyrocket to somewhere between 40 and 79 percent. 

That means hundreds of rivers and streams around the world would become so water-stressed that their flora and fauna would hit a danger point, says Inge de Graaf, the lead author of the study and a hydrologist at the University of Freiburg. 

“We can really consider this ecological effect like a ticking time bomb,” she says. “If we pump the groundwater now, we don’t see the impacts until like 10 years further or even longer. So what we do right now will impact our environment for many years to come.” 

Groundwater holds up modern life 

The last undammed river in the U.S. Southwest, the San Pedro of southwestern Arizona, used to gush and roil. Birds chirped and splashed on its banks when they stopped by on their migrations. Rare fish swam in its pools. 

But in the 1940s, wells started to pop up in the nearby area, sucking clean, cool water out of the region’s underground aquifers. 

It turned out that a good portion of the water that flowed through the river came not from rain and upstream snowmelt, but from those underground sources. The more water that got pumped out of the aquifers, the less flowed into the river—and the wetlands, cottonwood stands, fauna, and rushing waters of the San Pedro all suffered. 

Groundwater is the hidden scaffold propping up much of modern life. Globally, about 40 percent of the food we grow is watered with liquid extracted from below Earth’s surface. 

But many of the aquifers from which this water is extracted took hundreds, or even tens of thousands of years to fill: The water inside may have percolated through cracks in the earth when giant ice sheets last covered New York City 20 thousand years ago. 

Much of that water is being removed much faster than it can be replenished. That has enormous potential consequences for people who want to drink water grow and crops in areas that don’t get enough rain. But far before those impacts emerge, the effects will—and in fact already have—hit rivers, streams, and the habitats around them. 

“Think of an aquifer like a bathtub full of water and sand,” explains Eloise Kendy, a freshwater scientist at the Nature Conservancy. Then, imagine running your finger lightly through the top of the sand, creating a little trail. That little trail fills up with water that percolates through the sand into the “stream.” 

“If you pump out just a little bit of water out of the bathtub, that stream is going to dry out, even though there’s plenty of water still left in the bathtub,” she says. "But as far as healthy rivers go, you’ve destroyed it. But because rivers don’t scream and shout, we don’t necessarily know that they’re in trouble.” 

Read the full article here.