Apr 11, 2013 - 9:30am
Australian businesses face multi-million dollar exposure to the costs of climate impacts on interdependent infrastructure, new research by The Climate Institute, Manidis Roberts and KPMG finds.
“Extreme weather and its impact on infrastructure is a multi-million dollar risk issue for firms requiring a stronger focus on the vulnerability of interdependent infrastructure systems and new public-private partnerships,” said John Connor, CEO of The Climate Institute, who is appearing before Senate Extreme Weather Inquiry today at 12.20pm.
“Climate change and extreme weather events have far-reaching consequences costing lives, livelihoods and economic growth. Businesses and other organisations are vulnerable not just to direct impacts, but also the indirect consequences they’ll experience via impacts on infrastructure, supply chains and inputs like labour.”
Analysis by Manidis Roberts found that extreme heat in Melbourne in 2009 was not only the direct cause of severe disruptions to electricity and transport systems, but also created numerous second- , third-, fourth- and fifth-order impacts across multiple infrastructure networks as failures in one system caused failures in others.
Economic modelling by KPMG found that the impact of a projected heat event on a hypothetical large manufacturing and distribution business in Melbourne resulted in disruption and reduced performance of key assets and services. The costs for the business from disruption to labour supply alone ranged from $1 to 5 million, or 0.2-1.1 per cent of revenue.
“This is a considerable hit for a business to take from an event which could become a regular feature of summer within decades,” said Nicki Hutley, Chief Economist Advisory at KPMG. “And this doesn’t include the costs of supply chain disruption, which would be likely to occur simultaneously. Nor does it include likely longer term price increases in inputs and insurance premiums.”
The modelled impact of 0.2-1.1 per cent from a single input under a single climate change event is potentially significantly more costly than the impact of the carbon price, which industry stakeholders have found to be comparable to 0.3-1.0 per cent of revenue for some medium to large moderately emissions intensive businesses in Victoria.
The report, titled Infrastructure Interdependencies and Business-Level Impacts
, recommends initiatives to collaborate across public and private sectors to better manage the full spectrum of climate change impacts. These include:
- Common methods and tools for interdependency analysis;
- City taskforces bringing together private and public sectors to prepare for climate impacts; and
- Disclosure of material climate risks, both indirect and indirect, to major infrastructure systems under likely and plausible climate scenarios such as 2 and 4 degrees of warming.
“Businesses can bring down the costs of climate impacts by making themselves more ready and resilient,” said Connor. “But they must recognise how much of that resilience depends on others. This needs to be a collaborative effort with a greater focus on the risks from business and governments.” The full report can be found here.
For more information
Kristina Stefanova | Communications Director, The Climate Institute | 02 8239 6299