Apr 12, 2013 - 12:00pm
This article first appeared in RenewEconomy on 12 April 2013.
CEO, The Climate Institute
with Olivia Kember, National Policy & Research Manager of The Climate Institute
Australian businesses face multi-million dollar exposure to the effects of climate change on infrastructure. Many of these risks might seem surprising: for example, the Queensland floods in January caused water shortages for parts of Brisbane. Many other impacts are highly predictable. Bridges washed away in the Queensland floods of 2011, rebuilt to the same standards and washed away again in 2013 are inevitably going to wash away again.
Less visible but at least as significant are the indirect impacts that flow through interdependent infrastructure systems. For example, when Melbourne’s transport services nearly collapsed in the heatwave of January 2009, it wasn’t just because the heat buckled the tracks and forced line closures. The city’s train system was also exposed to weaknesses in the electricity system, itself stressed by the combination of record high demand and multiple equipment failures, which led to major blackouts. An explosion at the South Morang transmission station cut power to city loop trains. More than one-third of train services were cancelled during the first three days of the heatwave.
New research by The Climate Institute, Manidis Roberts (RPS) and KPMG maps the flow of second-, third-, fourth- and fifth-order impacts on Melbourne’s infrastructure from the direct effects of extreme heat. The resulting cascade of consequences has severe implications for the broader economy. Analysis for the National Climate Change Adaptation Research Facility put the cost of the 2009 heatwave at $800 million. With extreme heat days in the city projected to increase by 28 per cent by 2030, future such events could cost vastly more.
Australia needs to recognise that resilience is the critical third leg of the stool: as necessary, if not more so, than emergency response and disaster recovery. Continuing to rely on the past as a guide to the present is no way to prepare for the future.
However, these costs are diverse and are spread across multiple parties with different areas of responsibility. As every organisation has different characteristics it will also have different exposures to different risks. Understanding the relevant indirect as well as direct risks is vital for companies to ensure they remain resilient as the climate changes.
For example, in an extreme heat event heat-stressed workers may be less productive. The Maritime Union agreement mandates that outdoor workers get 15 minute breaks every hour above 35 degrees and stop working altogether above 38 degrees. Employees may need to stay home to care for vulnerable family members or experience heat-related illnesses themselves. Or, as in Melbourne in 2009, employees may not be able to come to work because of disruption to transport services. All these factors can reduce or delay output, and drive up costs.
Our modelling of the impact on labour supply found the cost of increased extreme heat for a hypothetical business, a large Melbourne manufacturer, to be around $1-5 million, or 0.2-1.1 per cent of total revenue. Note that this does not include heat impacts on supply chains, which would also likely be affected, or longer term price rises, which might also be seen in electricity and insurance premiums. As such it is potentially considerably more costly than the impact of the carbon price, which has been assessed as equivalent to 0.3-1.0 per cent of revenue for some medium to large moderately emissions intensive businesses in Victoria.
Several conclusions can be drawn from this: first, that one per cent of revenue is a considerable impact from a single climate extreme on a single input. Second, that the company may be able to take steps to moderate the impacts by adjusting work arrangements. Third, that accurately assessing the value of adaptation options requires more thorough investigation of infrastructure interdependencies as well as firm-level risk assessment. And fourth, that this demands a much greater degree of information-sharing and collaboration across public and private sectors.
Credit must be given to the City of Melbourne for launching its Climate Adaptation Network, which brings together government, business and community. Other cities should establish similar arrangements as a matter of urgency.
It’s also important that, as the Productivity Commission recommended, major infrastructure providers embed climate adaptation in their risk management frameworks. Unfortunately the Commission stopped short of recommending anything that could ensure this actually happens.
One instrument that could drive better adaptation in the sector is a requirement for large infrastructure providers to disclose their exposure and readiness for global temperature rises of two and four degrees. Disclosure of material risks by large infrastructure and service providers is critical to well-functioning markets and emergency services. It reveals the exposure or readiness of systems upon which society depends. It enables priority setting and the assessment of progress toward adaptation. Importantly, it also enables organisations and individuals that invest in or rely on these systems and services to assess the consequent risk to their own interests. Given the global agreement to limit temperature rise to two degrees, but that current global commitments put us on track for a four degree rise, prudence demands that we consider both eventualities.
Australia needs to recognise that resilience is the critical third leg of the stool: as necessary, if not more so, than emergency response and disaster recovery. Continuing to rely on the past as a guide to the present is no way to prepare for the future; without making an honest assessment of our infrastructure system’s ability to withstand climate change we are walking backwards with blinkers on.
John Connor was CEO of The Climate Institute from 2007 to March 2017. Whilst qualified as a lawyer, John has spent over twenty years working in a variety of policy and advocacy roles with organisations including World Vision, Make Poverty History, the Australian Conservation Foundation and the NSW Nature Conservation Council. Since joining The Climate Institute in 2007 John has been a leading analyst and commentator on the rollercoaster that has been Australia’s domestic and international carbon policy and overseen the Institute’s additional focus on institutional investors and climate risk. John has also worked on numerous government and business advisory panels.