Thursday, May 19, 2022

Govt releases draft climate change adaptation plan

The Government is warning the public and businesses that it might take a new approach to property rights, as well as current models of insurance and risk-sharing when it comes to adapting society to climate change.

The release of the draft national adaptation plan by Climate Change Minister James Shaw marks another step in dealing with increased flooding and other impacts of climate change.

It is a stocktake of current policy work and proposes new policy areas for consideration in thorny issues such as:

Should councils and government take a larger role in stopping building in areas at risk from extreme weather events?

Who should cover the cost of repairing housing and infrastructure already in areas of risk and for how long?

If it is decided to retreat from those areas, who should cover the costs and what happens if people don’t want to move?

What should the government do if the insurance sector either makes premiums too expensive or retreats entirely from covering some risks or extreme weather events?

Shaw made clear in his comments that no decisions had been made on these difficult issues.

“Central government will not bear every risk and cost of climate change, including climate change adaptation. Risk and cost will fall across different parts of society, including asset or property owners, their insurance companies, their banks, local government and central government,” he said.

“The Government has choices about the role it plays and how it influences the way these costs and risks fall. Care will need to be taken to manage any perverse or unintended outcomes such as moral hazard (that is, inappropriate incentives to continue developing in at-risk areas).”

The document itself says: “We may need to think differently about property and land rights if areas become too risky to live in.”

It would be impossible to assess with total accuracy what will happen as climate change continues and what areas would be impacted until it happens. Despite this people, businesses, councils and central government had to acknowledge and prepare for potentially catastrophic change in some areas.

Among the problems, sea-level rise is believed to be continuing at a rate of 2.4 millimetres each year.

“This poses a distinctive and severe adaptation challenge as we must deal with slow onset changes alongside increased frequency and magnitude of extreme sea-level events” which could destroy homes and infrastructure. In particular drinking water supplies were at risk in several areas.

Recent extreme flooding events would become more frequent and intense, putting entire communities in ongoing danger or need of relocation.

The plan suggests gathering and providing more information on risks and different ways of using this. For instance, requiring councils to stop building in at-risk areas, as well as making warnings clearer in district planning and land information memoranda.

Reform of resource management law could include “clear signalling or initiation of adaptation responses, including retreat through regional spatial strategies that identify risk zones and areas where adaptation may be necessary.”

This could also include “powers and processes to address ownership of property that is retreated”.

Much of the framework for this would be included in the climate adaptation bill proposed to be introduced by the end of 2023.

By the end of 2024, as system reforms are completed and New Zealanders have better information about how to manage their climate risks, the Government said it will consider the need for further tools or guidance.

A major issue is who will pay for the costs.

About 675,000 (or one in seven) people across NZ live in areas that are prone to flooding, which amounts to nearly $100 billion worth of residential buildings. A further 72,065 people live in areas that are projected to be subject to extreme sea-level rise. The number of people exposed to these hazards will increase as the climate changes.

Also, many of these areas include vital infrastructure including energy, transport, water, telecommunication and social facilities.

Local authorities own much of the infrastructure that communities rely on and are closest to the problems and how to deal with them.

“This may require tough conversations. Options that will reduce long-run costs to communities may be unpopular among some residents in the short term. For example, a council might need to turn down requests for bigger and stronger protection structures, when rising sea levels make these increasingly expensive and ineffective,” the plan said.

NZ would have to face up to the prospect of some assets becoming uninsurable (creating further risks if they are used as collateral).

“Insurance retreat would likely reduce private and public asset values, making households and firms or public entities less able to invest in adaptation. There are likely to be more insurance claims, greater damage repairs and higher premiums. Claims for extreme weather events hit a record $321.6 million in 2021, breaking the record last set in 2020 at $274m,” it said.

The plan said work is under way to better understand the scale and timing of insurance market changes.

“The Government intends to develop options to ensure home flood insurance continues to play an appropriate role in supporting community resilience. This work has important links with other adaptation initiatives, such as improved land-use planning, that reduce climate-related risk and support the insurability of assets,” it said.

The Government’s primary focus is on flood insurance for residential buildings. The choices include potentially supporting a national flood insurance scheme for residential buildings.

“Another result of insurance retreat will be that private insurance plays a smaller role than at present in preventing or responding to damage caused by floods. In addition, loss of insurance or higher premiums are likely to provide incentives for asset owners to manage their risk in other ways, including potentially by taking measures to adapt to the risks (such as seeking the development of public flood defences or moving assets).”

The draft plan says the Government will have to weigh up the benefits and risks in managing flood risk and/or supporting flood insurance.

These included:

Who should bear these risks and how they are shared across society, including considering to what extent these risks are different to other risks.

Who is best placed to manage and make decisions about managing these risks (eg, homeowners, local government, central government).

The risk of unintended consequences. This includes reducing incentives and masking market signals that could otherwise promote actions to reduce underlying flood risk.

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