I love a sunburnt country,
a land of sweeping plains,
of rugged mountain ranges,
of droughts and flooding rains.
It’s more than a century since Dorothy Mackellar wrote ‘My Country’, her gushing paean to Australia. Today, the ‘droughts and flooding rains’ are proving increasingly problematic, not to mention the bushfires, the cyclones, and the coastal erosion.
To all but the most determined sceptics, climate change represents a growing threat to Australia both economically and environmentally. What has often been a challenging country to live in has become downright hostile in many places.
Just ask the 27,000 residents of Lismore in New South Wales. The town is prone to flooding. However, of the dozen highest floods over the past 150 years, a third have occurred in the last five years. Two of them in 2022 alone – once in February and again in March.
The February flood beat the previous record by more than two meters and caused catastrophic damage to the town. 3,000 homes and buildings were inundated. Incredibly, just four weeks later the rain struck again delivering the sixth worst flood in the town’s history.
A recent report from the NSW 2022 Flood Inquiry states that the NSW and federal governments together provided nearly $4 billion of support in NSW for victims of the February and March floods. According to the Insurance Council of Australia (ICA), insurers received 230,000 insurance claims for flood damage in NSW and southeast Queensland. The estimated cost of those claims is more than $5.1 billion.
The ICA reported a cost of $2.3 billion from claims attributable to the 2019-20 ‘Black Summer’ bushfires. The total damage, insured and uninsured, suffered by the Who should bear the cost of climate change? alone was between AU$4 billion and AU$5 billion.
Droughts and cyclones are other expensive natural disasters that have long plagued Australia. But in recent years their severity and frequency have been increasing. Unfortunately, predictions around the impact of climate change indicate that they will become even more devastating in the future.
Coastal erosion is another threat. In the last few years, Sydney beaches have been ravaged by ultra-high tides and wild storms. A March report from property analysis firm CoreLogic concluded that coastal risk will increase with “sea level rise, combined with potentially more extreme climate episodes such as cyclones or storms”.
This is a significant concern for a continent whose major population centers cling to the coastline. According to CoreLogic, 10% of residential dwellings are situated within just 1km of the coast. That’s more than AU$1 trillion of residential property.
The position is clear. In the coming decades, the cost to Australia of natural disasters driven by climate change will be immense. What is much less certain is who is going to bear that cost.
Climate change was a major issue in the recent Australian federal election. However, the focus of the campaign was on emissions targets and promoting renewable energy, rather than on what happens when disaster strikes and who bears the cost.
To date much of the cost has been covered by either private insurance or government relief. The big question is whether that is sustainable going forward.
According to the Climate Council, “climate change is creating an insurability crisis in Australia”. By 2030 approximately 520,000 residential properties in Australia, 4% of the total, will be so “high risk” that they will effectively be uninsurable. A further 9% will be “medium risk”, rendering them likely to be underinsured.
Riverine flooding will be by far the biggest problem. Many residents living on flood plains are already finding that either they can’t obtain insurance, or it’s prohibitively expensive. This creates an obvious dilemma. Do they stay and risk financial loss when (not if) the next flood strikes? Or cut their losses and leave?
And what is the appropriate course of action for state and federal governments – subsidise insurance, fund major protection measures, purchase uninsurable property, continue to provide ad hoc relief as required, or put those in flood prone areas on notice that further government assistance will not be forthcoming?
These are difficult questions.
Soon after the most recent flooding, the Queensland state government announced a AU$750 million scheme to help those affected. Significantly, assistance options include the state government purchasing some homes.
The NSW 2022 Flood Inquiry has just released its report. One finding stands out –
Certain regions and certain areas of cities and towns … are increasingly dangerous places to live and will increasingly be a drain on the public purse as people who live there have to be evacuated repeatedly and then re-housed.
The recommendation to address this ongoing “drain on the public purse” includes two notable options – “buy backs and land swaps”. In other words, it may be cheaper in the long run to permanently relocate some people at government expense than to keep incurring regular flood related costs.
Last week the NSW Premier Dominic Perrottet announced that his government would accept all the inquiry’s recommendations. A new reconstruction authority will shortly start taking expressions of interest for buy backs and land swaps. This will cost billions of dollars and the Premier is looking to the federal government to contribute.
The federal government recently addressed problems arising in northern Australia from extreme cyclone events. In March it created a reinsurance pool backed by a $10 billion government guarantee. This will protect insurance companies that provide insurance in the area from catastrophic losses thereby enabling them to provide affordable insurance cover. According to the relevant minister, the pool will apply to 880,000 policies and reduce premiums by up to $2.9 billion.
In what may be a sign of things to come, the Greens Party wants the government to consider reinsuring all climate related disasters.
There is a major issue here for Australian governments. Are they going to assume all the cost of climate-related damage in the coming decades? That cost could easily run into hundreds of billions of dollars if some of the dire predictions about the impact of climate change are accurate.
And there is an obvious danger of moral hazard. If governments assume the risks from floods and fires, cyclones and coastal erosion, there will be little incentive for Australians to take steps to avoid those risks.
As a minimum, governments need to either prevent further development on flood plains, in bushfire zones, and on low-lying coastal land, or make it very clear that anyone who invests in such areas does so at their own risk.
The latter is a potentially unpopular message. But it might save future Australian taxpayers a great deal of money.
Ross Stitt is a freelance writer with a PhD in political science. He is a New Zealander based in Sydney. His articles are part of our 'Understanding Australia' series.
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