As calls are being made for New Zealand to make urgent and critical changes when it comes to managing climate change and natural hazards, there are questions around who will pay for these climate adaptation measures.
The conversation has emerged again after the Independent Reference Group (IRG - a group put together by the Ministry for the Environment shared its recommendations for the country’s adaptation framework on Wednesday.
This framework is something the Government has been working on to prepare people and sectors for natural hazards and other climate impacts.
In the document, the group recommended:
- New Zealanders need to have fair warning about the way natural hazards could impact them, so they can make informed decisions
- New Zealand should take the broadest interpretation of ‘beneficiary pays’ approach to funding the increased investment in risk reduction because of climate change
- People and markets should adjust over time to a changing climate
The recommendation includes putting the onus on people to know the risks that come with their properties and to make their own decisions.
‘Financial bomb for the country’
While Local Government New Zealand and Insurance Council New Zealand are supportive of the urgency behind the recommendations, both groups were wondering the same thing: who pays?
The report was quite silent in respect to where the costs will fall, Local Government New Zealand (LGNZ) vice president Campbell Barry says.
“We know that this will be a financial bomb for the country if we start to grapple with it properly and local government’s funding and financing options simply can’t handle that.”
It was frustrating that since the IRG was formed, there was still no clarity on where those costs will sit, Barry, who is also the mayor of Lower Hutt, says.
“If the expectation was that councils would be funding climate adaptation managed retreat buyouts, then you will very quickly see, in my mind, councils go bankrupt.”
"That’s how dire already the financial position of councils are with their debt caps and also the pressure current ratepayers are already seeing with rates increases in recent times to try and deal with things like backlogs of water infrastructure,” Barry says.
This report also comes days after discussions about capping rates with Cabinet set to look at ways to control rate rises later this year.
“If you put this type of additional responsibility on councils around buyouts and the likes, then you are really hamstringing them if you then also introduce a rates cap,” Barry says.
Speaking to RNZ, Insurance Council New Zealand’s chief executive Kris Faafoi said the question of who would actually pay for adaptation measures still needs to be answered.
“In the report itself, there was an expectation that councils will do a lot of the heavy lifting and where some communities might find it a challenge to be able to pay for some of the protections … then investment from the Crown might be necessary,” Faafoi told RNZ.
Going forward, Barry says LGNZ wants to sit down with the Government to talk about where the responsibilities sit and what cost-sharing mechanisms are available.
“I think it’s a good report but the number one question is still quite silent and still has uncertainty there so that does need to be addressed.”
‘The report is not government policy’
In a statement, Climate Change Minister Simon Watts said he welcomed the independent recommendations for how New Zealand can adapt to the impacts of climate change.
“The report is not government policy, however the Government is considering the group's recommendations, alongside the findings of last year's cross-party climate adaptation inquiry and other advice, as it works to put in place the building blocks for a national adaptation framework.”
The Government will review the recommendations and will announce decisions in due course, Watts said.
23 Comments
My guess is that most of the political parties major and minor will dodge the question until a future government in power faces an impossible to pay restoration cost, and even then probably will not face up as fits the decades long demonstrated pattern of failure to act on global warming.... just let the damage to private and public infrastructure continue to grow. If one does front up saying that private citizens are responsible for their own repair and restoration costs they are unlikely to be reelected ... so best to do nothing and let the insurance industry pull the rug on highest risk customers and gradually reduce the number of insured customers so as to maintain insurance industry profitability.
Seems about right. Also, government investments will generally be directed to richer areas with political influence or that have the ability to organise and lobby. Their bit of beachfront or riverside will be "iconic" and others will have to retreat
Just tonight on the news was an item on the road through the Marlborough Sounds. That type of repair will likely be necessary time and time again going forward. Should residents be asked to contribute on a 'beneficiary pays' basis to retain their access - or should we toll the road (perhaps a more accurate reflection of beneficiary pays). If they didn't get around to at least posing these questions - it was a pretty useless exercise.
We have similar examples of very low use but high maintenance roads all over NZ.
Maintaining access to private properties under risk is the biggest cost issue for councils - as they pay for the maintenance/upkeep of those roads. The properties themselves can insure themselves, as it is a private interest they are responsible for.
They other thing that needs clarification is laws around seawalls. Presently it is near impossible to get a permit to build a seawall. Unless private property owners are able to exercise their right to protect their property - then the question of payment for forced retreat would to my mind be necessary/fair, but unaffordable for tax/ratepayers to foot the bill for these buy-outs.
Sort of, I pay over $5k for rates, i get no water no sewage and at the moment have to pay for rubbish collection....
Hard to justify what someone at the end of a road should pay if the council is not willing to maintain their connection with the services they say they provide back in the city?
My property is no even under threat, i live high above most flooding... agree re sea walls build away at locals cost.
$22m for this one, but I wonder how long it's gonna last.
It's mostly just protecting a park.
https://www.aucklandcouncil.govt.nz/plans-projects-policies-reports-byl…
And many of these back country roads have few residents as the forestry takes over.
Thus the road is being maintained for a select few who will log and leave.
Just tonight on the news was an item on the road through the Marlborough Sounds.
The sounds are a real pickle Kate. I know folk who live a couple of hours drive out there and after the 2022 weather event, they offered to take a digger out and clear the landslips to help the community. Their response from the council was that they are not allowed to touch it, as it has to be assessed properly by contracted providers and then planned and work done by contracted providers, which, low and behold were inundated with work form so many slips. The result was a barge and everyone had to chip in and take turns taking trailers an cars over to havelock and picton in order to stock up on groceries. The road could have been cleared in days otherwise. Interesting dynamic around liability and official process when the cost starts mounting up though.
They made the mistake of asking. Of course council would say no, they have no choice.
Next time, grab the digger, keep your trap shut and get on with. But don't ask.
Or be a good citizen and car pool.
I am aware of some rural folk getting out repairing their roads, mainly potholes etc as they become a danger to school buses and or trucks and the likes. We have cleared trees off roads when living rurally. Some remote roads we travel we always carry a chainsaw if there has, or will be rain, in case we come across a tree down.
Maybe in the far off future we will see a return to grader drivers living in rural areas so we have proactive maintenance rather than reactive maintenance.
Nothing like free firewood after a storm
Practically yes, but if something happened e.g further slip, or digger has issues at the time and insurance wouldn't have a bar of it. Those that live so far out and have done for decades aren't always particularly flush.
Kate,
Presently it is near impossible to get a permit to build a seawall. Unless private property owners are able to exercise their right to protect their property
But while a sea wall might help one homeowner, does it not just shift the problem to others?
Public asserts, roads and bridges etc, will be the tax payer. Perso al property...buying close to a river or the sea or cliff views is a choice. Shouldn't the owner who enjoys the amenity for free pay?
My latest theory is that insurance costs or potential loss of insurance will be the tipping point for voters to force governments to ramp up electrification.
I don't think it's far away. Until then I just tell people who complain about insurance costs that
a) every economy shares in the cost of every global flood event through the reinsurance market
b) every degree of warming increases moisture in the air by 7%
c) our infrastructure can not cope with today's moisture level because we add more housing
d) so expect their insurance and rates to double again within 5 years.
They can draw their own conclusions.
At our annual insurance review with our broker I mentioned about a situation I'm aware of, where one person in a street can't get house insurance, liquification risk being the reason given, and yet another person in the same street who with more than one house in the area can. The difference being one uses a broker and the other didn't. Our broker replied that he has a client that for the first time in 30years a client was refused insurance due to property being shown as subject to liquification/flooding. They have been in the same house all that time. When I asked what the the client did in that case, the broker said they can always find someone to insure it, it just then becomes about cost to insure.
A few years ago we were looking at buy a coastal house. I checked the city council rising sea level map to see what the rating was for the section, as insurance company was required to be informed. Part of it was designated liquification risk and part wasn't. I phoned council for further explanation, and was referred to the company who wrote the report. On speaking to the writer, they were horrified that the report was being used for that purpose as it was never intended to be done so. Makes me wonder at times if they were writing a report for insurance purposes, how that report would differ from the one they wrote. I understand that the sea level change maps available show the extreme case of sea level? Is this the right level for insurance to use currently given the level of sea rise predicted over say a 5year term? After all as that level gets higher insurance can always adjust accordingly rather than charging for the most extreme case?
Is this serious? Is this the level of economic debate we have got to in this country? What is the purpose of having a fiscally sovereign government?
The government is NOT economically the same as a f*cking household and can always finance itself based on the needs of the people it serves and the resources and potential in the economy.
Somehow, NZ economic leadership has convinced us that we can't invest in anything, or build anything or support anyone - unless 'someone can pay for it themselves'. That is an unbelievable ignorant way to run a modern economy.
Keynes,
.The government is NOT economically the same as a f*cking household and can always finance itself based on the needs of the people it serves and the resources and potential in the economy.
That sounds awfully like MMT-a nice theory but one which won't work in the real world. A perfectly respectable argument can be had over where our debt/GDP figure should sit-and the proper level of direct government funding for infrastructure, but unlimited borrowing-no way. We would rapidly see our credit rating fall, increasing our borrowing costs. I could offer you plenty of real world examples.
It isn't a theory. It's how fiat currency monetary systems work in the real world. How did governments end the Great Depression in the 1930's? They used the power of being fiat currency issuers and created and spent money directly into the private sector to create jobs and build things.
They didn't reduce spending and lower taxes - they did the opposite.
How did the UK government fund the defense of Europe during WW2? Did they wait for the bond market to provide funding? Did they raise taxes? No, they created the money needed and introduced rationing and price controls to prevent inflation.
How did we recover from the GFC in 2008? How did we get through COVID? Fiscal policy and the creation of new money to support the private sector and prevent economic collapse. All perfectly normal, standard Keynesian economics that hasn't led to uncontrollable inflation or debt in any advanced economy.
How did we recover from the GFC in 2008?
By fiscally kicking the can, and we're still kicking.
No - we haven't kicked the can down the road. We built the road with government deficit spending and bonds. When you stop investing in your own country and it's future generations is when you start kicking cans but you might not have any roads to kick them down.
There is no evidence to support the idea of some type optimal debt to GDP ratio and in reality different countries have wide variations in levels of debt to GDP and there is no level at which some type of economic collapse occurs. Australia and New Zealand have low levels of debt to GDP at around 40%. The US and the UK have around 100% debt to GDP and Japan has 250%. All of them have functioning modern economies, a high standard of living and manageable inflation.
If what you're saying is true Japan should have collapsed decades ago.
Keynes,
You haven't said whether you support the implementation of MMT or not, but that is not what Japan is doing. In 2019, the Finance Minister called MMT 'an extreme idea and dangerous as it would weaken fiscal discipline". BoJ Governor Harohiko Kuroda stated that; " Japan has deployed economic stimulus policies, but the government believes it's important to restore fiscal health and make fiscal policy sustainable...it's wrong to say Japan is resorting to MMT".
Stephanie Kelton, MMT's high priestess defines full employment not in terms of NAIRU, but of literally zero unemployment. This, even if possible, would be highly inflationary and the MMT remedy? Simply increase taxation levels. This is political naivety of a high order. Krugman has said that it(MMT) is 'obviously indefensible'.
I'm not advocating MMT - I'm pointing out how modern advanced economies actually operate and function as fiat currency issuers. What MMT highlights is the true purpose and nature of money and how it flows through an economy. Spending, employment and taxation are political choices not economic ones.
The reality is that we need more ways of removing money from circulation so that its distribution is front and center rather than accumulation. In addition to taxation we should include compulsory savings and the ability for the RBNZ to write off it's balance sheet to prevent excessive debt and savings - which are inflationary.
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