National climate risk assessment unveils stark physical and economic risks

Australia’s first national climate risk assessment (NCRA), released on Monday (15 September), has predicted that climate change would have “cascading, compounding and concurrent” impacts on Australia’s economy and communities.

In a joint statement, Chris Bowen, Minister for Climate Change and Energy, said the NCRA had found that climate impacts were now unavoidable, but action could be taken to avert the “worst impacts” on Australian communities and businesses.

“Australians are already living with the consequences of climate change today but it’s clear every degree of warming we prevent now will help future generations avoid the worst impacts in years to come,” Bowen said.

The report identified that Australia’s economy was currently facing “moderate” climate risks, but was expected to bump up to “high” or “very high” by 2050, and to “severe” by 2090.

It warned that businesses and supply chains would be increasingly exposed to extreme weather events, which could damage facilities, disrupt operations and lead to financial losses.

It also predicted that extreme heat would reduce workforce productivity and that input costs would rise due to climate change-related supply chain disruptions.

“Long-term economic risks posed by climate change are difficult to quantify and often sit beyond the planning horizons of financial institutions,” the report said.

“Quality, consistent climate information and sustainable finance taxonomies and corporate risk disclosure regimes are emerging to fill this gap.”

The NCRA also identified severe economic costs associated with climate change.

“While climate risks and hazards are often localised, with pronounced impacts on regional economies, climate-related shocks can also more broadly impact the Australian Economy, trade and finance system.”

In a moderate emissions scenario, annual social and financial costs of floods, bushfires, storms, cyclones and hailstorms could total approximately $40.3 billion by 2049-50, according to a 2024 government review (The Colvin Review).

Deloitte modelling from 2021 indicated that the total economic cost of climate-related disasters was already $38 billion per year on average, and by 2060, this cost could rise to at least $73 billion.

The NCRA warned that the costs of extreme weather events were outpacing the rate of economic growth.

“The impact of extreme weather on the Australian economy has more than tripled over the past 3 decades, with the rate of growth of the financial impact of extreme weather outpacing the rate of economic growth,” it said.

“Insured losses from declared insurance catastrophes have grown historically from 0.2% of GDP (or $2.1 billion) in 1995–2000 to 0.7% of GDP (or $4.5 billion) in 2020–24, with floods, expanding development and urbanisation being the main drivers of losses.”

It warned that households exposed to natural hazards would be highly likely to face increases in insurance premiums in the future, transferring the costs of natural disasters from the insurance sector to individuals and businesses.

“Rising costs and reduced availability of insurance can lead to underinsurance or non-insurance. This transfers the cost of disaster recovery back to householders and governments,” the report found.

“Lack of insurance also reduces the financial capacity to support loans and mortgages and reduces the value of assets.”

Following the NCRA’s release, independent senator David Pocock called for a 2035 emissions reduction target of at least 75 per cent, and slammed the government’s continued approval of emissions-intensive projects.

“What Australia’s first National Climate Risk Assessment finds about the risks we face from a changing climate are nothing short of terrifying and highlight how successive governments have kept us in the dark when it comes to the risks of failing to act,” Pocock said.

“We need to get serious about funding climate adaptation. In Australia, we spend a fraction of what is required to build resilience in our communities – orders of magnitude less than what experts are telling us we need to be spending. We also need Labor to stop trying to con Australians that approving new fossil fuel projects is compatible with serious climate action.”