2009 Climate Change Summit Synthesis Report

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Telstra participated in the 2009 Climate Change & Infrastructure Summit in Sydney run by Climate Risk P/L & Zurich Insurance

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2009 Climate Change Summit Synthesis Report

  1. 1. Synthesis Report: A Climate Risk Report Climate Change and Infrastructure Expert Summit Convening Partners: Climate Risk Climate Risk Pty Ltd provides specialist professional services to business and government on risk, opportunity and adaptation to climate change. www.climaterisk.net Climate Risk i Climate Change and Infrastructure Summit Climate Risk
  2. 2. Climate Risk Pty Limited (Australia) This Synthesis Report was prepared by: Sydney: + 61 2 8243 5767 Brisbane: + 61 7 3040 1621 Karl Mallon www.climaterisk.net karl@climaterisk.com.au Climate Risk Europe Limited Donovan Burton London: + 44 752 506 8331 donovan@climaterisk.com.au Maria Mackiewicz-Turner maria@climaterisk.com.au The Climate Change and Infrastructure Summit took place on the 29th of July 2009 and was held at the head office of Zurich Financial Services Australia in Sydney. The Climate Change and Infrastructure Summit was led by Dr. Karl Mallon and Mr. Donovan Burton of Climate Risk Pty Ltd, in partnership with infrastructure advisory firm Evans & Peck, law firm Mallesons Stephen Jaques, and the infrastructure industry peak body Infrastructure Partnerships Australia. This synthesis report attempts to reflect the key aspects of expert analysis and discussions. The content does not necessarily reflect the opinions of the convening partners or any individual attendees. Disclaimer: While every effort has been made to ensure that this document and the sources of information used here are free of error, the authors: Are not responsible, or liable for, the accuracy, currency and reliability of any information provided in this publication; Make no express or implied representation of warranty that any estimate of forecast will be achieved or that any statement as to the future matters contained in this publication will prove correct; Expressly disclaim any and all liability arising from the information contained in this report including, without limitation, errors in, or omissions contained in the information; Except so far as liability under any statute cannot be excluded, accept no responsibility arising in any way from errors in, or omissions contained in the information; Do not represent that they apply any expertise on behalf of the reader or any other interested party; Accept no liability for any loss or damage suffered by any person as a result of that person, or any other person, placing any reliance on the contents of this publication; Assume no duty of disclosure or fiduciary duty to any party. Climate Risk supports a constructive dialogue about the ideas and concepts contained herein. © Copyright Climate Risk Pty Ltd, 2009 This document is protected by copyright. This document (in whole or part) cannot be redistributed or reproduced without the prior consent of Climate Risk Pty Ltd.
  3. 3. Foreword As this report is released at the 15th Conference of the Parties negotiations in Copenhagen, heads of state from around the world will arrive to seek a means to limit future global warming. What few dispute, is that a significant level of warming has already occurred and more is unavoidable. These effects are already impacting the bottom line of companies around the world. This is clearly evident in the escalating weather related losses reported by the insurance sector. Just this decade the fraction of weather related losses in Australia has increased from 12% of policy payouts to over 30% according to the Insurance Council of Australia. Infrastructure is at the front line of adaptation. Resilient infrastructure will be the corner stone of a resilient society. The criticality of infrastructure, from power to water, rail to ports, roads to telecommunications, will only increase with climate change. This summit brought together leading infrastructure experts in Australia to further explore the emerging climate challenges. The Summit was characterised by robust and frank discussions with competing perspectives of existing and nascent issues. The Summit was also characterised by a strong meeting of minds on the real world challenges of adapting infrastructure to climate change today and the need to make swift progress on solutions and co-operation. The major challenges identified have been detailed at the end of this report and I strongly urge professionals who are involved in infrastructure development, lending, insurance and assessments to study the Critical Issues chapter. On behalf of the convening partners, I would like to sincerely thank all presenters and participants, and hope that we have reproduced their contributions with fidelity. On behalf of all participants, I would like to reflect the overwhelming consensus that this Summit has been the starting point for a dialogue that must continue for the benefit of a wider society seeking to cope with one of the great challenges of our age. Karl Mallon Director of Corporate Risk, Climate Risk Pty Ltd
  4. 4. Contents 1 Executive Summary 1 1.1 Summary of Key Issues 1 1.2 The Challenges Ahead 3 2 Introduction 5 2.1 Summit Aims 5 2.2 Attendees: By Industry for Industry 5 3 Themes, Speakers and Issues 7 4 An Overview of Some Climate Change Hazards to Australian Infrastructure 9 5 360o Perspectives 11 5.1 Climate Scientists – Educating on the Science of Variability 11 5.2 Regulators – the Role of State Government 11 5.3 Infrastructure Owners & Developers – Water 12 5.4 Infrastructure Owners & Developers – Telecommunications 13 5.5 Infrastructure Owners & Developers: Transport 14 5.6 Law, Liability and Litigation 15 5.7 Legal Risks from Carbon 15 5.8 Infrastructure Investors and Financiers 16 5.9 Infrastructure Insurers 18 5.10 An Insurance Company Viewpoint 18 5.11 Market Mechanisms: Weather Watching for Energy and Agriculture 20 6 Critical Issues 21 6.1 Standards are not, and perhaps cannot, keep up with climate science 21 6.2 Lack of standards leaves developers in legal limbo 21 6.3 Fortress approach could be inefficient use of resources 21 6.4 Risk assessment techniques found wanting 22 6.5 Culture and behaviour change: Essential but not simple 22 6.6 Treating mitigation and adaptation in isolation does not work 22 6.7 Insurance and infrastructure have much to offer each other on climate 23 6.8 Government departments and policies are not consistent on climate 23 6.9 Increased importance of infrastructure in a climate changed world 24 6.10 The risk of risk transfer 24 6.11 Avoiding market and regulatory disincentives 25 6.12 Access to science and control of information 25 6.13 Maintaining dialogue momentum 26 Climate Change and Infrastructure Summit Climate Risk
  5. 5. 1 Executive Summary Climate change uncertainties still exist, many of them stemming from Australia is experiencing a major nation- unknowns about how the Earth’s wide surge in infrastructure investment. physical and biochemical systems will At the same time, significant Federal and interact with rising greenhouse gas State Government climate change policy emissions and climate change. Because is being formulated, announcements infrastructure decisions still need to be are being made about the ramifications made, such uncertainties have to be of future sea level rise, and extreme accepted and managed. weather events including bushfires, heatwaves, heavy rainfall and flooding Multiple Stressors are highlighting the vulnerability of Australia’s existing infrastructure to Clusters of extreme events, or a single climate change. event acting in combination with other stressors such as oil shocks, may These fast-emerging climate change threaten the survival of businesses; risks to infrastructure were the trigger industry and government need to be for this Rapid-Response Summit “by ready for these multiple stressor events. the private sector, for the private sector.” Current risk assessment methods do not Specifically, the summit’s aim was to account for the “Climate Black Swans”.1 explore the implications of climate change for the future of infrastructure Variability is Critical risk management and transition in Australia. Managing climate variability, already a reality in Australia, will become more These risks were considered from the difficult with increasing climate change. perspectives of multiple stakeholders, Regardless of “mean” changes the drawing on their wide-reaching variability will in future entail managing expertise and lengthy experience. The for even more frequent and intense format consisted of speaker sessions, extreme events and cycles. panels, and discussions which aimed to focus on key issues and identify the Not All Models Are The Same challenges facing the sector. There is also a need for better understanding of regional vulnerability 1.1 Summary of Key Issues to climate change; time and resource The following key issues were identified investment are needed to identify at the summit. the specific or ensembles of global circulation models that work best for 1.1.1 The Information Dilemma a given region. Stakeholders need to be educated about the risks of using An important strand of discussion at the inappropriate data. conference focussed on important gaps 1 A reference to the fact that Europeans were once certain all swans were white -- until presented with evidence of in information about climate change and black swan species; “black swans” are instances when new evidence causes old models to become immediately obsolete. its associated risks. The term “climate black swans” refers to the existence of weather extremes that lie outside the bounds of the majority of weather events experienced. 1 Climate Change and Infrastructure Summit Climate Risk
  6. 6. Auto-Adaptation Risks those that lack insurance or where cover would be denied. Significant uncertainty surrounds the extent to which climate change will push Standards Are No Protection From communities’ coping capacity beyond Litigation the range of their historical experience and planning. Moreover, tertiary Whilst climate change litigation will impacts – namely how people and happen, it is not a sustainable long- society auto-adapt to climate change term solution for dealing with climate impacts and regulation – must also be change related losses. Unfortunately, considered in infrastructure design and industry standards will most probably planning. For example, extreme weather be insufficient to shield developers from may result in population shifts that litigation action. They will have to show render some infrastructure redundant. that they have adequately accounted for climate change. Climate Risk Quantification 1.1.3 Managing Climate Change For private-sector investors of Risk infrastructure, it is important to ensure that climate change risks are Adapting Society Through quantified within a business case of a Infrastructure major infrastructure project, especially where Public Private Partnerships are Moving forward, summit participants concerned. However, in practice the also discussed the avenues open to financial effects of climate change adapt to, and mitigate, climate change impacts are proving difficult to quantify risk. They recognised the need to in relation to company risk and growth. increase business and civil society It can be done but methods and resilience to escalating extreme weather examples are only just emerging. impacts, and agreed that infrastructure will be part of that process. 1.1.2 Key Areas of Climate Change Risk to the Infrastructure Sector Adaptation encompasses the need to reassess our view of infrastructure High Risk Regulations and Locations resilience, as well as for operational responses that reduce the risk of There was a recognition that the greatest adverse climate change impacts. short-term legal risks for infrastructure Susceptibility as well as likelihood developers may stem from the rapidly- of harm must be recognised when changing regulatory landscape. From assessments are made of infrastructure the perspective of investors and the and operations vulnerability. financial community, the key issues Furthermore, the long-term view of are also regulatory, especially if they economic sustainability in industry have a direct nexus to earnings and must be encouraged as an avenue to company viability. From the insurance build resilience against specific climate perspective, areas most at risk are change impacts. 2 Climate Change and Infrastructure Summit Climate Risk
  7. 7. Affordable, Available Insurance they demonstrate they have adequately factored in climate change? And how Insurance was recognised as an much is enough? important means of addressing climate change risk. There is a need to keep Given that the notion of “fit-for- insurance available and affordable to purpose” changes rapidly in a maintain asset values and attract private changing environment, can we sector finance. design infrastructure capable of being upgraded as the actuality of climate Reduce Risk Instead of Transfer change impacts and risks evolve? Can we redefine fit-for-purpose to avoid Given that transfer of escalating risk to the inefficient use of resources to build insurers cannot continue indefinitely, fortresses, yet build in the ability to there is a need for insurers and fortify in the future? infrastructure stakeholders to develop a dialogue about adaptation to ensure Given greater awareness amongst risks remain insurable. stakeholders of climate change risks, how can the AS/NZS4360 risk assessment methodology be enhanced 1.2 The Challenges Ahead to specifically improve the quality of The summit attendees also identified key climate change risk assessment (e.g. in challenges faced in managing climate the area of multi-stressor confluence)? change risks to infrastructure, as follows. 1.2.2 Government and Policy- 1.2.1 Standards & Methodology Related Challenges A number of key challenges for the Another important strand of challenges infrastructure sector stem from discussed at the summit relate issues related to the relevance of to infrastructure’s interface with industry standards in an era of climate government, including policy making. change, and the need for appropriate methodology to assess climate change Given concerns that climate change risk. could impact vulnerable communities and compound existing capacity issues Standards are not keeping up with e.g. of the health care systems, how fast-moving climate change science does the infrastructure sector ensure and projections; given that keeping that its heightened importance and up may be impossible, how can a criticality to communities’ climate standards process be put in place change resilience is recognised and which is sufficiently dynamic to cope resourced today? with fast-moving impacts? And where standards fail to reflect the level of How can the infrastructure sector climate change risk, and the onus shifts achieve greater cooperation with all to infrastructure developers to prove levels of government to ensure proper they have addressed the risks, how can integration and mitigation of climate 3 Climate Change and Infrastructure Summit Climate Risk
  8. 8. change risks, and avert the mere transfer instances of publicly-funded research of risks which fails to reduce them? to reach the public domain, how can existing or commissioned information Given the need for an integrated, on climate change be placed into the “joined-up policy” approach to decision- public domain to ensure greater access making on climate change, how does the by infrastructure developers, operators infrastructure sector ensure consistent and their advisors? treatment of climate change adaptation across all departments and levels Given the risks of decision-making of Government, but ensure the risk based on inadequate information, how response is not “dumbed-down”? could the infrastructure industry more effectively access the insights and Get Price Signals Through expertise of insurers on climate change? If consumers / markets are shielded Maintaining a Dialogue from price signals required to trigger behavioural change, this can tie the Considering the usefulness of hands of infrastructure developers. How communication shared at this Rapid can the private sector and government Response Summit, can dialogue on work together to dismantle market and climate change impacts and adaptation regulatory disincentives to climate continue across infrastructure and all its change adaptation in the infrastructure stakeholders? sector? 1.2.4 Other Key Challenges 1.2.3 Improved Communication and Access to Information The summit attendees also recognised that mitigation and adaptation action A third strand of challenges centred on cannot be pursued in isolation; how can the need to access and communicate the infrastructure sector ensure full and information related to climate change consistent integration of climate change risks and solutions. adaptation with emissions mitigation? In the face of scepticism, debate and Finally, another key challenge relates to politicisation of climate change, how the possibility that changes in insurance does the infrastructure sector establish costs and availability may make some a consistent, professional position locations and assets less valuable. on climate change impacts and risks How can the infrastructure sector which is accepted industry-wide by remain open to insights about climate professionals, directors and officers? change risk and insurability if they risk undermining current value (i.e. ensure Given a limited willingness to share that the best option is not to turn a blind information within and among eye)? industries, and the failure in some 4 Climate Change and Infrastructure Summit Climate Risk
  9. 9. 2 Introduction considering the perspectives of multiple stakeholders, drawing deeply on their On the 29 July 2009, the Climate Change wide-reaching expertise and lengthy and Infrastructure Summit assembled experience. leaders engaged in all major categories of infrastructure. This included 2.2 Attendees: By Industry for infrastructure stakeholders from the Industry areas of finance, law, local government planning and insurance. The Summit was themed as an event “by the private sector, for the private sector”. This focus allowed issues to be 2.1 Summit Aims deliberated primarily from a commercial The Summit’s aim was to explore vantage point, while also considering the implications of climate change the extent to which the private-sector for the future of infrastructure risk can manage climate change risks management and insurance in Australia. internally, and the part governments may play in assisting or undermining Australia is currently experiencing a such processes. period of a major nation-wide surge in infrastructure investment — a period The summit was a “rapid response” which also coincides with Federal and conceived out of the need to explore State Governments announcements fast-emerging climate change risks. on the potential ramifications of future Although participants were given just climate-change-induced sea level rise. four to six weeks notice of the event, the uptake was robust and diverse, and Vulnerability of existing infrastructure to the limit of 60 attendees was quickly major weather-related events is already exceeded, necessitating restrictions on being emphasized by severe bushfires attendees per organisation. This strong and heat stress in Australia’s south, response emphasises the awareness of contrasted with heavy rainfall and significant climate change issues across flooding in the nation’s east and north. the sector, which are emerging during The frequency and severity of extreme a rapid rollout of regulatory responses events – which have already caused at a time when inherent uncertainties in tens of millions of dollars in damage to climate change predictions remain. National, State and Local infrastructure – is expected to increase as climate Summit participants came from diverse change proceeds. sectors including: Infrastructure underpins the economy, • Private-sector infrastructure thus it is imperative that Australia owners and operators manage the impacts on infrastructure from climate change. The summit • Public-sector infrastructure addressed this imperative by owners and operators 5 Climate Change and Infrastructure Summit Climate Risk
  10. 10. • Infrastructure developers • Infrastructure engineers and builders • Major Australian consultants • Specialist lawyers from the private sector and academia • National climate change research bodies • Climate scientists • Federal and state departments responsible for climate change • Infrastructure investors and lenders • Policy analysts from civil society Most major infrastructure types were represented by participants active in their industry sector, including: • Roads • Rail • Water • Telecommunications • Ports and Maritime • Energy Generation and Distribution • Urban Design 6 Climate Change and Infrastructure Summit Climate Risk
  11. 11. 3 Themes, Speakers and Issues forming a panel to respond to audience questions, challenges and debates. In The Summit was separated into four the final 1.5 hours of the day a “World sessions, of three to four speakers Café” was held to focus on key issues each, as listed below (Table 1). Each and identify problems and solutions. session concluded with these speakers Table 1: Summary of speakers and overview of issues covered. Name Organisation Issues Covered Mr. David Chief Executive Opening address – included examples Smith from NZ and the role that insurance plays Zurich Financial Services in community resilience. Prof. Roger Professor in Climatology and Science of climate change – climate Stone Water Resources change variability, ENSO phenomenon, confluence of sea level rise, storm surge Director, Australian Centre for and cyclone intensity. Sustainable Catchments University of Southern Queensland Mr. Mark State Coordinator, Impacts and Climate Change and Infrastructure Conlon Adaptation implications for state government, covering issues relating to climate change DECCW risks for infrastructure, and the NSW DECCW action plan in relation to climate change mitigation and adaptation. Mr. John Water Security, Natural The direct and indirect climate Verhoeven Resources and Climate Change change impacts on infrastructure, Risk and management implications for infrastructure owners and managers. Evans & Peck Areas explored include water, power, ICT, built environment, mining and quarrying, and transport. Ms. Narelle Economist and Project Manager Presentation on the integrated climate Daniels change risk assessment for the Port of Queensland Main Roads Brisbane Motorway Upgrade Business case. Included information on how climate change impacts were quantified for tolling. Dr. Greg Manager Science and Sydney Water response to climate change Allen Technology – included an outline of the operating context for Sydney Water and their Sydney Water climate change strategy including risk assessment, adaptation and response. 7 Climate Change and Infrastructure Summit Climate Risk
  12. 12. Name Organisation Issues Covered Dr. Turlough Group Manager Environment Presentation on the Carbon Disclosure Guerin Telstra Corporation Limited Project and the climate risks facing Telstra and the telecommunications industry – identified risks from physical damage to network due to extreme weather events, to the lack of understanding of implicated risks in international offices. Telstra’s actions to manage and adapt to climate change risks and its impacts were also discussed and examples were given. Dr. Ian Senior Research Analyst Climate change, infrastructure, insurance Woods and investment; focus on regulatory AMP Capital Investors risks and other aspects with a direct link Sustainable Alpha Fund to earnings. Investor-based action for understanding investment risks related to climate change was also discussed. Prof. Jan Griffith University Law School Exploring anticipated litigation for failure McDonald to address climate change (including mal- adaptation). Focussing on the future and how land use planning can be utilised to reduce the potential for litigation. Mr. Vishal Partner Regulatory risks from climate change. Ahuja Issues surrounding due diligence, lending Mallesons Stephen Jaques and exposed industries under anticipated nature of CPRS. Mr. Karl General Manager Policy - Risk Overview of the insurance industry in Sullivan and Disaster Directorate Australia, how insurance works, the types of extreme weather risks, and how to Insurance Council of Australia adapt to the pool of increased risks. Adj. Prof. Cindual Pty Ltd and Australian Climate prediction, insurance and Peter Best Centre for Sustainable adaptation in the energy and agricultural Catchments, University of sectors. Including climate variability and Southern Queensland change of equal importance for extreme weather impacts on much infrastructure; multi-scale nature of future energy and agricultural systems – opportunities for climate risk products; and seasonal climate forecasting, insurance innovations & adaptation incentives. Ms. Alice Corporate Responsibility Issues of mutual dependence and mutual Cahill Manager benefit. Interaction between insurer, broker and business customer and Zurich Financial Services importance of insurance being available Australia and affordable despite increasing risks. 8 Climate Change and Infrastructure Summit Climate Risk
  13. 13. 4 An Overview of Some need to withstand a range of climate Climate Change Hazards to change hazards, such as increased Australian Infrastructure sewer spills to stormwater / waterways. John Verhoeven, of international Electricity generation/transmission infrastructure management consultants infrastructure top-flight hazards include Evans & Peck, provided an overview of reduced water availability for coal-fired the various hazards that climate change power station cooling, summer peak poses across the different classes demand spikes outstripping supply, the of infrastructure. This included both elevated costs stemming from the need the direct and indirect risks faced by to increase plant water use efficiency, infrastructure owners and managers, and bushfire damage to transmission and management implications for asset lines and substations. Extractive owners and managers. energy industries also face risks, such as reduced water availability for coal Beginning with water infrastructure, processing and dust suppression (many Mr. Verhoeven highlighted critical coal extraction hazards overlap with risks to potable water supply. These those faced by the mining and quarrying include water shortages, which may industries generally). The risk of more be further exacerbated by increased frequent or prolonged shut-down of demand, and the wide threats posed by offshore oil and gas infrastructure bushfires to water storage catchments. due to storm damage was also raised. Irrigation water suppliers face similar Renewable generators face risks as vulnerabilities. Stormwater drainage well, such as wind turbine damage from and sewerage infrastructure would also extreme winds. Figure 1: Sydney Water risk ratings for a 2030 climate change scenario (Source: G. Allen, Sydney Water). 9 Climate Change and Infrastructure Summit Climate Risk
  14. 14. Transport infrastructure faces a range to above-ground transmission lines or of hazards. For roads and tunnels, towers, and deterioration and flooding this includes costs associated with of transmission infrastructure and degradation of foundations and bitumen, exchanges cables. and flooding. Potential rail infrastructure hazards include damage to overhead Mr. Verhoeven discussed how managing wiring, damage and disruptions the risk and liability of these climate from increased electrical storm change hazards requires a two-pronged activity, and degradation and stress of approach: addressing climate change tracks, bridges, railway foundations, impacts; and actions to reduce the embankments. As society adapts to chance of impacts on assets. This climate change, rail infrastructure may would require decision-making about incur increased train use, and greater infrastructure from the planning through demand for air-conditioning on trains. to management stages, and also Sea ports also face hazards, with a raised fundamental questions about significant risk being damage to assets where cities should expand and where and disruption of operations. As for infrastructure assets should be built. airports, flooding and damage could be key hazards, especially in Sydney and Brisbane where infrastructure lies close to coastal waters. In the built environment, bushfires pose a threat to buildings and human health, whilst floods present clear hazards to buildings in low lying areas. Longer- term and less acute hazards revolve around deterioration and damage of building materials and foundations. Structures on coasts are also vulnerable to climate change hazards. Essential services such as health and education may be in greater demand, whilst coastal services may undergo damage. With global warming, agricultural producers face the risk that climate change could reduce production, increase losses, and reduce, or cause salination of, groundwater supplies. As for telecommunications infrastructure, hazards include damage 10 Climate Change and Infrastructure Summit Climate Risk
  15. 15. 5 360o Perspectives As an illustrative example, Professor Stone set out changes in the anticipated An important aim of the Summit return rate of extreme cyclones. was to provide participants with the Under present climate conditions, a opportunity to see climate change cyclone with a pressure level of 953 issues from the perspective of others hPa (hectopascals) is expected to have in Australia’s infrastructure industry. a 1-in-100-year return rate (between This section summarises insights from the latitudes of 14° S and 20° S). That various vantage points. is, such an event would be expected to occur once a century. Under enhanced greenhouse conditions, the frequency of 5.1 Climate Scientists – Educating this type of event increases, becoming on the Science of Variability a 1-in-20-year event. This frequency Professor Roger Stone of the University shift has considerable repercussions for of Southern Queensland provided infrastructure design and planning. an overview of the current science and anticipated impacts of climate 5.2 Regulators – the Role of State change. Setting a context for the day’s Government discussion, Professor Stone showed that average global temperatures have Mark Conlon of the NSW Department increased by approximately 0.9°C of Environment and Climate Change over the 1890-1919 average, and gave presented a state government evidence demonstrating the majority of perspective. As a large provider of this increased warming is attributable to infrastructure, he noted that the New anthropogenic activities. South Wales Government aimed to lead on climate change science development A specialist in climate variability, and work with partners (such as Professor Stone also illustrated that emergency services and the Australian climate variability was already an Local Government Association). issue for Australia, and that climate change is anticipated to alter not just Mr. Conlon presented results from mean values but also variability around recently-commissioned, regionally- the mean (e.g. the El Niño Southern specific climate change projections Oscillation phenomenon) and lead undertaken by the University of NSW. to more extreme weather, such as The regionally downscaled maps, he intense rainfall, increased hail days stated, significantly contributed to and heatwave events. Professor Stone improved understanding of regional argued that the critical challenge posed climate change vulnerability. Essential by this variability will bring forward to the creation of the new maps was the challenge of climate change investing time and resources to identify management. which global circulation models are best suited to a given region. 11 Climate Change and Infrastructure Summit Climate Risk
  16. 16. Figure 2: Projected changes in rainfall for the state of New South Wales (Source: M. Conlon, Department of Environment, Climate Change & Water). A major theme of Mr. Conlon’s These encompass water security, presentation was the importance of supply and demand balance, impacts understanding the extent to which on Sydney Water infrastructure and climate change pushes communities operational performance, employee beyond the range of their historical health and safety and the need to meet experience. He made a powerful customer and stakeholder expectations. case that such a benchmark provided a strong indicator of a community’s Dr. Allen also discussed the steps made coping capacity or resilience, which along the path of adaptation, such as encompasses the coping capacity of new infrastructure for recycling water, a community’s infrastructure and its desalinisation plants and investment in owners and managers. increased water efficiency to improve the sustainability of fresh water supplies. 5.3 Infrastructure Owners & Adaptation also extended to: (a) the Developers – Water need to increase the resilience of Dr. Greg Allen from Sydney Water infrastructure; and (b) operational presented his corporation’s response responses to reduce the risk of adverse strategy for climate change, from impacts of climate change. This identification and assessment of risks to included the need for vulnerability their process for adaptive actions. identification through recognising susceptibility to harm and not just The operational scope for Sydney Water the likelihood of harm to stated was outlined to emphasise the extent of infrastructure and operations. risks posed by climate change impacts. 12 Climate Change and Infrastructure Summit Climate Risk
  17. 17. Figure 3: Sydney Water climate change strategy (Source: G. Allen, Sydney Water). Looking forward, Dr. Allen made it flow-on effects on the industry, work clear that Sydney Water acknowledged force and civil society. adaptation action to be an ongoing business process. In terms of mitigation, Dr. Guerin also raised tertiary impacts, he stated that Sydney Water’s objectives i.e. those to do with how people and were to become carbon-neutral by society auto-adapt to climate change 2020 and engage with business and the impacts and regulation. Dr. Guerin community to reduce their own carbon raised as an example the prospect footprints. of possible redundancy of some infrastructure in the long-term due to population shifts caused by repeated 5.4 Infrastructure Owners & extreme weather events. Developers – Telecommunications Dr. Turlough Guerin presented Telstra’s The business pressure to reduce experiences with climate change emissions was also discussed. Major mitigation and adaptation as described clients of Telstra factor greenhouse in their most recent response to the gas emissions into their supply- Carbon Disclosure Project. chain decisions. This puts the telecommunications corporation in a Being in the majority self insured, position to actively mitigate and adapt in Telstra recognises the need to anticipate order to retain business with these large and manage the impacts of climate clients. change on their industry. Physical impacts on infrastructure and network Dr. Guerin stated that part of Telstra’s function were discussed as well as their mitigation and adaptation response 13 Climate Change and Infrastructure Summit Climate Risk
  18. 18. is already in place through the use of implementation of major infrastructure the Global Operation Centre (GOC). projects. This is in a major part due This centre monitors and restores to the shift toward Public Private telecommunications facilities, and this Partnerships (PPP) which requires includes the monitoring and assessment private-sector investors to be satisfied of weather conditions and patterns that climate change-related risks have throughout Australia. The creation been addressed and will not undermine of the Major Incident Control Centre future returns. within the GOC is now used to facilitate protection of telecommunications In particular, Ms. Daniels was interested infrastructure by sharing information in how market changes, population with other sectors and industries during shifts, extreme weather events, carbon extreme events. prices, freight and transport changes affect the viability (and the delivery model) of a business case based on 5.5 Infrastructure Owners & tolling revenues. Developers: Transport Ms. Narelle Daniels, an economist Ms. Daniels outlined how a partnership from the Queensland Department of between the department and Climate Transport and Main Roads, used the Risk Pty Ltd identified new methods to Port of Brisbane Motorway Upgrade incorporate climate change sensitivities Business Case as an example of how her into freight movement and local traffic agency considers climate change risks. models. These results were in turn fed into the final economic analysis. Ms. Daniels stated that it was now becoming critical to consider climate Importantly, the project set out by change in the business case, design and Ms. Daniels was able to prove to Figure 4: An example of the quantified impact of multiple climate change hazards on freight movement density in the Brisbane road network (Source: K. Mallon, Climate Risk) 14 Climate Change and Infrastructure Summit Climate Risk
  19. 19. infrastructure developers such as be denied. This dearth of coverage will theirs that climate change risks could further expose sectors such as lenders, be successfully quantified within a leading to lender withdrawals, higher business case, and that the climate interest rates and /or shorter lending uncertainties were managed with terms. Under such circumstances, legal reasonable ease within such a process. recourse may be the only option for some stakeholders who seek to recover losses. 5.6 Law, Liability and Litigation This section of the summit explored the Professor McDonald considered legal ramifications of climate change. how increased litigation may further Professor Jan McDonald of Griffith complicate the situation, and given a University suggested that although lack of historical experience to draw litigation around climate change on, the issues would be dealt with on impacts and adaptation was likely to a case-by-case basis. Her view was emerge and grow initially, litigation was that this should be a major focus of all a highly unsustainable solution to deal stakeholders, in order to explore ways to with climate change related losses. avoid and reduce climate change related litigation. Professor McDonald stressed Areas of potential litigation raised that future development should aim to by Professor McDonald were issues avoid risk and future damage, to prevent of regulatory change – and lack potential legal challenges. thereof – as well as mal-adaptation (failure to avoid areas of high risk in 5.7 Legal Risks from Carbon new development). On regulation, Professor McDonald emphasised Mr. Vishal Ahuja of the law firm that the continued use of industry Mallesons Stephen Jaques proposed standards without also considering that, in the short term, the most pressing climate change would not necessarily legal risks arise from the rapidly- shield infrastructure developers from changing regulatory landscape (i.e. the litigation. Such industry standards Carbon Pollution Reduction Scheme, or have generally not been updated to CPRS). He noted that more than $380 reflect emerging climate change science billion dollars of infrastructure spending and may therefore be inadequate or will be delivered in Australia over the obsolete. This may result in significant next decade. According to Mr. Ahuja, legal exposures through potential the potential for the introduction of the mal-adaptation in infrastructure CPRS will create a range of exposed development which is not climate industries; it has led to a standoff resilient. between coal generators which need re-financing and bankers apprehensive Professor McDonald identified areas of this infrastructure’s exposure likely to be hardest hit: areas where no to carbon pricing and mandatory insurance exists or where cover would renewable energy targets. 15 Climate Change and Infrastructure Summit Climate Risk
  20. 20. Figure 5: The context for a discussion on funding, due diligence and climate change (Source: V. Ahuja, Mallesons Stephen Jacques). Mr. Ahuja raised questions regarding 5.8 Infrastructure Investors and the standardisation of risk assessment Financiers for climate change. This triggered Dr. Ian Woods of AMP Capital Investors discussion on reassessing response discussed the impacts of climate programs to extreme events, given the change on infrastructure, insurance and imperative to base them not on past investment. experience but future predictions which factor in climate change. Dr. Woods raised regulatory risks, in particular those with a direct nexus Mr. Ahuja noted the problem within to earnings that have the potential to the infrastructure sector of gaps in risk reduce industry / business profitability awareness in relation to climate change. and viability. The risks identified This creates a delay in mitigation and revolved around the increased adaptation response of industries. A probability for business interruption, proposed solution for this gap in earnings volatility, and business costs awareness was to take funds garnered including insurance. These in turn would through a carbon emissions trading impact growth opportunities of a given scheme and transfer these funds to company. areas needing assistance with climate change adaptation. There is a very real probability that these impacts will increase. However, it is difficult to quantify the financial effect 16 Climate Change and Infrastructure Summit Climate Risk
  21. 21. Figure 6: Key sectors and risks (Source: I. Woods, AMP Capital Investors). of these hazards in terms of risk and opportunities for revenue growth in growth of a company or sector. weather and regulatory-related impacts of climate change. Dr. Woods stated that, as an analyst, he is compelled to work out contingencies Understanding of investor action that is for climate change-related impacts to a focussed on climate change mitigation, given business or sector. Therefore, if risks and adaptation is now very a business is unable to provide its own tangible for many companies, thanks such analysis, he would be required to to the Carbon Disclosure Project and formulate his own estimates. Either way, the Institutional Investors Group on some quantification of climate change Climate Change. Both these initiatives effects is imperative to serve investor aim to help investors understand how interests. assets are exposed and whether or how risks relate to climate change are Dr. Woods asserts that the main risks being managed. Such processes help revolve around extreme weather companies (and their investors) better impacts in all sectors (insurance, understand their risks, and use this agriculture, energy and utilities, information to encourage long-term property and construction, tourism, sustainability and help guide investment metals and mining and retail and decisions. consumer discretionary). However, in all these sectors he also recognised 17 Climate Change and Infrastructure Summit Climate Risk
  22. 22. 5.9 Infrastructure Insurers that increased risk not only flows from increasing extreme weather event Mr. Karl Sullivan of the Insurance occurrence, but also from intensified Council of Australia addressed the development in high-risk areas such as issues of extreme weather impacts coastal high-rise developments. That and exposures, and the Australian is, hazards are increasing but so is the insurance industry’s adaptive response economic exposure. to climate change challenges. Mr. Sullivan summarised the role of Mr. Sullivan outlined the response of insurance in Australian economy and the Australian insurance industry. The society, and emphasised that a healthy main objective appears to be actions insurance sector is essential to a healthy, to improve community resilience prosperous economy. to extreme weather events. This is achieved by seeking reform of policy To demonstrate the scale of extreme and standards in infrastructure, building weather exposures Mr. Sullivan showed code and land-use planning; another that, looking at the sector as a whole, approach is augmenting awareness and annual community and business natural understanding of climate change risks disaster costs more than doubled in amongst businesses and communities. the 07/08 financial year ($2.7 Billion) compared to the average annual cost 5.10 An Insurance Company over the previous four decades ($1.2 Viewpoint Billion). Mr. David Smith, CEO of Zurich Australia, Insurance claims data revealed that opened the summit and also spoke the majority of compensation costs about the ability of a company such stem from flood, cyclone and severe as Zurich to identify new needs in storm damage. Mr. Sullivan also noted their market and act on these needs Figure 7: How insurance works: The insurance pool monetises risk and buys peace of mind; risk drives premiums which drive the pool (Source: K. Sullivan, Insurance Council of Australia). 18 Climate Change and Infrastructure Summit Climate Risk
  23. 23. Figure 8: Community and business natural disaster costs, 1967- 2004 versus 2007-08 (Source: K. Sullivan, Insurance Council of Australia). to introduce new products. Mr. Smith a new business opportunity, but only discussed how the introduction of so long as policies remained affordable standard flood protection in Australia and available. There were known challenged the received market wisdom, examples from overseas where this had yet once initiated led to widespread not been the case. adoption within his industry. Ms. Cahill pointed out that insurance Mr. Smith also indicated a significant companies did not possess bottomless problem with insurance taxation in pockets, in that they could not sustain many states, citing examples in which pay outs for increased losses without taxes and levies more than doubled a corresponding increase in premiums insurance costs to the end consumer. or a change in terms. Infrastructure This provides a disincentive to insure owners and operators must understand and a “free ride” for the uninsured. that the transfer of escalating risk to insurers could not continue indefinitely Ms. Alice Cahill, Head of Zurich without a consideration of ways to Financial Services Corporate Social reduce losses. Responsibility, gave the perspective of a policy provider and emphasised the Mr. Cahill described her interest need for companies such as hers to keep and experience in the use of risk their eye on their core business with management techniques within the effective yet competitive risk pricing. client business as a means to curb losses in the face of escalating hazards. With escalating risks from climate In the infrastructure context this change, managing those risks provide implies the application of some level of 19 Climate Change and Infrastructure Summit Climate Risk
  24. 24. adaptation. Ms. Cahill touched on the • A cluster of extreme weather Zurich Climate Change Broker Training, events without time for which aims to use insurance channels significant recovery can threaten to promote awareness in the market of business survival; and opportunities for adaptation. • A single extreme weather event combined with other stressors 5.11 Market Mechanisms: or shocks (e.g. oil price surge, Weather Watching for Energy and reduced insurability) may affect Agriculture industry viability. Adjunct Professor Peter Best, from Cindual and the Australian Centre for Sustainable Catchments, University of Southern Queensland, identified some uncertainties associated with climate change. Professor Best has extensive experience in the use of climatic indicators within energy markets, and more recently in the agricultural sector. He stated that despite a growing understanding of the climate change impacts stemming from greenhouse gas emissions, uncertainties still exist about the nature and interactions of the cryosphere (ice portions of the earth’s surface) and the Earth’s biochemistry. These areas are currently untested in climate change models. Professor Best showed that although a portfolio of insurance-based options (e.g. hedging, re-insurance and index based insurance) exist for multiple stressor events, industries and government need to be prepared for such events. Commenting on the risks associated with these events, he stated that: • A single extreme weather event can damage structures and interrupt business; 20 Climate Change and Infrastructure Summit Climate Risk
  25. 25. 6 Critical Issues sufficiently dynamic to cope with fast- moving climate science? Attendance at the summit was on the basis of invitation only, and attendees 6.2 Lack of standards leaves were invited based on their expertise developers in legal limbo in both climate change and specific aspects of infrastructure. The aim of The above-noted opinion that standards this selection process was not merely to may fail to reflect climate risks implies inform delegates through presentations, that infrastructure developers are but also to stimulate discussion and in a legal grey area in terms of their capture opinion. This was made responsibilities and liabilities. The possible through audience questions onus appears to rest on asset owners to panels members, and through the and developers and their consultants to World Café session which saw specific prove that they have addressed these challenges and questions put to small climate change risks to the best of their groups. ability. Discussions aimed to elucidate the Challenge: How can infrastructure nature of climate change challenges developers demonstrate that they have facing the infrastructure sector, and adequately factored in climate change? although a major focus on solutions And how much is enough? was discouraged, simple solutions did emerge at times. 6.3 Fortress approach could be inefficient use of resources The following are the key challenges and opinions raised by these discussions. Summit attendees were apprised of the urgent need for new investments to be made climate resilient. This need must 6.1 Standards are not, and be balanced by an ongoing requirement perhaps cannot, keep up with for additional coping capacity and climate science re-engineering of existing assets to limit Many participants stated that standards disruptions due to climate change. are not being maintained in line with fast-moving science and projections. However, participants noted that future Indeed, it was pointed out that given the investment must balance the benefits time required to change standards, this of enhanced climate change resilience task may be impossible due to the yearly against increased building costs. or even shorter timeframe with which Critically, a reshaping of the notion of modelling and climate change evidence “fit-for-purpose” must be considered in a are updated. rapidly-changing environment. Challenge: How do we put in place Building infrastructure that will cope a process for standards which is with a range of possible climate change 21 Climate Change and Infrastructure Summit Climate Risk
  26. 26. impact outcomes, some dependent Challenge: Given greater awareness on mitigation efforts, will increase amongst stakeholders of climate change costs substantially and may result risks, how can the AS/NZS4360 risk in “over-building” for hazard levels assessment methodology be enhanced that do not eventuate. This diversion to specifically improve the quality of of resources would result in less climate change risk assessment? infrastructure being built overall. The potential waste may be compounded if 6.5 Culture and behaviour change: infrastructure designed to last for 100 Essential but not simple years is actually replaced sooner due to new development demands. The Summit participants widely recognised discussion weighed the efficiency of an that cultural and behavioural change “options” approach against the “fortress” – in industry and government as well approach. as society – is one of the biggest challenges. To smoothly incorporate Challenge: Can we design infrastructure climate change risks, their recognition capable of being upgraded as the must occur equally throughout the actuality of climate change impacts and sector and throughout a business. risks evolve? Can we re-define “fit-for- However, the current level of debate, purpose” to avert the costs entailed politicisation and scepticism makes this in building fortresses, yet build-in the process far from smooth. ability to fortify? Challenge: How does the infrastructure sector establish a consistent, 6.4 Risk assessment techniques professional position on climate change found wanting impacts and risks which is accepted Some participants called for risk industry-wide by professionals, assessment “best practice” or directors and officers? standards which are tailored specifically to climate change risk. There was a 6.6 Treating mitigation and strong consensus that the current adaptation in isolation does not Department of Climate Change (DCC) work approach has not been appropriately tested, yet is recognised as the “default” Given that climate change impacts are method despite weaknesses when used expected to defy historical experience, in practice. The challenges encountered new solutions will be needed, and this in use of the DCC method generally includes innovation within the existing revolve around the difficulty workshop sustainability paradigm. Summit participants had in understanding the participants furthermore recognised “likelihood” of a hazard event, and the that mitigation and adaptation action inability of this method to consider cannot be pursued in isolation; at multiple stressors. present these strategies are competing for skills and resources. 22 Climate Change and Infrastructure Summit Climate Risk
  27. 27. Challenge: How can the infrastructure Challenge: How could the infrastructure sector ensure full and consistent industry more effectively access the integration of climate change adaptation insights and expertise of insurers on with emissions mitigation? climate change? Challenge: Changes in insurance 6.7 Insurance and infrastructure costs and availability may make some have much to offer each other on locations and assets less valuable. climate How can the infrastructure sector The insurance industry’s role in climate remain open to insights about climate change mitigation and adaptation change risk and insurability if they may actions found an interested audience at undermine current value? the summit. This begged the question of whether both the insurance and 6.8 Government departments infrastructure industries adequately and policies are not consistent on understand the significance of climate climate change risks. The summit audience voiced concern If both industries make critical risk that Australian governments, management decisions based on particularly at the local level, lack the inadequate information, there is a knowledge and skills necessary to concern that negative flow-on effects provide integrated decision-making and could arise and erode the resilience of risk assessment. There was a prevailing businesses and society as a whole. It sense that whilst some planning was acknowledged that the insurance approvals were being made with climate industry could do more to provide change in mind, others were not. This advice, guidance and tools to customers makes consistent operations difficult to mitigate their exposures, and could for infrastructure providers given the improve their ability to customize additional costs of including climate products around customers’ needs in change adaptation. relation to local climate changes. The bearing of climate change on the Some participants suggested the responsibilities of various government insurance industry should adopt a levels and their geographical more proactive approach to identify boundaries emphasizes the need for high-risk areas, when other more a whole-of-government, “joined-up appropriate development areas are policy” approach. Each government available. At the same time insurance level – Federal, state and local – as was recognised as a potential tool for well as industry has a critical role in an determining the appropriateness of integrated decision-making process. certain developments (vis-à-vis weather and climate risks). Participants of the summit expressed apprehension about the objectivity of 23 Climate Change and Infrastructure Summit Climate Risk
  28. 28. individual local governments. It was may be expected to increase pressures suggested that local governments on the health care system, and lacked the resources and capacity to compound its existing capacity issues. make evidence-based decisions on Summit attendees were concerned that complex issues such as the speed and the focus on industry and government scale of local climate change impacts. risk management often neglected the community aspect of risk assessments There was consensus amongst the and adaptation plans. audience that at present there is too much focus on the mitigation debate Should the vulnerable be made more where global consensus is needed, marginal by climate change, disruptions at the expense of equally-pressing to infrastructure for power, water, local adaptation. Furthermore it was transport and communication may have perceived that local responses to a disproportionate impact on this group. extreme events need to be reassessed to include other possible impacts in Challenge: How does the infrastructure relation to climate chain in their local sector ensure that its heightened areas. importance and criticality to communities’ climate change resilience Challenge: How does the infrastructure is recognised and resourced today? sector ensure consistent treatment of climate change adaptation across all 6.10 The risk of risk transfer departments and levels of Government, but ensure the risk response is not A major topic of discussion was the “dumbed-down”? problem of unwitting transfer between stakeholders of risk, rather than its elimination or mitigation. 6.9 Increased importance of infrastructure in a climate changed Some summit participants called for world greater government and private-sector Many among the audience raised cooperation to increase the integration concerns about climate change impacts of infrastructure planning – shifting the on the mental and physical health focus to outcomes rather than outputs. and general well-being of vulnerable communities, as well as government Operational contracts for infrastructure community assistance agencies’ ability tended to be focussed on asset life, to manage these risks. viability and revenue capacity, with little formal regard given to broader Examples were raised regarding the outcomes – including climate change, criticality of all infrastructure before, environment, social and workforce during and after major weather-related issues – particularly in revenue events and disasters. agreements. The increased likelihood of impacts on Challenge: How can the infrastructure the vulnerable among Australian society sector achieve greater cooperation 24 Climate Change and Infrastructure Summit Climate Risk
  29. 29. with all levels of government to ensure impacts to be beyond their investment proper integration and elimination of time frame. climate change risks, and avert the mere transfer of risks which fails to reduce Challenge: How can the private sector them? and government work together to dismantle market and regulatory disincentives to climate change 6.11 Avoiding market and adaptation in the infrastructure sector? regulatory disincentives The summit presentations initiated 6.12 Access to science and control discussion about impacts that could of information occur if industry and government shield consumers / markets from price A major issue of debate among summit signals that are required to trigger the participants was access to information. behavioural changes that would address climate change risks. Participants remarked on the urgent need for sharing accurate and The participants recognised the relevant climate change research and importance of government assistance information. that ensures society’s disadvantaged do not disproportionately bear climate They felt there was limited willingness to change impacts; at the same time they share information and knowledge about recognised that consumer price signals risk disclosure and loss between and were important to realise the benefits of within industries. While this reluctance behavioural change. to disclose may maintain competitive advantage, it could also erode society’s Current anti-adaptation interventions resilience to climate change. range from retail price caps on energy and water to taxes and levies on This problem highlighted the importance insurance. In addition to inhibiting of public-domain research. Concerns changes in consumer behaviour, were raised that some taxpayer the scope for innovative delivery funded information commissioned by mechanisms is artificially limited if government from government agencies, pricing not reflective of real costs universities or private-sector research is enforced. This ties the hands companies was not reaching the public of infrastructure developers in a domain. commercial market. Challenge: How can existing or Another issue raised by attendees commissioned information on climate concerned the character of short-term change be placed into the public investors and analysts who fail to domain to ensure greater access include climate change issues in their by infrastructure developers and investment-related decision-making operators? processes, since they consider these 25 Climate Change and Infrastructure Summit Climate Risk
  30. 30. 6.13 Maintaining dialogue momentum Participants considered the summit a major step forward in creating good communication pathways and sharing perspectives across the sector. Many participants suggested that further meetings of this kind be arranged. Challenge: Can dialogue on climate change impacts and adaptation continue across infrastructure and all its stakeholders? 26 Climate Change and Infrastructure Summit Climate Risk
  31. 31. Climate Risk Pty Limited (Australia) Sydney: + 61 2 8243 5767 Brisbane: + 61 7 3040 1621 Climate Risk Europe Limited London: + 44 752 506 8331 www.climaterisk.net Climate Risk 27 Climate Change and Infrastructure Summit Climate Risk

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