Natural disasters in Australia to cost $33 billion per year by 2050

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Dr Anthony Horton looks at the escalating frequency of natural disasters and the economic consequences as outlined in a recent Deloitte Access Economics report.

ACCORDING TO A Deloitte Access Economics report commissioned by the Australian Business Roundtable for Disaster Resilience and Safer Communities, natural disasters in Australia are expected to cost $33 billion per year by 2050.

The Australian Business Roundtable for Disaster Resilience and Safer Communities was formed to provide expertise, research and resources to governments. The report entitled ‘Building resilient infrastructure’, which was published this month, points out that the majority of costs incurred by natural disasters such as bushfires, floods, storms and cyclones will be borne by Australian governments and ultimately, taxpayers.

In addition to the direct costs of rebuilding, the indirect costs associated with losing infrastructure services are substantial, according to Deloitte Access Economics. Indirect costs include delays, interruption to services, financial losses, stress and anxiety.

The Australian Government Productivity Commission and Infrastructure Australia have previously highlighted the need to prioritise investments that limit the extent of damage from natural disasters in Australia. The Productivity Commission’s Natural Disaster Funding Arrangements inquiry report in 2015, highlighted that governments tend to over-invest in reconstruction following natural disasters and under-invest in mitigation that could limit the potential impact in the first place.

Infrastructure Australia’s Australian Infrastructure Audit report of 2014 recommended increased focus on resilience and improving the maintenance of existing infrastructure. This report also noted that the frequency and intensity of extreme weather events is increasingly likely to pose a threat to infrastructure assets.

Determining the most appropriate resilience measures prior to both a natural disaster and to the construction of infrastructure can be challenging but invaluable. A detailed assessment of the likelihood of a hazard affecting an asset and an analysis of the resilience options that could be implemented are very important parts of determining the most appropriate resilience measures.

Deloitte’s report highlighted three case studies demonstrating how taking resilience into account prior to initial investment approvals would alter the ultimate infrastructure investment decisions. The three case studies are as follows:

  • The loss of electricity caused by the 2007 bushfires in Victoria
  • The flooding of a highway bridge in regional New South Wales
  • The loss of telecommunications services as a result of the Brisbane floods in 2011

The cost of electricity loss resulting from the 2007 bushfires in Victoria was $234 million. Underground electricity transmission infrastructure costs $11 million per kilometre, however according to the report evidence suggests there would be net benefits from implementing underground electricity. Such measures would be particularly appropriate across Australia where the fire risk is similar to the areas affected by the Victorian fires of 2007.

Six major traffic disruptions in regional New South Wales have resulted from the flooding of a regional highway bridge that was constructed in 1987, with the cost of future traffic disruptions following flooding is estimated to be approximately $92 million over the projected life of the asset. The cost of replacing the bridge is estimated to be $7.4 million.

The loss of telecommunications services following the Brisbane floods in 2011 cost Optus approximately $1 million. Such events in the future are expected to cost approximately $9 million by 2050. Optus has invested $3-5 million to improve the resilience of its infrastructure since the 2011 floods.

The Deloitte Access Economics report identifies a number of limitations affecting the capacity of government decision makers to invest in resilience for new and replacement infrastructure. These limitations include complex approval processes, onerous data requirements, limited technical capacity and inadequate references to resilience in decision making processes.

In light of this, the report recommends the following five principles for resilience in infrastructure planning:

  • Identify disaster risks — decision makers need to integrate risk assessment into project proposals to ensure that disaster exposure, asset vulnerabilities and hazard prevention or mitigation opportunities are identified from the start
  • Apply robust methodologies for Cost Benefit Analyses (CBAs) — CBA guidelines should be revised to include the financial benefits of resilience
  • Coordinate, centralise and make available critical data and information — Governments should partner with businesses to pool data and information sources via a national data platform. This increases the transparency and accessibility of the data which is required to measure resilience and to reduce the cost of assessing resilience options
  • Strengthen approval processes — decision makers should strengthen the requirements of resilience to be addressed in approval processes. A set of checkpoints within the approval process could ensure that project proponents assess and disclose disaster risks and include them in CBAs where relevant
  • Embed ongoing resilience monitoring — decision makers should embed provisions to regularly monitor infrastructure resilience in response to climate variability and changes in population demographics

The Deloitte Access Economics ‘Building resilient infrastructure’ report clearly highlights the need to incorporate natural disaster resilience into project decision making processes in Australia. These natural disasters also need to be included in a company’s risk profile right from the start of the project planning phase. At an expected cost of up to $33 billion per year by 2050, it is clear that neither Australian Governments nor businesses can afford to ignore the financial impacts of natural disasters and the economic cost of climate change.

You can follow Anthony on Twitter as the Climate Change Guy @DrAnthonyHorton as well as his blog the Climate Change Guy.

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