Australia recently released its first National Climate Risk Assessment, and the findings are alarming. The report highlights 56 major risks that affect various sectors, projecting that by 2050, 1.5 million people could be endangered by rising sea levels, alongside threats like ecosystem collapse, disruptions in food supply, and increased health costs from more frequent heatwaves.
The financial implications are significant. Without substantial improvements in adaptation strategies, annual recovery costs from disasters could soar to approximately $40 billion by mid-century. Yet, the government’s current investment in climate adaptation stands at only about $3.2 billion a year, which is merely 0.12% of GDP. This amount falls drastically short of the World Bank and OECD’s recommendations, which suggest countries should allocate 1% to 2% of their GDP to this critical issue.
This shortfall goes beyond finances; it reflects a deeper governance issue. Over the years, budget allocations for climate adaptation have stagnated. Programs are extended or renamed but not scaled up to meet growing risks. This situation is partly driven by a reluctance to shift from established spending patterns, often referred to as “accounting inertia.”
Moreover, political priorities often emphasize short-term fiscal conservatism over long-term strategies. Natural resources and ecosystems are not sufficiently valued in strategic financial planning, leading to underfunded resilience investments. The political rewards for addressing disasters after they happen overshadow the less visible benefits of proactive measures.
Research shows that investing in resilience saves significantly in recovery costs. For every dollar spent on preventative measures, we can save four to six dollars in future recovery. Early investment avoids locking in poorly adapted infrastructure and helps stabilize property values, thus maintaining viable insurance markets. It’s critical to note that investments in climate resilience also yield broader benefits, like healthier communities and improved biodiversity.
Australia already recognizes the necessity of long-term investment in other sectors. For instance, we allocate 2% of GDP to defense and 11% of salaries to superannuation. It’s time climate resilience received equal attention.
There are diverse funding options available. While general taxation or specific levies may be politically challenging, they could provide efficient funding streams. Models based on consumer contributions, like insurance or energy surcharges, could also contribute, but they risk burdening low-income households if not designed carefully. Innovative financing, like resilience bonds and biodiversity credits, has begun to emerge, yet more is needed.
A dedicated national climate resilience levy resembles the Medicare levy. It would create a reliable funding source, ensuring all Australians contribute to future-proofing communities. Businesses could also face a proportional surcharge, linking contributions to their exposure to climate risks. This consistent funding mechanism would foster a culture of long-term investment.
Efficient allocation is equally important. Current fragmented programs can waste resources. In contrast, well-organized investments can invite private co-investment and yield long-term benefits. The Clean Energy Finance Corporation serves as an effective model by attracting private capital through government-backed initiatives.
Dr. Paul Fisher, an expert in financial stability, emphasizes that the financial system must integrate sustainability to remain stable. His experiences indicate that Australia’s budget model often underestimates future risks. Greater transparency, including disclosure and scenario analysis, can ensure that funding targets the most effective areas, while governance reforms are necessary to incorporate natural resources into fiscal strategies.
The stark reality is that Australia needs to invest between $27 billion and $54 billion annually, against its GDP of approximately $2.7 trillion. The current spending of $3.2 billion highlights a worrying shortfall that could manifest in rising recovery costs, uninsurable properties, dropping home values, and worsening public health.
Thus, the real challenge is not merely financial; it’s about political will and institutional design. Until climate risk is viewed as a fundamental fiscal issue, persistent under-investment and growing recovery challenges will likely continue.
As the stakes grow higher, the question shifts from whether Australia can afford to invest in resilience to whether it can afford not to. The challenge now lies not in finding funds but in transforming our collective governance approach to prioritize sustainability and long-term security.
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