Adapting to climate change - who should pay?

Central Government could do more to help councils deal with the growing threat of climate change, according to a new report. 

The Productivity Commission's draft report on local government funding highlights climate change as an increasing cost to councils, particularly through sea level rise and more intense rain events threatening infrastructure.

Rising sea levels will increase the risk of erosion, coastal flooding and saltwater intrusion, increasing the need for coastal protection.

The Commission suggests the Government should extend the NZTA's co-funding role to assist councils facing climate change-related threats to transport infrastructure, and create a new agency and resilience fund to work with at-risk councils to redesign - or possibly relocate - wastewater and stormwater infrastructure.

Among its 50 recommendations, the Commission also suggests councils in tourist hotspots should be allowed to cover the costs of providing facilities through user pays or accommodation levies.

Sign at Mount Maunganui beach in the Bay of Plenty.

Professor Ilan Noy, Chair in the Economics of Disasters, Victoria University of Wellington, says: "Local government is often not able to deal with the problems that climate change and extreme weather events lead to because it often lacks the resources and knowledge required, and appears to find it more difficult to deal with local interests (for example, by preventing development in future high-risk areas or attempting to initiate managed retreats).

New Zealand insurers paid out more than $226 million helping customers recover from extreme weather in 2018.

"Central government needs to be involved much more heavily than it currently is in both providing resources and guidance to local government, and in sometimes assisting it in making difficult choices. For example, while local government may find it tempting to approve coastal developments with the caveat that future risks will be the responsibility of the owners/developers (indeed figure 8.1 suggests this is viable), this is not really a binding commitment. Central government should not allow that to happen.

"Managed retreats will be increasingly necessary in various locations (especially coastal). Central government needs to develop a coherent and transparent policy of funding such retreats that appropriately incentivises early adoption but does not create more moral hazard or ends up being regressive. The Residential Red Zone in Christchurch provides an interesting and successful precedent whose lessons should be explored in this context.

"As the report points out, insurance is not part of the solution; at this point, there appear to be expectations that insurance will protect homeowners in at-risk locations indefinitely. As such, these expectations exacerbate the problem as the risk remains ‘hidden’ until the insurance companies themselves choose to retreat from providing coverage. This gap in expectations may create pressure on the government to socialise this risk (for example, by extending EQC coverage to all natural hazards, including full coverage for flooding).

Increased summer drought will put stress onto dry lowland forests.

"This is bound to create even more moral hazard, so these expectations need to be managed now, rather than later. Current reviews of the EQC and the Insurance Law should take these concerns into consideration and formulate a long-term strategy to deal with these conflicting aims."

Submissions on the draft report are open until 29 August, with the final report due to be released on 30 November.