Who pays for adaptation’s a ‘tough’ conversation – Climate Change Minister

Climate Change Minister Simon Watts says it’s a tough conversation when it comes to who pays for climate change adaptation.

Last week, the Government announced its National Adaptation Framework. The framework includes creating a national flood map and introducing legislation clarifying the responsibility of local government by requiring adaptation plans in the highest priority areas.

Documents on establishing a National Adaptation Framework were also proactively released, with a paper Watts took to Cabinet outlining proposals.

Alongside this was a Minute of Decision document from the Cabinet Economic Policy Committee. In this document, the committee agreed: “The Government’s intent is to move towards an end state where the Crown no longer distorts risk signals and blunts incentive to manage risk by providing financial assistance where homeowners suffer significant losses after major events (especially in the form of residential property buyouts)”.

Speaking to reporters on Tuesday, Watts says the challenge is the complexity that comes with the scale of cost for these weather events.

“We’ve had about $50 billion of expenditure in the last 10 years alone. And so what the framework is signalling clearly is that the Crown being the one that is always having to foot that bill is not going to be a financially sustainable model for the country going forward.”

“So that’s a tough conversation. We’ve never had that conversation as a country before,” Watts says.

Watts will report back on the Cabinet paper next May. He says he will be working across coalition partners and also opposition to sort out some principles around that.

When asked if there was a hard deadline as to when the framework needs to be in place, Watts says the release of the climate adaptation framework was the key commitment the Government made to make sure “we’ve got a good model to deal with the challenges we face”. 

“But the specific points around who pays and how do we share the costs, is complex,” he says.

Watts says it’s not just the Crown that has to and should be investing in terms of infrastructure that mitigates impacts.

Watts pointed to the Government’s flood resilience announcements from last week before saying: “Insurers as well are a part of the conversation, and actually property owners as well and that’s why if we give households good data to make decisions around where they buy and where they live, then they can make informed decisions.”

Using the West Coast as an example of where flooding protection will be placed, Watts says: “That doesn’t take 100% of the risk off the table. So having good data and good information means that people can make informed decisions.” 

Asked whether the Crown would have to step in if others didn’t have the money to, Watts says the Government recognised a “hardship layer” that exists within the population. 

“Even if they had all the information, they still have less options than other people to make in regards to where they live. And so we’ve acknowledged that. We’re just working through the detail of how you actually put that into practice.” 

Watts says it’s a period of transition that would probably take 10 to 15 years between now and getting to a point where people have all the information available.

“And that’s okay but at least we’ve got a plan and a framework in place now.” 

When asked about homeowners in high-risk areas who may be struggling to pay for insurance or even considering ditching insurance, Watts says: “The Government absolutely sees this as a critical area of concern.” 

The latest annual inflation figure, as measured by the consumers price index (CPI) rose to 3% in the September quarter, reaching the top of the Reserve Bank’s 1% to 3% inflation range. 

Insurance saw an overall annual increase of 4.1% (contributing 4.4% to the 3% annual CPI increase). 

Dwelling insurance jumped to 5.6% while other data, from insurance comparison website Quashed, showed in the second quarter, the average New Zealand household with a car, contents and home insurance policy could expect to pay over $5000 a year on their premiums.

And households with two or more cars could expect to pay more than $6000 a year in premiums.

Watts says “we’re also obviously concerned that certain areas of the country, because of the amount of impact they’ve had from weather events, potentially not seeing insurance coverage, or insurance prices increasing”.

“And I think that’s the reality of a country that deals with such natural hazards. The climate adaptation framework we’ve put in place, puts in place a framework to be able to deal with what are complex challenges that are going to last many decades ahead.”

Insurers have a vested interest in this conversation as well, Watts says, particularly where Government are investing in infrastructure such as flood protection, “which means that they can then insure certain parts of the country”. 

Watts says it’s a step forward from the status quo and now there’s a framework in place, the Government will continue to build on it. 

“I think it’s a great step forward but there’s still more to do.”

‘Just and fair’ transition to adaptation

Following the release of the National Adaptation Framework, concerns have been raised by consumer advocacy group Consumer NZ.

Last week Consumer NZ’s investigative team lead Rebecca said: “It appears the Government will leave it to the markets (insurance, banks, property) to determine risk but there doesn’t appear to be any detail about how households will cope financially if they find themselves in a high-risk area.”

“People in those areas will face higher insurance bills, or no insurance at all, while likely paying a mortgage on a property unlikely to sell.

“This will have a huge impact on financial stability, let alone physical safety or the emotional toll and stress of living in a high-risk area. Given the potential financial hardship, it’s likely people will stay in high-risk areas.”

Styles said Aotearoa needed a just and fair transition to adaptation. “It’s hard to see how leaving it to the market will achieve that.”

‘Financial bomb for the country’

Who pays for climate adaptation measures has been a longstanding question. 

In July, following the release of the Independent Reference Group’s recommendations for the National Adaptation Framework, then-vice president of Local Government New Zealand Campbell Barry said: “If the expectation was that councils would be funding climate adaptation managed retreat buyouts, then you will very quickly see, in my mind, councils go bankrupt.”

“We know that this will be a financial bomb for the country if we start to grapple with it properly and local government’s funding and financing options simply can’t handle that.”