10 Nov 2011

What's getting in the way of climate change adaptation, asks Productivity Commission

by Brendan Bateman

The Productivity Commission has a wide-ranging brief to investigate environmental, insurance, tax, labour and other possible barriers to climate change adaptation.

The main climate change policy debates are on the carbon tax, mitigation policy, and climate change science generally, but the general regulatory issues get less public attention. That is about to change, with the Productivity Commission's new inquiry Barriers to Effective Climate Change Adaptation.

In the context of climate change, "adaptation" refers to the ability of the natural and built environment to cope with the anticipated impacts of climate change, such as increasing average temperatures and increasing severity of storm activity.

The Australian Government has asked the Commission to identify regulatory and policy barriers to effective adaptation, and to identify high priority reform options to address any identified barriers. The areas for consideration include (but aren't limited to) infrastructure projects and infrastructure networks, environment and planning, insurance, tax and labour markets, at local, State and Federal levels.

Infrastructure projects, climate change and risk allocation

Governments' infrastructure assets may be susceptible to climate change impacts, but the actual impacts might not be clear yet. The issues paper identified two possible approaches:

  • delay decisions about large, irreversible investments until more information is available on their costs and benefits (a "real options" or "adaptive management" approach); or
  • make the decisions now but use risk-sharing arrangements in public–private partnerships.

It's asking how frequently either approach is used, and what stands in the way of increasing their use.

Do planning laws or building codes help or hinder climate change adaptation?

As climate change is expected to cause more extreme weather events, such as bushfires, cyclones, flooding, and coastal erosion, where and how one builds is a key problem in adaptation.

The issues paper asks:

  • How have State and local governments responded to the potential impacts of climate change through their planning and zoning policies? Are there existing planning policies that could constrain the ability of individuals and businesses to adapt, or reduce their flexibility? What reforms may be needed to meet community objectives while facilitating effective adaptation — are there good examples?
  • What implications might climate change have for local councils’ planning policies and development approval processes? Has concern about legal liability restricted the ability of councils to achieve good economic, social or environmental outcomes?
  • How might building regulation affect the ability of individuals and businesses to adapt to climate change? Are there any inconsistencies across the States and Territories that could impede adaptation?
  • What would be the costs and benefits of changing the way that the building code is applied across different geographic or climatic zones, or to establish new zones (for example, to allow for greater variation across regions)?

Regulation of network infrastructure

Governments' regulatory schemes for large infrastructure networks (such as electricity and water distribution) could inhibit adaptation if they discourage investments in infrastructure upgrades or other strategies for adaptation. The Commission is asking how regulations might be doing this, and what would be the costs and benefits of any changes to existing regulations.


While government regulation can address market failures in insurance, it can also create perverse incentives (for example, by encouraging further development of disaster-prone land).

The Commission is seeking information on:

  • whether any existing regulatory arrangements (including State-based insurance taxes and disaster recovery policies) impede the efficient operation of the Australian insurance market, or reduce incentives to take up insurance;
  • how the market is coping, and what sorts of new products might be developed by the market in response to climate change; and
  • what, if any, kinds of government intervention would be most appropriate for addressing any market failures or regulatory barriers.

Labour markets, tax, and general regulatory issues

Regulations and taxes can both inhibit people moving to where the jobs are, or where business might be otherwise better placed. What, if any, impediments to capital and labour mobility that are particularly relevant to adaptation?

The issues paper is also asking

  • What other reforms would improve the overall flexibility of the Australian economy and thus contribute to efficient adaptation?
  • Which broad-based reforms also offer potential benefits for facilitating adaptation to climate change?

Strengthening price signals and markets for natural resources

To overcome the tragedy of the commons, governments use various policy responses, such as enforcing property rights over natural resources or creating new property rights, environmental taxes and charges, or paying for conserving habitats.

These approaches, say the Commission, "can also facilitate adaptation by providing stronger price signals about the increased scarcity of some resources and the higher economic benefit of others". It is asking what should be done here.

What happens now?

The next key date is the deadline for submissions – 16 December 2011. After that, the Inquiry will:

  • release its draft report April/May 2012;
  • hold public hearings June/July 2012; and
  • send its final report to Government in September 2012.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.