Australia's states face increasing threats from climate change but their economic diversity will be key to providing a buffer against the worst of the economic fallout, according to international ratings agency Moody's.
The main risks include rising sea levels, more intense storms and heatwaves that are expected to take their toll on the finances of state treasuries, the agency said in a new report.
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| Climate change costs are going to mount for Australia's states, Moody's says. Credit: Dean Lewins |
"From what we can see now, the capital spending required looks manageable across all the states," John Manning, a senior credit officer with Moody's, said. “There’s no immediate impact on states and territory ratings.” The agency has a AAA rating, its highest level, for federal government debt.
The challenges are expected to mount both at the federal level, but particularly at the level of state and local government. "That's where the primary responsibility for preventing, preparing and responding to national disasters actually sit," Mr Manning said.
Increasing temperatures and the related effects on heatwaves and more extreme fire weather are likely to lead the challenges facing states given the possible health risks. Health spending typically amounts to about 30 per cent of state budgets, he said.
The cost of extreme weather could also hinge on the intensity of short-term cycles such as El Ninos, which can exacerbate dry spells over southern and eastern Australia. The Bureau of Meteorology on Tuesday raised its outlook to "alert", rating the chances of an El Nino at 70 per cent, or triple the normal level.
States' infrastructure spending will also likely increase to cope with rising sea levels and more intense storms. Cyclones tracking further south will also challenge regions where building codes have been less stringent, Mr Manning said.
The IPCC reports have shown agriculture-based economies were likely to be the most vulnerable to the more chaotic weather expected as the planet warms.
The atmosphere can hold about 7 per cent more moisture with degree of warming – and that's about the level since the industrial era began – while droughts are made worse by increased evaporation amid the warmer temperatures.
For Australia, the diversity of the economies even with states will shield the economy from some of the worst disruptions, Moody's predicts.
For instance, mining accounts for just 3.2 per cent of NSW's gross value added economy, the agency said, and just 0.9 per cent in Victoria.
Queensland, though, has more of a concentration, with mining accounting for almost 10 per cent of the economy and tourism 7.5 per cent.
Mining accounts for about 30 per cent of Western Australia's economy but is more iron-ore based than mining in the eastern states and so less exposed to the expected trend away from coal envisaged by the IPCC, Mr Manning said.
Still, changing weather, warming oceans and shifting ecosystems may force changes in Tasmania, where just over a 10th of the economy is derived by agriculture, forestry and fishing, easily the most of any state.
Just as the spread of industries gives Moody's comfort in the ratings outlook for the states, it also implies that adjustments – such as reduced coal mining – can be navigated by state governments if they are nimble enough.
“These challenges also open up opportunities for new industries and new growth,” Mr Manning said.
Links
- Climate change risks facing Australian states mitigated by diversified economies, strong institutions
- 'Next decade critical': Perils mount at 1.5 degrees of warming, says IPCC
- El Niño ALERT; positive Indian Ocean Dipole likely underway
- Australia Doesn’t Care To Break Its Coal Habit In The Face Of Climate Change
- Driest Ever September Deepens Australia's Drought
- 'This Drought Is Different': It's Drier And Hotter – And Getting Worse
- Australia's Emissions Data Would Shame The Coalition, If Such A Thing Were Possible
- How Deadly Is 50-Degree Heat? Australia's Cities Face The New Reality Of Climate Change
- In A Country So Dry Even Cows Take Showers, Climate Change Gets Ignored
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