Australia faces alarming climate threats
with real economic damage already visible
| Key points |
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Government’s National Climate Risk Assessment — A Stark Warning
The National Climate Risk Assessment, an as-yet unreleased government report, has been described by insiders as “intense and scary”.
It maps widespread risks across eight key systems including the economy, infrastructure, finance and health[1].
The Assessment presents modelling of extreme scenarios, including mortality from heatwaves and flooding risks across suburbs.
Threats extend from financial instability to power and transport system breakdowns.
Treasury separately estimates that natural disasters cost the economy approximately $2.2 billion in the first half of 2025.
This reflects the compounded impact of events such as Cyclone Alfred and severe flooding in New South Wales, which disrupted spending and retail trade in that period[2].
Reserve Bank of Australia — Climate Risks in Financial Stability Work
The RBA continues to integrate climate-related analysis into its financial stability mandate, not via GDP or inflation forecasts, but through exploratory and scenario-based assessments.
The June 2023 RBA Bulletin emphasises that most climate-related impacts remain indirect and uneven across sectors, with limited direct system-wide effects so far identified, but warns of data gaps and evolving frameworks[3].
In April 2024, the RBA published research assessing physical climate risk in residential mortgage-backed securities, finding that higher-risk loans are concentrated in regional lenders, and that such risks may still be underpriced in markets[3].
This reflects broader efforts to identify financial vulnerabilities tied to climate exposures within the mortgage market.
What the Numbers Include: Time Frames and Focus
Treasury’s financial cost estimation covers the first half of 2025, capturing immediate impacts of climate-fuelled disasters on economic activity.
This is not part of a projection, but a retrospective accounting of observed damage.
The National Climate Risk Assessment scope spans current through multi-decade risks; while jeopardy mappings appear qualitative and model-based, the second-pass quantitative analysis is to be publicly released soon as part of foundational climate policy documents[1].
By contrast, the RBA’s climate work remains financial-system focused, drawing on scenario and vulnerability assessments, particularly for banks and collateral assets.
It does not provide macroeconomic projections like GDP, inflation, or employment tied directly to climate risks.
Broader Context and Next Steps
This moment represents a critical shift: explicit, economy-wide climate risk assessment is emerging from policy shadows.
The Treasury’s cost accounting underscores economic vulnerabilities in real time, while the National Risk Assessment offers a systemic, ahead-of-time perspective.
The RBA’s scenario and stress testing frameworks, though still purely exploratory, lay the groundwork for future integration of climate drivers into monetary and financial stability policy.
A clearer picture of how climate risks translate into macroeconomic variables may emerge as these agencies refine their methods.
References- Risks of climate crisis to Australia’s economy and environment are ‘intense and scary’, unreleased government report says
- Natural disasters cost Australia’s economy $2.2 bn in first half of 2025, new Treasury analysis shows
- Climate Change and Financial Risk, RBA Bulletin June 2023
- Assessing Physical Climate Risk in Repo-eligible Residential Mortgage-backed Securities, RBA Bulletin April 2024
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