08 August 2023

Are we failing to see the wood for the trees on climate risks?

 by David Spratt, first published at Pearls and Irritations

Extreme climate impacts are exploding in this year’s Northern Hemisphere summer. We urgently need to understand how climate disruption will affect Australians: their safety and well-being in the face of ever-more-extreme climate events, the viability of public and private infrastructure, communications and logistical systems, challenges to food security, and much more.

The Australian Government is spending $28 million to assess climate risks to the nation’s future. But the National Climate Risk Assessment (NCRA) initiated by the Department of Climate Change, Energy, Environment and Water is poorly conceived, won’t do the job and should not proceed in its present form.

It proscribes mitigation (emissions reduction) options and says the focus is on adaptation and resilience responses only. A bit like telling the frog it can do what it likes as it sits in a pan of slowly heating water, as long as it does not jump out to save itself.

A recent report for the UK government by Chatham House on climate risks concluded that before 2050 it is likely that impacts will “become so severe they go beyond the limits of what nations can adapt to”. Which may leave the NCRA’s adaptation-only mandate dangerously detached from reality.

The NCRA will largely focus on “domestic” climate risks separately from what happens globally. But this results in “thinking in silos” that focuses on local detail while missing the big picture, a case of failing to see the climate wood for the trees.

Many climate risks that manifest in Australia will have their origins far away. For example, in a globalised market a persistent international food crisis would hit Australia hard — through escalating prices and supply shortages — in a manner that would make today’s cost-of-living crisis look like a warm-up act.

It is only by first understanding and integrating the systemic risks — that is, the big-picture risks of large-scale disruptions to the climate and human systems as a whole — that the “micro” and domestic impacts can be properly understood.

Extreme climate events have consistently been beyond climate model projections and happening faster than forecast, of which the current, astounding global surge in land and ocean heat extremes is but one frightening example.

Australia’s 2019-20 “Black summer” bushfires were of an intensity not projected to occur till late this century; current extreme events in Australia were not projected to occur till the 2030s.

When threats exist to the very foundation of modern human societies and the complex and fragile globalised networks within which they co-exist, the normal approach to risk assessment management is not appropriate. The existential possibilities require a special emphasis on examining the plausible worst-case scenarios, which in turn define the actions that need to be taken to prevent, prepare and protect against their occurrence. There is no evidence the NCRA will do this.

Then there is the vexed question of using management consultants for sensitive work about Australians’ future security and system vulnerabilities. Historically this would have been done internally, prior to the Australian Public Service and agencies being denuded of expertise by successive conservative governments.

Much has been made recently of the corruption implicit in PWC’s and Deloitte’s misuse of confidential information in their consulting role to government. But the far bigger danger to sound national governance is the consultants’ role in facilitating poor government policy and in undermining public service capability, which is a global problem.

When the Morrison government launched “The Australia Way” emissions-reduction climate plan in 2021, with vague targets and lack of urgency, one of the world’s top consulting companies, McKinsey & Co, lent credibility to the charade. The price was a taxpayer-funded $6 million consulting fee. McKinsey was already under internal criticism for the disconnect between its supposed values around climate change and its actual consulting advice to clients.

Deloitte have been retained to advise on the NCRA. Deloitte promotes its expertise in analysing the economic consequences of climate impacts with an in-house model. The danger here is putting the cart before the horse, in that complex economic analysis based on dubious cost–benefit assumptions may be given precedence over a scientifically rigorous assessment of the physical threats, as has long been the practice in private sector approaches to climate risks.

The climate-economy-financial system models used by bankers, regulators and big corporations are badly flawed and lead to chronic underestimation of the risks. Such models are poor at incorporating abrupt, non-linear and cascading change, so their projections about future climate impacts and economic costs are likely to be of little use.

A new report from the peak body for UK actuaries and the University of Exeter warns that: “Many climate-scenario models in financial services are significantly underestimating climate risk… There is a disconnect between climate science and the economic models that underpin financial services climate-scenario modelling, where model parsimony has cost us real-world efficacy.”

The Australian government should take heed and change course, so that its climate risk methodology does not fall into the same trap. It should pause, review the assessment process, and reassess the involvement of the large management consultancies in the climate policy sphere to ensure they are “fit-for-purpose”.