Editing IPCC:AR6/WGII/Chapter-11 (section)

=== 11.5.2 Implications for National Economies ===

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The implications of climate change for national economies are significant ( ''high confidence'' ). The costs associated with lost productivity, disaster relief expenditure and unfunded contingent liabilities represent a major risk to financial system stability ( [[#MfE--2020a|MfE, 2020a]] ). Costs include significant and often long-term social impacts, temporary dislocation, business disruption and impacts on employment, education, community networks, health and well-being ( [[#Deloitte--2017a|Deloitte, 2017a]] ). Climate change disrupts international patterns of agricultural production and trade in ways that may be negative but that also may lead to new opportunities for agriculture ( [[#Mosnier--2014|Mosnier et al., 2014]] ; [[#Nelson--2014|Nelson et al., 2014]] ; [[#Lee--2018|Lee et al., 2018]] ). Net exports may increase following global climate shocks ( [[#Lee--2018|Lee et al., 2018]] ), but the longer-term effects on GDP are ''likely'' to be negative ( [[#Dellink--2019|Dellink et al., 2019]] ).

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==== 11.5.2.1 Observed Impacts ====

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In Australia, during 2007–2016, total economic costs from natural disasters averaged AUD$18.2 billion per year ( [[#Deloitte--2017a|Deloitte, 2017a]] ). Individual weather-related disaster costs across multiple sectors have exceeded AUD$4 billion, such as the 2009 fires in Victoria ( [[#Parliament%20of%20Victoria--2010|Parliament of Victoria, 2010]] ), the 2010–2011 floods in south-east Queensland ( [[#Deloitte--2017b|Deloitte, 2017b]] ), the 2019 floods in northern Queensland ( [[#Deloitte--2019|Deloitte, 2019]] ) and the 2019–2020 fires in southern and eastern Australia (Box 11.1).

In New Zealand, the annual cost of rural fire to the economy has been estimated at NZD$67 million, with indirect ‘costs’ potentially two to three times the direct costs ( [[#Scion--2018|Scion, 2018]] ). Insured losses from weather-related disasters cost almost NZD$1 billion during 2015–2021 ( [[#ICNZ--2021|ICNZ, 2021]] ). Floods cost the New Zealand economy at least NZD$120 million for privately insured damages between 2007 and 2017 (D. Frame et al., 2018). The 2007/2008 drought cost NZD$3.2 billion and the 2012/13 drought cost NZD$1.6 billion, of which about 20% could be attributed to anthropogenic climate change ( [[#Frame--2020|Frame et al., 2020]] ) (11.3.11).

The intangible costs of climate impacts, including death and injury, impacts on health and well-being, education and employment, community connectedness and the loss of ancestral lands, cultural sites and ecosystems ( [[#Barnett--2016|Barnett et al., 2016]] ; [[#Warner--2019|Warner et al., 2019]] ), affect multiple sectors and systems and exacerbate existing vulnerabilities. While often incommensurable, intangible costs may be far higher than the tangible costs. For example, following the Victorian fires in 2009, the tangible costs were AUD$3.1 billion while the intangible costs were AUD$3.4 billion; following the Queensland floods in 2010/2011, the tangible costs were AUD$6.7 billion while the intangible costs were AUD$7.4 billion ( [[#Deloitte--2016|Deloitte, 2016]] ).

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==== 11.5.2.2 Projected Impacts ====

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The economic long-run impact increases with higher levels of warming ( ''high confidence'' ), but there is a wide range in projections. Conservative estimates for the long-run impacts of a 1°C, 2°C or 3°C global warming (relative to 1986–2005) on Australian GDP are −0.3, −0.6 and −1.1%/year, respectively, while for New Zealand the estimates are −0.1, −0.4 and −0.8%/year respectively ( [[#Kompas--2018|Kompas et al., 2018]] ). More detailed modelling indicates a loss in Australia’s GDP of 6% by 2070 for 3°C global warming, while a 2.6% GDP rise by 2070 is possible for 1.5°C global warming ( [[#Deloitte--2020|Deloitte, 2020]] ). The potential for much more severe effects on GDP is shown in recent estimates, which attempt to account for the increased severity of uncertain effects (e.g., up to 18.5% reduction in Australia’s GDP by mid-century) ( [[#Swiss%20Re--2021|Swiss Re, 2021]] ).

In Australia, the total annual cost of damage due to floods, coastal inundation, forest fires, subsidence and wind (excluding cyclones) is estimated to increase 55% between 2020 and 2100 for RCP8.5 ( [[#Mallon--2019|Mallon et al., 2019]] ). National damage costs and impacts on asset values could be significant (Table 11.13). The macroeconomic shocks induced from climate change, including reduced agricultural yields, damage to property and infrastructure and commodity price increases, could lead to significant market corrections and potential financial instability ( [[#Steffen--2019|Steffen et al., 2019]] ). Under a ‘slow decline’ scenario by 2060 where Australia fails to adequately address climate change and sustainability challenges, GDP is projected to grow at 0.7% less per year and real wages would be 50% lower than under an ‘outlook scenario’ where Australia meets climate change and sustainability challenges ( [[#CSIRO--2019|CSIRO, 2019]] ).

In New Zealand, the value of buildings exposed to coastal inundation could increase by NZD$2.55 billion for every 0.1-m increment in sea level, that is, NZD$25.5 billion for a 1.0-m sea level rise (SLR) ( [[#Paulik--2020|Paulik et al., 2020]] ). Greater understanding is required of the distributional impacts, the rate of change of costs over time and the economic implications of delayed action ( [[#Warner--2020|Warner et al., 2020]] ).

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==== 11.5.2.3 Adaptation ====

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Investments in mitigation and adaptation can help reduce or prevent economic losses now and in the coming decades ( [[#IPCC--2018|IPCC, 2018]] ; [[#Steffen--2019|Steffen et al., 2019]] ); however, the costs and benefits of mitigation and adaptation are not well understood in the region ( ''high confidence'' ) ( [[#CSIRO--2019|CSIRO, 2019]] ; [[#MfE--2020a|MfE, 2020a]] ).

In New Zealand, the emphasis has been on rebuilding after climate disasters, rather than anticipatory adaptation ( [[#Boston--2018|Boston and Lawrence, 2018]] ). Australia is similarly focused on disaster response and recovery, even though investment in disaster resilience can provide a cost:benefit ratio of 1:2 to 1:11 through reduced post-disaster recovery and reconstruction ( [[#GCA--2019|GCA, 2019]] ). Recent Australian and state government spending on direct recovery from disasters was around AUD$2.75 billion per year, compared to funding for natural disaster resilience of approximately AUD$0.1 billion per year ( [[#Deloitte--2017b|Deloitte, 2017b]] ). The Australian government is supporting most of the 80 recommendations from the Royal Commission into National Natural Disaster Arrangements, including establishing a disaster advisory body and a resilience and recovery agency ( [[#CoA--2020e|CoA, 2020e]] ; [[#CoA--2020b|CoA, 2020b]] ). Australia and New Zealand provide humanitarian and disaster assistance across the Pacific, which is increasingly focused on climate adaptation and the SDGs ( [[#Brolan--2019|Brolan et al., 2019]] ) as cyclones and floods become amplified by climate change ( [[#Fletcher--2013|Fletcher et al., 2013]] ) (Table 11.3). Climate change may increase current migration flows to and impacts on diaspora in Australia and New Zealand from near-neighbour island nations as they become increasingly stressed by rising seas, higher temperatures, more droughts and stronger storms ( [[#Nalau--2018|Nalau and Handmer, 2018]] ).

Delaying adaptation to climate risks may result in higher overall costs in future when adaptation is more urgent and impacts more extreme ( ''medium confidence'' ) ( [[#Boston--2018|Boston and Lawrence, 2018]] ; [[#IPCC--2018|IPCC, 2018]] ). Estimates of the magnitude of adaptation costs and benefits in the region are localised and sectoral (e.g., ( [[#Thamo--2017|Thamo et al., 2017]] ) or regionally aggregated ( [[#Joshi--2016|Joshi et al., 2016]] ). Adaptation costs are expected to increase markedly for higher RCPs, for example, a tripling of expected costs between RCP2.6 and RCP8.5 for sea level rise (SLR) protection in Australia ( [[#Ware--2020|Ware et al., 2020]] ). Existing governance arrangements for funding adaptation are inadequate for the scope and scale of climate change impacts anticipated; dedicated funding mechanisms that can be sustained over generations can enable more timely adaptation ( [[#Boston--2018|Boston and Lawrence, 2018]] ).

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