Select committee fails to clarify who should pay for climate adaptation

A cross-party select committee report into adapting to climate change has produced a range of high-level recommendations for the Government to consider but still provided no concrete advice on who should pay the costs.
Successive expert reports, select committee inquiries and policy consultations have for years failed to make a call on the thorny matter of paying to protect residential properties or paying to move them. Local government has repeatedly said it doesn’t have the resources to do so, and central government has said it isn’t responsible for local decisions.
That has left property owners holding the bag, often without the support of banks which refuse to lend in risky areas and insurers who are pulling back from covering assets that are increasingly exposed to extreme weather.
The report from the Finance and Expenditure Select Committee, which came after a four-and-a-half-month inquiry, did provide a potential framework for arriving at the answer to this key question.
“Investment in climate adaptation should be paid for by applying a combination of the following principles: beneficiary pays, exacerbator pays, public pays, and ability-to-pay,” the select committee wrote.
Though the report noted these should be carefully balanced, as placing the burden on just one section of society was “highly undesirable”, it didn’t recommend how the principles should be weighted and prioritised.
This is something MPs on the committee were conscious of. They said the Government prescribed too short a timeline for reporting back, which “limited the value, quality, and scope of this report and its findings”.
Important progress has been made, the select committee stated, but “at the point of deliberation some members feel we have still been left with a number of recommendations that remain vague, open to very different interpretations, and seem at times contradictory. These members worry about the report not answering some of the most challenging questions around, for example, the weighting given to allocative principles on ‘who pays’, and thus worry about its value in directing officials in legal drafting”.
One more specific recommendation the committee did advance was on compensating property owners in the case of managed retreat. Here, the committee backed the advice of last year’s Expert Working Group on Managed Retreat to prioritise the provision of new housing to the people displaced over the preservation of property owners’ wealth.
“We agree with the Expert Working Group that: ‘avoiding hardship by structuring funding so as to provide adequate housing to those who must relocate was a key consideration. Based on the outcomes and principles for planned relocation and funding, we did not consider that preserving people’s wealth or protecting property owners from the risks of property ownership were legitimate objectives of the funding system.’”
The report also lifted the lid on interim work by the Ministry for the Environment on the value of property that is likely to experience significant or repeated losses because of extreme flooding between now and 2060.
In total, the ministry found 227,000 residential properties are currently in flood zones (though this excludes the Waikato, for which data was still being worked on), with a total value of $195 billion.
Taking Canterbury as a case study, 2.5-7.5 percent of the region’s residential properties by value were expected to be damaged by at least one extreme flooding or inundation event over the next 35 years.
The committee was advised by submitters and agencies that the current approach to compensating for losses, which is ad hoc and frequently involves Crown buyouts, was “likely raising expectations that there will routinely be buyouts. This leaves the Crown and councils exposed to potentially unacceptably high fiscal costs over the long term”, the report stated.
“It also likely disincentivises risk reduction; raises equity issues between individuals, regions, and different generations; and causes rushed and sub-optimal investment decisions immediately after major events. If, or when, insurance is no longer available to certain properties, these consequences will be exacerbated.”
The committee told the Government that its forthcoming climate adaptation framework must allow “asset prices to better reflect long-term natural hazard risk”. The better they do this, “the more efficient outcomes will be. However, price impacts that arise as risk increases over time and the associated hardship may be considered inequitable”.
In general, this aligns with the recommended objective of the framework that it ensure that incentives for risk management are clear at the lowest level possible. If property owners or their banks or insurers can internalise costs of adaptation, that takes some burden off central and local government.
A more local approach was touted throughout the recommendations. This ensures the right decisions are being made for the specific situations in each community and also helps build social licence for what may in some cases be transformational changes.
Climate policy expert David Hall, who serves as the policy director at Toha NZ, was the committee’s independent specialist advisor. He told the committee that “transformative change will be necessary in some circumstances”, including managed retreat, major land use change and “change in natural ecosystems to new ecological equilibria”.
Although this won’t be a universal phenomenon, where needed it will be the right decision in the long term.
The committee reported that Hall “acknowledged that transformative change can be uncomfortable. However, he said that the adaptation framework could be proactive about transformative adaptation and articulate the roles of government, financial providers, and others to support communities to be ‘masters of their own destiny’ despite transition and change”.
“He said this is preferable to a reactive approach where communities are victims of circumstance and left to transform by external shocks. We were advised that the latter may result in an overinvestment in resilience and an overexposure to risks and hazards as communities try to sustain business as usual, rather than accept the need and opportunity for new beginnings.”
The Government was also encouraged to consider climate adaptation in “all decisions about infrastructure, planning and development” going forward, including its planned regional deals, infrastructure pipeline, replacement for the Resource Management Act (RMA) and Regional Infrastructure Fund. Interim measures to prevent development and intensification in risk-prone areas should be considered before the full reform of the act, the committee advised.