It’s been a horrendous few weeks in Australia. Heatwaves, high winds, a “rain bomb”, storm and cyclone resulting in bushfires all over Victoria, flooding in North Queensland, flash flooding, including on Victoria’s tourist coast, and landslides in Sydney.

In some cases, those affected had never seen fires move that fast or water rise that quickly. We talk about weather impacts of changing climate, but we also need to talk about changing weather as an economic challenge.

If we don’t look through the economic lens, we won’t address preparedness, adaptation and resilience adequately because we won’t be willing to pay for change. It’s only through being better-adapted that we can reduce human impacts.

Weather events cost a lot of money. Recent weeks have seen a constant flow of statements from Prime Minister Anthony Albanese and state premiers on funding as the government acts as insurer of last resort.

Close to $100 million in Victoria, $66 million in Queensland. Disaster relief for 47 locations in Victoria alone. Then there’s money for road repair, clean-up, vets and carcass disposal, deferred rent on leasehold, sport grounds and racetrack repair.

That’s only the start. In Victoria, 5000 volunteers worked alongside paid staff from government agencies, people from other states and international firefighters. There were hundreds of vehicles and about 70 aircraft.

Every extra day a fire burns, the government is burning cash. Heading off a fire or getting it early has a big payback. Victorian CFA Chief Officer Jason Heffernan told members: “The first 15 minutes of a grass or scrub fire response can shape the entire incident.” 

Beyond immediate costs, there’s the economic impact. In the case of Victoria, one person died, more than 400,000 acres of land were impacted, and up to 900 structures, about 260 homes, 10,000 hectares of pine plantation and an estimated 20,000 head of livestock were lost.

The losses are ongoing. For people whose farms or homes or businesses were burnt, the disruption may last for years, and they may never return to the business they had before. 

Volunteers and paid staff are taken away from their day jobs. It will take time to return to normal work. 

Then there’s insurance. Even if people want to rebuild, there may be underinsurance, and insurance premiums may rise making properties uninsurable. That will impact their ability to borrow as banks may decline lending.

And if they want to sell and move on, disaster risk may impact their property value. A recent report in the US showed how property disaster risk scores were impacting valuations. 

This creates spatial and social challenges. High-risk areas may be depopulated while low-risk areas become centres for people and capital.

Weather impacts go beyond emergencies

In hot weather, many businesses can’t operate, and others must change how they operate. Treasury has noted that productivity diminishes with higher temperatures. A recent study on shopping found daytime spending collapses in extreme heat.

Heat can also impact mental performance, morbidity and education, and increase aggressive behaviour, while smoke from wildfire can increase respiratory ailments. 

Most of these impacts were noted in the National Climate Risk Assessment released last year. The National Adaptation Plan, released at the same time, was a disappointment. It seemed to argue everything was fine. Nothing followed.

Read more: Is this Australia’s climate wake-up call? Official report reveals a looming hotter, harder future

The 2024 Colvin Review of Disaster Funding highlighted underinvestment in risk reduction, resilience and prevention. 

Governance or institutional arrangements and finance are the major constraints.

Adaptation is largely local. Not only do we need new state and federal institutions that provide leadership on adaptation and disasters, we need local institutions that can cross jurisdictions, private, public and community interests. 

The National Adaptation Plan recommitted to institutional arrangements agreed in 2012 that see local government end up with much of the responsibility, but with neither money nor, in most cases, capacity. 

Treasury is working on how to engage private finance. It will need to look at new types of arrangements such as blended finance options that combine private investment with government funds.

Sustainability bonds have worked for energy projects, but we will need to inject more of this into adaptation projects. 

We need to think about how we get private funds to where they’re needed. California developed new legal entities, Climate Resilient Districts. Cooperatives and mutuals offer opportunities to build collaborative approaches.

Some communities are already looking at mutuals for alternative insurance models such as community mutual risk pooling. The model offers a pathway to address the insurability gap while encouraging risk mitigation and resilience.

Project funding does not promote the transformational change required. Instead, we’re left with short-term projects that tend to reinforce business-as-usual. Government gateway funding reviews and benefit-cost analysis are unsuited to adaptation.

Many businesses are a long way off fully understanding their operational and supply chain risks. The new accounting standard for climate impacts will encourage greater awareness, but business needs to understand government won’t do it for them. 

Private investment decisions will be hampered by the calculus of return on investment. Discount rates will work against you when timeframes are long and uncertainty so high.

The rising cost of changing weather is a threat to budget stability, and a growing insurance gap is a threat to fiscal stability. Yet governments and many companies are putting off adaptation and gambling on disaster.