About the document
‘Climate adaptation’ refers to the decisions that people, communities, businesses and governments take to prepare for and respond to a changing climate. It also refers to the actions they take to manage climate impacts. It is similar in many respects to other actions or decisions that individuals or governments take every day tomanage external shocks such as natural disasters or financial sector volatility.
‘Effective adaptation’ is the ability to make and implement the best possible decisions. In dealing with climate uncertainty, these decisions need to be timely, creative and flexible. Decision-making for adaptation is iterative. Under uncertainty, flexibility is important, so that decisions can be reviewed and adjusted easily over time as circumstances change.
Work carried out by the Department of Climate Change and Energy Efficiency (DCCEE) since 2007 demonstrates that while some progress has been made, there are systemic barriers to effective adaptation in Australia. Cascading market-related and regulatory barriers are associated with limitations in our understanding of the risks posed by climate change and our ability to act on this understanding.
Market barriers to adaptation include:
- Information barriers: Consistent and accessible information and the capacity to apply it is essential for effective adaptation. For example, inconsistent or poorly accessible information currently mean that insurance premiums and real estate values poorly reflect climate risks such as sea level rise.
- Cognitive barriers: Psychological factors influence our ability to act on information about climate change, including our perception of how urgent adaptation is. For example, the long timeframes and uncertainty about impacts make it difficult for decision-makers to understand the problem or scope a solution.
- Disincentives for self-preparedness: Even if the risks posed by climate change and options to adapt are understood, markets may not always generate the right signals for individuals and businesses to prepare for climate change. For example, governments often act as insurers of last resort for the adaptation choices made by others, creating moral hazard which reduces incentives for self-preparedness.
- Investment barriers: Limiting investment in adaptation for major assets such as roads, rail and ports, because the benefits of doing so are outside the scope and timeframe of private sector investment decisions.
- Transaction costs and externalities: Coordinating adaptation across regions can be costly and result in unintended consequences. For example, a challenge for local governments is that many adaptation decisions need to be made at a regional scale in order to be effective.
In addition, regulatory barriers occur where regulations such as the Building Code of Australia don’t take climate change into account, or where standards or codes reduce resilience to climate impacts. Individual barriers to adaptation are unlikely to act independently, and so policy action should be holistic in its approach. When considering intervention, governments need to evaluate carefully whether there is evidence of a genuine need for Government intervention, and whether policy intervention is likely to lead to a better balance of adaptation than would otherwise be achieved. The type of intervention also needs significant consideration, including examination of risks and costs of action versus inaction. It is also worth considering other areas of policy that may serve as useful parallels to dealing with aspects of adaptation – notably health policy and a program of regulatory review such as in national competition policy.