The Finance and Expenditure Select Committee (FEC), consisting of members of parliament across the political spectrum, reported back to the House on the inquiry into climate adaptation last month.

FEC was tasked with developing and recommending high-level objectives and principles to support the development of climate change policy and legislation.

The Committee’s findings and recommendations is the focus of this second article in our climate adaptation series. The Committee has delivered on recommended objectives and policies to guide the framework. The Committee considered roles and responsibilities, but struggled with the critical recommendation of who pays. We unpick the key recommendations and next steps below.

You can read our first article, discussing where we are at in our climate adaptation journey, including our evolving climate adaptation policy settings, here. Our final article in this series will take a closer look at what is involved in a Dynamic Adaptive Pathways Planning (DAPP) approach, and the ‘10 step decision cycle’ recommended to be utilised by local councils to undertake adaptive planning.

Consensus and diverging opinions of submitters

FEC received submissions from local government, business, infrastructure providers, community groups, practitioners, experts and individuals. The terms of reference also required FEC to consider the written submissions received by the Environment Committee, who were initially given the task in 2023 to undertake the inquiry into climate adaptation (with a boarder frame of reference).

A summary of submissions to the Environment Committee shows an overwhelming consensus that the current system cannot adequately enable adaptation to our changing climate, nor effectively provide for retreat, either before or after a natural hazard event. Generally, submitters agreed that new and comprehensive climate adaption legislation is needed – to provide the information, processes, tools and powers needed, and clarity of roles and responsibilities to enable all people and communities to make informed decisions.

There was wide support for central government to set clear direction for how local adaption planning should occur. Many submitters highlighted that the problem with the current system is that adaption plans are discretionary, with no formal status, and no direct means by which they can be implemented. The need for urgency was highlighted, to provide much needed certainty.

The most divergent topic was who should pay the costs of adaptation. Most agreed that costs should be shared across central government, local government, the private sector and individuals. Local government submissions were keen to point out that the reactive nature and high cost of property buyouts is not sustainable – and should not set a precedent. Insurers also confirmed that insurance is to address ‘sudden and unforeseen’ events, not events where there is a high expectation they will occur – and it is not the role of insurance to cover planned retreat in advance of loss. However, the majority of submitters supported that a national mandatory property insurance scheme needs to be developed, similar to the Natural Hazards Commission Toka Tū Ake (formally EQC) model. Noting that it would need to be enduring, intergenerational, ring-fenced and not subject to political cycles.

Climate change legislation is required to establish a clear mandate for local and central government

The Committee recommended that a comprehensive national framework is set out in legislation, which establishes a clear mandate for local and central government. However, it was also noted that all of society will have a role to play in climate adaptation, and legislation should incentivise all to act.

The FEC also recommended that all decisions relating to infrastructure, planning and development must consider climate adaptation. This includes policy workstreams such as regional deals, the infrastructure pipeline, the Regional Infrastructure Fund, the replacement Resource Management Act, and interim planning measures. We addressed in our first article why this has been challenging to date.

FEC also proposed that a single lead agency on climate adaption be established to support an all-of-government approach, partner with iwi/Maori, interact with public and key stakeholders, and have responsibility for reporting on progress and performance. As a nation-wide issue it makes sense to coordinate resources and knowledge, providing consistency and fairness.

High-level objectives and principles have been proposed with a government centric lens

The approach that FEC took to defining the proposed objectives for the framework was to consider that if the government adopts certain objectives, it should only take actions to support those objectives. This required consideration of the actions implied by the objectives and if they are desirable.

The objectives recommended by the Committee for the climate adaptation framework are:

• Minimising expected long-term costs. 
• Ensuring that responses and funding support to property owners, if any, are predictable, principled, fair, and rules-based wherever possible. 
• Improving information flows about climate risks and responses. 
• Addressing market failures and supporting market efficiency. 
• Achieving a balance between central government leadership and community-led approaches. 
• Ensuring people have the incentive and the ability to manage risk. 
• Reducing hardship and supporting an equitable approach. 
• Upholding te Tiriti o Waitangi. 
• Allowing asset prices to better reflect long-term natural hazard risk. 
• System clarity and continuity.

Some of the potential government responses that underpin these objectives are:

• Avoiding development in hazard-prone areas when the future costs of infrastructure repair and emergency responses are likely to exceed tax / rates revenue.
• Enabling or supporting protection and accommodation when the benefit-cost ratio is positive.
• Enabling or supporting retreat and other types of transformative adaptation when this costs less than upholding resilience against intensifying and irreversible risks.
• Supporting protection and accommodation only if it does not encourage risk-taking, and does not crowd out private investment by asset owners.

These examples highlight the benefits of a DAPP approach and having a clear plan of where and when it is appropriate to protect – ie. stay in place and build defences (eg stop banks and sea walls). Resource consent applications for defences are becoming more frequent, and obtaining approval is often fraught and costly [1]. A DAPP would provide certainty on when it is appropriate for protection mechanisms to be employed and for how long that they are likely to be effective.

FEC also recommended to the Government that in seeking to achieve the objectives and navigate trade-offs, the principles of: fairness and equity; national consistency; subsidiarity; local flexibility; incorporating the specific rights and interests of Maori; fair warning; minimising moral hazard; accountability; transparency and clarity; consideration of co-benefits; and evidence-based decisions should provide guidance.

The report also suggested that if government involvement does not support the objectives of the adaptation framework, then “buyer beware” is the default approach. This highlights that no one can put their head in the sand about known climate change risks.

If supported by the Government, it will be interesting to see how these objectives and principles play out in the detail of legislation.

The priority must be to have sufficient information about climate risks and the scale and cost of investment needed

It is a concern that we still do not have a consistent and publicly accessible nation-wide database on hazards and risks to support decision making. This must be a priority. FEC noted that possible government intervention could include:

• Commissioning modelling that reduces the uncertainty of benefit-cost ratios to support private investment into protection and accommodation.
• Commissioning new research on climate risks and spatial planning and facilitating open access and interoperability of existing data sets to support planning decisions.

This would be a good place to start, which could build on existing local data, while ensuring a nationally consistent approach is applied.

Equally, it is important to understand the costs of climate adaptation. The Committee highlighted that the potential costs are uncertain and unknown. As a rule of thumb, well-designed measures to address climate change, that are taken early rather than being reactive, must reduce future costs. However, this needs to be quantified.

To give some context, Treasury estimated that the overall costs of physical damage caused by the late January and February 2023 weather events in the North Island is somewhere between NZD9.0 billion and NZD14.5 billion [2]. This event also put people at the risk of serious harm, undermining well-being and viability of communities, and the health and resilience of ecosystems. Alternatively, the estimated costs of the preferred adaption pathways for managing coastal hazards over the next 100 years in the case study of the Clifton to Tangoio coastline are almost NZD2 billion [3].

FEC recommended that the Government work with local government, researchers and the private sector to compile information about what is currently being spent on climate adaptation and to improve estimates of the potential future costs.

But the question on everyone’s mind is who pays?

What remains unclear is ‘who will pay’ for adaptation. FEC have reiterated that there are four ‘funding principles’ that must be applied and carefully weighted to arrive at the desired policy outcome:

• Beneficiary pays: Where practical, services should be funded by those who benefit from them. 
• Exacerbator pays: Those who exacerbate natural hazard risks and contribute to maladaptation should contribute to the costs of adaptation. 
• Public pays: The cost of adaptation should be spread generally across society at the national and regional level. 
• Ability to pay: People with greater ability to pay should be expected to contribute more.

It may be that a combination of the above funding approaches is utilised for the four different adaptation strategies:

• Protect: Building defences to protect property, i.e., through stop banks, seawalls, and sandbags.
• Avoid: Avoid new development in areas prone to hazard risk. 
• Retreat: Relocate people, infrastructure, and property away from areas prone to hazards. 
• Accommodate: Reduce the risk of damage by raising the floor level of buildings.

The funding approach may also change over time. While a more comprehensive and long-term adaptation plan is underway for a particular area, a ‘beneficiary pays’ approach may be most effective where landowners wish to protect their properties from risks such as coastal erosion.

Even more complex, is deciding on a funding policy for ‘managed retreat’ - the planned relocation of property and people away from hazard risk. Retreat can be reactionary in response to climate hazards, when damage has already eventuated, or it can be proactive, before damage occurs and when risk has become intolerable.

FEC considered this issue, but rather than making a specific recommendation, it recommended that the Government consider the approach to compensatory payments, as set out in the Expert Working Group 2023 report on Planned Relocation. In this report, distinctions are made between different types of property ownership. For example, compensation as high as 90% of the RV of a building may be provided to owner-occupied homes, and rental properties that are used as the principal place of residence for tenants. Any second homes, including holiday homes in particular, would receive no compensation payments. Financial assistance would likely be limited to removal, demolition and clean-up costs. For commercial buildings to be eligible for compensation, the Expert Working Group suggested eligibility for compensation should be based on financial hardship, and assessed by means testing. The total amount of compensation is expected to be less than for residential properties – perhaps 50% of the RV of the building. For whenua Māori land, and not-for-profit organisation, full compensation is proposed.

FEC also recommended to the Government that it investigate the idea of proactive financing instruments, working alongside banks and insurance companies to do so. There was no recommendation to explore a nation-wide mandatory insurance scheme as supported by submitters. In our view its difficult to recommend the best funding approach when we do not know the extent of the problem, actions to take, and cost implications of different scenarios.

The Committee requested that the report be debated in the House and the Government has 60 days to respond to the FEC report.

Footnotes

1. Jonathan Killick “Coastal seawalls take on new urgency in Auckland, as properties crumble away” Stuff (New Zealand, 5 March 2023).
2. Treasury “Impacts from the North Island weather events” (press release, 27 April 2023).
3. Ministry for the Environment and Hawke’s Bay Regional Council “Case study: Challenges with implementing the Clifton to Tanoio Coastal Hazards Strategy 2120” (Wellington, 2020).

This article was co-authored by Imogene Jones, a Solicitor in our Environment team.