80 percent chance of another Cyclone Gabrielle in next 50 years, Treasury says

There is an 80 percent chance of another Cyclone Gabrielle-scale weather disaster happening in the next 50 years, at a cost of up to $14.5 billion, a Treasury report has warned.

The paper, sent to Finance Minister Nicola Willis, also warns that the costs of climate change could threaten the government's long-term fiscal sustainability if New Zealand does not do more to adapt.

It noted that adaptation was competing with other massive financial pressures such as health and superannuation, but that it needed to be "lifted in the policy agenda".

"We think this is necessary because climate change is likely to present a unique and serious challenge," Treasury analysts advised the minister.

The paper, released to RNZ under the Official Information Act, was sent to Willis in late March.

Much of the advice was redacted, on the basis that it was still under consideration.

However, an appendix listing the probability of major natural disasters occurring in the next half-century listed a Cyclone Gabrielle equivalent as the most likely.

That probability - from National Emergency Management Agency estimates - was even greater than an Alpine Fault earthquake (75 percent). The likelihood of a Wellington fault earthquake in the next 50 years - a long-feared event - was given at 5 percent.

The damage from another massive weather event was estimated at $9 billion to $14.5 billion, based on the costs associated with Cyclone Gabrielle, and comparable to a major earthquake.

While the scale of climate change's impacts were uncertain and would depend on the global emissions track, "the trend is clear", the report warned.

"Costs are likely to be pervasive across the economy and society, and the scale of fiscal costs could threaten our long-term fiscal sustainability."

Long-term fiscal sustainability refers to the government's ability to keep providing services and deliver on its financial commitments, now and in the future.

So far, the Crown had been able to weather "overwhelming events" like Cyclone Gabrielle, the Christchurch earthquakes and the Kaikōura earthquake, using its borrowing discretion to support councils and asset owners, the report said.

Those events had been large enough to affect net debt and GDP, but not so much that they had challenged the government's ongoing fiscal sustainability.

However, modelling from 2021 suggested that larger and more frequent extreme weather events would create additional Crown costs equivalent to 0.54 percent of GDP by 2061, the report said.

That was less than fiscal pressures from health (3.7 percent of GDP) or superannuation (2.7 percent) over the same period but was likely to be an underestimate because it excluded the effects of sea level rise or temperature change.

The costs of adapting or even retreating from areas were also likely to be enormous, the report suggested.

Analysis by NIWA had already estimated that 30 centimetres of sea level rise - expected in the coming decades - would expose an extra 20,000 buildings, with a replacement cost of $6 billion, on top of the $12.5 billion replacement value of buildings that are already at risk.

"It might not be possible or cost-effective to fully avoid all [climate change-related] costs. But insufficient action to reduce risk will have considerable impacts," the report said.

Adaptation would be "effective and efficient" when the costs of action were less than the avoided costs from doing nothing or too little.

'Limited progress' from central government on adaptation

Despite the financial risks posed by climate change, "central government has made limited progress on core [adaptation] policy choices", largely due to the complexity of the issues and a focus so far on mitigation, the officials said.

Existing systems were marked by regulatory and market failures, including continuing development in high-risk areas, uncertainty over who would decide about and pay for retreat, council affordability, hardship created by a shift among insurers to more risk-based pricing, and a lack of - or ignorance of - data to inform people of the risks.

Since the report was provided to the minister, the government has pledged $200 million in the most recent Budget for flood resilience infrastructure.

Climate Change Minister Simon Watts also announced a cross-party inquiry into climate adaptation, to be carried out by the finance and expenditure select committee.

The committee, which has now completed its hearings, was originally due to report back this week but will now do so in early October.

The first review of the government's National Adaptation Plan, released by the Climate Change Commission late last month, found that New Zealand was still not adapting to climate change fast enough.

It made nine recommendations, many of which urged a shift to a more proactive rather than reactive approach to adaptation.