8 Reasons Why Fossil Fuel Producers Should Help Pay for Climate Disasters

Bushfire threatens homes and businesses at South Nowra (NSW), 31 December 2019 (image supplied)

The Australia Institute is proposing the creation of a National Climate Disaster Fund, financed by a levy of $1 per tonne of carbon pollution resulting from all coal, gas and oil produced in Australia. Here are eight reasons why fossil fuel producers should contribute to the growing cost of climate disasters;

1 // The costs of increasingly severe natural disasters in Australia are astonishing

Natural disasters are estimated to currently cost Australians around $13 billion per year. The Black Saturday bushfires in Victoria in 2009 cost the Australian Economy over $7 billion alone. Most of this damage occurred in one day. The current fire disaster in Australia began in winter, with no end in sight and has burned around 10 times the area burned in the Black Saturday bushfires. Without serious action on climate change, climate-fuelled disasters will only become more frequent and intense.

Insurance claims from the 2019/20 bushfires alone have already reached $375m and will continue to rise. The majority of property damage is not insured, and the economic costs of the social impacts including health impacts and disruption to people’s lives and businesses are likely to be greater than all the direct costs of property and infrastructure damage.

Rob Russell — Central Coast New South Wales, November 2019

2 // Currently, most of the costs of rebuilding after a disaster are borne by individual affected communities and Australian taxpayers

The costs of climate disasters are currently almost entirely borne by ordinary Australian households and businesses.

We pay for emergency response, relief and reconstruction through higher taxes, rates and insurance premiums. Many of the costs are directly absorbed by households and businesses as uninsured losses, lost income and impacts on our health. In the end of all the costs currently come back to us.

Australian communities and charities are being forced to step in and cover the costs of disaster recovery. The government should step up, but rather than letting taxpayers foot the bill, they should make sure the current costs are recovered through a levy on the very fossil fuel companies that are fuelling these disasters.

Burning fossil fuels is by far the largest cause of global warming. Australia is the largest exporter of coal and Liquefied Natural Gas (LNG) in the world, and we have a far dirtier energy system than most other countries. Currently, emissions from coal and gas produced in Australia add over 1.5 billion tonnes of heat trapping gas to the atmosphere every year.

Without a levy on fossil fuel producers, the companies who are fuelling the climate crisis are currently paying nothing towards covering the costs of natural disasters. Most of these companies pay little if any company tax, and so are in a very good position to make a contribution.

3 // Extreme drought, heat and natural disasters are all predicted to increase in regularity and severity over the coming years

The costs of prevention against, and rebuilding from, climate-fuelled natural disasters will only increase over time as the effects of global warming become more pronounced.

The Government has now acknowledged the link between global warming and these disasters. Placing a modest climate disaster levy on the companies that are responsible is an important next step.

BRJ INC. — South Australia, August 2010

4 // It would be great for the economy

It is a fundamental principle of economics that companies profiting from activities that cause damage to others should pay the costs of that damage.

The Climate Disaster Levy would both fund projects to help businesses and companies recover from the current fires and help to protect us from escalating future disasters. This would include grants to households and businesses, but also large infrastructure projects that would provide many thousands of jobs.

The levy would also shift the economic burden from ordinary Australian households and businesses to the large global coal, oil and gas producers that are causing the problem. With these costs covered by the levy, this would free up money from our taxes for better services, and money from households and businesses to be spent in other more productive areas of the economy.

A $1 levy per tonne of carbon pollution on fossil fuel production in Australia would currently raise around $1.5 billion a year for the National Climate Disaster Fund. This is a modest proposal that represents only a small fraction of the total economic harm being caused by these emissions, which is estimated to be over $400 per tonne. However, it would make an enormously helpful contribution to our recovery.

5 // Most fossil fuel companies pay little (if any) company tax

Australian mining magnate Andrew ‘Twiggy’ Forrest announced a $70 million donation to bushfire relief — but even a $70 million donation is a just drop in the ocean compared to what companies should pay in their fair share of taxes.

While Australia’s fossil fuel resources are owned by Australians, they are extracted and exported mostly by large global coal, oil and gas companies. Many of these companies pay little, if any, company tax in Australia and so are in a good position to be able to afford a modest levy to contribute to the cost of the increasing natural disasters they are fuelling.

These companies make little, if any, contribution to the costs of increasing climate-related disasters — a direct consequence of their activities that are increasing concentration of greenhouse gases in the atmosphere.

A levy on fossil fuel production is a fairer and more economically responsible way to pay for the of the costs of these disasters.

6 // Insurance is not the answer

Insurance will only cover a small fraction of the costs of natural disasters.

In the image below, the light green area at the bottom of the columns represents the proportion of losses caused by natural disasters, that is actually covered by insurance.

Source: DAE (2017) Building resilience to natural disasters in our states and territories, p. 20, http://australianbusinessroundtable.com.au/assets/documents/ABR_building-resilience-in-our-states-and-territories.pdf

Losses from natural disasters are often categorised as either tangible or intangible losses. Tangible costs are those that have a market value, such as damage to property and infrastructure. Intangible costs (marked light blue in the image) are costs that are less visible and cannot be easily priced. These include loss of income and health impacts, including mental health.

Only a small proportion of the tangible losses that result from climate disasters are insured. Intangible losses are thought to be greater than tangible losses and are rarely insured at all.

Climate change is already driving up the cost of insurance, and with natural disasters typically followed by large insurance premium increases, insurance may soon become unaffordable for some homeowners.

The situation gets worse — analysts are warning that up to almost 10 percent of residential properties Australia wide could become uninsurable by 2100 because of climate change.

Homeowners may be able to get insurance today, but if properties become uninsurable or very expensive to insure within the current mortgage cycle or even the next, or even if there is a risk of this happening, it could have a significant effect on property values.

If people are unable to insure their properties and the property values fall, they can be forced into a position of being unable to sell out of increasingly disaster-prone areas. This is not only inequitable, but creates perverse incentives for people to remain in disaster-prone areas, or put pressure on local governments to take measures, that are often expensive and may not be in the best outcome of the residents or the community as a whole.

Funds from Climate Disaster Levy could be used to allow people in disaster-prone areas the option for relocation when appropriate.

7 // The world is watching how Australia responds to this crisis.

Australia plays an oversized role in fueling the climate change that is intensifying natural disasters around the world. But with so much global attention and concern, Australia could play an equally large role in leading global action.

Australia Institute research shows that two-thirds of Australians believe the country is facing a climate emergency and that the Government should mobilise all of society to tackle the issue, as they did during the World Wars.

Every tonne of coal and gas mined in Australia results in around 2.5 tonnes of heat-trapping gases being pumped into the atmosphere, fuelling global climate change and making these disasters worse. Making fossil fuel companies pay their fair share is one step in the right direction for Australia.

8 // Australians know there is a problem and support the introduction of a levy

Polling undertaken for The Australia Institute’s 2019 Climate of the Nation report found that 62% of Australians support the introduction of a fossil fuel levy to pay for the impacts of climate change, with only 21% opposed.

Thousands of Australians have already signed The Australia Institute’s petition calling for the introduction of a National Climate Disaster Fund and you can add your name here > https://theaus.in/climatedisasterlevy

Bill Collinson — New South Wales, July 2016

The Australia Institute’s full report on the proposal for a National Climate Disaster Fund is available here

You can add your name to The Australia Institute’s petition, calling for a National Climate Disaster Fund here

an independent think-tank based in Canberra > australia.org.au

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