Private companies must spend to protect infrastructure from extreme weather or face government imposed climate change taxes to fund resilience work, consultants warned last week.
Mott MacDonald said that up to $200bn (£130bn) must be spent every year from 2035 to protect global assets from the effects of climate change.
Its Climate Change and Business Survival report warns that if solutions cannot be found, governments may have to impose climate change resilience taxes.
“Private sector organisations need to step up to the plate, being mindful that if they are not proactive in addressing the resilience funding gap, governments will have no choice but to impose purpose designed resilience levies,” it says.
The consultant’s report said governments alone would be unable to fund the huge number of projects required as weather becomes more extreme.
Increasing extreme weather frequency
Heatwaves, cyclones, droughts and floods will increase in frequency and intensity, wreaking havoc with vital infrastructure and having a knock-on effect on supply chains around the world, warns the report.
Mott MacDonald’s report says that within 20 years, the global economy could suffer $1 trillion (£666bn) in annual losses directly related to extreme weather.
It says that 20% of this figure should be dealt with as residual - to be picked up by businesses, insurance companies and society.
But expenditure of £133bn per year would be needed to create projects that could effectively eliminate the remaining £533bn of potential losses, says the report.
“Key challenges are the allocation and management of risk and creating connectivity between the resilience planning and investment of multiple players,” it says.
“New funding mechanisms are needed so governments, international institutions and the private sector can pool resources, and share and manage risk.
“Public and private sectors need to explore many more opportunities to mix funding, with governments acting to prevent loss of common services with perceived low economic value but high social or ecological value.”
Ian Allison, Mott MacDonald head of climate resilience and one of five report authors, told NCE that much of the £133bn required each year would go on retrofitting existing infrastructure to make it suitable for future weather conditions, as well as designing resilience into new infrastructure.
“It is highly unlikely we can invest our way out of the impact of climate change,” said Allison.
“We need to invest in making sure businesses are resilient in terms of withstanding extreme weather and recovering quickly from such events.”
This could mean making waste water treatment plants less likely to flood, for example, or it could mean relocating vital parts of the plant higher above sea level so it can be reactivated quickly after a flood.
The aim, where possible, is not to build defences to protect existing infrastructure, but to make the assets themselves more resilient.
The report says that the relatively minor destruction of a section of rail line in Dawlish, Devon, in storms last year was estimated to have caused more than £1bn of economic loss as a vital transport link was severed.
Allison said he hoped the report would contribute to the ongoing debate in the run up to the United Nations Climate Change Conference in Paris at the end of this year.
“A key theme in Paris will be mobilising private sector support,” said Allison.
Bigger private sector burden
“We are not the only ones talking about this. We can see that key [business leaders] are thinking that the private sector will have to shoulder more of the burden.
“We understand from talks with insurance brokers and finance companies that there is no shortage of investment capability.”
The report urges policy, finance, insurance and investment experts to come together to explore and develop innovative financial mechanisms to encourage private sector investment in resilience projects.
It adds that the government should make climate resilience a planning requirement for infrastructure projects.
The report called for policy, finance, insurance and investment experts to come together to explore and develop innovative financial mechanisms to encourage private sector investment in resilience projects.
It added that the government should make climate resilience a planning requirement for infrastructure projects.