A leading Australian climate scientist says trillions of dollars could be misallocated to combat climate threats around the world because the models used by central banks and regulators are not fit for purpose.
Prof Andy Pittman, director of the Australian Research Council’s Center of Excellence on Climate Extremes, said regulators rely on models that are good at predicting how the average climate will change as the planet warms, but cannot be used to predict the weather endanger isolated areas such as cities.
The concerns were detailed in a recent report by Australia’s Prudential Regulation Authority on its 2022-23 business plan, published in the journal Environmental Research: Climate. Apara’s plan continues to “ensure that regulated institutions are well prepared for the risks and opportunities of climate change.”
But Pittman said regulators are still unable to regulate the ability of banks and other institutions to assess and manage risk.
“There is no doubt that we are underestimating the cost of climate change in some areas and underestimating it in others,” Pittman said. “We need to take this issue seriously — not just grab information on the fly and think we can pull it together to make a proper economic assessment.”
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“If you’re going to spend billions or trillions of dollars, you need to make sure you’re getting the right scientific advice on how to interpret climate information,” he said. “I think it’s a no brainer, though [regulators] Do not do this.”
Pittman’s paper and a separate paper co-authored by Nature Climate Change in 2021 examined models used by groups such as the Network for Greening the Financial System. The NGFS advises around 100 central banks and other regulators worldwide, including the Reserve Bank of Australia and Apra.
However, the climate models underlying such advice are based on general climate change, such as B. rising temperatures. In part because their resolution typically only covers areas of 100km by 100km, the coarseness of the models makes them unreliable for predicting how extreme weather events will change, Pittman said. .
Without their own climate scientists, the RBA and Apra rely on scenarios created by NGFS to understand how a warming planet will affect economic and financial stability.
The RBA referred questions to Placera, where a spokesperson said, “Aparta’s focus is not on assigning individual climate risks to different regulated entities, but rather on ensuring that entities are based on a thorough understanding of the relevant risks.” Lending, investing and underwriting make decisions , including climate risk.”
“We do not assess risk on behalf of the companies we regulate,” the spokesman said.
Apra recently published the results of a self-assessment survey of members’ attitudes towards these risks. It is also currently completing its first climate vulnerability assessment of five major banks.
Pittman, who contributed to the swift ongoing inquiry into NSW flooding earlier this year, said the standard approach should avoid complacency about potential changes that may not be well understood.
Flood plains, for example, should not be built on, even if future climate trends mean that multi-day rain events will become less frequent in some areas, but will be shorter-lived and more intense.
Pittman said decisions should be “made with a deep sense of uncertainty and chosen very carefully so as not to do harm” and involve greater investment in science.
He added that Apra’s business plan included, “We can do well and we will continue to do well, and I think that’s bold.”
For example, it is clear that the flood-prone Hawkesbury River near Sydney is subject to “frequent and repeated flooding,” Pittman said.
“You don’t need climate forecasts to say there’s a vulnerability there,” he said. “Go and see where there are vulnerabilities in supply chains, or plan for and invest in the most vulnerable ones because you’re pretty confident those risks won’t go away.”