Tag: The Conversation

Cashless welfare cards do more harm than good

The Australian government touts compulsory income management as a way to stop welfare payments being spent on alcohol, drugs or gambling. Via The Conversation.

The Howard government introduced the BasicsCard more than a decade ago. About 22,500 welfare recipients now use it, mostly in the Northern Territory. Now the Coalition government has big plans for a more versatile Cashless Debit Card, trialled on about 12,700 people in four regional communities in Western Australia, South Australia and Queensland.

The 2016 Indue Cashless Debit Card. indue.com.au

These trials aren’t complete, nor the findings compiled, but a string of senior ministers, including Prime Minister Scott Morrison, have indicated they are already sold on expanding the program.

Our research, however, adds to the evidence that compulsory income-management policies do as much harm as good.

Financial (in)stability

Over the past year we have conducted the first independent, multisite study of compulsory income management in Australia. It has involved 114 in-depth interviews at four sites: Playford (BasicsCard) and Ceduna (Cashless Debit Card) in South Australia; Shepparton (BasicsCard) in Victoria; and the Bundaberg and Hervey Bay region (Cashless Debit Card) in Queensland. We also collected 199 survey responses from around Australia.

Proponents of compulsory income management champion its potential to “provide a stabilising factor in the lives of families with regard to financial management and to encourage safe and healthy expenditure of welfare dollars”, as the then social services minister, Paul Fletcher, said in March last year.

Our study found some individuals experience these benefits. But most face extra financial challenges. These include not having enough cash for essential items, being unable to shop at preferred outlets, being unable to buy second-hand goods, and cards being declined even when they are supposed to work.

Survey respondents reported a range of challenges related to compulsory income management. Hidden Costs: An Independent Study into Income Management in Australia
The 2007 BasicsCard. AAP

In Playford, Jacob* told us about being on the BasicsCard, which can only be used with merchants that have agreed to not allow cardholders to buy excluded goods.

The limits on where he could shop made it harder for him to manage his finances.

“I couldn’t make decisions about saving money,” he told us. He and his wife used to catch the train to shop at the Adelaide markets, for example, but vendors there couldn’t take the BasicsCard.

The Cashless Debit Card is intended to overcome the limitations of the BasicsCard. It’s like a debit card except it can’t be used to withdraw cash or at businesses that sell prohibited items.

But Emma*, a single mother in the Bundaberg and Hervey Bay area, told of her struggles to make basic purchases using the card. It often failed – even at businesses that purportedly accepted it – and her family went without. She also felt excluded from the markets and second-hand retailers where she used to shop.

Her greatest stress, however, was rent. Emma* said she had always been on time with rental payments until the Cashless Debit Card. She described one occasion when, two days after paying the rent, the money “bounced back” into her account. When she rang the card’s administrator (card payment company Indue), she was told: “It’s just a minor teething issue, just keep trying.”

The extra stress from “worrying about which payments were going to get paid” was considerable. Others shared similar experiences.

Social (dis)integration

Supporters of compulsory income management claim it brings people back into the community by combating addiction and encouraging pro-social behaviour and economic contribution. As federal Attorney-General Christian Porter said in 2018: “The cashless debit card can help to stabilise the lives of young people in the new trial locations by limiting spending on alcohol, drugs and gambling and thus improving the chances of young Australians finding employment or successfully completing education or training.”

However, our study found the card can also stigmatise and infantilise users – pushing people without these problems further to the margins.

One of the problems is that compulsory income management is routinely applied based on where a person lives and their payment type, and not on any history of problem behaviour. The large majority of our respondents indicated they did not have alcohol, drug or gambling issues.

The majority of survey respondents had been managing finances well before compulsory income management. Hidden Costs: An Independent Study into Income Management in Australia

But as Ray* in Ceduna explained, having the card meant others viewed him as a problem citizen.

I’m embarrassed every time I have to use it at the supermarket, which is about the only place I do use it. I sort of look around and see who’s behind me in the queue. I don’t want anybody to see me using it.

This was a common experience across the interview sites.

Maryanne* in Shepparton told about being judged for shopping for groceries with her BasicsCard.

I got called a junkie and I said: ‘I’m not a junkie, do you see any marks or anything?’ They were like: ‘No, but you have a BasicsCard.’ I said: ‘What’s that got to do with it? Centrelink gave it to me. I can’t do nothing.’

Stigma was a common concern among survey participants. Hidden Costs: An Independent Study into Income Management in Australia

A path forward

The overwhelming finding from our study is that compulsory income management is having a disabling, not an enabling, impact on many users’ lives. As the policy has been extended, more and more Australians with no pre-existing problems have been caught up in its path.

This does not mean a genuine voluntary scheme could not be maintained, but it would need to sit alongside evidence-based measures to tackle poverty.

Addressing the inadequacy of income support payments, ensuring decent employment and training opportunities, and providing accessible social services and secure and affordable housing would be a better starting point for creating healthy lives and flourishing communities.

Names have been changed to protect individuals’ privacy.

Authors: Greg Marston, Head of School, School of Social Science, The University of Queensland; Michelle Peterie, Research Fellow, The University of Queensland; Phillip Mendes, Associate Professor, Director Social Inclusion and Social Policy Research Unit, Monash University; Zoe Staines, Research fellow, The University of Queensland

Trump’s ‘blue collar boom’ is more of a bust for US workers

If you thought workers’ hourly pay was finally rising, think again. Via the US Conversation.

At first glance, the latest data – which came out on Feb. 7 – look pretty good. They show nominal hourly earnings rose 3.1% in January from a year earlier.

But the operative word here is nominal, which means not adjusted for changes in the cost of living. Once you factor in inflation, the picture changes drastically. And far from representing a “blue collar boom” – as the president put it in his State of the Union address – the real, inflation-adjusted data show most U.S. workers have not benefited from the growing economy.

As an economist who studies wage data, I think it’s paramount that we take a step back and look at what the data really show.

The effect of inflation and fringes

The Bureau of Labor Statistics comes out with two sets of data on wages.

Business journalists and financial markets tend to focus on the monthly data. These figures are only reported in nominal or current terms because the inflation data doesn’t come out until later.

A more complete set of wage and pay data is reported quarterly. The latest release came out in December for the third quarter. These figures are not only adjusted for inflation but also include fringe benefits, which account for just under a third of total compensation.

At first blush, it makes sense to focus primarily on the first set. Newer data is, well, newer, and market participants and companies prefer the latest information when making decisions about investments, hiring and so on.

But the effect of inflation means that the same US$1 bill buys less stuff over time as prices increase.

From December 2016 to September 2019, nominal wages rose 6.79% from $22.83 to $24.38. But after factoring in inflation, average wages barely budged, climbing just 0.42% in the period.

Incorporating fringe benefits into the picture adds another wrinkle.

The inflation-adjusted or real value of fringe benefits, which include compensation that comes in the form of health insurance, retirement and bonuses, declined 1.7% in the three-year period.

Altogether, that means total real compensation slipped 0.22% from the end of 2016 to September 2019.

Of course, workers in different sectors have fared differently. The Trump administration has singled out manufacturing workers – who it says are the main beneficiaries of its trade war and other policies intended to support the sector – as having benefited from a “blue collar boom” in wages.

The nominal data for manufacturing workers hardly support a boom but they do show an increase of 2.22% since Donald Trump took office.

The adjusted data, however, make it look more like a bust, with wages plunging 3.88% in the period. And, again, the situation is worse when we add in fringe benefits, which brings the decline to 4.33%.

So next time you read a story about a rise in pay, try to see if it reports the wage data in nominal or real terms, and if it includes fringe benefits too. If it’s only nominal wages, the numbers may mean a lot less than they seem.

Author: David Salkever, Professor Emeritus of Public Policy, University of Maryland, Baltimore County

The Rise Of Renters By Choice

The private rental sector has expanded at more than twice the rate of the increase in Australian households in the last two decades. This increasingly diverse form of tenure now houses about one in four of us. Via The Conversation.

Australia’s lightly regulated private rental sector means the insecurity of tenants is a key factor in why most Australians aspire to own their home. However, despite this insecurity, our research suggests an increase in people choosing to rent for a long time – ten years or more – accounts for a small part of the growth in private renters.

Much of this growth is attributable to middle- and high-income tenants. Especially in Melbourne and Sydney, high housing prices mean saving for a deposit takes much longer than in the 1990s. In the meantime these households are renting for a long time.

‘Who stays put, loses’

In our survey of 600 private renters in different areas of Sydney and Melbourne, we asked: “Many people are renting privately for longer periods (10+ years). Do you think this is a positive trend?”

About a third responded in mainly positive terms. Their main reasons were:

  • renting is more affordable than owning
  • there are fewer worries and liabilities
  • renting is more flexible than owning.

Some questioned the norm of home ownership in Australia.

For a more in-depth understanding, we interviewed 60 long-term private renters in low, medium and high-rent areas in Melbourne and Sydney. Almost all who chose to rent mentioned flexibility as a key advantage.

“Choosers” highly valued the freedom to move or travel at will. Zygmunt Bauman’s concept of liquid modernity highlights the increasing desire for transience. As he explains:

Transience has replaced durability at the top of the value table. What is valued today (by choice as much as by unchosen necessity) is the ability to be on the move, to travel light and at short notice. Power is measured by the speed with which responsibilities can be escaped. Who accelerates, wins; who stays put, loses.

Renters in their own words

Patricia*, who lives in a high-rent part of Melbourne, has always rented.

Well since I came to Australia in 1977, I rented. I didn’t want to buy. Got close [to buying] a couple of times, but changed my mind.

I just travel anywhere and everywhere. I thought […] if you’ve got a house you’re stuck there, and I thought, no. I work hard for my money, so that money that I work hard for is for me, not to have a [permanent] roof over my head. […] Renting has been good for me because I can still do what I want.

Myra lives in a studio apartment in a high-rent area in Sydney and has no desire to own a home. She is single, in her mid- to late 30s, and earns well. The possibility of being asked to vacate did not bother her.

Maybe I’ve been lucky, but every situation has always sorted itself out. You know a lot of people would have freaked out if they had to move out […] It didn’t concern me in the slightest, yeah. I mean not at all. There’s always somewhere to stay. So it suits my lifestyle. I wouldn’t want to buy [a property], even if I had the money.

Leanne inherited a third of a house. Rather than using the proceeds to buy a property, she decided to move to Melbourne’s inner city (a high-rent area) and continue renting.

So I thought rather than put money into a house […] I would invest it and I could travel and go to concerts and live the life I wanted to lead, so that’s basically what I did and I’m still renting.

Pam was renting in a low-rent area in outer Sydney. She felt her situation required the flexibility of renting:

The relationship was rocky and you can’t predict the future, but I knew it wasn’t going to end up in marriage and kids and all that kind of crap […] We were both working, both earning good money and we could have afforded to buy a house between us […] But for me it was like, no. I don’t know where this [her relationship] is going, so no way, I’m not going to put myself in that predicament and then have to go through court to go, “This is mine, this is yours”, all that crap. But so it was my choice to rent and to stick to it […] I’m not going to rely on anybody else for anything, no way.

Her renter status allowed Pam to make a rapid, clean break.

I just got up one day and walked cos I knew he was going to ask me to marry him the next day, so I said: “I’m just going to go to the shops to get a packet of cigarettes.” I left everything behind. I went for a walk, never went home.

For the families with children who choose to rent long-term, the key reason is it allows them to live in highly desirable areas where they cannot afford to buy. Gabrielle and her partner earn well and live in a high-rent area in Sydney:

Sure it [home ownership] provides you with security and you don’t have that stress of […] having to move. I get that, but at the same time, you know for us, for example, if we wanted to buy we’d be paying four times what we pay at the moment in a mortgage […] It doesn’t really make financial sense to go and do that […] You’d have to live somewhere. So I choose to live in a nice area where my children are [at school].

They also did not want the burden of a large mortgage:

[…] I have no desire to put myself in a position where I have a $2 million mortgage and have to work for the rest of my short life to pay for it […]

Although probably only a small proportion of people choose to rent long-term, this option may be gaining ground. Young, well-paid professionals in particular see the flexibility of private renting as attractive.

Location also seems to be a critical factor. Most of the choosers rented in desirable inner suburbs of Sydney and Melbourne, which would otherwise be inaccessible. An estimated one-in-eight private renters are “rentvestors” who rent where they want to live and buy elsewhere to get a foothold in the housing market.

*All names used are pseudonyms.

Authors: Alan Morris, Research Professor, University of Technology Sydney; Hal Pawson, Associate Director – City Futures – Urban Policy and Strategy, City Futures Research Centre, Housing Policy and Practice, UNSW; Kath Hulse, Research Professor, Centre for Urban Transitions, Swinburne University of Technology

Australia, You Were Warned Says Scientists!

Those who say “I told you so” are rarely welcomed, yet I am going to say it here. Australian scientists warned the country could face a climate change-driven bushfire crisis by 2020. It arrived on schedule. Via The Conversation.

For several decades, the world’s scientific community has periodically assessed climate science, including the risks of a rapidly changing climate. Australian scientists have made, and continue to make, significant contributions to this global effort.

I am an Earth System scientist, and for 30 years have studied how humans are changing the way our planet functions.

Scientists have, clearly and respectfully, warned about the risks to Australia of a rapidly heating climate – more extreme heat, changes to rainfall patterns, rising seas, increased coastal flooding and more dangerous bushfire conditions. We have also warned about the consequences of these changes for our health and well-being, our society and economy, our natural ecosystems and our unique wildlife.

Today, I will join Dr Tom Beer and Professor David Bowman to warn that Australia’s bushfire conditions will become more severe. We call on Australians, particularly our leaders, to heed the science.

The more we learn, the worse it gets

Many of our scientific warnings over the decades have, regrettably, become reality. About half of the corals on the Great Barrier Reef have been killed by underwater heatwaves. Townsville was last year decimated by massive floods. The southeast agricultural zone has been crippled by intense drought. The residents of western Sydney have sweltered through record-breaking heat. The list could go on.

All these impacts have occurred under a rise of about 1℃ in global average temperature. Yet the world is on a pathway towards 3℃ of heating, bringing a future that is almost unimaginable.

How serious might future risks actually be? Two critical developments are emerging from the most recent science.

First, we have previously underestimated the immediacy and seriousness of many risks. The most recent assessments of the Intergovernmental Panel on Climate Change show that as science progresses, more damaging impacts are projected to occur at lower increases in temperature. That is, the more we learn about climate change, the riskier it looks.

For Australia, a 3℃ world would likely lead to much harsher fire weather than today, more severe droughts and more intense rainfall events, more prolonged and intense heatwaves, accelerating sea-level rise and coastal flooding, the destruction of the Great Barrier Reef and a large increase in species extinctions and ecosystem degradation. This would be a tough continent to survive on, let alone thrive on.

The city I live in, Canberra, experienced an average seven days per year over 35℃ through the 1981-2010 period. Climate models projected that this extreme heat would more than double to 15 days per year by 2030. Yet in 2019 Canberra experienced 33 days of temperatures over 35℃.

Second, we are learning more about ‘tipping points’, features of the climate system that appear stable but could fundamentally change, often irreversibly, with just a little further human pressure. Think of a kayak: tip it a little bit and it is still stable and remains upright. But tip it just a little more, past a threshold, and you end up underwater.

Features of the climate system likely to have tipping points include Arctic sea ice, the Greenland ice sheet, coral reefs, the Amazon rainforest, Siberian permafrost and Atlantic Ocean circulation.

Heading towards ‘Hothouse Earth’?

These tipping points do not act independently of one another. Like a row of dominoes, tipping one could help trigger another, and so on to form a tipping cascade. The ultimate risk is that such a cascade could take the climate system out of human control. The system could move to a “Hothouse Earth” state, irrespective of human actions to stop it.

Hothouse Earth temperatures would be much higher than in the pre-industrial era – perhaps 5–6℃ higher. A Hothouse Earth climate is likely to be uncontrollable and very dangerous, posing severe risks to human health, economies and political stability, especially for the most vulnerable countries. Indeed, Hothouse Earth could threaten the habitability of much of the planet for humans.

Tipping cascades have happened in Earth’s history. And the risk that we could trigger a new cascade is increasing: a recent assessment showed many tipping elements, including the ones listed above, are now moving towards their thresholds.

It’s time to listen

Now is the perfect time to reflect on what science-based risk assessments and warnings such as these really mean.

Two or three decades ago, the spectre of massive, violent bushfires burning uncontrollably along thousands of kilometres of eastern Australia seemed like the stuff of science fiction.

Now we are faced with more than 10 million hectares of bush burnt (and still burning), 29 people killed, more than 2,000 properties and several villages destroyed, and more than one billion animals sent to a screaming, painful death.

Scientists are warning that the world could face far worse conditions in the coming decades and beyond, if greenhouse gas emissions don’t start a sharp downward trend now.

Perhaps, Australia, it’s time to listen.

Author: Will Steffen, Emeritus Professor, Australian National University

Is BlackRock An ESG Canary?

When the world’s largest fund manager tells its clients that it plans to swiftly exit its thermal coal investments over the next six months, this should tell us something important.

BlackRock manages around USD$7 trillion of funds on behalf of investors and up to now has been cautious in its response to climate change and slow to participate in investor campaigns.  But that just changed, for good economic reasons. Recent analysis published by the Institute for Energy Economics and Financial Analysis (IEEFA), estimated that BlackRock lost as much as USD$90 billion in investment value due to poor investments in fossil fuel companies in 2019.  The IEEFA assessment also found that investments in just four fossil fuel companies, ExxonMobil, Chevron, Royal Dutch Shell and BP accounted for around three-quarters of the USD$90 billion loss.

Now, in a letter to clients, BlackRock’s Global Executive Committee, led by company founder and CEO Laurence Fink, explained that the company would be withdrawing its investments in thermal coal producers, including any company that sources more than a quarter of its revenue from thermal coal production.

Announcements of this kind have come out steadily over the past couple of years. Virtually all the major Australian and European banks and insurers, and many other global institutions, have already announced such policies. According to the Unfriend Coal Campaign, insurance companies have stopped covering roughly US$8.9 trillion of coal investments – more than one-third (37%) of the coal industry’s global assets, and stopped offering reinsurance to 46% of them.

A separate letter to CEO’s starts with a clear reference to BlackRock’s ‘fiduciary duty’ to its investors. BlackRock’s own analysis shows global financial markets will be materially impacted by climate change, reflected in the Bank of England’s analysis of $20 trillion at risk. “BlackRock concludes that this stranded asset risk is not yet priced into the market, so as a fiduciary, BlackRock really has no choice but to act.”

“Thermal coal is significantly carbon intensive, becoming less and less economically viable, and highly exposed to regulation because of its environmental impacts. With the acceleration of the global energy transition, we do not believe that the long-term economic or investment rationale justifies continued investment in this sector,” the letter says.

“As a result, we are in the process of removing from our discretionary active investment portfolios the public securities (both debt and equity) of companies that generate more than 25% of their revenues from thermal coal production, which we aim to accomplish by the middle of 2020.

Environmental, Social, and Governance (ESG) Criteria are coming to the fore – Environmental – a set of standards for a company’s operations that consider how a company performs as a steward of nature. Social – examines how a company manages relationships with employees, suppliers, customers, and the communities where it operates. Governance – how its deals with a company’s leadership, executive pay, audits, internal controls, and shareholder rights.

“As part of our process of evaluating sectors with high ESG risk, we will also closely scrutinize other businesses that are heavily reliant on thermal coal as an input, in order to understand whether they are effectively transitioning away from this reliance.”

The move will see the investment giant dump around USD$500 million (A$725 million) in thermal coal investments.

And firms should note that Blackrock is going to flex its influence.  “Given the groundwork we have already laid engaging on disclosure, and the growing investment risks surrounding sustainability, we will be increasingly disposed to vote against management and board directors when companies are not making sufficient progress on sustainability-related disclosures and the business practices and plans underlying them,” Fink said.

So, Blackrock’s Fink seems to have figured out the huge impact that climate change will have on not just money, but the world.

“Will cities, for example, be able to afford their infrastructure needs as climate risk reshapes the market for municipal bonds?” Mr Fink wrote in his letter to CEOs.

“What will happen to the 30-year mortgage – a key building block of finance – if lenders can’t estimate the impact of climate risk over such a long timeline, and if there is no viable market for flood or fire insurance in impacted areas? What happens to inflation, and in turn interest rates, if the cost of food climbs from drought and flooding? How can we model economic growth if emerging markets see their productivity decline due to extreme heat and other climate impacts?” he said.

BlackRock also announced that it would join the Climate Action 100+ initiative, that supports investors to actively engage with the companies they are invested in to assess, disclose and address the risk that climate change and the energy transition poses to the company and the value of investments. The Climate Action 100+ initiative includes the Australian based Investor Group on Climate Change, which supports Australian institutional

In 2019, the UK-based think tank InfluenceMap released a report that showed BlackRock was the leader of the asset management pack in terms of fossil fuel ownership. As at June 2018, the oil, gas and thermal coal reserves controlled by fossil fuel producers it holds represented an aggregated 9.5 gigatonnes of carbon dioxide emissions equivalent, with just under half of these emissions in thermal coal and equivalent to 30 per cent of total global energy-related carbon emissions in 2017.

“Among the 10 asset management groups with the largest aggregate fund AUM, BlackRock holds the most coal-intensive portfolios,” the report said. A -100% indicates full divestment while positive values indicates adding coal to the portfolio during the period 2011-2016.

“However, there are key differences between BlackRock’s passively and actively managed funds,” the report noted. “The group’s passively managed funds show a thermal coal intensity in 2018 of 680 t/US$m AUM, while its actively managed funds show a much lower TCI of about 300 tons/$m AUM, well below the global fund benchmark.”

And significantly ESG investment strategies are growing in profitability, with new geographic trends adding to their value, according to Amundi Asset Management who analysed the performance of 1,700 companies across five investment universes. Their research – ESG investing in recent years: New insights from old challenges – found that ESG strategies tended to penalise ESG investors between 2010 and 2013, but rewarded investors after 2014. “We have observed a massive mobilisation of institutional investors on ESG,” they said.  The global responsible investment is estimated to be $30.7 trillion USD, or two fifths of assets under management. This is a 34% growth in two years.

But here is the problem. Most of the money that BlackRock manages is wrapped up in passive investments, which track indexes. Indexes tend to contain the shares of the sort of companies that BlackRock’s active arm is now divesting from. So, what exactly BlackRock can do about that? Is this more than greenwash? 

Mr Fink has said that BlackRock will be doubling its offerings of ESG ETFs and will work with index providers to expand and improve the universe of sustainable indices. The company will also simplify the process by which investors can integrate ESG into their existing portfolios by adding a fossil fuel screen and has also expanded its impact investment strategy. 

But the contradiction between the company’s new activist stance and the passive replication of an energy-heavy index such as Australia’s is obvious. One solution might be for large mining companies such as BHP to dump their coal assets in order to remain part of both Blackrock’s actively managed (stock picking) and passively managed (all stocks) portfolios. This was discussed in a recent “The Conversation” article.

Another might be the development of index funds from which firms reliant on fossil fuels are excluded. It is even possible that the compilers of stock market indexes will themselves exclude these firms.

But once bond investors follow the lead of Blackrock and other financial institutions, divestment of Australian government bonds will likely follow. This process has already started, with the decision of Sweden’s central bank to unload its holdings of Australian government bonds.

Taken in isolation, Sweden’s move had virtually no effect on Australia’s bond prices and yields. But the most striking feature of the divestment movement so far is the speed with which it has grown from symbolic gestures to a severe constraint on funding for the firms it touches.

The fact that the Adani corporation was unable to find a single bank willing to fund its Carmichael mine is an indication of the pressure that will come to bear.

The effects might be felt before large-scale divestment takes place. Ratings agencies such as Moody’s and Standard and Poors are supposed to anticipate risks to bondholders before they materialise.

Once there is a serious threat of large-scale divestment in Australian bonds, the agencies will be obliged to take this into account in setting Ausralia’s credit rating. The much-prized AAA rating is likely to be an early casualty.

That would mean higher interest rates for Australian government bonds which would flow through the entire economy, including the home mortgage rates mentioned in the Blackrock statement.

So the government’s case for doing nothing about climate change (other than cashing in on past efforts) has been premised on the “economy-wrecking” costs of serious action. But as investments associated with coal are increasingly seen as toxic, we run an increasing risk that inaction will cause greater damage. So yes, Blackrock’s announcement is a real wake-up call, like it or not.

https://www.blackrock.com/au

https://theconversation.com/blackrock-is-the-canary-in-the-coalmine-its-decision-to-dump-coal-signals-whats-next-129972

https://www.theguardian.com/environment/2019/nov/15/swedens-central-bank-dumps-australian-bonds-over-high-emissions

https://www.theguardian.com/environment/2017/apr/28/big-four-banks-all-refuse-to-fund-adani-coalmine-after-westpac-rules-out-loan

https://growaldfamilyfund.org/institute-for-energy-economics-and-financial-analysis-ieefa.html

Homepage

http://www.climateaction100.org/

The Real Costs Of The Bushfires…

We look at the latest estimates for the costs of the bushfires, especially as they relate to tourism, and consider the problem of smoke pollution, which is something which Australia has been battling for years, but which appears to be at a new level now.

How quickly will we be able to bounce back?

https://aqicn.org/city/wollongong/

https://theconversation.com/even-for-an-air-pollution-historian-like-me-these-past-weeks-have-been-a-shock-129141

https://www.accuweather.com/en/business/australia-wildfire-economic-damages-and-losses-to-reach-110-billion/657235

Politicians Fumble Through The Bushfire Crisis

From The Conversation. As someone who has studied Australian climate policy and politics closely, this summer’s bushfire crisis have been both heartbreaking and bewildering. The grave warnings politicians ignored for so long have now come to pass.

The fires may be without precedent, but these dark weeks have also brought an overwhelming sense of déjà vu. It’s hard to believe, but the Morrison government’s fumbling response to the fires and the broader climate crisis is in many ways history repeating.

From the disastrous optics of Prime Minister Scott Morrison’s trip to Hawaii to blaming conservationists for the fires, our politicians keep making the same blunders and rolling out the same failed strategies.

Here are five recurring themes in Australian politics when it comes to climate change and bushfires:

1. Blaming ‘greenies’

As the fire season ramped up in November last year, New South Wales Nationals leader John Barilaro accused the Greens of preventing governments from conducting hazard reduction burning, implying the party should shoulder blame for the fires.

“We’ve got to do better and I know that we don’t do enough hazard reduction […] because of the ideological position from the Greens,” he said.

Such sentiment, which has been thoroughly debunked, regularly surfaces when bushfires rage.

Following the 2003 Canberra fires and 2009 Victorian fires, the forest industry said conservationists were preventing state governments from conducting hazard reduction burns.

After Victoria’s fires, former West Australian MP Wilson Tuckey also blamed the Greens, and parties seeking their preferences, for preventing controlled burns and causing the crisis.

2. Stoking a city versus country divide

In November last year, Nationals leader Michael McCormack sneered that those who made the link between climate change and bushfires were “raving inner-city lunatics” and “woke capital-city greenies”.

McCormack continues a long tradition of those opposed to strong climate action claiming only inner-city dwellers care about the issue.

It began in the late 1980s, when the the “greenhouse effect” first became a public issue. Some politicians derided it as just another greenies scare campaign, including frontbencher in the Hawke Labor government, Peter Walsh.

Walsh, contemptuous of the Greens movement, continued to rail against climate action after leaving politics. He reportedly described the science around global warming as “highly speculative” and as late as 2008 claimed action on climate “would land us in Middle Ages.”.

3. Experts ignored by politicians

Since April last year, former fire chiefs have implored the Morrison government to act on climate change and better prepare the nation for extreme fire seasons ahead. The government would not meet the experts to hear the advice, let alone implement it.

Successive governments have form when it comes to ignoring experts on climate matters. In September 1994 the CSIRO’s then top climate scientist, Graeme Pearman, briefed the Labor government’s cabinet about the likely impacts of climate change, as a debate over whether to institute a carbon tax heated up. Despite the warning, no tax was implemented.

Pearman retired a decade later under the Coalition government, reportedly having been asked by his superiors to resign for expressing views on climate change at odds with government policy.

4. Leaders not fronting up

Morrison’s decision to take a family holiday in Hawaii as the bushfire crisis grew lost him serious political skin.

Some argue, rightly, that symbolism is less important than substance, and so Morrison’s trip is itself irrelevant. But symbolism creates or destroys both morale, and the possibility of stronger political action.

In 1992 newly minted Labor prime minister Paul Keating sent environment minister Ros Kelly to the Rio Earth Summit, prompting one journalist to observe he was “preoccupied with winning the upcoming election (and) said he wasn’t going all the way to Rio to give a six-minute speech”.

It made Australia the only OECD nation not represented by its head of state, and sent the message that Australia was not taking a serious approach to the discussions.

5. ‘Jobs, jobs, jobs’ mantra

The Bureau of Meteorology this week confirmed this season’s horror bushfire crisis is linked to climate change. Planetary warming is clearly a threat to the nation’s economic well-being.

However Australian governments have routinely created a false dichotomy between environmental protection and jobs. Most recently, we’ve seen it in the Coalition government’s support for the Adani coal mine in central Queensland, and its repeated mantra of “jobs jobs jobs”.

The strategy has been used before. After the Franklin Dam fight in 1983, concern over environmental issues entered the political mainstream. But as former Labor science minister Barry Jones said later, that changed in 1991 when economic recession hit.

“Jobs, jobs, jobs became the priority and in some quarters there was a cynical reaction suggesting that environmental issues were luxuries which characterised affluent times […] This is a criminally short-sighted view,” he said.

What to do?

Only sustained citizen pressure will prevent a repeat of the past 30 years of political failures on climate change. The public must stay informed and demand better from our elected representatives.

Politicians can, when pressed, make better decisions. In April last year, the New Zealand government banned offshore oil and gas exploration after years of public pressure. And the following month, the UK Parliament declared a climate emergency after months of protests by activist group Extinction Rebellion.

It’s often said those who fail to learn from history are doomed to repeat it. But the world must act radically in the next decade to avoid catastrophic global warming. We cannot afford another 30 years of the same old mistakes.

Author: Marc Hudson, Researcher on sociomaterial transformations, social movements, Keele University

Weather Bureau – “Hottest, Driest Year On Record”

The Bureau of Meteorology’s annual climate statement just released confirms 2019 was the nation’s warmest and driest year on record. It’s the first time since overlapping records began that Australia experienced both its lowest rainfall and highest temperatures in the same year. Via The Conversation.

The national rainfall total was 37mm, or 11.7%, below the 314.5 mm recorded in the previous driest year in 1902. The national average temperature was nearly 0.2°C above the previous warmest year in 2013.

Globally, 2019 is likely to be the second-warmest year, with global temperatures about 0.8 °C above the 1961–1990 average. It has been the warmest year without the influence of El Niño.

Across the year, Australia experienced many extreme events including flooding in Queensland and large hail in New South Wales. However, due to prolonged heat and drought, the year began and ended with fires burning across the Australian landscape.

The effect of the long dry

Bushfire activity for the 2018–19 season began in late November 2018, when fires burned along a 600km stretch of the central Queensland coast. Widespread fires later followed across Victoria and Tasmania throughout the summer.

Persistent drought and record temperatures were a major driver of the fire activity, and the context for 2019 lies in the past three years of drought.

The dry conditions steadily worsened over 2019, resulting in Australia’s driest year on record, with area-average rainfall of just 277.6mm (the 1961–1990 average is 465.2 mm).

Almost the entire continent experienced rainfall in the lowest 10th percentile over the year.

Record low rainfall affected the central and southern inland regions of the continent and the north-eastern Murray–Darling Basin straddling the NSW and Queensland border. Many weather stations over central parts of Australia received less than 30mm of rainfall for the year.

Every capital city recorded below average annual rainfall. For the first time, national rainfall was below average in every month.

Record heat dominates the nation

2019 was Australia’s warmest year on record, with the annual mean temperature 1.52°C above the 1961–1990 average, surpassing the previous record of 1.33°C above average in 2013.

January, February, March, April, July, October, November, and December were all amongst the ten warmest on record for Australian mean temperature for their respective months, with January and December exceeding their previous records by 0.98°C and 1.08°C respectively.

Maximum temperatures recorded an even larger departure from average of +2.09°C for the year. This is the first time the nation has seen an anomaly of more than 2 °C, and about half a degree warmer than the previous record in 2013.

The year brought the nation’s six hottest days on record peaking at 41.9°C (December 18), the hottest week 40.5 °C (week ending December 24), hottest month 38.6 °C (December 2019), and hottest season 36.9 °C (summer 2018–19).

The highest temperature for the year was 49.9 °C at Nullarbor (a new national December record) on December 19 and the coldest temperature was –12.0°C at Perisher Valley on June 20.

Keith West in southeast South Australia recorded a maximum 49.2°C on December 20, while Dover in far southern Tasmania saw 40.1°C on March 2, the furthest south such high temperatures have been observed in Australia.

Accumulating fire danger over 2019

The combination of prolonged record heat and drought led to record fire weather over large areas throughout the year, with destructive bushfires affecting all states, and multiple states at once in the final week of the year.

Many fires were difficult to contain in regions where drought has been severe, such as northern NSW and southeast Queensland, or where below average rainfall has been persistent, such as southeast Australia.

The Forest Fire Danger Index, a measure of fire weather severity, accumulated over the month of December was the highest on record for that month, and the highest for any month when averaged over the whole of Australia.

Record-high daily index values for December were recorded at the very end of December around Adelaide and the Yorke Peninsula in South Australia, East Gippsland in Victoria and the Monaro in NSW. These regions which experienced significant fire activity.

Don’t forget the floods

Amidst the dry, 2019 also included significant flooding across Queensland and the eastern Top End.

Heavy rain fell from January into early February, with damaging floods around Townsville and parts of the western Peninsula and Gulf Country.

Tropical cyclone Trevor brought further heavy rainfall in April in the eastern Northern Territory and Queensland. Floodwaters eventually reached Lake Eyre/Kati Thanda which, amidst severe local rainfall deficiencies in South Australia, experienced its most significant filling since 2010–11.

There was a notable absence of rainfall on Australia’s snow fields during winter and spring which meant less snow melt. Snow cover was generous, particularly at higher elevations.

What role did climate change play in 2019?

The climate each year reflects random variations in weather, slowly evolving natural climate drivers such as El Niño , and long-term trends through the influence of climate change.

A strong and long-lived positive Indian Ocean Dipole – another natural climate driver – affected Australia from May until the end of the year, and played a major role in suppressing rainfall and raising temperatures for much of the year.

Spring brought an unusual breakdown of the southern polar vortex which allowed westerly winds to affect mainland Australia. This reduced rainfall, raising temperature and contributing to the increased fire risk.

Climate change continues to cause long-term changes to Australia’s climate. Conditions in 2019 were consistent with trends of declining rainfall in parts of the south, worsening fire seasons and rising temperatures.

Authors: David Jones, Climate Scientist, Australian Bureau of Meteorology; Karl Braganza, Climate Scientist, Australian Bureau of Meteorology; Skie Tobin, Climatologist, Australian Bureau of Meteorology

The Underinsurance Crisis

Australia is in the midst of a bushfire crisis that will affect local communities for years, if not permanently, due to a national crisis of underinsurance. Via The Conversation.

Already more than 1,500 homes have been destroyed – with months still to go in the bushfire season. Compare this to 2009, when Victoria’s “Black Saturday” fires claimed more than 2,000 homes in February, or 1983, when the “Ash Wednesday” fires destroyed about 2,400 homes in Victoria and South Australia, also in February.

The 2020 fire season could end up surpassing these tragedies, despite the lessons learned and improvements in preparedness.

One lesson not really learned, though, is that home insurance is rarely sufficient to enable recovery. The evidence is many people losing their homes will find themselves unable to rebuild, due to lack of insurance.

We know this from interviews with those affected by the October 2013 Blue Mountains bushfires (in which almost 200 homes were destroyed). Despite past disasters, more than 65% of households affected were underinsured.

Research published by the Victorian government in 2017, meanwhile, estimated just 46% Victorian households have enough insurance to recover from a disaster, with 28% underinsured and 26% having no insurance.

The consequences aren’t just personal. They potentially harm local communities permanently, as those unable to rebuild move away. Communities lose the vital knowledge and social networks that make them resilient to disaster.

Miscalculating rebuilding costs

All too often the disaster of having your home and possessions razed by fire is followed by the disaster of realising by how much you are underinsured.

As researchers into the impact of fires, we are interested why people find themselves underinsured. Our research, which includes interviewing those who have have lost their homes, shows it is complicated, and not necessarily due to negligence.

For example, a woman who lost her home in Kinglake, northeast of Melbourne, in the 2009 fires, told us how her insurance calculations turned out to bear no resemblance to the actual cost of rebuilding.

“You think okay, this is what I paid for the property,” she said. “I think we had about $550,000 on the house, and the contents was maybe $120,000.” It was on these estimates that she and her partner took out insurance. She told us:

You think sure, yeah, I can rebuild my life with that much money. But nowhere near. Not even close. We wound up with a $700,000 mortgage at the end of rebuilding.

An extra mortgage

A common issue is that people insure based on their home’s market value. But rebuilding is often more expensive.

For one thing there’s the need to comply with new building codes, which have been improved to ensure buildings take into account their potential exposure to bushfire. This is likely to increase costs by 20% or more, but is rarely made clear to insurance customers.

Construction costs also often spike following disasters, due to extra demand for building services and materials.

A further contributing factor is that banks can claim insurance payments to pay off mortgages, meaning the only way to rebuild is by taking out another mortgage.

“People who owned houses, any money that was owing, everything was taken back to the bank before they could do anything else,” said a former shop owner from Whittlesea, (about 30km west of Kinglake and also severely hit by the 2009 fires).

This meant, once banks were paid, people had nothing left to restart.

She told us:

People came into the shop and cried on my shoulder, and I cried with them. I helped them all I could there. That’s probably why we lost the business, because how can you ask people to pay when they’ve got nothing?

Undermining social cohesion

In rural areas there is often a shortage of rental properties. Insurance companies generally only cover rent for 12 months, which is not enough time to rebuild. For families forced to relocate, moving back can feel disruptive to their recovery.

Underinsurance significantly increases the chances those who lose their homes will move away and never return – hampering social recovery and resilience. Residents that cannot afford to rebuild will sell their property, with “tree changers” the most likely buyers.

Communities not only lose residents with local knowledge and important skills but also social cohesion. Research in both Australia and the United States suggested this can leave those communities less prepared for future disasters.

This is because a sense of community is vital to individuals’ willingness and ability to prepare for and act in a threat situation. A confidence that others will weigh in to help in turn increases people’s confidence and ability to prepare and act.

In Whittlesea, for example, residents reported a change in their sense of community cohesion after the Black Saturday fires. “The newer people coming in,” one interviewee told us, “aren’t invested like the older people are in the community.”

Australia is one of the few wealthy countries that heavily relies on insurance markets for recovery from disasters. But the evidence suggests this is an increasingly fraught strategy, particularly when rural communities also have to cope with the reality of more intense and frequent extreme weather events.

If communities are to recover from bushfires, the nation cannot put its trust in individual insurance policies. What’s required is national policy reform to ensure effective disaster preparedness and recovery for all.

Authors: Chloe Lucas, Postdoctoral Research Fellow, Geography and Spatial Sciences, University of Tasmania; Christine Eriksen, Senior Lecturer in Geography and Sustainable Communities, University of Wollongong; David Bowman, Professor of Pyrogeography and Fire Science, University of Tasmania