Australia's researchers, government, and industry are teaming up to tailor climate risk models and build future economic resilience.
Researchers, government, and business are racing to close critical climate risk gaps in the economic models used to prepare Australia for a warming future.
Australia's newly-released national climate risk assessment reports that the direct cost of floods, bushfires, storms and cyclones across the states and territories could reach $40 billion a year by 2050 even under a 1.5C scenario.
But the expected economic costs of a hotter future are far broader.
At the recent Economic Impacts of Climate Change Workshop, hosted by the UNSW Institute for Climate Risk & Response (ICRR), senior economists, policymakers, and industry leaders delivered a blunt message: Australia lacks fit-for-purpose climate-economic models.
Global efforts to address such climate risk in the financial system led to the creation of the Network of Central Banks and Supervisors for Greening the Financial System (NGFS) in 2017.
Since its formation, the NGFS has developed approaches to integrating climate-related risks into financial supervision, green finance best practices, and scenario analysis and stress testing for climate-related financial risks.
However, much of this work is tailored to the European banking system, which faces different systemic risks than Australia.
When it comes to economic forecasts, one climate risk model does not fit all, says Dr Timothy Neal , a Scientia Senior Lecturer in the UNSW School of Economics and also the ICRR .
"Australia's economic exposure to climate change is far more complex than most models suggest," said Dr Neal.
"Variations in physical risk, social and economic systems, and global supply chains all shape how climate change effects people," said Dr Neal.
"Beyond region-specific factors, institutions require tailored strategies that reflect differences in planning scale, including timeframes, where the horizon considered could be one year or a hundred."
Banking on better risk planning
Earlier this year, Canberra distributed another $200 million into disaster-readiness projects as part of a broader $1 billion initiative over five years.
Meanwhile, multiple government agencies are ramping up their own economic modelling to integrate climate risks.
The Reserve Bank of Australia is actively seeking partnerships with researchers, as well as investing in its own internal climate risk modelling. The RBA has dedicated climate analytics staff and is part of the Council of Financial Regulators (CFR) Climate Working Group coordinating climate-risk oversight across regulators.
Treasury, which increased overall staffing for 2024-25 also has a dedicated Climate & Industry Modelling Branch .
Meanwhile, average staffing levels at the Climate Change Authority (CCA), Australia's independent advisory board on targets and transition pathways, were almost doubled across the last financial year .
Considering compound climate impacts
One of the big items on the agenda for all economists, said Dr Neal, is how exposed sectors, like agriculture, logistics, energy, and property, factor in the compound impacts of frequent extreme weather.
"Globalisation is currently buffering some climate risk shocks, but as more extreme events happen simultaneously around the globe, this will change."
Dr Neal is currently investigating how food prices, especially for crops like wheat and rice, are influenced by climate change.
His analysis suggests global weather shocks are pivotal to price hikes.
"Local resilience planning must account for external shocks, and so should our economic models" he said.
Dr Neal's earlier research reveals that traditional models - which assume economies are only affected by domestic weather - likely vastly underestimate climate-related costs.
Modernising climate cost metrics
Across the research and policy landscape, efforts are converging to fill these modelling gaps, and build new, practical methodology.
For example, Dr Kristle Romero Cortés, an ICRR Chief Investigator and Associate Professor in UNSW's School of Banking and Finance, is developing a systematic way to quantify physical climate risk to the banking system.
Her method finds unusual temperature patterns that predict which banks might be at risk from climate-related issues, even when the information they provide about their climate risk is incomplete.
Connecting climate cost data
Integration of data across different branches of government, industry and academic research will be key to constructing effective climate cost models.
"The message across government and research sectors is clear: this issue can't be addressed working in silos," said ICRR Senior Deputy Director Professor David Grant.
The message across government and research sectors is clear: this issue can't be addressed working in silos.
"Academics can refine economic and physical impact models, but we also need private sector partners to contribute risk data and insights, and policymakers to support open data access and collaboration."
Prof. Grant's research identified four key challenges facing industry and government sectors in tackling climate change: uncertainty, information, motivation, and investment.
"The urgent need to tackle uncertainty makes it even more important that government delivers clear, stable policies to guide climate action in energy and finance," he said.
"The use of data and information from a range of sources is going to be key to producing such policies."
