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“Extreme weather and its impact on infrastructure is a multi-million dollar risk issue…Businesses and other organisations are vulnerable not just to direct impacts, but also the indirect consequences they’ll experience via impacts on infrastructure, supply chains and inputs like labour.”

John ConnorCEO, The Climate Institute

Infrastructure Interdependencies and Business-Level ImpactsA new approach to climate risk assessment

This presentation summarises a report looking at some of the physical impacts of climate change on the infrastructure sector and the resulting cascade of consequences for the broader economy. The findings come from a workshop conducted in December 2012 by The Climate Institute, Manidis Roberts (a part of the RPS Group) and KPMG, which piloted a process for analysing the climate-related risks associated with interdependent infrastructure systems of a major city.

Image: Michael Hall, Creative Fellow of The Climate Institute

April 2013

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Record-breaking summer temperatures…

Maximum temperature anomaly (departure from 1961–1990 average) for Australia, 1–18 January 2013.

January 2013: Australia’s hottest month on record

February 2012: sea surface temperatures show hottest month on record for Australia’s oceans

Dec 2012-Feb 2013: warmest summer on record

March 2013: prolonged heatwave affected southeast Australia, breaking numerous records

Heat events have killed more people than any other natural hazard in Australia over the past 200 years (PWC, 2011)

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“One of the most notable findings was that Australian reviews virtually ignored the issue of climate change and its impact on flooding; some reports didn’t refer to it at all…This contrasts markedly with overseas reviews”

NCCARF, 2013

“…climate change has generated little interest in either the ADF or the Australian Defence Department… The UK military has appointed a star-ranked climate change and energy security envoy. The United States Navy (USN) has established a similar position.”

Australian Strategic Policy Institute, 2013

..and more evidence of our patchy preparedness

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Growing global attention to cascading consequences

“Projections of damage costs for climate change impacts typically assess the costs of directly damaged settlements, without taking surrounding infrastructure into account… A better understanding of the potential for such cascading effects, their extent, and potential responses is needed.”

World Bank, 2012

“Conduct case study research to understand infrastructure and supply chain dependencies for sectors and organisations at high risk of climate change impacts”

The Economics of Climate Resilience (first recommendation), UK National Adaptation Program, 2013

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• There has been and will be a dramatic rise in the number of extreme weather events affecting every business and organisation - suppliers and markets.

• Those that do not plan for such events face potentially dramatic consequences: increased operation and maintenance costs, reduced capacity to supply, and even potential loss of business altogether.

• Understanding the possible impacts on your organisation enables assessment of the costs and benefits of adaptation strategies.

• This exercise credibly identifies and quantifies climate impacts on infrastructure, and model the resulting economic consequences for the Melbourne metropolitan area, under extreme temperature events in 2030 and 2050.

Interdependencies Exercise

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The 2009 heatwave in Victoria

• The 2009 heatwave was exceptional (compared to 100-150 historical records).• Governments, councils, utilities, hospitals and emergency response organisations plus

the community were largely unprepared.• Temperatures were 12-15°C above 28-32°C average for many consecutive day –

maximum temps were 46.4°C, with three consecutive days of 43°C. Night time temps were unusually high.

• The heatwave led to a sharp rise in heat-related illness and deaths (374 excess deaths) amongst vulnerable groups.

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• Heat-sensitivity of interconnected systems – transmission networks and supply chains – was particularly problematic.

• The city’s electricity sector stood out as the most vulnerable to heat – transmission, transformer and distribution faults/failure.

• A vicious cycle of interaction developed in the heatwave, exposing high sensitivity across systems – power, transport and health systems.

• At the end of the event the electricity sector was in a severe state of stress and near collapse.

• Cumulative impacts arose from the coincidence of multiple climate-related hazards – heatwave and bushfire (Black Saturday bushfires occurred in Phase 2 of the heatwave).

The 2009 heatwave in Victoria

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Sector Sub-sector Impact level

Description Trigger point andthresholds

Energy Electricity High • Record demand• Compromised supply• Reduced transmission

efficiency and faults

• Full operation & distribution capacity

• Heat lowers performance

Gas Min Resilient No reported sensitivities

Generator Min • Impaired cooling for thermal stations

• Reduced coal production on high risk days

• Limits on available water for cooling

• Risk of bushfire

Transport Train High • 29 points of buckling lines• Air con failure

• Signal equipment susceptible to heat

Trams Mod • Some trams failed • Engines sensitive to heat

Buses Min • Busses served as backup to train cancellations

• Air conditioners struggle above 35 degrees

Infrastructure impacts of 2009 heatwave in Melbourne

The 2009 heatwave in Victoria

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• Extreme heat event - daily recorded event over 35°C

• 24 days per summer for baseline (1990)

• 30 days per summer by 2030 (28% increase)

Climate Scenario:Extreme Heat 2030

Frequency of summer days over 35 degrees in Melbourne.

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Climate Scenario:Temperature exposure

Temperature rise across Melbourne to 2030

This figure is a spatial representation of the temperature change from the 1990 average baseline to 2030. This figure demonstrates that Victoria will experience an increase in extreme temperatures, although Melbourne will experience a smaller change relative to the rest of the state. This does not take account of the urban heat island effect.

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Climate Scenario:Community vulnerability & population density

Figure 4. Population density

Figure 3 represents the community vulnerability in the greater Melbourne region.

Figure 4 represents population density.

Taking Figures 3 and 4 together, it is possible to identify areas of particular vulnerability within the community. Vulnerability is characterised by both high sensitivity to external events such as heatwaves, and low capacity to adapt to such events.

Please reference the report for more detail.

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Mapping Interdependencies

A high level risk-mapping exercise identified impacts from the 2009 extreme heat event in order of their flow-on effect.

The increase in frequency and severity of heatwaves produced by climate change means that these impacts are likely to intensify, unless we take steps to prepare for them. The 2009 Melbourne heatwave was estimated to cost the economy $800 million. Ensuring future heatwaves do not inflict major economic damage requires climate risk management to be undertaken system-wide.

First order

heat effects on materials + structures

Second order

Track buckling

Third order

Track closure

Fourth order

Stranded assets + patrons

Economy-wide

Loss of service +

productivity

Example of flow-on impacts in an extreme heat event

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Mapping Interdependencies Please reference the report for more detail.

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Hypothetical Company – GoodCo

• GoodCo is a large manufacturer and wholesaler of a wide range of consumer goods.

• Head office is within the CBD and 50 per cent of products are manufactured within the greater Melbourne metro region.

• The company employs 2,000 FTEs around the Melbourne metro region. 500 are in head office, with the remainder in production and distribution.

• Inputs and outputs are delivered via a variety of transport networks.

• Head office relies on power and communications networks to operate.

• Manufacturing requires significant inputs of power and water to operate.

Using inputs from an extreme temperature event in 2030, we modelled a number of potential impacts on a hypothetical Melbourne business, called ‘GoodCo’.

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The Scenario – GoodCo

• The greater Melbourne area is affected by extreme heat over five days.• Some employees cannot work due to loss of transportation and/or illness and

subsequently work overtime to make up for lost production.• Some employees cannot make up for lost production and planned production falls.

Scenarios• Scenario 1: assumes that 20% of

employees cannot get to work on a given day of extreme heat.

• Scenario 2: assumes 50% of employees cannot get to work on a given day of extreme heat.

• Scenario 3: assumes 100% of employees cannot get to work on a given day of extreme heat.

Employment profileOf the 2000 FTE employees in Melbourne,• 500 are able to telework so there is no

loss of production.• 500 are able to work overtime to

compensate for lost output, increasing GoodCo’s labour costs.

• 1000 employees can neither telework nor work overtime. GoodCo suffers from a fall in revenue due to reduced production.

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The Results – GoodCo

It was found that extreme heat could negatively affect GoodCo through: • increased labour costs resulting from more overtime being paid; and • lost revenue as a result of a supply shock. The net impact on GoodCo was estimated to be a decrease of 0.2-1.1 per cent of total revenue depending on the severity of the heat wave and the number of employees affected.

This is a considerable impact arising from modelled losses (transport, labour, demand for goods etc.) and totalled roughly $1-5 million. The estimated impact is the result of disruptions to labour supply only (which leads to either increased costs or reduced production); significant additional costs from supply chain disruption could also be reasonably be expected.

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Key Findings

• Businesses and organisations are largely unprepared for a heatwave event of magnitude. The consequences for operations, infrastructure capacity, coping ranges and system interactions would be severe.

• Mapping the interdependencies and impacts of the heatwave shows both the range and paths of its cascading consequences. It also shows that while costs arising from such an event may be extremely high, they are diverse, and spread across multiple parties.

• Responsibility for planning and actions to reduce vulnerabilities lies with multiple parties, and failure by any one party to take such actions may have severe adverse impacts on others. It is essential that climate risk management take place at the systems level rather than just the organization or even sector level.

• Modelling showed that the degree of cost impacts was highly dependent on the specific characteristics of the individual business.

• While much of the costs were imposed by external factors, in many cases firms may be able to moderate costs by taking steps to reduce their exposure (eg. back-up power sources; flexible labour arrangements).

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Recommendations

For public and private sector infrastructure owners and operators

• Develop common methods and tools for interdependency analysis to inform strategies to improve infrastructure resilience.

• Establish city-wide taskforces with private and public sector participation to share and better coordinate information and climate risk management strategies for each of the major capital cities across Australia.

• Disclose material climate risks, both indirect and indirect, to major infrastructure systems.

• Disclose and update plans for management of these risks.

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Recommendations

For Government

• Implement a national initiative to better identify current and emerging climate risk impacts for interdependent infrastructure networks and engage stakeholders in cross-sectoral collaborative solutions.

• Expand the approach for “critical” infrastructure taken by the Federal Critical Infrastructure Program for Modelling and Analysis (CIPMA) to all other key infrastructure assets and industry sectors.

• Require private-sector proponents or owners of infrastructure—especially those seeking Commonwealth approval or funding—to disclose how their assets and interdependencies will manage climate risks under likely and plausible climate scenarios such as 2 and 4 degrees of warming.

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More information

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