Devastation wrought by Cyclone Gabrielle on North Island towns and cities has focused minds on the challenge presented by homes that are particularly vulnerable to climate change.
What happens to people living in homes on floodplains, on cliff edges or by the coast? Who pays for the roads and pipes that serve these homes, especially as people start to move away, leaving costly infrastructure serving fewer and fewer homes?
These questions will have been top of mind for Climate Change Minister James Shaw as he caught up with his opposite number Todd Muller at an unseasonably (if fittingly) drizzly Waitangi this year.
The pair set to begin negotiations on one of the last big pieces (for now) of the climate change legislative jigsaw: a bill that will help towns and cities retreat from land at risk of climate change induced flooding.
Muller had not been in the job for a month, having taken the portfolio from Scott Simpson in National’s recent reshuffle.
But this wasn’t Muller’s first rodeo. He’d first held the climate change portfolio under the leadership of Simon Bridges, during which time he’d negotiated National’s support of the Zero Carbon Act.
Those negotiations went well, by all accounts, and it’s often suspected that Shaw found negotiations with Muller smoother than negotiating with governing partner NZ First.
What’s on the table now
The need to plan an orderly retreat from climate change-threatened areas has been kicking around for more than a decade.
However, it was placed on the Government’s agenda after the Zero Carbon Bill negotiations wrapped up when Tony Randerson delivered his recommendations on what the Government should do with the beleaguered Resource Management Act (RMA).
Randerson recommended a scheme that involved long-term spatial planning, looking into the future 30 years and seeing what sort of areas should be developed, what sort of infrastructure would be needed and what environments would be protected.
This has big implications for climate change, because it also means acknowledging that some lived-in areas need to be moved, and other areas should not be built on at all. A decision to retreat from an area could cost the people living there severely, given a household’s most valuable asset is often their home.
Randerson suggested a Managed Retreat and Climate Change Adaptation Act, which would create schemes for raising funds to pay people to leave their homes.
He did not go into detail - his report focused on the other parts of the RMA - but early discussion suggested this could look something like EQC, which raises a levy on insurance premiums to pay for the cost of national earthquake insurance.
Another example is Christchurch’s Red Zone, where vast swathes of land were declared unfit for habitation and people living in those houses were offered money to sell and leave.
Legislation was meant to come with the other two bills that are set to replace the RMA. All three have been delayed, but the Climate Change Adaptation Bill has been delayed most of all.
There is currently no bill and the Government has yet to announce what sort of scheme it is looking at.
Negotiations
The Government and National are keen on a bipartisan approach. Any sort of scheme will need to raise revenue through some kind of tax or levy or rely on large amounts of borrowing (or a mixture of the two), while also tackling the difficult issue of when it is appropriate to ask people to leave their homes.
Whoever is in government will have to deal with this issue at some point and no party wants to tackle it alone, so both sides of the house have an incentive to get the system established together.
Muller made the point that there’s an incentive to have bipartisan regulatory certainty, so people can have confidence in the regulatory approach the government will take.
“We accept this will be better for New Zealand if we can have bipartisan agreement because it provides regulatory and legislative certainty and we are prepared to play our part in that,” Muller said.
Shaw and Muller still felt positively towards each other after the success of the Zero Carbon Act.
“Because Todd was very involved in the development of the Zero Carbon Act including conversations in that legislation about adaptation, not just emissions reduction, he actually understands the Act inside out,” Shaw said.
The feeling was mutual.
“Without being too silly about it -there are historic levels of trust that got built up between James Shaw and myself when we went through the climate change process.
“There was a willingness to be open with each other.
“There was no ‘perfection is the enemy of the good’ - we were trying to find something that worked as opposed to something that met every political perspective,” Muller said.
Muller and Shaw are likely to have preliminary discussions among themselves setting out the parameters of negotiations, before involving leader of the opposition, Christopher Luxon and Prime Minister Chris Hipkins.
Other politicians are also keen on getting something hammered out.
Luxon said he was keen to continue a bipartisan process on the legislation, and would continue to reach across the aisle if he won the election in October.
“There needs to be a multi-decade effort into how we do a climate adaptation of key infrastructure.
“That is something I hope the Government wants to work with us on and if we’re lucky enough to win the election at the end of the year we’ll work with other political parties as well to make sure we do that in a bipartisan way,” Luxon said.
Act leader David Seymour was broadly on board with some kind of funded scheme.
“Our climate change response needs to shift from mitigation to adaptation,” Seymour said.
“Risk should always be accurately priced and people who get the benefits should pay the costs and people who impose those costs should pay the costs rather than forcing others to subsidise them.
“When it comes to long-term change, when people have investment in property there is always a real challenge because people have pre-invested in one set of assumptions and you get massive changes in value when you change the rules,” he said.
But there are challenges behind the bonhomie. The Zero Carbon Act includes politically contentious emissions targets, but the most politically contentious parts of tackling climate change like policies to actually reduce emissions and emissions budgets, were not included in legislation.
These were left up to individual governments to decide on via emissions budgets and emissions reductions plans, based on recommendations from the Climate Change Commission.
Politicians will have no such luck with this legislation, in which the most thorny parts of the policy will probably need to be embedded in the legislation itself.
What could change
The Environmental Defence Society released the first of three working papers on managed retreat this month.
Co-authored by Raewyn Peart, Jonathan Boston, Sasha Maher and Teresa Konlechner it looks at what a scheme might look like and who would fund it.
One of the key costs would be compensation to homeowners for having to leave their homes.
The authors reckon that about 50,000 properties with an average present value of $1 million each are affected by managed retreat. The Government will have to find $50 billion, on those numbers, to compensate those homeowners. This is not the extent of the cost of managed retreat, which includes the cost of roads, other infrastructure and remediation.
The EDS proposes that compensation for those $50b in losses could come from ordinary taxation, paid by homeowners and non-homeowners alike, property taxes, levies on insurance, a levy on fossil fuel consumption, revenue from the emissions trading scheme, revenue from renting purchased homes until they were demolished, revenue from reallocating dwellings and selling them, or new taxes like a comprehensive capital gains tax.
“There is no reason, in principle, why a public compensation scheme could not be funded simultaneously from multiple sources,” the report said.
It suggested “costs could be co-funded by property owners and/or local government”.
Who deserves compensation - and how much
The amount of funding required will be determined by what exactly the legislation decides to compensate for.
The legislation could, the EDS proposed, compensate for the replacement cost of the house and land value, or a comparable equivalent property nearby.
The Government could also decide to cap compensation to avoid being on the hook for tens of millions of dollars.
Another idea is to offer a flat rate for compensation. These could be a flat rate per region or for the whole country.
Compensation could also be adjusted to the estimated habitable life of the property. The shorter the time people can continue to live in their homes, the larger the compensation package.
Another idea is to adjust the payment to reflect people’s likely knowledge of the risk of the property whe they bought it. People who bought beachfront property in 1990 could get more compensation than people buying now, for example.
Compensation could also vary based on the homeowner’s means - those of greater worth or income would get a smaller payout than those of lesser means.
It could also depend on whether the house is a person’s primary residence, or whether it is a bach or investment property.
Another issue was what to do with the 40 per cent of households who rent. Reducing the housing supply would probably put pressure on rents.
The report said the ability of renters to afford to move and pay for similar housing also needed to be addressed.
Challenges with other reforms
Professor Jonathan Boston, a co-author of the EDS paper and an earlier paper on possible managed retreat policy.
Boston is also part of a group advising the Ministry for the Environment on these reforms, but he spoke to the Herald in his capacity as an academic.
“The problem is use rights and restricting use rights. This is difficult and controversial for politicians and there are very powerful lobbies seeking to protect their use rights.
“Then there are development issues. The problem is how to stop people building in floodplains or low-lying coastal areas,” Boston said.
This problem was particularly acute in the middle of a housing crisis.
The Government’s most recent housing legislation, an amendment to the RMA to enable greater densification, allowed councils to carve out flood-prone land from intensification as a “qualifying matter”.
“We will need a funding regime that provides some compensation for many though not necessarily all property owners,” Boston said.
He said political consensus was urgent, because whoever is in charge will need some kind of regime to deal with the effects of climate change.
Boston said parties should ask themselves whether they could, in a future government, see themselves using whatever mechanism is negotiated under this government.
“There needs to be a broad agreement on the framework, which includes who pays for what and on what basis,” Boston said.
Another challenge is the fact that managed retreat policy was being developed at the same time as the Government was reforming other aspects of planning laws.
The RMA is in the middle of being replaced with two new pieces of legislation. These have proven controversial in select committee, although it is arguable that the RMA deals with climate change particularly poorly because of the notion of existing use rights.
Local government is also in the middle of a reform programme, which will look at its ability to raise revenue.
Another problem relates to the Three Waters reforms. One of the reasons for having managed retreat legislation is to allow councils to retreat from areas they can no longer serve with infrastructure. Councils would bankrupt themselves if, every year, they were forced to replace the pipes and roads of flood-hit neighbourhoods.
But with pipes soon to be in the ownership of the new Three Waters entities and stormwater systems’ ownership as yet unclear, managed retreat will have to think about how long the new water entities can afford to serve threatened communities, and whether the new entities get bailed out for pipes.
Expectations tempered around return to surplus in 2027/28.