The role of regulation in facilitating or constraining adaptation to climate change for Australian infrastructure

Maddocks, 2012

About the document

The purpose of this Report is to examine the regulatory frameworks affecting some of Australia's most important infrastructure to determine the extent to which these frameworks constitute barriers to adaptation or facilitate effective adaptation. The Report will focus on regulatory frameworks affecting the built environment, particularly land use planning, environmental assessment and building standards. It will also address the regulation of pricing, performance and reliability of essential services provided by physical infrastructure – particularly, electricity, water, transport, communications and waste. The Report will also review the regulatory context for contractual arrangements pursuant to which major infrastructure projects are now undertaken, including public private partnerships. Finally, the Report will set out principles to underpin adaptive regulation to address climate change and make recommendations for appropriate further areas of work.

Executive summary

Infrastructure plays a critical role in Australia. It supports economic activity, links people to services, helps improve productivity and enhances our lives. Notably, the initial investment in infrastructure is typically significant. In addition, major infrastructure often has a long lifespan. Therefore, it is imperative that our infrastructure is designed, built, operated and maintained in a way that enables it to withstand current as well as future impacts, including climate change.

The vulnerability of our infrastructure to climate change and its effects will depend upon a variety of factors, including the type of infrastructure in question, its location, design, age, relative usage and the particular climate change risks to which the infrastructure might be subject. Furthermore, resilience of infrastructure to the effects of climate change will depend, at least in part, upon the applicable regulatory framework and the extent to which that framework fosters adaptation to climate change by reducing or eliminating the risk of harm or damage or hinders adaptation to climate change by failing to protect infrastructure from the impact of climate change, now or in the future.

This Report contains an examination of the regulatory frameworks affecting some of Australia's most important infrastructure to determine the extent to which these frameworks constitute barriers to adaptation or facilitate effective adaptation. The objectives underlying these frameworks, the regulatory approaches, focus and available tools are, for the most part, distinct. Consequently, there is also some variation in the extent to which these frameworks are capable of facilitating or hindering adaptation to climate change. Nevertheless, all regulatory frameworks considered in this Report include elements that could facilitate adaptation to climate change, although all regulatory frameworks considered also include elements that may hinder adaptation to climate change.

In summary, elements of the regulatory frameworks that could hinder adaptation to climate change include:

  • Lack of explicit or implicit recognition of the need to adapt to climate change
  • Regulatory framework only applies to new infrastructure and does not apply to existing infrastructure
  • Lack of harmonisation and fragmentation of approach within jurisdictions and between jurisdictions
  • Inadequate, inconsistent or outdated information regarding climate change risks
  • Inability to review regulations or standards with sufficient frequency
  • Implementation is ineffective
  • Compliance is too difficult or too costly
  • Enforcement mechanisms are weak or too costly to pursue

The regulatory frameworks contained a range of tools that could be particularly useful in facilitating adaptation to climate change, including:

  • Performance-based standards, which provide flexibility to respond to the uncertain effects of climate change.
  • Technical standards or guidelines for new and existing infrastructure to ensure that such infrastructure is designed, constructed and operated in a way that is resilient to climate change risks.
  • Codes of practice, which could be used to ensure that climate change risks are accounted for as part of ongoing management and operation of existing infrastructure.
  • Infrastructure management plans and associated service delivery plans that are periodically reviewed to ensure that climate change effects are addressed as they evolve over time.
  • Licences, approvals and accreditation, which can be made conditional on adequate assessment and management of climate change risks.
  • In-built risk assessment processes, which provide an opportunity for climate change risks to be included in existing regimes for risk assessment.
  • Computer-based modelling tools to assist targets of regulation with assessment of climate change risks and, therefore, compliance with adaptive management regulation.
  • Fitness for purpose obligations that could be used to ensure that infrastructure has been designed to cope with current and future climate change risks.
  • Third party access to infrastructure, which provides an opportunity to diversify infrastructure that may, in turn, increase resilience.
  • Market mechanisms, which can flexibly and dynamically account for climate change risks in determining the most efficient allocation of resources affected by climate change with limited government intervention.
  • Incentives to drive changes in practices to better account for climate change risks.
  • Mandatory disclosure about infrastructure performance and climate change risks to motivate entities to assess risks and provide information to consumers/users about those risks.
  • Stakeholder engagement in the design and implementation of regulation to foster support for climate change action.

The challenge that climate change presents for Australia's infrastructure and associated services cannot be overstated. There is a risk that existing regulatory frameworks might 'lock in' maladaptive action, which could compromise the short, medium and long-term resilience of our infrastructure. A new approach is needed to ensure that effective responses to climate change are embedded in relevant regulatory frameworks so that our infrastructure and associated services are resilient to climate change as we move into the future.

Designing a regulatory framework that effectively facilitates adaptation of Australia's infrastructure to climate change is a complex and challenging exercise. Such a framework will need to address the risks that climate change poses for such infrastructure, not just in the short to medium term, but also for the duration of the life of the infrastructure. Additionally, the framework will need to address the considerable uncertainties associated with climate change, including the location, nature, timing and severity of climate change impacts or events that may occur. Finally, the framework will need to be compatible with regimes that are currently in place for the regulation of infrastructure.

In order to account for the diversity of infrastructure and associated regulatory frameworks as well the spectrum of climate change impacts that might materialise, any framework for adaptation to climate change must necessarily centre around core principles, which will help to guide the way in which regulatory frameworks are designed, implemented and applied in practice. These core principles must be complemented by a careful consideration of elements of the broader framework within which the principles for adaptive regulation are applied to maximise the effectiveness of regulatory responses to climate change. They must also be combined with a law-making process and implementation mechanisms that effectively account for the impact of climate change. This framework is summarised in Box 1.

Regulatory responses to climate change will need to address the particular risks that arise in relation to the various types of infrastructure and associated services.

Box 1

1. Designing the regulatory framework

Law-making process

  • Undertake comprehensive risk assessment
  • Account for climate change in RIS
  • Stakeholder engagement

2. Elements of the regulatory framework

Core principles

  • Focus on risk
  • Manage uncertainty
  • Proportionality
  • Efficiency
  • Effectiveness over time
  • Flexibility
  • Equity
  • Consistency
  • Predictability
  • Transparency
  • Stakeholder engagement
  • Accountability

Regulatory approach

  • Prescriptive
  • Performance
  • Principles
  • Process
  • Market-based
  • Co-regulation
  • Performance and technical standards
  • Codes of practice
  • Infrastructure management plans

Regulatory focus

  • Market entry and participation
  • Strategy
  • Design
  • Assessment
  • Procurement
  • Operation
  • Decommissioning and post-closure
  • Market mechanisms
  • Incentives
  • Mandatory disclosure
  • Modelling tools
  • Stakeholder engagement

Regulatory tools

  • Conditional licences, approvals and accreditation
  • In-built risk assessment
  • Fitness for purpose obligations
  • Third party access to infrastructure

3. Implementing the regulatory framework

Adaptive management process

  • Skills, knowledge and resources of decision-maker
  • Relatively easy compliance
  • Effective enforcement
  • Iterative monitoring and evaluation of regulatory framework

In this regard, it is critical that risks are neither over-estimated nor under-estimated to ensure that the regulatory response matches the true level of risk, rather than being excessive or inadequate. More intrusive regulatory intervention is justified when the overall risk is greatest, whereas less interventionist tools are preferable where the overall risk is relatively low.

As yet, a comprehensive identification and assessment of climate change risks has not been undertaken for the spectrum of Australia's infrastructure. This is understandable given the significant costs and resources required to undertake a comprehensive and useful assessment of the risks. Nevertheless, this assessment is an essential and indispensable precursor to the design of regulatory responses. Ideally, the assessment would be undertaken with the involvement of regulators so that the particularities associated with specific regulatory frameworks can be addressed during the risk assessment phase. Furthermore, the body that is best placed and resourced to undertake the risk assessment should be made responsible to do so, which, in some cases, will be private businesses operating in a particular sector.

Another area of further work relates to addressing the risks posed by climate change to existing infrastructure. Existing infrastructure is likely to be significantly more vulnerable to the impact of climate change than new infrastructure. Yet, most existing regulatory regimes apply to new infrastructure. In the future, serious consideration will need to be given to ways in which existing infrastructure can be made more resilient to climate change and how 'retreat' strategies may be supported by regulation. This will require consideration of property rights, constitutional provisions, insurance, risk sharing, government funding and new regulatory instruments.

Dealing with the uncertainty regarding climate change effects – particularly, the relatively unlikely yet catastrophic climate change events – through regulation is another area for further work. Consideration will need to be given to whether regulatory frameworks can be amended to mandate identification and assessment of these events (as well as the more certain and less catastrophic events) in relation to the design, construction, management, operation and use of infrastructure. It will also be necessary to determine whether, from a legal and practical perspective, regulation can be used to require infrastructure to be capable of responding to these events, even though the likelihood of occurrence is relatively low.

The various levels of government have a role to play in facilitating adaptation to climate change through law-making, policy development and implementation of adaptation regulation in relation to infrastructure and associated services. Notably, the review and amendment of regulatory frameworks to ensure that infrastructure and associated services are capable of responding to the impact of climate change entails a significant reform agenda, which will require leadership at a national level. The federal government is ideally positioned to provide such leadership given its ability to capitalise on economies of scale and its considerable fiscal powers. The federal government would be best placed to provide much-needed guidance and up-to-date information, promote best practice and ensure consistency and equity across the country.

Based on the fact that most of the pre-existing regulatory frameworks affecting infrastructure and associated services have already been developed by the state and territory governments, this level of government would be best placed to modify existing regimes. The states and territories might also play an important role in tailoring state/territory policy frameworks that could be used to facilitate adaptation to climate change to ensure that they are consistent with any national framework that might be adopted. Local governments are closer to citizens than the other levels of government. Therefore, councils would be best placed to implement national and state/territory policies aimed at addressing the impact of climate change at a local level.

Consideration could also be given to establishing a national body to assist the federal, state, territory and local governments with the practical and effective implementation of climate adaptation polices and regulation. Such a body could have members appointed by state, territory and local governments as well as the federal government.