20 March 2013 – Analysis: The Productivity Commission has again called for property tax reform such as the abolition of stamp duty, but this time it’s played the climate change card to make its case.

If you have anything to do with building or managing the built environment then The Productivity Commission’s new climate change policy paper is a must read.

It calls for a surprising mix of economic rationalism and government intervention to deal with the job of climate change.

A free flowing market can deliver efficient business decisions, it says – and getting out of the way of climate change just happens to about the most efficient and rational thing you can do – but the market doesn’t deliver on issues connected to the public good.

The market won’t provide sensible town planning, to minimise pollution near housing, for instance. It won’t provide resilient buildings – as a minimum standard. And it won’t protect biodiversity.

Buried not too deep in the pages of its document, Barriers to Effective Climate Change Adaptation, is a renewed call for the PC’s favourite hobby horse, property tax reform.

The commission calls for stamp duty or conveyance taxes on property to be dropped.

These taxes do two things, it says: they impede the free flow of capital, business and people so they can achieve better efficiency outcomes, and they also are a barrier to people and business getting out of the way of climate change.

The document, Barriers to Effective Climate Change Adaptation, released on Friday, is one of the clearest and most thorough roadmaps to climate change adaptation that anyone connected to the business of the built environment could wish for, not the least because it talks a business language, tempered by common sense.

Politics doesn’t enter into it. The commission takes a swipe at the NSW government for relaxing the former government’s mandatory consideration of sea level rise benchmarks in planning. It disapproves of Victoria’s soft approach on electricity pricing: let the prices be as high as they need to be to reflect their true cost, the commission says.

And it disapproves of the building codes for not moving fast enough on planning for future wild weather.

On the science of climate change the commission tells filibusters to get out of the way: the science is clear, we’re on the way to major problems, let’s just get on with job of preparing to minimise the damage. As you do when you are a cool rationalist thinker.

Conveyancing duty

The commission called for stamp duty reform in 2004, arguing that land tax could replace the lost revenue for states and territories, but was swamped by calls that this was unfair on asset-rich income property owners.

Now it’s played the climate change card to renew the debate.

Not only does the tax impede economic flows of capital, people and businesses, the commission says, but it will be a drag on people and businesses moving out of the way of rising tides, or cyclonic weather.

The Council of Capital City Lord Mayors agrees, it says.

“The ‘lock-in’ effect of such taxes could also affect labour and capital mobility if it inhibits people from moving and changing jobs, or businesses from changing locations.”

Land tax

Instead the governments could abolish conveyance taxes and impose more efficient taxes, such as broad-based land taxes, which would have the handy effect of maintaining the revenue base of the states and territories.

The ACT government has done it and the sky didn’t fall in, the commission argues.

No exemptions

But it’s tricky. Namely politically. Land taxes can present problems because they might come with exemptions for asset-rich income-poor interests such as farmers. This would be mistaken kindness, the commission says.

Exemptions could encourage land to be devoted to activities that impede climate change adaptation. Hanging around in a dust bowl, for instance.

“They might also impede biodiversity conservation if the exemption is lost when the land is converted to conservation.”

Helpful measures to deal with the asset rich-income poor issue might include loans, deferred tax liabilities, or reverse mortgage facilities, the commission suggests.

Climate – getting hot and wild

The commission makes no bones about the science of climate change.

Australia has a long history of climate variability, but observations show that the climate itself is changing.

Climate change is projected to lead to higher average temperatures, rises in sea levels and changes in rainfall patterns.

Climate change is also expected to alter the frequency and intensity of extreme weather events such as heatwaves.

The CSIRO and the Bureau of Meteorology (2007) note a warming trend since 1950 of 0.16°C per decade, an increase in the frequency of extremely hot days and nights, and a decrease in extremely cold days and nights.

Australian observations underscore global trends. Since the second half of the 19th century, global average surface temperatures have risen by approximately 0.8°C.

Researchers have also observed increases in ocean temperatures, widespread declines in ice caps and glaciers, and a net loss of mass from the Greenland and West Antarctic ice sheets. Reflecting these changes, global average sea levels are estimated to have risen by about 17 cm over the 20th century.

Scientists have identified strong links between these warming trends and greenhouse gas emissions from man-made sources. According to the Intergovernmental Panel on Climate Change, it is very likely that most of the increase in global average temperatures since the mid-20th century is due to increases in greenhouse gas emissions caused by human activities. As atmospheric concentrations of greenhouse gases continue to increase, the pace of climate change is projected to accelerate in the future.

In the IPCC’s Fourth Assessment Report, average global sea-level rise over the period from 1990 to 2100 was projected to be:

  • Between 18 and 38 cm under a strong-mitigation scenario
  • Between 26 and 59 cm under a no-mitigation scenario
  • Sea-level rise around Australia’s coastline is expected to be in line with global average projections, though the rise along Australia’s east coast may be higher.

 The melting ice sheets have added to greater uncertainty, increasing the upper bounds of the scenario ranges given above by between 10 and 20 cm.

 Katsman et al. (2011) estimated that under a no-mitigation scenario, global average sea-level rise could be between 55 and 115 cm by 2100.

 Bushfire weather

Analysis by Lucas et al. (2007) suggests the number of very high or extreme fire danger days is likely to increase significantly in most locations across south-east Australia. For example, in Melbourne, the number of these days is expected to increase from the current average (1973–2007) of 9.0 per year to between 9.8 and 11.1 by 2020 and to between 10.8 and 14.7 per year by 2050.

Electricity price regulation

Electricity prices is another area in which more rational pricing mechanism – one that reflects “true” prices including externalities – will be more useful in dealing with climate change, the commission says.

“Where electricity prices are not fully reflective of the true costs of electricity supply, adaptation decisions may be distorted,” it says.

The commission is not impressed by political expediency of government over rational choice. In Victoria, for instance.

Governments currently impose a number of constraints on electricity prices. For example, despite the widespread introduction of smart meters, the Victorian Government has introduced a moratorium on time-of-use pricing.

In all other jurisdictions, retail price caps persist – though the Tasmanian Government has announced full retail competition from 1 January 2014).

This is despite agreement by all governments for the removal of price caps where competition was found to be effective.

In addition to distorting price signals to consumers, price caps may discourage competition, innovation, and time-of-use pricing.

The Commission has previously recommended that retail price regulation in fully contestable energy markets be removed. The Commission also recommended that ensuring disadvantaged consumers have access to affordable utility services should be pursued through transparent community service obligations or other targeted mechanisms that are monitored regularly for effectiveness.

Business regulations

The commission says reforms proposed in the Council of Australian Governments’ National Partnership Agreement to Deliver a Seamless National Economy would not only improve business efficiencies but help with effective climate change adaptation.

For example streamlining and harmonising construction codes for building and plumbing and a more flexible compliance regime.

Planning. Where government intervention is almost OK

Government intervention in private property markets through planning is justified as private markets “fail to maximise community wellbeing in the absence of suitable regulation,” the report says.

This can include:

  • “Spillovers”, where “an area is cleared for development, biodiversity may be affected, or the natural beauty of an area may be diminished”.
  • Co-location, where different types of developments can introduce problems or create benefits. Where industrial facilities are placed close to residential areas, residents can be negatively affected by noise or pollution. Conversely, it may be advantageous for complementary retail businesses to be co-located.
  • Public good. The provision of community services and facilities such as parks in land-use planning

Planning for climate change

Planning for coastal erosion and inundation is generally taken into account by the precautionary principles in planning. And most jurisdictions use benchmarks for sea level rises.

But NSW recently removed the compulsory application of these benchmarks [which some councils are ignoring, because of the fear of litigation for approving development on land that is flood prone, or failing to warn purchasers of the risk of flooding].

Generally, the overarching land-use planning legislation in each state and territory does not contain specific requirements to take climate change into account in planning decisions,” the council says.

But some legislation “may indirectly impose climate change requirements”. The Victorian Climate Change Act 2010 for instance.

And the Coastal Protection Act 1979 (NSW)) “explicitly identify climate change induced sea-level rise as an environmental hazard to be considered”.

The precautionary principle is also used in state planning policies to address coastal erosion and inundation.

Most states (except Tasmania) set a benchmark for the expected sea-level rise by 2100 based on projections from the Intergovernmental Panel on Climate Change’s Fourth Assessment Report.

Until recently, New South Wales also used a sea-level rise benchmark. These benchmarks differ by state due to the choice of base years and IPCC scenarios. Further, Western Australia takes into account regional variations in sea-level rise based on work by the CSIRO.

These benchmarks are used by local governments when making planning decisions, and in assessing whether an area is at risk of coastal hazards, including inundation and erosion. In addition, Queensland’s benchmark also specifies an increase in cyclone intensity that must be considered and Western Australia’s draft State Coastal Planning Policy requires an allowance for some storm inundation plus predicted sea-level rise.

Victoria

Victoria’s State Planning Provisions outline principles for managing coastal inundation and erosion. These include: planning for a sea-level rise of at least 0.8 metres by 2100 (with an interim benchmark of 0.2 metres by 2040 for infill development); applying the precautionary principle to planning decisions when considering climate change risks; ensuring that new development is located and designed to take into account the impacts of climate change on coastal hazards; ensuring that land subject to coastal hazards is identified; and avoiding development in areas subject to inundation and erosion.

New South Wales

New South Wales’ Coastal Policy 1997 recommends that the precautionary principle be used when planning for climate change risks. In addition, the NSW Coastal Planning Guideline outlines six principles for coastal planning: assess and evaluate coastal risks, taking into account the NSW sea-level rise benchmark (as set out in the NSW sea-level rise policy statement 2009); advise the public of coastal risks; avoid intensifying land use in coastal risk areas; consider options to reduce land use in coastal areas; minimise the exposure of developments to coastal risks; and implement appropriate responses to manage climate change risks and adaptation strategies. However, the NSW Government has recently announced that it will undertake comprehensive reforms to its coastal policies, including removing compulsory application of sea-level rise benchmarks.

Queensland

Queensland’s State Planning Policy for Coastal Protection specifies that areas prone to coastal hazards are to be identified based on a benchmark of a sea-level rise of 0.8 metres and an increase in cyclone intensity of 10 per cent by 2100. The policy restricts development in these areas unless it is temporary or relocatable, or is development that cannot be easily located elsewhere. The policy also notes that beach nourishment is the preferred option for controlling erosion. Coastal protection works should only be considered where retreat from the location is not a feasible option.

Finally, section5.1 of the Sustainable Planning Act 2009 (Queensland) requires local governments to apply the precautionary principle in planning decisions.

Case study

Lake Macquarie City Council — Flood Risk Management

Lake Macquarie City Council is currently updating its Waterway Flood Study, Flood Risk Management Study and Flood Risk Management Plan to incorporate recent flood events and the implications of climate change (all of which are required under the NSW Government’s flood policy).

The Council has embarked on a community consultation process before adopting a finalised Management Plan, which has included:

  • correspondence with all affected property owners (approximately 7000)
  • six community workshops with potentially flood-affected residents
  • a survey of residents’ views relating to attributes of Lake Macquarie
  • a survey of residents’ views on proposed flood risk management options
  • other opportunities to provide feedback through online surveys and written submissions.

 Through the Flood Risk Management Plan, the Council has identified three categories of flood risk. Proposed development restrictions in these areas include requirements for floor heights and setbacks from the lake. In the survey of residents’ views of flood management options, 94 per cent of respondents supported imposing development conditions such as raised floor heights and foreshore setbacks.

Property certificates (section 149 certificates) are also utilised in Lake Macquarie and the intention is for these to continue to include a ‘lake flooding’ notation on foreshore properties below three metres Australian Height Datum, and a “sea-level rise” notation on properties below one metre Australian Height Datum (Lake Macquarie City Council 2011). Eighty-three per cent of survey respondents agreed with using section 149 certificates to notify owners about the risk of flooding and sea-level rise.

In June 2011, the Lockyer Valley Council in Queensland endorsed an interim measure which required owners reconstructing a dwelling on flooded land to provide an ‘indemnity statement’ to the council confirming that they were aware of the current minimum habitable floor levels recommended by the council and the risk of rebuilding at a lower level (Lockyer Valley Regional Council 2011b). However, this was rescinded in September 2011 (Queensland Floods Commission of Inquiry 2012).

Chapter 10 Building regulation

Current building standards may be fine under a “low risk” scenario of climate change but not the “higher risk” range, according to a 2010 review by the Australian Building Codes Board, which manages the code.

The commission would like the ABCB to be more transparent in what it’s planning to do about the risks.

In particular, there is currently no publicly available work plan published by the ABCB explaining how climate change will be incorporated into the NCC, nor is there a formal requirement for the Board to consider climate change in its reviews of the NCC.

The 2010 review suggested:

  • lessening the impact of higher temperatures by using ‘passive solar design
  • improving the chain of fixings from roof to foundation and improving bracing to counter more intense cyclones and storms
  • increasing the capacity of gutters and flashings to managing increased rainfall intensity
  • increasing the efficiency of plumbing
  • avoiding building in flood-prone areas and bushfire-prone areas
  • considering the use of hail-resistant materials in high-risk areas.

The Council of Australian Governments’ Building Ministers’ Forum should provide formal direction to the Australian Building Codes Board to:

  • monitor projections of climate change risks to buildings
  • revise the standards in the National Construction Code to take into account these projections where this delivers a net benefit to the community.