Who pays for climate damage when energy companies are making huge profits?

From schoolyard parasols in schools in Lyon to drought relief for Spanish farmers and German requirements for cooler cities and more shade, Europe is facing up to an urgent and accelerating need for climate adaptation.

A European Environment Agency assessment from March this year found the cost of economically efficient adaptation to a 1.5-degree global temperature rise — already very unlikely — is around €40 billion a year for the EU and the UK; for 2 degrees warming, it doubles to at least €80 billion a year. Higher temperatures double the cost again.

Given the failure to limit CO2 emissions to prevent significant global heating, adaptation will force its way on to government agendas everywhere, with every drought, every flood, every fire and heatwave. The Morrison government released a mealy-mouthed national climate resilience and adaptation strategy in 2021 and funded a $600 million “Preparing Australia Program” (with grants controlled by sports rorter Bridget McKenzie) after heavy criticism of Scott Morrison going missing in action during the Black Summer bushfires.

It also provided a $10 billion guarantee to set up a cyclone reinsurance pool to cover soaring insurance premiums in LNP-held northern Queensland seats (LNP MPs may deny the existence of climate change, but they’re very worried about the uninsurability of their electorates due to increased cyclones).

Flood protection infrastructure, reducing urban heat and increasing urban greening, addressing uninsurability, managing coastal erosion, preventing and fighting bushfires and improving health services will all come with eye-popping numbers across all three levels of government in Australia. So far, what limited adaptation measures have been funded have been undertaken on a standard fiscal basis via grant programs or providing a Commonwealth guarantee. But the dramatic expansion in adaptation funding that will be required as the failure to constrain global heating to manageable levels becomes clearer raises a real fiscal issue. Who should pay?

In the absence of a direct carbon pricing mechanism, the answer at the moment is taxpayers. Already faced with rapidly increasing health, aged care, NDIS and defence costs, the billions needed for effective adaptation will also have to be found within federal, state and local budgets.

If the coming summer produces a Europe-like moment of awareness that we’ve reached a climate tipping point, governments are likely to come under further pressure to accelerate adaptation funding, especially for priority projects such as flood protection.

Meanwhile, our biggest fossil fuel exporters continue to generate huge profits from the sale of Australian gas and coal, even if both coal and gas prices have come well down from their post-Ukraine peaks of 2022. With the petroleum resource rent tax still unfit for purpose despite some tweaking by the Albanese government, the companies most directly responsible for Australia’s contribution to the climate crisis are not contributing to funding the costs of adapting to the climate they’ve helped engineer.

It’s not a pressing political problem now for the government, but when El Niño begins exacting its usual toll of fires, drought and heatwaves in Australia, the question of who pays to clean up the damage and to prevent or minimise future climate change-fuelled disasters will become far more relevant. And the guilty parties should be in the spotlight.