Zurich releases first climate risk index for energy sector

Zurich releases first climate risk index for energy sector | Insurance Business Australia

Environmental

Zurich releases first climate risk index for energy sector

Report analyses location of each energy generation asset across Australia

Environmental

By
Roxanne Libatique

Zurich Financial Services Australia has teamed up with consulting firm Mandala Partners to release Australia’s first climate risk index for the energy sector.

The index was described by Zurich and Mandala as the first comprehensive, quantitative climate assessment for an entire critical infrastructure asset class. It used Zurich’s global exposure analysis capabilities to analyse the location of each energy generation asset across Australia to form insights on the impact of climate on the grid under various Intergovernmental Panel on Climate Change (IPCC) scenarios.

Key findings

The index claimed that more than a quarter of Australian energy generation is in the three highest climate risk categories under a likely climate scenario that assumes two degrees Celsius of warming by 2041-2060. It expects energy generation to increase to around 35% of generation capacity by 2050, with nearly 40% of generation assets to experience increased climate risk over this period.

Under a more extreme climate scenario that assumes four degrees Celsius of warming over the same period, the index expects 43% of Australian generation capacity to fall in the three highest risk categories by 2050, including 11% of generation in the highest risk category.

Among regions, Western Australia and the Northern Territory are particularly vulnerable as their electricity grids run separately from the National Electricity Market.

The index revealed that 96% of generation in the Northern Territory is in the three highest risk categories, including 85% of generation in risk category four. Meanwhile, Western Australia and Tasmania have 70% and 52% in the three highest risk categories, respectively. Across the eastern and southern states, the risks were relatively lower.

Justin Delaney, CEO of Zurich Australia & New Zealand, said that insurers are on the front line of climate change-related risks.

“Therefore, the planet’s sustainability and actions to transition to renewable energy sources remain a critical priority,” Delaney said. “This analysis hopefully represents a constructive input into achieving an appropriate and resilient energy transition. More broadly, it also serves to highlight the quantum of data and quality of insights that are now available to understand the prevailing risk environment so we can shape and prepare our collective response.”

“This report reminds us that there is no part of our economy or society not impacted by the effects of climate change,” said Adam Triggs, partner at Mandala Partners. “Successfully navigating the energy transition is essential for our economy and our environment, but it will also be complex and uncomfortable.”