Editor’s Note: John Quiggin is an Australian Laureate Fellow in Economics at the University of Queensland. The opinions expressed in this commentary are his own.
The bushfire emergency that began in Australia in September 2019 and has worsened steadily since then has already cost at least 24 lives, destroyed thousands of homes and other buildings and burned millions of acres of forest and farmland. And the economic costs are only just beginning to emerge.
The Australian government, which only a month ago was treating the crisis as a state-level rather than national problem, has announced an emergency package of 2 billion Australian dollars (about $1.4 billion USD). While it is promising that the government has finally abandoned the fiction that such disasters can be managed by state governments alone, this is just a drop in the bucket. When environmental and health costs are taken into account, I estimate that it will probably cost the country more than 100 billion Australian dollars (about $70 billion USD). In a country of just 25 million people, the impact of the fires will loom much larger than the effects of Hurricane Sandy, which hit 12 US states.
So far, insurance claims arising from the fires have totaled 700 million Australian dollars (about $500 million USD) alone. But this will be a tiny fraction of the total damage to private property. Many properties are uninsured or underinsured and many of those affected haven’t even found out whether their homes have survived, let alone filled out claims. And, of course, we are only part of the way through the bushfire season.
With 2,000 homes damaged or destroyed, along with vehicles, fences, farmland and commercial forests, the final damage to private property is likely to be between 5 billion and 10 billion Australian dollars (between $3.5 billion and $7 billion USD). As a comparison, the much less damaging Queensland floods and hurricane of 2011 produced insurance claims of more than 3.6 billion Australian dollars ($2.5 billion USD), many of them coming in weeks or months after the disaster took place.
Damage to public infrastructure, including roads, bridges, electricity and water supply systems will be of a similar magnitude. The need to rebuild to a higher standard in preparation for future disasters will add greatly to the cost. Again, the Queensland experience, where capital expenditures of 5.6 billion Australian dollars (about $3.9 billion USD) was raised in part through a special nationwide levy, provides a guide.
The bushfires have effectively wiped out the tourist season for much of Southeastern Australia and have dealt a huge blow to its international image as a tourist destination, worth $20 billion a year in international income.
All sorts of other activities have also been affected, as dangerous smoke levels have made outdoor work unsafe and closed many offices.
Less tangible, but equally severe, are the health effects of the crisis. Exposure to high levels of air pollution is likely to lead to hundreds, or perhaps thousands, of premature deaths. Using standard health valuation measures employed in Australia, which estimate a cost of 4.2 million Australian dollars per life lost (about $3 millon USD), the implied cost will be in the billions.
Perhaps largest of all, but impossible to measure, is the destruction of natural ecosystems. It has been estimated that 480 million native animals have died, and whole species have almost certainly been wiped out. The results of billions of dollars spent on preserving these ecosystems have been wiped out in just a few weeks.
To prevent this type of massive destruction in the future, we will need a fully-fledged national organization, capable of mounting a rapid response to disasters requiring evacuations, relief efforts and the rapid mobilization of large numbers of personnel. A budget of $1 billion a year (or $4 billion over the four-year budgeting period used in Australia) would be conservative at best.
By the time a full accounting has been done, it would not be surprising if the cost of this disaster exceeded 100 billion Australian dollars. Australia is suffering the consequences of global inaction on climate change. Sadly, our own government is among the worst in the world in this respect, both in rejecting action to reduce our own emissions and in sabotaging global negotiations. Australia’s leaders must learn from this catastrophe and ensure that there is a plan for an event of this magnitude in the future — or it could cost even more next time.