Q+A: What an extreme El Niño could cost Australia

Welcome to Fearing Greed Q&A, where we ask and answer questions about business, investing, economics, politics and more. I'm Sean Aylmer. El Nino is back and it might be the most intense system ever recorded. The Bureau of Meteorology is forecasting drier conditions across much of eastern and southwestern Australia over the coming months, along with above average temperatures. But this isn't just a weather story. A hot, dry summer can flow through to bushfire risk, food and energy prices, supply chains, construction and insurance. Dr. Graeme Riddell leads climate and sustainability consulting across Asia Pacific for Marsh. Graeme, welcome to Fear and Greed Q&A. Hi, Sean. Thanks for having me. How worried should Australians be about the upcoming El Nino?

Well, I think as you mentioned in your intro, it's definitely the most significant that we've seen and definitely felt, or at least that's what it's being projected to be. To paint a little picture, so we measure El Nino based on how different it is to a little patch of ocean in the Pacific. And we track how warm or cold it is versus kind of long-term average. And 0.5 degrees hotter is what the world says is becoming El Nino. The Bureau is a bit stricter. They think if it's above 8.8 degrees, it's considered an El Nino. The projections at the moment for kind of the peak are 3.5. And we've never seen that deviation before. And kind of the big historical events that we can think of, Ash Wednesday, that was coming off an El Nino that was plus 2.2 in 1982 and 83. The fires around kind of 2015, it was South Australia had fires, Victoria had fires as well. That was about plus 2.6. So plus 3.5 is a significant event. And to your point, we've not quite seen it.

Why? Why is it potentially plus 3.5% versus other times?

So this is all a function of kind of ocean and atmospheric physics and meteorology. And one of the trickiest things we have at the moment as well is we already have an underlying climate signal So the oceans are already warmer than they have been historically. And that's why some of the predictive ability becomes even more challenging because we compare this temperature to that long-term average. But we already know the long-term average is actually higher because of climate change. The oceans are getting warmer. So it's quite hard to pick whether... this is a change in baseline fundamentally, or whether this is a particularly high spike in specific El Nino conditions. And that's one that could be used to think about this as kind of many future summers to come because we've got that baseline elevation because of climate change in our oceans already. Or it could be that this is just a very, very extreme event.

Okay. Are we getting a preview elsewhere in the region, the Asia-Pacific region, the kinds of economic disruption that we should be preparing yet?

We definitely are. It's maybe not playing out specifically because of El Nino, but we can start to see kind of what the very hot, hot European summer has done to the economy there and kind of macroeconomic flows. Every time you open a newspaper or read an article, it's not actually about how hot it is, although it is very, very hot. I think