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Central Bankers “Punt” on Climate Initiatives [1]

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Date: 2023-02-19  

A firefighter rescues a dog from a flooded home in Merced, California.

According to the European Union’s Copernicus Climate Change Service, the eight warmest years on record have all occurred since 2014. 2022 only ranked fifth hottest, largely because of a slight cooling effect by cyclical Pacific Ocean currents. 2016 remains the record holder, at least for now. The world is now 1.2°C (2.1°F) hotter than it was in the second half of the 19th century when the Industrial Revolution and emission of carbon dioxide from the burning of fossil fuels took-off.

Meanwhile, the State of Climate Action 2022 report issued by the United Nations and the World Resources Institute continues the drumroll of faltering international climate responses that threaten civilization as we know it. Forty “indicators” were assessed in the report. None were on track to reach their 2030 targets for reducing greenhouse gas emissions and limiting global warming. While six were deemed to be heading in the right direction, they were progressing at an “insufficient speed” and another 21 were trending “well below the required pace.” An additional five indicators were moving in the “wrong direction entirely.”

According to the report, in order to limit raising average global temperature to 1.5°C (2.7°F) immediate steps must be taken. They include phasing out the use of coal to generate electricity; rapidly expanding public transportation systems to reduce the use of automobiles; reducing the rate of deforestation; and shifting to healthier, more sustainable diets, including cutting back per capita consumption of beef in Europe, the Americas and Oceania. In 2021, at COP26, nearly 200 countries agreed to improve on their fossil fuel emissions-cutting pledges. One year later, only two-dozen countries had revised their pledge, which does not mean they actually implemented them.

The authors of the State of Climate Action report argue that economic transformation on the needed level requires “substantial increases in climate finance as well as for the financial system to stop underwriting many carbon-intensive industries.” Unfortunately, at a recent meeting in Sweden of bankers representing major polluting nations, the key national bankers justified inaction on climate change because of the need to address inflation and they passed along responsibility to their country’s elected officials. Jerome Powell, chair of the United States Federal Reserve System, was chief among those who avoided acting on climate change.

Powell argued that central banks should “‘stick to our knitting’ and not wander off to pursue perceived social benefits that are not tightly linked to our statutory goals and authorities” and avoid what he called “short-term political considerations.” He claimed that no matter the conditions, “without explicit congressional legislation, it would be inappropriate for us to use our monetary policy or supervisory tools to promote a greener economy or to achieve other climate-based goals. We are not, and will not be, a ‘climate policymaker’”.

Powell's position was endorsed by Mervyn King, a former governor of the Bank of England, and Pierre Wunsch. Belgium's central bank governor. According to King, “There are plenty of other people who can take measures to combat climate change and I worry that people, in their great enthusiasm for doing good, are actually putting at risk central bank independence.” Wunsch argued it was the job of governments, not the banks to fight climate change. “By saying we have a role to play in helping to finance the green transition... we are increasing this misunderstanding of what our role is.”

The strongest voice at the conference for climate action by the central banks was Isabel Schnabel, a European Central Bank board member, who called on her bank to step up its efforts to make its monetary policy more climate-friendly. According to Schnabel it was “misleading to use tighter financing conditions as a scapegoat for further delays in the green transition.” In a speech to the conference, Schnabel argued, “The green transition will fundamentally transform our societies. Protecting our planet requires unprecedented large-scale investments in technical innovations and renewable energies to bring our economies on a path towards net zero greenhouse gas emissions.” Central banks had a specific role to play in this transition because large costs “incurred in these capital-intensive expenditures are particularly susceptible to changes in the cost of credit,” something determined by the banks. Repeated increases in interest rates were jeopardizing investment in clean energy projects.

Schnabel acknowledged that the “largest impediment to a rapid decarbonisation” was the “considerable lack of progress by governments in implementing prior climate commitments.” But while “governments need to accelerate their efforts to put the economy on a path towards net zero emissions, the drastic change in the macroeconomic and financial environment over the past year also requires central banks to review the scale and scope of their own contribution to the green transition . . . We must therefore ensure that all of the ECB’s policies are aligned with the objectives of the Paris Agreement to limit global warming to well below 2 degrees Celsius.”

Schnabel wants the central banks to “integrate climate change considerations into our macroeconomic models” by addressing climate risks and making “climate-related corporate disclosures compulsory” if they are going to “remain eligible as collateral in our refinancing operations.”

Schnabel was supported by Ravi Menon, managing director of the Monetary Authority of Singapore, who said central bankers could do much more to help the economy reduce its emissions than just focusing on the risks. "We need to get a lot more imaginative and creative if we want to make sure that what we do is consistent with the global objective of getting to net zero.”

Unfortunately, as the world floods and fries, Schnabel and Menon were in a decided minority among the central bankers.

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[1] Url: https://www.dailykos.com/stories/2023/2/19/2153835/-Central-Bankers-Punt-on-Climate-Initiatives

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