- An international monetary organisation has suggested the Reserve Bank of Australia (RBA) could be pressured to buy up the country’s “carbon-intensive assets” as a last resort to avert an economic or financial disaster.
- The Bank of International Settlements (BIS) released a report outlining the possibility the RBA and other central banks could intervene as ‘climate rescuers’ if governments don’t help transition to low-carbon economies, although indicating such a situation is undesirable.
- It comes as groups like the International Monetary Fund (IMF) and business executives acknowledge the growing risk climate poses for economies and businesses in 2020.
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Desperate times call for desperate measures.
It’s the thesis of the Bank of International Settlements (BIS) which has laid out a plan of attack central banks like the Reserve Bank of Australia may be pressured to take if they want to avoid economic and environmental catastrophe.
“Central banks have a role to play in avoiding such an outcome … in helping coordinate the measures to fight climate change,” the global monetary organisation writes in its latest report, noting banks will have to mobilise forces among governments, businesses, individuals, and the global community at large to be successful.
“If central banks are to preserve financial and price stability in the age of climate change, it is in their interest to help mobilise all the forces needed to win this battle.”
BIS says a failure to mitigate the climate crisis poses a ‘green swan’ risk, or “potentially extremely financially disruptive events that could be behind the next systemic financial crisis.” The responsibility to combat these and maintain financial stability could be laid on the shoulders of central banks, BIS argues, suggesting they could follow a similar strategy to the one implemented during the GFC. Instead of saving banks and insurers though, it would intervene directly to acquire distressed energy assets.
“In the worst-case scenario, central banks may have to confront a situation where they are called upon by their local constituencies to intervene as climate rescuers of last resort. For example, a new financial crisis caused by green swan events severely affecting the financial health of the banking and insurance sectors could force central banks to intervene and buy a large set of carbon-intensive assets and/or assets stricken by physical impacts,” BIS said.
“A rapid and ambitious transition to lower emissions pathways means that a large fraction of proven reserves of fossil fuel cannot be extracted becoming ‘stranded assets’, with potentially systemic consequences for the financial system.”
In Australia, this would translate as the RBA buying up coal mines, fossil fuel power generators and other assets stranded by a green transition.
This strategy, however, is not without serious faults, BIS is quick to point out, potentially distorting markets, and seeing central overstep their mandate. Ideally, it says, governments would just step up and create the policies necessary to move the market towards a low-carbon economy.
While the report is global in scope, when it comes to government policy there are perhaps few industrialised nations where its absence is starker than in Australia. For more than a decade, successive governments from both sides of the aisle have failed to reach a consensus or provide a consistent and reliable policy around energy and climate for businesses.
It also comes as world leaders, financial organisations and monetary big wigs gather in Davos, Switzerland where a key focus of this year’s World Economic Forum (WEF) is the climate crisis. Ironic, given many of its elite attendees flew in by private jet.
Davos’ advent coincides with a number of new reports on the risk climate poses to economies and businesses. The IMF, which regularly attends Davos, named climate as one of the key risks to global growth, while bushfire season rages in Australia.
“Climate change, the driver of the increased frequency and intensity of weather-related disasters, already endangers health and economic outcomes, and not only in the directly affected regions,” it wrote. “It could pose challenges to other areas that may not yet feel the direct effects, including by contributing to cross-border migration or financial stress — for instance, in the insurance sector. A continuation of the trends could inflict even bigger losses across more countries.”
Consultant Deloitte meanwhile found that of more than 2,000 global business executives it surveyed, climate risk is one of their principal concern.
“It’s telling that nearly all business leaders we surveyed fear that the effects of climate change could negatively affect their organizations, and half cite tackling climate change as their generation’s top priority,” it noted. “Business leaders accept a responsibility to act, and many are rolling out programs addressing resource scarcity and environmental sustainability. More than 90% of respondents say their companies have sustainability initiatives in place or on the drawing board.”
A far higher percentage than Australia’s political class it seems.