"In 2008, as big banks began failing across Wall Street and the housing and
stock markets crashed, the nation saw how crucial financial regulation is for
economic stability – and how quickly the consequences can cascade through the
economy when regulators are asleep at the wheel.
Today, there’s another looming economic risk: climate change. Once again, how
much it harms economies will depend a lot on how financial regulators and
central banks react.
Climate change’s impact on economies isn’t always obvious. Mark Carney, the
former governor of the Bank of England, identified a series of climate
change-related risks in 2015 that could shake the financial system. The rising
costs of extreme weather, lawsuits against companies that have contributed to
climate change and the falling value of fossil fuel assets could all have an
Nobel Prize-winning U.S. economist Joseph Stiglitz agrees. In a recent
interview, he argued that the impact of a sharp rise in carbon prices – which
governments charge companies for emitting climate-warming greenhouse gases –
could trigger another financial crisis, this time starting with the fossil fuel
industry, its suppliers and the banks that finance them, which could spill over
into the broader economy.
Our research as environmental economists and macroeconomists confirms that both
the effects of climate change and some of the policies necessary to stop it
could have important implications for financial stability, if preemptive
measures are not undertaken. Public policies addressing, after years of delay,
the fossil fuel emissions that are driving climate change could devalue energy
companies and cause investments held by banks and pension funds to tank, as
would abrupt changes in consumer habits.
The good news is that regulators have the ability to address these risks and
clear the way to safely implement ambitious climate policy."
*** Xanni ***
Chief Scientist, Xanadu
Partner, Glass Wings
Manager, Serious Cybernetics