Newspaper article International New York Times

A Banker Warns about Climate Change ; Global Warming Is Threat to Financial Stability, Says Bank of England Chief

Newspaper article International New York Times

A Banker Warns about Climate Change ; Global Warming Is Threat to Financial Stability, Says Bank of England Chief

Article excerpt

Mark Carney, the governor of the Bank of England, says catastrophes caused by global warming could do significant damage to the world's financial stability.

A new speech about climate change is fascinating both for what it says and who said it.

Mark Carney, the governor of the Bank of England, declared that the warming climate presented major risks for the global economy and global financial stability, and that businesses and regulators needed to move more quickly to try to contain the potential economic damage even though it may seem uncertain and far off.

His warning, delivered in a 4,400-word speech with ample footnotes on Tuesday, is the latest example of how climate change has moved beyond theoretical scientific debates to the start of practical planning for safeguarding the economy and business.

"We don't need an army of actuaries to tell us that the catastrophic impacts of climate change will be felt beyond the traditional horizons of most actors -- imposing a cost on future generations that the current generation has no direct incentive to fix," he said.

"In other words," he added, "once climate change becomes a defining issue for financial stability, it may already be too late."

Mr. Carney calls the economic challenges around climate the "tragedy of the horizon," in contrast to the long-noted economic phenomenon of the "tragedy of the commons." That is, the costs of a warming climate come on a time scale and with an uncertainty that go beyond the usual multiyear business cycle, beyond political cycles of presidential and parliamentary elections, or as he puts it, beyond "the horizon of technocratic authorities, like central banks, who are bound by their mandates."

It might seem odd for a central banker to be talking about a long- term problem of global climate, all the more so when the global economy is looking rather shaky. After all, the job is typically to worry about price inflation and the banking system.

But if you back up and define a central banker's job a little more broadly -- to worrying about the economy and the stability of the financial system writ large -- it quickly becomes clear why climate matters.

Consider that a housing bubble largely concentrated in a handful of Sun Belt American states and in Spain and Ireland set in motion events that eight years ago caused a financial crisis from which the world economy has still not fully healed. It's easy to imagine how the effects of a shifting climate could similarly ripple through both the financial system and the real economy in ways that are impossible to predict with any precision today.

Global insurers are already facing a higher frequency of large, expensive disasters from extreme weather, and in the future could face untold liabilities as the losers from a warming planet try to extract compensation from the (insured) companies that profited from fossil fuel production. …

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