Pimco: Klimaatverandering bemoeilijkt monetair beleid

22 jan 2019

By Joachim Fels, PIMCO Global Economic Advisor

By Joachim Fels, PIMCO Global Economic Advisor

Global climate change has been researched and debated for decades, but central bankers and most investors and businesses have only started to focus on its implications for what they do for a living in the last few years.

The topic gained even more prominence recently as William Nordhaus (along with Paul Romer) received the 2018 Nobel Memorial Prize in Economic Sciences for integrating climate change into long-run macroeconomic analysis. Also, only last week an all-star roster of 45 economists (including 27 Nobel laureates, 12 former chairmen of the president’s Council of Economic Advisors (CEA), two former Treasury secretaries and former Fed chairs Paul Volcker, Alan Greenspan, Ben Bernanke and Janet Yellen) published a statement in the Wall Street Journalsupporting a (revenue neutral) carbon emission tax on businesses. The proposal foresees that the new tax would be fully redistributed to U.S. households to compensate them for higher energy prices. The tax would replace the need for less efficient carbon regulation and encourage technological innovation and large-scale infrastructure investment according to the economists.

Why would central bankers take a professional interest in this topic, you may ask – what does climate change have to do with day-to-day monetary policy? The short answer is “a lot”, both conceptually and practically. Here’s why.

First, central banks as regulators started to focus on the financial stability implications of climate change already several years ago. Mark Carney, Governor of the Bank of England and Chairman of the Financial Stability Board (FSB), gave a seminal speech on the topic in 2015, highlighting three kinds of risks emanating from climate change: (i) physical risks emanating from the impact today of climate- and weather- related events on insurance liabilities and the value of financial assets