Financial Stability Puts Climate Change On The RBA

Australian Financial Review - Philip Baker

Climate change may move onto RBA governor Glenn Stevens' agenda after a speech by his peer at the Bank of England. Louie Douvis

Central banks are normally too busy tackling issues like monetary policy, the economy and inflation to talk publicly about the long-term problems of global climate change.
But a speech this week by Mark Carney, the Bank of England governor, might signal a change in that style of thinking.
It could also make climate change a key focus for the Reserve Bank of Australia.
Over the past few years the Reserve Bank has been very anxious and very vocal about high house prices and the Australian dollar but climate change hasn't been a topic discussed widely by the bank.
It comes as increasingly there is a call to discuss the economy and climate change together rather than handle them as two separate topics.
Carney raised more than just a few eyebrows when he said this week that companies must be more open about their "climate change footprint" to avoid abrupt changes in asset prices that could destabilise markets.
Financial stability is of course a key concern for all central banks so if climate change is going to have an impact on financial markets then it does matter to them, big time.
In addition to his role as the governor of the BoE, Carney also chairs the Financial Stability Board, which co-ordinates financial regulation for the Group of 20 economies.
The Reserve Bank of Australia is also a member of the FSB and the topic of climate change was discussed at the latest board meeting held on September 25 in London.

Disclosures on carbon intensity sought
The FSB has now agreed to consider recommending to G20 leaders that more should be done to develop consistent, comparable, reliable and clear disclosures by companies on the "carbon intensity" of their assets.
Carney also pointed out that UK insurers potentially could be looking at "huge" exposure to any moves in climate-change policy and laid down the challenge to G20 countries that they need to do more to tackle any risks that would jeopardise financial-stability.
"A wholesale reassessment of prospects, especially if it were to occur suddenly, could potentially destabilise markets, spark a pro-cyclical crystallisation of losses and a persistent tightening of financial conditions," he said.
"The speed at which such repricing occurs is uncertain and could be decisive for financial stability."
Investors only have to look at how financial markets reacted this week to talk that Glencore could be worthless due to its $US50 billion debt pile to understand the importance of financial stability.
The three underlying risks to markets from climate change include physical damage, liabilities arising from compensation and transition risks.
A report released in September by the UK Prudential Regulation Authority identified the same three risks and said that climate change is becoming increasingly relevant to financial regulation.
"The PRA's approach will focus on promoting resilience to climate change and supporting an orderly financial sector transition to a lower carbon economy. The PRA will do this through a combination of international collaboration, research, dialogue and supervision."

Natural disaster insurance payouts rising
The PRA also said there was evidence to suggest that insurance payouts arising from global natural catastrophes are increasing which has an impact on local companies like Suncorp.
"The number of registered weather-related natural hazard loss events has tripled since the 1980s and inflation-adjusted insurance losses from these events have increased from an annual average of around $US10 billion in the 1980s to around $US50 billion over the past decade" the report said.
At around $25 billion Suncorp is the largest buyer of weather reinsurance and yet the Queensland Government is looking to provide some additional cover given the lack of private policies that are available.
Suncorp is one of about 10 insurers that operate in North Queensland, and, on average, they deal with up to five cyclones every summer.
Carney's speech also pointed out that any sudden changes in policy could leave many of the biggest companies in the world out of pocket, if, for example, the fight against climate change meant that some oil and gas reserves would have to stay in the ground and therefore couldn't be mined.
If governments around the world decided to get really serious about restricting carbon emissions, billions of dollars invested in oil and gas would be worthless.
It would also undermine the finances of oil-producing regions.

India Unveils Climate Target Ahead Of Paris Summit With Pledge To Cut Carbon Emissions 'Intensity'

ABC

India has promised to cut carbon intensity but not an absolute reduction in emissions. (Reuters: Arko Datta)

India has promised to cut its carbon dioxide emissions per unit of gross domestic product by 33 to 35 per cent on 2005 levels by 2030. In its statement to the UN, New Delhi also said it aimed to source 40 per cent of its electricity from non-fossil fuel sources by the same year, though it said it would require UN financial support to do so.
"It is a huge jump for India, therefore it is a very ambitious target," environment minister Prakash Javadekar said, after the government submitted to plan to the UN.
India is the world's third-largest emitter of carbon dioxide and its pledges made it the last major economy to announce its climate target ahead of a key global change summit in Paris this December.
All countries had agreed to submit their planned targets by Thursday October 1.
However, India is not yet prepared to go as far as China — the world's largest emitter — which pledged in June to reduce its carbon intensity by 60 to 65 per cent by 2030, partly through the use of carbon emissions trading.
Beijing also said it would bring its absolute emissions to a peak by "around 2030."
Earlier this week, Brazil became the first major developing economy to announce an absolute cut in greenhouse gas emissions.


It pledged to reduce emissions by 37 per cent below 2005 levels by 2025, and by 43 per cent by 2030.
India, by comparison, made the pledge to cut emissions 'intensity', the ratio of a country's carbon emissions to its economic output.
As well as not setting absolute emissions cuts, India did not give a commitment to establishing carbon emissions trading.
New Delhi said coal would continue to dominate power generation for its population of more than one billion people into the future, though it stressed its commitment to clean energy technologies.
"We are much too dependent on fossil fuels now," Mr Javadekar said.
It planned to develop 25 solar parks, supply 100,000 solar pumps to farmers, and convert all 55,000 petrol pumps across the country to solar.
It also promised to "aggressively" develop hydro and nuclear energy.

Pledges a 'sign of progress' but countries not going far enough
Experts said the pledges mark progress in climate action but — even if fully implemented — would not be enough to prevent the planet from warming by more than 2 degrees Celsius by the end of the century, compared to pre-industrial times.
Christiana Figueres, the UN's climate chief, hailed the wide participation as a sign that Paris could be a "turning point" towards 2C, the level accepted by governments as the threshold beyond which the Earth would face dangerous changes including more droughts, extinctions, floods and rising seas.
She said this offered opportunities for investments in "resilient, low-emission, sustainable development".
"Despite huge developmental challenges, India has put forward a climate action plan that is far superior to ones proposed by the US and EU," Sandeep Chachra, ActionAid India's executive director, said.
"The ambitious focus on energy efficiency and dramatic increase in renewable energy deserves credit but must lead to enhanced energy access for the poor."
India's plans were "fair and ambitious considering the fact that [it] is attempting to work towards a low carbon emissions pathway while endeavouring to meet all the developmental challenges the country faces today," its statement said.
"India's climate actions have so far been largely financed from domestic resources. A substantial scaling up of the climate action plans would require greater resources.
"A preliminary estimate suggests that at least $US2.5 trillion ... will be required for meeting India's climate change actions between now and 2030."
Indian prime minister Narendra Modi met US president Barack Obama and the leaders of France and Britain last month to call for a climate change agenda that helps developing countries with access to finance and technology.
Reuters

Clean Energy Growth Is ‘Off Track’ To Avert Climate Change, Says Energy Agency

The Washington Post - Chris Mooney

Rain clouds are seen in the sky where a Haliade 150 offshore wind turbine operates at Alstom’s offshore wind site in Le Carnet, on the Loire Estuary, near Saint Nazaire, western France, April 27, 2014. (REUTERS/Stephane Mahe)

First the good news: In a new report on the near term future of the global renewable energy industry, the International Energy Agency is projecting impressive growth. Renewable sources like wind, solar, and hydropower should constitute nearly two-thirds of new net power capacity brought online across the globe between now and 2020. That’s equivalent to 700 gigawatts of new capacity or “more than twice Japan’s current installed power capacity,” according to the IEA.
That would mean that overall, renewables would grow from providing 22 percent of the world’s total electricity generation in 2013, to providing an impressive 26 percent of it by 2020.
But then, well, there’s the bad news. According to the IEA’s new Renewable Energy Medium-Term Market Report, the rate of renewables growth, which has been explosive of late, is actually set to “level off.” It’s hardly opportune time for that to be happening, with the world about to assemble in Paris to try to tackle climate change.
[Why storing solar energy and using it at night is closer than you think]
“This flattening of the annual new installations means that renewable electricity is off track from the pattern that we would need to meet ambitious climate change mitigation goals,” says Paolo Frankl, who heads the IEA’s renewable energy division and oversaw the report.
The core problem, says IEA, is a bevy of policy uncertainties and other renewables integration problems in various countries — what you might collectively call the sector’s growing pains. In the U.S. alone, such growth-thwarting uncertainties include the unclear fate of several tax incentives, the expectation of extensive battles over the implementation of the Clean Power Plan, and state-level fights over how individual homeowners will be credited on their bills for solar energy they generate and feed back to the grid.
Still, renewable electricity growth will be considerable. Strikingly, two-thirds of the new renewable deployments are expected to occur in developing countries like Brazil, India, and China. The latter will be responsible for a staggering 40 percent of all of the world’s growth in renewable electricity capacity by 2020, says the IEA, “an amount triple the current total power capacity of the United Kingdom.”
Of the top sources of new renewable energy deployments, onshore wind is expected to lead the way — accounting for more than a third of the total — followed closely by solar photovoltaics. New hydropower installations are expected to account for a fifth of the total, and to be particularly prevalent in developing countries.
For Sub-Saharan Africa, the report verifies that the phenomenon dubbed “leapfrogging” — in which some countries will pass over fossil fuel based electricity and go straight to renewables — appears to be a reality. “With huge resources, improving economics and policy momentum, renewables should meet almost two-thirds of power demand growth in [Sub-Saharan Africa] through 2020,” it finds.
Yet the IEA report is very critical of lingering policy gaps and other hurdles that are interfering with growth, such as those in the U.S. Financing hurdles are also an issue. Consider, Frankl suggests, the same solar photovoltaic installation but in one case located in Dubai and in another case located in central Africa. “The interest rates will be so much higher that the same PV electricity, the costs would double,” Frankl says.
Overall, if both developing and developed countries solved some of the problems that bar the investment in, and the integration of, renewable sources, then IEA suggests that the growth of renewable electricity could be 25 percent greater from here out to 2020.
Indeed, the IEA’s Frankl notes that with its recent announcements in conjunction with the U.S., China has actually taken a step in this direction. The country has just announced a “green dispatch” plan that will mean “giving priority, in distribution and dispatching, to renewable power generation and fossil fuel power generation of higher efficiency and lower emission levels.” This should help put China — and thereby, the world — on a much more ambitious path.
“Whatever they do better, the world will do better,” says Frankl. “They are really 1 order of magnitude higher than anyone else.”
All in all, then, the IEA’s new findings reaffirm that we are moving more and more into a world powered by wind, water, and sun. But at the same time, they also provide still more evidence that the world is not moving fast enough — either in its planned emissions cuts, or in its renewable energy deployments — to keep global warming within a reasonable range.