The Guardian - Adam Morton
Australia’s central bank joins 60 others, including the Bank of England,
to warn of climate risk to the economy and financial sector
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The Reserve Bank of Australia building in Martin Place. The RBA and other central banks have sounded an urgent warning about the risk of climate change to the global economy. Photograph: Bianca de Marchi/AAP
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More than 60 central banks, including the
Reserve Bank of Australia
and the Bank of England, have warned that global GDP could fall by 25%
by 2100 if the world does not act to reduce global greenhouse gas
emissions.
They suggested if the world acted to limit emissions to net zero by
about 2070, giving a 67% chance of limiting global heating to 2C above
pre-industrial levels, the impact of the climate crisis on global GDP
could be about 4%.
The estimates are included in
scenarios published by the Network for Greening the Financial System,
a collection of 66 central banks and supervisors and 13 observer
institutions. Described as the first of their kind, the scenarios are
designed to guide bankers and financial regulators, including
Australia’s Prudential Regulation Authority (APRA), in assessing the
climate risks to the economy and financial sector.
Their launch follows warnings from financial regulators of the
economic threat posed by the climate crisis. Former Bank of England
governor Mark Carney last year warned it was possible the transition
needed to tackle the climate crisis
could result in an abrupt financial collapse,
and the risk of collapse would grow the longer action was delayed.
In
Australia, APRA board member, Geoff Summerhayes, warned climate change
posed a material risk to the entire financial system and urged companies to start adapting.
In a statement released overnight Wednesday, the Network for Greening
the Financial System said the changes to the climate were
unprecedented. Frank Elderson, the chair of the network and an executive
board member of De Nederlandsche in the Netherlands, summarised:
“Climate change leads to financial risks and therefore remains a vital
issue for central banks and supervisors to address.”
The network said understanding the financial risks and economic costs required it to examine scenarios stretching decades ahead.
It considered three possibilities: under its orderly scenario,
climate policies would be introduced soon and gradually tightened,
limiting the risk of physical damage – including extreme weather events –
and the impact of the transition to low emissions. It would be expected
to lead to a “relatively small” economic impact of about 4% of global
GDP by 2100.
Under the “disorderly” scenario, climate policies would not be not
introduced until 2030, and the emissions reductions needed would be more
abrupt than in an orderly world. It was estimated to have a
significantly larger economic impact, with nearly a 10% reduction in
global GDP.
In
the third scenario, described as a “hot house” world, action to deal
with the climate crisis would be limited to current policies only.
Countries’ international commitments would not be not met and physical
risks would be greatly increased as global emissions kept rising until
2080, leading to more than 3C of warming.
The network estimated the physical damage caused under this scenario
could wipe out up to a quarter of annual global GDP by the end of the
century. But it warned this could be an underestimate as it was not
possible to adequately account for all risks, particularly from high
impact events such as significant sea-level rise, extreme weather and
societal changes that could be triggered by climate-related migration
and conflict.
“As a result, damages in this scenario will be larger than models
suggest, particularly in regions with lower resilience and capacity for
adaptation,” the network said.
Emma Herd, chief executive of the Investor Group on Climate Change,
said the scenarios clearly demonstrated that climate change was a
systemic economic threat that would undercut prosperity and job
security. She said a low-emissions transition was inevitable, and would
be cheaper and much less damaging if there was early action.
In
Australia, it would require a stable long-term policy framework and a
commitment to net-zero emissions by 2050.
“The alternative is sitting on our hands which will continue to
expose Australia to decarbonisation efforts across the world while not
gaining access to new opportunities that will stem from modernising the
economy,” she said.
The scenarios will inform an APRA
climate risk variability assessment
that was expected to be finished by September before being delayed by
the Covid-19 shutdown. Herd said they should lead to companies
consistently disclosing their exposure to climate risk, rather than
“cherry picking” scenarios that suited their business strategy.
“Governments should also apply these climate scenarios to their own
policy decisions, including Covid-19 economic recovery efforts, to
ensure taxpayer expenditure is not put at risk by locking in support for
carbon-intensive activities,” she said.
On Thursday, the Australian Energy Council – representing all major electricity and gas companies – joined
business groups,
banks,
major miners, the ACTU,
institutional investors, all state governments and the federal opposition in calling for the government
to adopt a target of net zero emissions by 2050 consistent with the Paris agreement, and for the introduction of stable national policies to set a path to the goal.
It followed the opposition leader, Anthony Albanese,
setting out Labor’s hopes for a bipartisan agreement to end more than a decade of political brawling over climate and energy policy. The government rejected both calls.
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