(Reuters) From China To Germany, Floods Expose Climate Vulnerability.

Reuters - Aradhana Aravindan | James Mackenzie

An aerial view shows a flooded road section following heavy rainfall in Zhengzhou, Henan province, July 21. China Daily via REUTERS/File Photo

Deadly floods that have upended life in both China and Germany have sent a stark reminder that climate change is making weather more extreme across the globe.

At least 25 people in the central Chinese province of Henan died on Tuesday, including a dozen trapped in a city subway as waters tore through the regional capital of Zhengzhou after days of torrential rain. read more

Coming after floods killed at least 160 people in Germany and another 31 in Belgium last week, the disaster has reinforced the message that significant changes will have to be made to prepare for similar events in future. read more

"Governments should first realize that the infrastructure they have built in the past or even recent ones are vulnerable to these extreme weather events," said Eduardo Araral, associate professor and co-director, Institute of Water Policy, at Singapore's Lee Kuan Yew School of Public Policy.

In Europe, climate change is likely to increase the number of large, slow-moving storms that can linger longer in one area and deliver deluges of the kind seen in Germany and Belgium, according to a study published June 30 in the journal Geophysical Research Letters.

As the atmosphere warms with climate change, it also holds more moisture, which means that when rainclouds break, more rain is released. By the end of the century, such storms could be 14 times more frequent, the researchers found in the study using computer simulations.

While the inundation that devastated wide swathes of western and southern Germany occurred thousands of kilometres from the events in Henan, both cases highlighted the vulnerability of heavily populated areas to catastrophic flooding and other natural disasters.

"You need technical measures, bolstering dikes and flood barriers. But we also need to remodel cities," said Fred Hattermann at the Potsdam Institute for Climate Impact Research. He said there was increasing focus on so-called "green-adaptation" measures, like polders and plains that can be flooded, to stop water running off too fast.

"But when there's really heavy rain, all that may not help, so we have to learn to live with it," he said.

Reinforcing dikes and climate-proofing housing, roads and urban infrastructure will cost billions. But the dramatic mobile phone footage of people struggling through subways submerged in chest-deep water in Zhengzhou or crying in fear as mud and debris swept through medieval German towns made clear the cost of doing nothing.

A man looks on outside a house in an area affected by floods caused by heavy rainfalls in Bad Muenstereifel, Germany, July 19, 2021. REUTERS/Wolfgang Rattay/File Photo

"It is shocking and I have to say it is scary," said John Butschkowski, a Red Cross driver who was involved in rescue work in western Germany this week. "It is ghostly, no people anywhere, just rubbish. And it is inconceivable that this is happening in Germany."

Tens of thousands of people were being evacuated from flood-hit regions of central China as officials raised the death toll from heavy rain that has deluged Henan province for almost a week to 33 people. More photos: https://t.co/sjPjFGIQGi pic.twitter.com/0V2AbpLwsJ

— Reuters Pictures (@reuterspictures) July 22, 2021

One year's rainfall in three days

Koh Tieh-Yong, a weather and climate scientist at Singapore University of Social Sciences, said an overall assessment of rivers and water systems would be needed in areas vulnerable to climate change, including cities and farmlands.

"Floods usually occur due to two factors combined: one, heavier-than-normal rainfall and two, insufficient capacity of rivers to discharge the additional rainwater collected," he said.

In both China and northwestern Europe, the disasters followed a period of unusually heavy rain, equivalent in the Chinese case to a year's rainfall being dumped in just three days, that completely overwhelmed flood defences.

Residents, holding umbrellas amid heavy rainfall, wade through floodwaters on a road in Zhengzhou, Henan province, July 20. cnsphoto via REUTERS/File Photo

After several severe floods over recent decades, buffers had been strengthened along major German rivers like the Rhine or the Elbe but last week's extreme rainfall also turned minor tributaries like the Ahr or the Swist into fearsome torrents.

In China, built-up urban areas with inadequate water evacuation and large dams that modified the natural discharge of the Yellow River basin may also have contributed to the disaster, scientists said.

Rescuers carry children to safety in flood-stricken Anyang

But measures such as improving the resilience of buildings and raising riverbanks and improving drainage are unlikely to be enough on their own to avert the effects of severe flooding. As a last resort, warning systems, which were heavily criticized in Germany for leaving people insufficient time to react, will have to be improved.

"It really needs to be embedded in practical knowledge that people have so they know what to do," said Christian Kuhlicke, head of a working group on environmental risks and extreme events at the Helmholtz Centre for Environmental Research.

"If you can't keep the water back, if you can't save your buildings then at least make sure that all vulnerable people are moved out of these places."

Links

• How Deadly Flooding in Germany and Belgium Exposed Europe's Climate Change Hubris
• China’s Drowned City Is a Bleak Sign of a Changing Climate
• Climate scientists shocked by scale of floods in Germany
• Death toll rises and thousands flee homes as floods hit China
• How climate change fueled the devastating floods in Germany and northwest Europe
• 'Once in a thousand years' rains devastated central China, but there is little talk of climate change
• European Floods Are Latest Sign of a Global Warming Crisis
• German Floods Shake Up Campaign as Climate Change Hits Home

(UK The Guardian) John Kerry: World Leaders Must Step Up To Avoid Worst Impacts Of Climate Crisis

The Guardian - Fiona Harvey

US envoy uses landmark speech in London to make impassioned plea for unified global effort

‘The climate crisis is the test of our times’: John Kerry speaks at Kew Gardens – video

The world still has a chance of staving off the worst impacts of climate breakdown but only if governments step up in the next few months with stronger commitments on cutting greenhouse gas emissions, the US envoy for climate change has said.

John Kerry, appointed by Joe Biden to spearhead the US’s international efforts to tackle the crisis, urged all large economies to come forward with new plans to cut emissions before the Cop26 UN climate talks in Glasgow this November.

“The climate crisis is the test of our own times and, while it may be unfolding in slow motion to some, this test is as acute and as existential as any previous one. Time is running out,” he said.

He called Cop26 “a pivotal moment” and 2021 “a decisive year”, as the world must get to grips with the climate crisis and rapidly slash emissions in the 2020s to have a chance of a safe future.

Speaking as floods have devastated parts of Europe and heatwaves and wildfires swept North America, Kerry drew a parallel between the ruins of Europe after the second world war and the ravages of the climate crisis.

“The world order that exists today didn’t just emerge on a whim. It was built by leaders and nations determined to makes sure that never – never – again would we come so close to the edge of the abyss,” he said.

US seeks cooperation with China on climate but not at any price. Read more

Kerry said his earliest memory, aged four, was of the ruined skeleton of a burned-out building in Europe, where he had been taken by his mother, who fled the Nazis.

“That journey has always given me the bedrock confidence that we can solve humanity’s biggest threats together.”

Staying within 1.5C of global heating, the aspirational goal of the 2015 Paris climate agreement, was still possible, he insisted.

“There is still time to put a safer 1.5C future back within reach. But only if every major economy commits to meaningful absolute reductions in emissions by 2030. That is the only way to put the world on a credible track to global net zero by mid-century,” he said.

The Paris agreement targets an upper limit of holding global temperature rises to well below 2C above pre-industrial levels, with an aspirational lower limit of 1.5C.

Kerry made it clear that the Cop26 summit must aim for the lower threshold, and warned that current government pledges on emission cuts would lead to 2.5C or 3C rises.

“We’re already seeing dramatic consequences with 1.2C of warming. To contemplate doubling that is to invite catastrophe,” he said.

Kerry used his landmark speech at the Royal Botanic Gardens, Kew, in London, with just over 100 days to go before Cop26, to make an impassioned plea for a unified global effort. “We can’t afford a world so divided in its response to climate change when the evidence for compelling action is so strong.”

He singled out China, the world’s biggest emitter and second largest economy, which has yet to submit to the UN a national plan for emissions cuts before 2030. “It’s imperative that we and China, and the rest of the world, are pulling in the same direction on this critical effort,” he said.

Kerry told the Guardian in an interview after his speech that he was hopeful China would realise the need to act quickly. “When China has set targets before, it has outperformed them, so that is very hopeful,” he said.

But he made it clear he also had other countries in his sights. He said the US was working with “allies, partners, competitors and even adversaries all too aware that some things happening today threaten to erase the very progress so many are struggling to advance”.

UN climate summits proceed by consensus so recalcitrant counties can thwart agreement. For Cop26 to be a success, countries such as Russia, Brazil and Saudi Arabia will need to acquiesce at least – Kerry’s remarks will be seen as warning them not to disrupt the process.

Climate experts and campaigners told the Guardian the US was still lagging behind in providing finance for poor countries, to help them cut emissions and cope with the impacts of extreme weather. Rich countries promised a decade ago to provide at least $100bn a year in climate finance by 2020, a pledge that has not been met.

“The US is not pulling its weight – it’s the only country holding up the $100bn pledge,” said John Sauven, executive director of Greenpeace UK. “If the US does not put its hands in its pockets and make up the shortfall, Glasgow will be in jeopardy.”

Kerry told the Guardian in response that the Biden administration was “working hard” on finding more financial assistance for poor countries. “It’s very important that the US should provide finance. Our internal process on this is not complete yet.”

He added: “We are very conscious of the sensitivities around this. The US obviously plays a key role, and our absence in the last four years [from climate action] heightens that sense of responsibility and the imperative to find a way.”

Ed Miliband, the shadow business secretary, who was at the speech – which no government ministers attended – said Kerry had shown the US was determined to lead the way on climate action. “He made it clear he is focused on 1.5C – and he’s absolutely right, that’s ambitious but essential,” he said.

Kerry also called on governments to invest in clean energy, holding out the prospect of a clean energy boom worth $4tn a year by 2030, and said new technologies such as hydrogen and carbon capture and storage would also be needed.

Links

• John Kerry Says Climate Change Is An 'Existential' Crisis
• John Kerry commits US to climate crisis fight but warns world is way off pace
• John Kerry on climate change and the economic transformation to come 
• Solving climate change will require "technologies we don't yet have" says John Kerry
• Climate change as a national security issue
• Will America Finally Lead on Climate?

(ABC) No Scientific Consensus Yet On Whether Warming Arctic May Lead To More Extreme Weather

 ABC Weather - Ben Deacon

Predicting the impact of global warming on the jet stream is at the frontier of climate science. (Supplied: NASA)

Key Points Climate change is leading to an increase in the frequency and intensity of extreme weather events The warming Arctic may be leading to a slowing of the jet stream in the Northern Hemisphere, causing more extreme weather The slowing jet stream theory is an area of ongoing research

In the past month alone, Germany, Belgium and the Netherlands have suffered horrific flooding, Siberia caught fire, and the Arctic Sea suffered near-record melting. 

 Meanwhile, in North America, after record-high temperatures, formerly rare fire thunderstorms have become near-daily events.

There is one big theory connecting climate change to the weather patterns behind events as disparate as fire and floods, heatwaves and melting ice, across three different continents. 

It is elegant, reasonably easy to understand and has profound implications — but because it is at the frontier of climate science, not all researchers are yet convinced.

Warmer world, hotter heatwaves

 In one respect, the influence of climate change on heatwaves is relatively straightforward, according to Andrew King from the ARC Centre of Excellence for Climate Extremes at The University of Melbourne.

Smoke from Oregon's Bootleg fire rises behind the town of Bonanza. (AP: Bootleg Fire Incident Command)

"We've warmed the planet by about 1.2 degrees Celsius and the land has warmed faster than the ocean," Dr King said.

"So, this allows heatwaves to be that bit hotter than they would be otherwise."

Lytton, in Canada's British Columbia, recorded a record high temperature of 49.6C on June 29. (Supplied: Andybremner2012 CC BY-SA 4.0)

 Dr King said a warmer atmosphere could also hold about 7 per cent more moisture for every degree Celsius of warming.

"That means storms that occur on very short timescales can rain out more than they would be able to in a world without global warming," he said.

Heavy rainfall in central China's Henan province caused deadly flooding this week. (Supplied: AP)

Climate change and weather patterns

Instances of extreme weather can be driven by distinct weather patterns that allow rain or heat to build up over time because weather systems stall in one place instead of moving on.

If climate change is causing weather systems to stall for longer, they may build to more intense levels.

This visualisation of high-altitude winds over North America on the day it reached 49.6 degrees Celsius in Canada shows the meandering jet stream. (Supplied: Earth.nullschool.net)

Late last month in Canada, a horseshoe-shaped high-pressure system called an Omega Block saw heat build up for days, leading to off-the-chart temperatures. In Europe last week, a cut-off low pressure system stalled over Germany, dumping a month's worth of rain in a day.

The jet stream pattern which led to the catastrophic #EuropeFloods pic.twitter.com/VXH7MlGU5u

— Stu Ostro (@StuOstro) July 19, 2021

Limit of science

The impact of climate change on how such individual weather patterns move is at the very limit of science.

"It's kind of like having a jigsaw but most of the pieces are missing," Dr King said.

"We have really incomplete observations in many parts of the world and they don't go back long enough in time to really track the climate for long enough."

A lack of weather observations from remote regions like the Arctic makes it difficult to predict the precise behaviour of weather systems. (Supplied: Polar Bears International)

That missing data — often from remote places like the Arctic — is needed to build computer models of unprecedented detail that can better predict weather patterns. 

"We really need high-resolution simulations," Dr King said. 

"We have a few studies with regional, high-resolution simulations that point to a climate change-caused intensification of short-duration extreme rainfall, including in Europe.

"That's quite a powerful line of evidence to suggest that climate change is [enhancing] — or has likely enhanced — the recent extreme rainfall we saw in Germany, the Netherlands and elsewhere.

"But we just don't have enough data to really make conclusive statements."

The missing data is crucial to answering one of the biggest questions in climate science: Are weather systems sticking around for longer in the Northern Hemisphere because of climate change?

The answer — which would connect heat, floods and fire — has everything to do with the jet stream.

The jetstream circling the North Pole, reaching down into North America.

Wavy jet stream theory

Dr King says there is a belt of high-altitude winds that encircle the Northern Hemisphere, called the jet stream, and weather systems often follow that track.

Those winds are related to temperature differences between the cold polar regions and the warm tropics. 

"In a warming world, we're seeing a bit more warming over higher latitudes in the polar regions than we see over the equator," Dr King said.

"And that reduces the temperature difference between the equator and the poles.

"The idea is that, if you reduce that temperature difference between the equator and the poles, both near the surface and higher up in the atmosphere, you might reduce the strength of the jet stream. And you might make it wavier or slower," he said.

A slower, wavier jet stream may allow storms to stick around longer, leading to more extreme weather. 

But there is no conclusive evidence that the jet stream is slowing due to climate change.

"There are a variety of studies looking into this, some of which find evidence to suggest this is happening, particularly from the model-based studies, [and[ others, which suggest this isn't really happening,"  Dr King said. 

How the warming Arctic affects weather patterns in the Northern Hemisphere is an active area of research. (Supplied: Alfred-Wegener-Institut/Mario Hoppmann)

One recent study used detailed computer modelling to show a warmer world would lead not only to more intense rain in Europe but also to slower storm movement. 

However, its lead author — Abdullah Kahraman from Newcastle University in the United Kingdom — was at pains to qualify the limits of the study, saying it related to one very detailed computer simulation.

"This study does not really tell you that this will definitely be happening like that, because this is one scenario," Dr Kahraman said.

"However, when it comes to the jet stream issue, this is not the only simulation that is projecting some kind of decreasing of wind speed in the higher atmosphere."

Other scientists have recently shown there may only be a modest decrease in high altitude winds due to a warming Arctic. 

"It's basically an area of very active research, there are quite a few people around the world looking into this. And there is a diversity of views among scientists," Dr King said.

"At the very least, I think we can say that we don't have a great deal of confidence that this is a clear effect of climate change.

"But there is some indication that there might be more persistence of weather systems, as the jet stream may be allowing them to remain in place for longer.

"This could be contributing to some extreme weather events."

Links

• Then and now: Arctic sea-ice feeling the heat
• Arctic’s ‘Last Ice Area’ May Be Less Resistant to Global Warming
• As Arctic warms, scientists wrestle with its climate ‘tipping point’
• The Arctic is in a death spiral. How much longer will it exist?
• Climate explained: why is the Arctic warming faster than other parts of the world?
• What climate change is doing to the Arctic Ocean
• 2020 Arctic Sea Ice Minimum at Second Lowest on Record 
• 2020 Arctic air temperatures continue a long-term warming streak

(USA TODAY) Scientists Discover More Than 30 Viruses Frozen In Ice, Most Never Seen Before

USA TODAY - Jordan Mendoza

Ancient, 15,000-year-old viruses identified from melting glaciers

What will happen when these ancient, ice-bound viruses thaw out? Buzz60

A group of scientists discovered ancient viruses frozen in two ice samples taken from the Tibetan Plateau in China, and most of them are unlike anything ever seen before.

The findings, published Wednesday in the journal Microbiome, came from ice cores taken in 2015 that scientists believe began to freeze at least 14,400 years ago.

“These glaciers were formed gradually, and along with dust and gases, many, many viruses were also deposited in that ice," lead author and researcher at The Ohio State University Byrd Polar and Climate Research Center Zhi-Ping Zhong said in a statement.

"The glaciers in western China are not well-studied, and our goal is to use this information to reflect past environments. And viruses are a part of those environments."

When researchers analyzed the ice, they found genetic codes for 33 viruses.

Of the 33 found, genetic codes for four of them showed they are part of virus families that typically infect bacteria. However, up to 28 of the viruses were novel, meaning they had never before been identified.

However, the group doesn't believe the viruses originated from animals or humans, but came from the soil or plants. The scientists also believe roughly half of them survived because of the ice.

"These are viruses that would have thrived in extreme environments,” said Matthew Sullivan, co-author of the study and director of Ohio State’s Center of Microbiome Science.

“These viruses have signatures of genes that help them infect cells in cold environments – just surreal genetic signatures for how a virus is able to survive in extreme conditions."

Sullivan added the technology used to study microbes and viruses inside the ice would eventually lead to looking for similar genetic sequences in other extreme ice environments, possibly on Mars.

Senior author of the study Lonnie Thompson said the discovery of the viruses in glaciers of ice will also help researchers understand how they respond to climate change.

“We know very little about viruses and microbes in these extreme environments, and what is actually there,” Thompson said. “The documentation and understanding of that is extremely important."

Links

• Glacier ice archives nearly 15,000-year-old microbes and phages
• 15,000-year-old viruses discovered in Tibetan glacier ice
• Climate Change And Infectious Diseases (pdf)
• Fact check: Yes, viruses can mutate to become more deadly
• How Climate Change Is Contributing to Skyrocketing Rates of Infectious Disease
• How might climate change affect the spread of viruses?

(UK UNILAD) Earth Temperature Could Reach ‘Tipping Point’ Within Five Years, Study Warns

UNILAD - Emily Brown

A study by the World Meteorological Organization (WMO) suggests Earth’s temperature could reach its ‘tipping point’ within the next five years. 

Last year marked one of the three warmest years on record, with the global average temperature being 1.2°C above pre-industrial levels, but the WMO has warned the worst could be yet to come as the chances of the temperature reaching 1.5°C are increasing with time.

The UN Intergovernmental Panel on Climate Change (IPCC) has established 1.5°C as a key tipping point for the Earth’s temperature, beyond which the risks of disasters such as extreme drought, fires, floods and food shortages will increase dramatically.

#NowReading @WMO’s new climate update that shows there is a 40% chance of the annual average global temperature temporarily reaching 1.5°C above the pre-industrial level in at least one of the next five years. https://t.co/n1HytFrByL

— IPCC (@IPCC_CH) May 27, 2021

Earlier this year, the WMO, which is the world’s leading weather and climate organisation, warned that there is a 40% chance the annual average global temperature will reach the threshold in at least one of the next five years.

In a statement cited by CNN, Petteri Taalas, the WMO’s secretary-general, stressed the findings are ‘more than just statistics’.

He continued: ‘Increasing temperatures mean more melting ice, higher sea levels, more heatwaves and other extreme weather, and greater impacts on food security, health, the environment and sustainable development.’

The role of the #Amazon as a carbon sink is in decline, according to a new study led by @LucianaGatti5 in @Nature entitled
"Amazonia as a carbon source linked to deforestation and climate change"#ClimateActionhttps://t.co/LlT5q7SgcK pic.twitter.com/hJ6Xi7aczZ

— World Meteorological Organization (@WMO) July 20, 2021

Even if the threshold is not reached in the coming years, the WMO has said there is a 90% chance that at least one year between 2021 and 2025 will become the warmest on record, surpassing the current hottest record established in 2016.

The Paris Agreement aims to keep the global temperature increase below 1.5°C, but the world is already two-thirds of the way to the tipping point, with the annual average temperature likely to be at least 1°C warmer than pre-industrial levels in each of the coming five years, according to the WMO.

Taalas described the study as ‘yet another wake-up call’, commenting: ‘We are getting measurably and inexorably closer to the lower target of the Paris Agreement on Climate Change. The world needs to fast-track commitments to slash greenhouse gas emissions and achieve carbon neutrality.’

Climate breaks multiple records in 2016, hottest year on record. Global impacts. Extreme and unusual trends continue in 2017 #stateofclimate pic.twitter.com/GvBTtVqiiP

— World Meteorological Organization (@WMO) March 20, 2017

Gavin Schmidt, director of NASA’s Goddard Institute for Space Studies in New York City, said that while there is a ‘little bit of up and down in the annual temperatures’, the long-term trends are ‘unrelenting’.

Per Reuters, he added: ‘It seems inevitable that we’re going to cross these boundaries, and that’s because there are delays in the system, there is inertia in the system, and we haven’t really made a big cut to global emissions as yet.’

In order to reach the goal set out in the Paris Agreement, the IPCC reported that global greenhouse gas emissions must reach net zero by 2050.

Links

• Alarming climate change: Earth heads for its tipping point as it could reach +1.5 °C over the next 5 years, WMO finds in the latest study
• IPCC steps up warning on climate tipping points in leaked draft report
• It's getting more likely the world will reach a climate tipping point in the next five years
• Rising global temperatures 'inexorably closer' to climate tipping point, WMO says
• Rising global temperatures 'inexorably closer' to climate tipping point - U.N.
• Tipping points in the climate system - Wikipedia

(USA The Conversation) The Next Big Financial Crisis Could Be Triggered By Climate Change – But Central Banks Can Prevent It

The Conversation - Garth Heutel | Givi Melkadze | Stefano Carattini

Both climate change and policies to prevent it can rattle the economy. Citizen of the Planet/Education Images/Universal Images Group via Getty Images

Authors Garth Heutel is Associate Professor of Economics, Georgia State University Givi Melkadze is Assistant Professor of Economics, Georgia State University Stefano Carattini is Assistant Professor in Economics, Georgia State University

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 impact.

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.

Climate-stress-testing banks

First, regulators can require banks to publicly disclose their risks from climate change and stress-test their ability to manage change.

The Biden administration recently introduced an executive order on climate-related financial risk, with the goal of encouraging U.S. companies to evaluate and publicly disclose their exposure to climate change and to future climate policies.

In the United Kingdom, large companies already have to disclose their carbon footprints, and the U.K. is pushing to have all major economies follow its lead.

The European Commission also proposed new rules for companies to report on climate and sustainability in their investment decisions across a broad swath of industries in its new Sustainable Finance Strategy released on July 6, 2021. This strategy builds on a previous plan for sustainable growth from 2018.

Mark Carney (right), former head of the Bank of England, has been warning about the economic risks of climate change for several years. The U.S. Federal Reserve, chaired by Jerome Powell (left), has recently begun discussing it as well. AP Photo/Amber Baesler

Carbon disclosure represents a crucial ingredient for “climate stress tests,” evaluations that gauge how well-prepared banks are for potential shocks from climate change or from climate policy. For example, a recent study by the Bank of England determined that banks were unprepared for a carbon price of US$150 per ton, which it determined would be necessary by the end of the decade to meet the international Paris climate agreement’s goals.

The European Central Bank is conducting stress tests to assess the resilience of its economy to climate risks. In the United States, the Federal Reserve recently established the Financial Stability Climate Committee with similar objectives in mind.

Monetary and financial policy solutions

Central banks and academics have also proposed several ways to address climate change through monetary policy and financial regulation.

One of these methods is “green quantitative easing,” which, like quantitative easing used during the recovery from the 2008 recession, involves the central bank buying financial assets to inject money into the economy. In this case, it would buy only assets that are “green,” or environmentally responsible. Green quantitative easing could potentially encourage investment in climate-friendly projects and technologies such as renewable energy, though researchers have suggested that the effects might be short-lived.

A second policy proposal is to modify existing regulations to recognize the risks that climate change poses to banks. Banks are usually subject to minimum capital requirements to ensure banking sector stability and mitigate the risk of financial crises. This means that banks must hold some minimum amount of liquid capital in order to lend.

Incorporating environmental factors in these requirements could improve banks’ resilience to climate-related financial risks. For instance, a “brown-penalizing factor” would require higher capital requirements on loans extended to carbon-intensive industries, discouraging banks from lending to such industries.

Reducing fossil fuel use to slow climate change will affect oil industry assets, like refineries, pipelines and shipping, as well as the industry’s suppliers. Joe Raedle/Getty Images

Broadly, these existing proposals have in common the goal of reducing economy-wide carbon emissions and simultaneously reducing the financial system’s exposure to carbon-intensive sectors. The Bank of Japan announced a new climate strategy on July 16, 2021, that includes offering no-interest loans to banks lending to environmentally friendly projects, supporting green bonds and encouraging banks to disclosure their climate risk.

The Federal Reserve has begun to study these policies, and it has created a panel focused on developing a climate stress test.

Lessons from economists

Often, policymaking trails scientific and economic debates and advancements. With financial regulation of climate risks, however, it is arguably the other way around. Central banks and governments are proposing new policy tools that have not been studied for very long.

A few research papers released within the last year provide a number of important insights that can help guide central banks and regulators.

They do not all reach the same conclusions, but a general consensus seems to be that financial regulation can help address large-scale economic risks that abruptly introducing a climate policy might create. One paper found that if the climate policy is implemented gradually, the economic risks can be small and financial regulation can manage them.

Financial regulation can also help accelerate the transition to a cleaner economy, research shows. One example is subsidizing lending to climate-friendly industries while taxing lending to polluting industries. But financial regulation alone will not be enough to effectively address climate change.

Central banks will have roles to play as countries try to manage climate change going forward. In particular, prudent financial regulation can help prevent barriers to the kind of aggressive policies that will be necessary to slow climate change and protect the environments our economies were built for.

Links

• Tipping points in the climate system - Wikipedia
• How a Climate ‘Stress Test’ Can Foresee Collapsing Banks
• Whatever it Takes to Save the Planet? Central Banks and Unconventional Green Policy
• The Bank of Japan's Strategy on Climate Change (pdf)
• ECB stress testing broader economy over climate risk
• Climate Policy, Financial Frictions, and Transition Risk
• White House Executive Order on Climate-Related Financial Risk 
• Fed to form committee focused on climate risks to financial system
• US economist Joseph Stiglitz warns carbon pricing mismatch may trigger next global financial crisis
• Strategy for financing the transition to a sustainable economy
• Streamlined Energy and Carbon Reporting (SECR) 
• How unconventional is green monetary policy? (pdf)
• Carney warns of risks from climate change 'tragedy of the horizon'

(AU AFR) Australia Faces Carbon Tariffs Without Big Ambitions: Mark Carney

 AFR - Michael Roddan

Former Bank of England governor Mark Carney believes Australia must show high ambitions to tackle climate change and reduce emissions to avoid carbon tariffs being whacked on the country.

Former governor of the Bank of England Mark Carney. Bloomberg

The UN’s November Climate Change Conference of the Parties (COP26) in Glasgow would pressure countries to develop solid policies for reducing emissions, said Mr Carney, the current UN Special Envoy on Climate Action and Finance.

“The more high ambition is shown by all countries – Australia included – the less likely there is to be border adjustment mechanisms and, and that’s, that’s what we’re going for,” Mr Carney told the Australian Council of Superannuation Investors conference on Wednesday.

COP26 was trying to recognise that different counties were going to have different policies, such as carbon taxes or regulation or subsidies, but the world was trending towards enforcing climate action through trade policy, Mr Carney said.

“There is a push, we see it in Europe, most prominently, but also the United States, talking about carbon border adjustment mechanisms (CBAMs). Canada as well,” he said.

“A number of countries as they up their ambitions, are saying: ’Well, wait a minute, what about these high intensity and high emission industries - aren’t I putting myself at a competitive disadvantage if others aren’t moving as fast as rapidly, and therefore do I put these so-called CBAMs in place.”

“There’s no question that momentum is there. We’re trying to arrest it, as Australia’s a free-trading nation, so is the UK as is Canada, and the world is better off if we can keep the trade system open. But there is a risk, without question.”

Prime Minister Scott Morrison has been averse to carbon pricing and taxing schemes, but there is growing pressure on Australia as international groups push for the introduction of CBAMs, a tariff Trade Minister Dan Tehan has attacked as a potentially protectionist measure.

President Joe Biden has said the US will introduce a carbon price, and will look at carbon border taxes on imports if necessary. China is also examining a broad-based domestic carbon price, although has evinced less support for carbon border taxes.

A combined US-EU carbon tariff would raise the prospect that some Australian exporters could face significant new costs even if Mr Morrison does not introduce a carbon price domestically.

Also speaking at the ACSI conference was Dr Graham Sinden, head of climate risk at the Australian Prudential Regulation Authority, who said the regulator’s work on comparing the country’s top bank’s preparedness for climate change was racing ahead.

The work, which is organising big lenders to analyse the exposure to climate-related risks of their balance sheets, was put on hold last year after the plan was announced on the same day Australia enacted emergency measures in relation to the then-growing coronavirus scare.

APRA was working with the five big banks and the Australian Banking Association to design the probe, and had “just recently handed that project over to the execution phase with the banks to commence working through understanding what the risks are to their balance sheets”, Mr Sinden said.

“We expect the outcomes of that, both from a quantitative perspective – understanding what risk looks like – and the potential influence of different climate pathways on risk after 2050, we expect that to be quite informative,” he said.

Links

• EU carbon tariff to hit Australian exports
• EU's carbon clock starts ticking for Australian companies
• Australia at turning point in trade talks with UK: Dan Tehan
• US takes tougher line on carbon border tax
• Australia risks being left behind on climate: McKibbin
• European Parliament backs carbon border tax
• How a US carbon border tax could hurt Australian exports
• (AU) Carbon Tariffs: What Are They And What Could They Mean For Australia?
• (Australia Institute) Australian Manufacturing At Risk From Morrison Resistance To Carbon Border Adjustment Mechanism At G7 Summit
• Two cheers for carbon tariffs