Guest essay by Eric Worrall
Banks have become remarkably coy about demanding carbon tax cash, in return for support for climate “investment”, but at least one major bank wanted to make sure readers got the hint.
Banking on climate change
19 Sep 2017
Leaving aside that the energy debate in Australia is almost entirely a political one, there is another front, beyond politics and the economics of risk, for would-be financiers.
Global regulators of and investors in the financial services sector, the first port of call for funding or organising the funding of energy generation and distribution, have very clear views on the carbon economy.
Mark Carney, governor of the Bank of England and chairman of the Financial Stability Board has been one of the most prominent figures warning banks to be aware of their role in and vulnerability to a more carbon constrained world.
In a recent presentation at a forum organised by the BIS, OMFIF, the Deutsche Bundesbank and the World Bank Group, Green finance: can it help combat climate change?, Luiz Awazu Pereira da Silva outlined key elements of how regulators were thinking.
“Any good policy to combat climate change requires a ‘price’ to act as an incentive to reduce a negative externality such as greenhouse gases (GHGs), in line with basic welfare economics,” he said.
While couching his discussion in the even-handedness of official economists, da Silva argued a “shadow price”, incorporating the social cost of carbon (SCC), would be enough to reduce emissions in a perfect world.
“In particular, in the cost-benefit analysis of investment projects, (we should) to take into account these negative externalities (eg congestion, pollution, toxic emissions),” he said.
The letter the author refers is an effort by a group called ShareAction. I haven’t found a copy of the actual letter, but based on their other material there is a lot of talk about assets under risk, but very little talk about carbon taxes.
My thought – if low carbon investments are such a good idea, why do banks need “incentives”?