MNI POLICY: BIS: CenBks May Be Climate Rescuers Of Last Resort

By Evan Ryser

     WASHINGTON (MNI) - Climate change threatens the price stability targets of

central banks and the damage could force them to rescue the financial system

again, the Bank for International Settlements said in a research paper Monday.

     Central banks may have to become "climate rescuers of last resort" and buy

large sets of devalued or carbon-intensive assets, said the paper from the

Switzerland-based BIS.

     "A new global financial crisis triggered by climate change would render

central banks and financial supervisors powerless," said the paper by BIS Deputy

General Manager Luiz Awazu Pereira da Silva and co-authors Patrick Bolton,

Morgan Despres, Frederic Samama and Romain Svartzman.

     Central banks have a role to play in avoiding such an outcome, like

providing better analysis of the potential for future damage. Using traditional

backward-looking risk assessments and existing climate-economic models is

"particularly challenging" and cannot anticipate accurately enough "green swan"

risks.

     These "green swan" risks -- inspired by Nassim Nicholas Taleb's "black

swan" -- include physical, social, and economic damage related to the changing

climate.

     The BIS also called on central banks to coordinate the fight against

climate change, including evaluating carbon taxes and integrating sustainability

into financial practices. 

     "Naturally, the first-best solution to address climate change and reduce

greenhouse gas emissions is Pigovian carbon taxation," Agustin Carstens, chief

of the BIS, wrote in a foreword to the paper. "This policy suggests that

fundamental responsibility for addressing issues related to climate change lies

with governments."

     Policy makers have only in the last few years begun to tackle dangers from

rising storm damage and rules favoring renewable energy over fossil fuels. Bank

of England Governor Mark Carney warns climate change has become a major concern

to the global economy and President Christine Lagarde has vowed to put climate

change on the ECB's agenda. Fed Governor Lael Brainard has said it will be

important to "take into account the effects of climate change and associated

policies in setting monetary policy."

     The BIS was skeptical change can happen fast enough. With many post-World

War II institutions under growing criticism, the "unprecedented level of

international coordination required to address the difficult political economy

of climate change is seriously compromised," the paper said.

--MNI Washington Bureau; +1 202 371 2121; email: evan.ryser@marketnews.com

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