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Mark Carney and Janet Yellen co-chaired a report Thursday urging economies to set a "net-zero emissions" goal by 2050 and warned that climate change could bring a 25% hit to global GDP by the end of this century if the world continued on its current path.
The call from two of the most prominent central bankers of the last decade is a strong push for central banks to catch up to the scientific evidence showing climate risks could wipe out banks and energy companies. It could also motivate government action that's frayed since Donald Trump kept the U.S. out of the Paris climate agreement while the ECB pushes tougher fuel standards and China becomes a leading producer of solar panels.
"The scale of the climate challenge is large, the window of opportunity is short, and the risks are existential," the former BOE and BOC Governor Carney said in the report for the Group of Thirty think-tank in Washington.
Current policies are nowhere near enough to prevent the temperature rise of 3 degrees Celsius over preindustrial levels by 2100 that will trigger "severe and irreversible physical damage," the report found. Governments should set up independent panels to guide new policies, providing long-term credibility akin to how central banks tamed inflation, the G30 said.
Carbon prices should "gradually increase over time to incentivize firms and speed the shift to net-zero," said Janet Yellen, G30 co-chair along with Carney and a former Fed chair. Many global carbon prices that are in place range from less than USD10 to USD30 a ton, less than the USD80 needed to prevent the 2 degree temperature rise that could stabilize the climate, the report found.
Governments can start now by tailoring Covid-19 economic restoration packages to a greener economy, the report said. While companies face steep costs if they lag in developing clean technologies and reporting climate exposures to shareholders, "there is no substitute for effective, predictable, and credible public policies," the report said.
Central banks should run regular stress tests, and private financial institutions should also help their clients make the transition to a low-carbon economy, the report said.
Otherwise the world faces more damage from higher sea levels, food insecurity and more heat warnings, and "world gross domestic product (GDP) could be up to 25 percent lower by 2100 due to these impacts," the report said.
Governments could also impose trade duties to ensure nations moving first on climate change don't have domestic companies penalized in global markets, the report said, so long as they comply with WTO trade rules.
While companies face major risks from the phasing out of fossil fuel subsidies and assets made less valuable as carbon is correctly priced, "mainstreaming sustainable investing will help turn an existential risk into the greatest commercial opportunity of our time," said Carney, who is also a special UN climate envoy.
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