Joachim Fels, Consulente Economico Globale di Pimco, si chiede: Qual è il fil rouge che lega il cambiamento climatico alla politica monetaria quotidiana? In primo luogo, già da diversi anni, le banche centrali, in qualità di enti regolatori, hanno iniziato ad occuparsi delle implicazioni del cambiamento climatico sulla stabilità finanziaria. Mark Carney, governatore della Banca d’Inghilterra e presidente del Financial Stability Board (FSB), ha tenuto un discorso sull’argomento nel 2015, evidenziando tre tipi di rischi derivanti dai cambiamenti climatici: (i) rischi fisici dovuti all’impatto di eventi climatici e meteorologici sulle passività assicurative e sul valore delle attività finanziarie; (ii) rischi di responsabilità che potrebbero sorgere in futuro per gli estrattori e gli emettitori di carbonio; e (iii) rischi di transizione derivanti dal processo di adeguamento a un ambiente a basse emissioni di carbonio, che potrebbe compromettere il valore di un’ampia gamma di attività nei settori ad elevata intensità di carbonio.
Secondo PIMCO, i rischi di stabilità finanziaria correlati alle condizioni climatiche diventeranno una componente standard degli esercizi di stress test delle autorità di controllo per le istituzioni finanziarie.
In secondo luogo, i cambiamenti climatici potrebbero avere delle ripercussioni sulla gestione della politica monetaria, in quanto potrebbero compromettere la capacità della banca centrale di mantenere in equilibrio l’economia. Sebbene questo argomento abbia ricevuto finora molta poca attenzione, le cose potrebbero presto cambiare a seguito di un interessante discorso tenuto da Benoit Cœuré, membro del Comitato esecutivo della BCE.
Cœuré sostiene che i cambiamenti climatici incideranno sulla politica monetaria in un modo o nell’altro, sia che rimangano incontrollati o che vengano adottate misure più drastiche per accelerare la transizione verso fonti di energia rinnovabili. Se non si interviene, le economie e le banche centrali potrebbero trovarsi di fronte a shock più frequenti e/o più gravi tali da complicare il lavoro della banca centrale: potrebbe, infatti, diventare più difficile identificare gli shock che colpiscono l’economia. I cambiamenti climatici rischiano, inoltre, di modificare la distribuzione degli shock e portare ad un numero maggiore di eventi catastrofici (“fat tail”), con conseguenze nel lungo termine.
Tuttavia, secondo l’esperto di PIMCO, anche se venisse intrapresa un’azione più aggressiva nei confronti dei cambiamenti climatici, le banche centrali si troverebbero comunque ad affrontare sfide importanti. Uno spostamento del mix energetico verso le energie rinnovabili potrebbe portare, nel tempo, a un forte calo dei prezzi del petrolio. L’esperienza insegna che i grandi cambiamenti nei prezzi del petrolio tendono a influenzare le aspettative di inflazione, complicando dunque la politica monetaria.
Per concludere, il cambiamento climatico sta diventando un argomento sempre più rilevante per le banche centrali e gli investitori. Secondo Fels, se non si affronta il tema, i decisori politici e gli investitori potrebbero andare incontro a “brutti risvegli” nei prossimi anni.
Coping with Climate Change
Di Joachim Fels, PIMCO Global Economic Advisor
Global climate change has been researched and debated for decades, but central bankers and most investors and businesses have only started to focus on its implications for what they do for a living in the last few years.
The topic gained even more prominence recently as William Nordhaus (along with Paul Romer) received the 2018 Nobel Memorial Prize in Economic Sciences for integrating climate change into long-run macroeconomic analysis. Also, only last week an all-star roster of 45 economists (including 27 Nobel laureates, 12 former chairmen of the president’s Council of Economic Advisors (CEA), two former Treasury secretaries and former Fed chairs Paul Volcker, Alan Greenspan, Ben Bernanke and Janet Yellen) published a statement in the Wall Street Journal supporting a (revenue neutral) carbon emission tax on businesses. The proposal foresees that the new tax would be fully redistributed to U.S. households to compensate them for higher energy prices. The tax would replace the need for less efficient carbon regulation and encourage technological innovation and large-scale infrastructure investment according to the economists.
Why would central bankers take a professional interest in this topic, you may ask – what does climate change have to do with day-to-day monetary policy? The short answer is “a lot”, both conceptually and practically. Here’s why.
First, central banks as regulators started to focus on the financial stability implications of climate change already several years ago. Mark Carney, Governor of the Bank of England and Chairman of the Financial Stability Board (FSB), gave a seminal speech on the topic in 2015, highlighting three kinds of risks emanating from climate change: (i) physical risks emanating from the impact today of climate- and weather- related events on insurance liabilities and the value of financial assets; (ii) liability risks that could arise in the future for carbon extractors and emitters; and (iii) transition risks that result from the process of adjustment to a low-carbon environment, which could significantly impair the value of a large range of assets in carbon-intensive sectors. Since then, the FSB, central banks and supervisors have been working on integrating climate-related risks into their broader financial risk analysis and first status and progress reports by several of these institutions have been published recently. While this is work in progress, expect climate-related financial stability risks to become a standard component of regulators’ stress test exercises for financial institutions.
Second, apart from financial stability concerns, climate change may also have implications for the conduct of monetary policy as it could affect central bank’s ability to keep the economy on an even keel. While this topic has received much less attention so far, this could change soon, potentially sparked by a very interesting recent speech by ECB Executive Board member Benoit Cœuré (hat-tip to my PIMCO colleague Konstantin Veit for drawing my attention to it). Just as Carney’s 2015 speech initiated a large body of work on the financial stability implications of climate change, Cœuré’s speech could kick-start broader interest in the monetary policy implications of global warming.
Cœuré argues that climate change will affect monetary policy one way or the other, whether it is left unchecked or more drastic measures are taken to accelerate the transition to renewable sources of energy. If no action is taken, economies and central banks may be confronted with more frequent and/or more severe shocks – hurricanes, spells of excessively hot or cold temperatures ,floods caused by rising sea levels, etc. – that could hugely complicate central bank’s tasks in several ways :
- First, it may become more difficult to identify the shocks that are hitting the economy and to separate the noise from the signal. Weather-related shocks can easily play havoc with economic activity and inflation and disentangling the variation in the data is no easy task. This raises the risk of policy mistakes due to data uncertainty. To take a recent example, it is not easy to gauge the contribution that low water levels on the river Rhine due to the hot summer, which hindered shipping and disrupted the supply chain, have made to negative GDP growth in Germany in the third quarter of last year. Moreover, the extent of the production disruptions in the car industry caused by new emission testing standards ( a policy response to climate change) is difficult to gauge. Deciding how much of the slowdown is caused by these factors and thus temporary versus how much is a slowdown caused by longer-lasting fundamental factors that might warrant a monetary policy response is fraught with difficulties.
- Second, climate change may change the distribution of shocks and lead to more “fat-tail” catastrophic events. If so, and given that central banks that are stuck at the lower bound for interest rates and have bought large amounts of assets don’t have much room for maneuver anyway, monetary policy may run out of policy space even more frequently.
- Third, climate-related shocks may become more persistent and cause lasting damage in the form of a longer-run negative supply shock. Negative supply shocks destroy output and raise inflation (stagflation!) and if they persist, central banks face a dilemma as they have to choose between supporting growth or fighting inflation. The larger and more persistent the shocks the larger the trade-offs central banks will be facing.
However, even if more aggressive action against climate change is taken (say, in the form of carbon taxes that are high enough to encourage a more rapid shift towards a low-carbon environment), central banks will be facing significant challenges. A shift in the energy mix towards renewable energy could lead to a big decline in oil prices over time. While such a shift would the a change in relative prices, experience shows that large changes in oil prices tend to affect inflation expectations and thus complicate monetary policy. Take the sharp decline in oil prices in 2014, which came at a time when underlying inflation and inflation expectations were already very low. The plunge in headline inflation caused by lower oil pushed inflation expectation lower and forced the ECB into quantitative easing and the Fed to delay the planned first rate hike by almost a year.
Taken together, climate change is becoming an increasingly relevant topic for central banks and investors alike. Whether it is left unchecked or action is taken to move away more quickly from a carbon-intensive economy, both policy makers and investors may be in for some climate-change related rude awakenings in the coming years.