Rebecca Gredley and Matt Coughlan
(Australian Associated Press)
The world’s central banks have been told they must take responsibility for climate change if they are to stave off a systemic financial crisis, with a price on carbon pointed out as an effective policy.
The Bank for International Settlements – the global financial institution which supports central banks such as the Reserve Bank of Australia – has produced a new report detailing the financial instability climate change can cause.
Treasurer Josh Frydenberg has downplayed the report, which also says “carbon prices may need to skyrocket in a very short time span” due to the size of the challenge ahead.
“What the report also points out is the need for a balanced approach … which sees not only emissions reduction, but adaptation, mitigation and resilience measures put in place without compromising the strength of the economy,” Mr Frydenberg told reporters in Canberra on Tuesday.
The report says governments have failed to act and will continue to do so unless faced with “much broader” pressure from the public and business.
It warns of “green swan” events, putting an environmental brushstroke to unpredictable and severe “black swan” economic events.
A black swan event has been long defined as an unpredictable or unforeseen happening, and a green swan event is the environmental version of that.
“Given the current deficiency in global policy responses, it only becomes more likely that the physical impacts of climate change will affect the socioeconomic system in a rapidly warming world,” the report says.
In the worst case scenario, central banks may have to “intervene as climate rescuers of last resort”, and purchase carbon-intensive assets such mines and power stations.
But Mr Frydenberg wouldn’t say if that’s something to be worried about, instead saying he “can’t see that happening”.
Labor frontbencher Bill Shorten says the government should focus on the cost of not acting on climate change, rather than the cost of change.
“Australians can walk and chew gum, we’ve got to start having the conversation about climate policies.”
The report notes research saying entire regions of Australia could become uninhabitable, due to a mix of high temperatures and humidity levels.
Bank of France Governor Francois Villeroy de Galhau says climate change needs to be integrated into all economic forecasts.
Collateral assessment frameworks also need to be overhauled in order to reflect climate-related risks, he says.
The Reserve Bank has previously noted the financial risks of climate change, and is working with the business sector and climate experts to map economic models.
The report comes as four of Australia’s leading international aid organisations urged the Morrison government to take major climate change action amid the bushfire crisis.
World Vision Australia, Oxfam Australia, Plan International Australia and Save the Children Australia want more ambitious emission reduction targets to limit the global temperature rise to 1.5C, warning many countries will face unmanageable suffering and devastation if more isn’t done.