MFrom the New York Times: Mark Carney, the governor of the Bank of England, declared that the warming climate presented major risks for the global economy and global financial stability, and that businesses and regulators needed to move more quickly to try to contain the potential economic damage even though it may seem uncertain and far off.
“We don’t need an army of actuaries to tell us that the catastrophic impacts of climate change will be felt beyond the traditional horizons of most actors — imposing a cost on future generations that the current generation has no direct incentive to fix,” he said. “In other words, once climate change becomes a defining issue for financial stability, it may already be too late.”
Mr. Carney calls the economic challenges around climate the “tragedy of the horizon,” in contrast to the long-noted economic phenomenon of the “tragedy of the commons.” That is, the costs of a warming climate come on a time scale and with an uncertainty that go beyond the usual multiyear business cycle, beyond political cycles of presidential and parliamentary elections.
Global insurers are already facing a higher frequency of large, expensive disasters from extreme weather, and in the future could face untold liabilities as the losers from a warming planet try to extract compensation from the (insured) companies that profited from fossil fuel production. It was no coincidence that Mr. Carney delivered his speech at the three-century-old insurer Lloyd’s of London.
Those energy extraction industries, which include many of the planet’s biggest companies, could one day face existential risk. If global governments get more aggressive about restricting carbon emissions, it could mean that billions of investment in oil and gas extraction will be rendered useless and undermine both some of the most widely held investments and the government finances of oil-producing regions. For example think of it this way: Sorry, we can’t afford to repair this bridge in Kentucky because interest rates are too high because Florida is borrowing so much money to try to keep Miami inhabitable.
There’s little doubt that other large and powerful institutions, whether banks, insurers, industrial giants or regulatory agencies, will have to deal with these issues. Think of Mr. Carney’s speech as a call to begin that work sooner, rather than later.
Via New York Times