Pay Attention to the Central Bankers Behind the Curtain
Compared to the noise lawmakers and officials have been making about the trillions of dollars they’ve pumped into their respective economies to recover from the shock of Covid-19, central bankers have gone about their work more quietly. But that doesn’t make the monetary response any less important—or less interesting to those who’d like to see the coronavirus response tackle climate goals, as well.
Until now, “central banks haven’t played a big role,” says Michael Jacobs, a research fellow at the University of Sheffield and from 2007-2010 an adviser to then-U.K. Prime Minister Gordon Brown. “They’ve mainly been buying government bonds to support government spending.” In March, the European Central Bank announced a €750 billion ($812 billion) emergency pandemic purchasing program, while the U.S. Federal Reserve launched a $454 billion monetary stimulus program that includes buying corporate debt and exchange-traded funds.
“Things will get interesting a bit further down the line” with that amount of capital in play, Jacobs says, if central banks begin to take more active steps to sort the good climate investments from the bad. Right now, polluting companies account for 63% of the ECB’s corporate purchases, according to a study published this week.
“This is all still in the future, but it’s getting closer as more and more people are talking that way,” Jacobs says. He believes Covid-19 and climate change are not two crises that need to be dealt with separately. “A strong argument is beginning to emerge that there are sensible ways of doing the things that need to be done to tackle both.”
Statements like those from Bank of England Governor Andrew Bailey, who last March told a parliamentary committee that he’d go further than his predecessor in implementing climate change policies, suggest the U.K. and some European authorities may start heeding those arguments.
The same case could be made for developing nations. While these are almost always responsible for a tiny amount of global emissions, they’re also disproportionally impacted by climate change, and their governments are often ill-prepared to face disruptions such as those caused by the coronavirus pandemic.
Development banks and other international institutions can play a key role in the developing world’s shift to green, says Mohamed Adow, the director of energy and climate think tank Power Shift Africa. “If we can unlock the investment, we can electrify the continent, leapfrog dirty energy, and become a green leader,” Adow says from Nairobi. “At the same time, the funds could allow us to build infrastructure that boosts our resilience to the effects of climate change.”
Much like in the rest of the world, the bulk of Africa’s emergency funds will be spent on containing the health crisis and blunting its economic consequences. A lack of running water, power, and overcrowding in the continent’s largest cities challenge the implementation of hygiene and social distancing measures that scientists recommend to prevent the spread of the virus.
“We need to use this crisis to build Africa’s climate resilience,” Adow says. Once the most immediate emergency is over, there will be an opportunity for fossil fuel-dependent countries such as South Africa, Nigeria, and Angola to start diversifying into renewables, and for the rest of sub-Saharan nations to reduce its infrastructure deficit, he says.
The International Monetary Fund, one of the world’s largest lenders, has received calls for emergency financing from more than 90 countries—an unprecedented number—and expects demand to reach about $100 billion. In April, the IMF’s Managing Director Kristalina Georgieva said in a speech at the annual Petersberg Climate Dialogue that nations must do all they can to promote an economic recovery that also fights against climate change. “Taking measures now to fight the climate crisis is not just a ‘nice-to-have,’ it is a ‘must-have’ if we are to leave a better world for our children,” she said.
But so far, the IMF has yet to back up those words with actions. Neither the institution’s official communications nor the ECB or the Fed have indicated lending will come with green strings attached.
Laura Millan writes the Climate Report newsletter about the impact of global warming.
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