Yellen, Carney Back Central Bank-Like Councils on Climate Change
Former policy makers Janet Yellen and Mark Carney called on governments to tackle climate change by copying the central bank template and set up independent councils to determine policies without political interference.
“It helps overcome political reluctance to take actions that maybe are unpopular and painful,” ex-Federal Reserve Chair Yellen said in an interview as the Group of 30, a think tank of former and current policy makers, academics and finance executives, set out recommendations for how to shift to a global economy with net-zero greenhouse-gas emissions.
In the report, Yellen and former Bank of England Governor Carney likened the fight against global warming to setting monetary policy, because both require significant long-term decisions that could be undermined by short-term partisan pressures.
“If the central banks make clear what the path of policy is going to look like over time, that influences long-term rates and causes adjustments to be made and strengthens the response,” Yellen said. “A lot of us who have been in central banking think it’s similar in climate policy.”
Governments around the world have set up independent central banks to take steps to control inflation that might be politically unpopular in the short-term but would be good for the economy in the long run.
Politicians who campaign to be elected with ambitious climate change targets often have strategies that lack credibility. When they win, they’re tempted to “skimp” on environmental efforts in order to fuel short-term growth, the G30 said in its report.
“This is certainly true of the Paris commitments,” Yellen said, referring to the 2015 international climate accord. “I’m not just talking about the U.S. Other countries that have made commitments are not actually stepping up to the plate.”
One country has already set up a version of a carbon council, Yellen said. The U.K. established the Committee on Climate Change in 2008 to advise the government on meeting its binding 2050 carbon-reduction goals.
“Often you get better decision making when you keep things out of politics and have a group of experts who have a charge and then apply technical expertise to determine or give clear advice about how to go about fulfilling a mandate,” Yellen said. “Certainly there will be groups who don’t want to see carbon prices rise over time.
The G30 also wants the central banks to stress-test financial institutions for vulnerabilities associated with climate change. “The Fed has done less than other central banks to promote this,” Yellen said.
The group said carbon pricing was crucial to allowing companies to internalize the costs of pollution. Yellen personally favors a carbon tax as opposed to an emission trading system but the report doesn’t come down on one side.
Carney is advising U.K. Prime Minister Boris Johnson on climate finance ahead of the next round of United Nations talks on global warming, due to take place in Glasgow next year.
In that role, he’s pushing for countries to agree to make it mandatory for all listed companies to report on their exposure to climate-change risks by 2023.
“You can see the direction to travel,” Carney said in an interview. The report says companies should be running their own internal scenario analysis a year before.
“The reason why it would be mandatory not in 2022 is because you want people who’ve been slower to be prepared,” he said. “A couple of reporting rounds, but not waiting forever, because one thing around climate is we don’t have a lot of time.”
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