breman slides: how the riksbank can contribute to climate ... · credit losses increased risk...
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How the Riksbank can contribute to climate policy
3 March 2020
Anna Breman
Deputy Governor
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Robur et Securitas – Strength and Security
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Carbon dioxide concentrations in the atmosphere over the last 800,000 years
Carbon dioxide in the atmosphere over the last 800,000 years. Year
zero represents 2019.
Source: Lüthi, D., et al., 2008 supplied by NOAA NCEI Paleoclimatology
Program
Parts per million (ppm)
2019: 408.55
150
200
250
300
350
400
450
150
200
250
300
350
400
450
800 738 685 597 547 470 355 260 164 58 9 0
Thousands of years
Carbon dioxide in the atmosphere
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The climate and its effect on the economy and the financial system
Climate-related risks can affect monetary policy – three different scenarios
What can the Riksbank do to contribute to more sustainable development
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By how much will emissions increase? – two scenarios
The concentration of carbon-equivalent greenhouse gases in the
atmosphere in two of the IPCC’s scenarios, RCP 8.5 (continued carbon
emissions) and RCP 4.5 (reduced emissions).
Source: RCP Database (Version 2.0.5)
Parts per million (ppm)
0
200
400
600
800
1000
1200
1400
0
200
400
600
800
1000
1200
1400
1950 1970 1990 2010 2030 2050 2070 2090
Historical emissions Continued emissions (RCP 8.5) Reduced emissions (RCP 4.5)
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Substantial uncertainty over the effects of climate change
The graph shows the change in temperature, precipitation and sea
level in the two IPCC scenarios. The figures illustrate the maximum,
minimum and mean values.
Sources: SMHI scenario data and SMHI Klimatologi no. 41.
+7.9
+5.9
+4
+41.4
+27.1
+17
Change in relation to the mean value
(1961-1990), %
Change in relation to the mean value (1961-1990),
degrees C
Change in relation to the mean value (1986-2005),
cm
PRECIPITATIONTEMPERATURE SEA LEVEL
+66.4
+42.4
+21.4
+3.8
+3.1
+2.3
+39.1
+18.5
+8.2
+39.4
+21.4
+4.4
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Climate change affects the economy
PHYSICAL RISK
Gradual global warming Extreme weather events
TRANSITION RISK
Adaptation to less fossil-based economy
Climate taxes Tougher regulation Changed consumption
patterns
COMPANIES, AGRICULTURE AND
HOUSEHOLDS
FINANCIAL INSTITUTIONS
Tighter insurance requirements
Investment losses
Credit losses
Increased risk weights
Lower productivity
Falling asset prices
Lower profits
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Adaptation to a less fossil-based economy is already under way
Source: Macrobond
Index 1 January 2008=100
0
50
100
150
200
250
0
50
100
150
200
250
08 10 12 14 16 18 20
S&P 500 Dow Jones Oil & Gas Dow Jones Coal
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Climate policy should be designed to avoid extreme outcomes
Climate system particularly complex – substantial uncertainty and risk for extreme outcomes with huge costs
Decisions shrouded in uncertainty – “Good decisions on average” or “avoid really bad outcomes”
Insurance perspective – we should insure ourselves so that we avoid and reduce the consequences of extreme outcomes
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The climate and its effect on the economy and the financial system
Climate-related risks can affect monetary policy – three different scenarios
What can the Riksbank do to contribute to more sustainable development
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Climate change can affect monetary policy –three scenarios
A temporary supply shock
A slow structural change
A severe economic crisis
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The monetary policy toolbox is not exhausted
• Loans to financial institutions to provide liquidity in a crisisLiquidity support
• But the interest rate is close to its effective lower boundPolicy rate
• Purchase of housing and corporate bonds
• “Forward guidance”
• Loans to companies via banks
• Foreign exchange interventions
Other measures
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Purchase of government bonds swells the Riksbank’s balance sheet
Source: The Riksbank
SEK billion
FX reserve
Gold
Other assets
SEK portfolio
FX debt
Notes and coinsOther liabilities
Market operations
Capital
0
100
200
300
400
500
600
700
800
900
1 000
31 December 2019
Assets Liabilities
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The climate and its effect on the economy and the financial system
Climate-related risks can affect monetary policy – three different scenarios
What can the Riksbank do to contribute to more sustainable development
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The Riksbank’s role in climate work
Research and analysis
Financial sector regulation
The Riksbank’s balance sheet
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Minor losses with a high carbon tax
Source: Hassler, Krusell and Olovsson (2018)
Per cent
0
5
10
15
20
25
0
5
10
15
20
25
2010 2050 2090 2130 2170
High tax when a low tax is correct Low tax when a high tax is correct
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The Riksbank’s role in climate work
Research and analysis
Financial sector regulation
The Riksbank’s balance sheet
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How sustainable are the foreign exchange reserves?
Direct greenhouse gas emissions, excluding uptake and emission of
greenhouse gases from land use, GHG (kt CO2e)/GDP (USD million).
Sources: UNFCCC, OEDCD and Climate Watch.
.
Emissions as a share of GDP
0
0,1
0,2
0,3
0,4
0,5
0
0,1
0,2
0,3
0,4
0,5
In the foreign exchange reserves
Potential holdings
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Scope to broaden bond purchases
Sources: SCB, Kommuninvest, Covered Bond Label and the Riksbank
Outstanding volume of bonds issues in SEK millions
0
500
1000
1500
2000
2500
3000
3500
4000
0
500
1000
1500
2000
2500
3000
3500
4000
2013 2014 2015 2016 2017 2018 2019
Housing bonds Government bonds Corporate bonds Municipal bonds
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Central banks need to take the climate issueseriously
• Independence of the Riksbank
• Focus on both business cycle and structural changes
• The Riksbank is taking the climate issue seriously
From here strength and security
• Central banks can contribute the means within their mandates
Global price on carbon dioxide is the
highest priority
• Research and analysis
• Cooperation with other authorities and international networks
• Continue work to review our assets
The Riksbank’scontribution
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Thank you!