contribute to climate Anna Breman policy Deputy Governor 3 March - - PowerPoint PPT Presentation

How the Riksbank can contribute to climate policy

3 March 2020

Anna Breman Deputy Governor

Robur et Securitas – Strength and Security

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 Thousands of years

Carbon dioxide in the atmosphere

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

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)

200 400 600 800 1000 1200 1400 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)

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

PRECIPITATION TEMPERATURE 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

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

Adaptation to a less fossil-based economy is already under way

Source: Macrobond

Index 1 January 2008=100

50 100 150 200 250 50 100 150 200 250 08 10 12 14 16 18 20

S&P 500 Dow Jones Oil & Gas Dow Jones Coal

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

• utcomes”

Insurance perspective – we should insure ourselves so that we avoid and reduce the consequences of extreme outcomes

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

Climate change can affect monetary policy – three scenarios

A temporary supply shock A slow structural change A severe economic crisis

The monetary policy toolbox is not exhausted

• Loans to financial institutions to provide liquidity in a crisis

Liquidity support

• But the interest rate is close to its effective lower bound

Policy rate

• Purchase of housing and corporate bonds
• “Forward guidance”
• Loans to companies via banks
• Foreign exchange interventions

Other measures

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 coins Other liabilities

Market

• perations

Capital

100 200 300 400 500 600 700 800 900 1 000

31 December 2019 Assets Liabilities

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

The Riksbank’s role in climate work

Research and analysis Financial sector regulation The Riksbank’s balance sheet

Minor losses with a high carbon tax

Source: Hassler, Krusell and Olovsson (2018)

Per cent

5 10 15 20 25 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

The Riksbank’s role in climate work

Research and analysis Financial sector regulation The Riksbank’s balance sheet

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

0,1 0,2 0,3 0,4 0,5 0,1 0,2 0,3 0,4 0,5 In the foreign exchange reserves Potential holdings

Scope to broaden bond purchases

Sources: SCB, Kommuninvest, Covered Bond Label and the Riksbank

Outstanding volume of bonds issues in SEK millions

500 1000 1500 2000 2500 3000 3500 4000 500 1000 1500 2000 2500 3000 3500 4000 2013 2014 2015 2016 2017 2018 2019

Housing bonds Government bonds Corporate bonds Municipal bonds

Central banks need to take the climate issue seriously

• 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’s contribution

Thank you!