A green light to lead us on the path of economic
recovery
Contribution by Frank Elderson during a satellite event
of the 11th edition of the Petersberg Climate Dialogue:
Financing Climate Ambition in the context of
COVID19
29 april 2020
Frank Elderson participated in the virtual Petersberg Climate Dialogue side event 'Financing Climate
Ambition in the context of COVIDー19. In his contribution he pointed out three ideas that he thinks are
important in order to shape our thinking in terms of recovery measures that should be taken.
It is a great honour for me to be on this distinguished panel and to join this wonderful
conference.
No doubt, at this moment the first priority of governments is halting the spread of the COVID-19
virus. That having been said, the climate crisis has not just suddenly disappeared. The droughts,
the floods, the fires, the famine, the refugees, biodiversity loss: unfortunately they are all still
there.
At this moment, all around the world, unprecedented stimulus packages are being implemented to
keep economies afloat. These amounts run into billions and trillions.
The priority is to of course limit the economic impact of the pandemic crisis unfolding in front of
us. That said:
Are we going to blindly return to our brown past?
Are we going to massively invest in what will, to a large extent, turn out to be stranded assets? If
you allow me to put it even more bluntly: are we, in ill-directed attempts to restore the old
economy, going to continue to destroy the planet by locking in a 3 degree scenario?
Are we going to squander the very last chance we might have to avoid catastrophic climate
change?
Of course we should not, of course we must not. And after this conference, I hope and trust we
will all say: of course we will not.
In that vein, I would like to point out three ideas that I think are important in order to shape our
thinking in terms of recovery measures that should be taken. The three concrete ideas I would like
to share are:
Think about public investments. The links that should be made with the climate agenda
that is already there. We should frontload already identified green investment programmes such
as the EC Green Deal and the Climate Agreement in the Netherlands and many other programmes
that are already there. We should make sure that public investment is linked as tight as possible
to our climate goals, or more generally to the SDG's.
Secondly, state aid measures - There are certain sectors in the economy, let me mention
aviation that will qualify for state aid. It would be a historic error if we were not to make
this aid conditional upon them moving towards a more sustainable future. There is a clear
example, after the financial crisis in 2008, President Obama made state aid to car manufactures
dependent on them moving towards the electrification of motor cars. That is an example that could
now be leveraged on and can be used much more widely.
Third, the pricing of CO2 exposures. This has already been pointed out over the last years
many, many times, but it is now more important than ever. What we see is that the ETS price in
European Union has now decreased 30%. As of course economic activity has decreased, emissions
have decreased as a consequence and therefore demands of emission rights have decreased as
well. Hence this decrease in price. What we need to do is give CO2 pricing more teeth. We could
think of a floor in the carbon price, we could lower the allowed emission ceilings, we could
strengthen the market stabilization mechanism. And we should also phase out harmful subsidies
that in fact subsidize carbon intensive sectors, while what we need to do is the exact opposite.
Turning now to the work of the There are 65
Network for Greening the Financial System.
central banks and supervisors from all over the world who are members of the NGFS and there are
12 observers that are doing much more than just observing; they are very active. The IMF, World
Bank, BIS, OECD and many more. What the membership of 65 in practice means is that three
quarters of all the worlds systemically relevant banks, two thirds of all the big insurance
undertakings, are being supervised by the membership of the NGFS. This gives us tremendous
leverage on the financial sector. The members have a large set of instruments to ensure that what
is being said is also being done.
The NGFS will soon release several reports that will help our community of central banks and
supervisors take the necessary measures to foster a greener financial system. One is a guide for
supervisory practices. We have looked around the NGFS membership and beyond at what
supervisors are now already doing in terms of how they supervise financial institutions on ways of
managing their climate-related and environmental risks. We have compiled in this guide best
practices that we have found and we hope that it will help other supervisors to implement these
best practices and hence - via the leverage that membership has - it will have an effect on
banks and insurance undertakings all around the world. Secondly, this work is spearheaded by the
Bank of England, the NGFS focuses on climate-related stress testing, developing reference climate
policy scenarios for central banks and supervisors and giving guidance for central banks and
supervisors on how to integrate climate risk analyses into macroeconomic and financial stability
surveillance, seizing the macro financial impact of these risks. As climate-related risks are
nonlinear, will to a large extend manifest themselves in the future and can therefore not be based
on historical data, we need to develop forward looking risk management techniques. The third
piece focuses on data gaps and disclosures.
Wrapping up, in the run up to COP26, I really want to applaud the COP26 for making the very
explicit connection with the financial sector, given the crucial importance of managing financial
risks. I want to offer that the NGFS stands ready to do all we can to contribute.
Second, I want to point out the great importance of any financial institution which is not already
doing so, to incorporate in the DNA of their financial risk management, the physical and transition
risks related to climate change, and even broader to environmental change, biodiversity change,
SDG-related change. Any financial institution should make sure it has this long-term view and
incorporate it into risk management.
Coming back to the pandemic. People are dying because of the pandemic. The planet is perishing
because of unwise policies from us, the people. There is a public health crisis, but there is also a
planet health crisis. The planet also needs intensive care. This is the time to apply the lessons
drawn from our past mistakes. This is the time to turn the page, this is the time to invest once and
for all in a truly sustainable economy.
In these dark days of the pandemic, we must create an avenue of hope, we must switch on the
light. Let that light be green.