Bank of Canada sees risks of climate change; Insurers urge end to fossil fuel subsidies

On March 2, in a speech in Montreal, the Deputy Governor of the Bank of Canada weighed in on the economic and financial risks of climate change, and the role of the Bank (BoC) .  In Thermometer Rising—Climate Change and Canada’s Economic Future , the Deputy Governor drew on 2011 estimates from the National Round Table on the Environment and the Economy (NRTEE) when he acknowledged that in Canada alone, “ in the absence of action to address global warming, we would face annual costs of between $21 billion and $43 billion by the 2050s”.   Touching on the role of carbon pricing and green finance such as green bonds, he also states: “enhanced transparency and analytical tools are also needed”  to enable investors to exploit green investment opportunities. However,   “In contrast to some other central banks, the Bank of Canada is not directly responsible for regulating banks, insurance companies and similar financial institutions. …. We do not regulate financial markets and thus do not have the mandate to establish standards of transparency and disclosure in support of green finance…. We do, however, have a broader set of responsibilities to support financial stability, including identifying, analyzing and assessing both imminent and emerging systemic risks. We bring this risk assessment into our discussions with other agencies that control the relevant policy levers.”

Private financial institutions and companies are trying to influence those policy levers – specifically, about fossil fuel subsidies. In a Public Statement addressed to the governments of G20 countries,  a group of 16  investment  and insurance companies managing more than  USD $2.8 trillion in assets states: “Subsidies and public finance supporting the production and consumption of fossil fuels are a key concern to the finance sector. They increase the risk of stranded fossil fuel assets, decrease the competitiveness of key industries, including low‐carbon businesses, and negate the carbon price signals many of us have been calling for. They are also notoriously inefficient from and economics standpoint. They create a significant burden on government budgets, perpetuate income inequality by benefiting the richest consumers while failing to meet the energy needs of those lacking energy access, and damage public health by increasing air pollution.”  The Statement then calls on the G20 governments to commit to “a clear timeline for the full and equitable phase-out by all G20 members of all fossil fuel subsidies by 2020, starting with the elimination of all subsidies for fossil fuel exploration and coal production.”

What would be the  impact of removing fossil fuel subsidies?  The most recent estimate comes from the Overseas Development Institute and the International Institute for Sustainable Development (IISD) Global Subsidies Initiative in   Zombie Energy: Climate Benefits of Ending Subsidies to Fossil Fuel Production. It concludes that if  subsidies to fossil fuel production were removed across the globe, the world’s GhG emissions would be reduced by 37 Gt of carbon dioxide  by 2050.  The authors call this “ likely a low-end estimate”, partly because it relies on what they say is  a “conservative estimate of global production subsidies in G20 countries” : $70 billion U.S. annually.   For more on this longstanding issue,  see the Global Subsidies Initiative webpage on fossil fuel subsidies.

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