
The mounting climate emergency may spur the next global financial crisis and the world's central banks are woefully ill equipped to handle the consequences, according to a new book-length report by the Bank for International Settlements (BIS), as S&P Global reported. Located in Basel, Switzerland, the BIS is an umbrella organization for the world's central banks.
The report, titled The Green Swan, which plays on the idea of a "black swan" even warned that the climate crisis could have a potentially seismic effect on the world's financial system and that central banks do not have the tools to handle it, as Reuters reported.
"Climate change poses unprecedented challenges to human societies, and our community of central banks and supervisors cannot consider itself immune to the risks ahead of us," François Villeroy de Galhau, governor of the Banque de France, said in the report, as The New York Times reported.
The world's markets are in a bind. To limit global warming to less than 1.5 degrees Celsius requires leaving a large proportion of fossil fuel reserves in the ground, which creates a potential risk for the value of energy companies and the broader financial system. Yet, extracting those fossil fuels will almost surely push the world past the 1.5 degrees Celsius threshold, as S&P Global reported.
If temperatures continue to rise, the world is at risk from global sea-level rise, which will flood many coastal cities, while brutal droughts will make other parts of the world uninhabitable, as Reuters reported.
Already, the world has the number of extreme weather events quadruple of the last four decades. The report warns that the financial markets are not protected against climate-induced losses. Only 44 percent of the write-downs caused by extreme weather events are now covered in the U.S. In Asia it's just 8 percent and in Africa only 3 percent, according to Reuters.
"I think we might be on the brink of observing something that might be behind the next systemic financial crisis," Luiz Awazu Pereira Da Silva, one of the book's main authors, told reporters, as Reuters reported.
The report also warned that central banks, which spent the last decade pulling their countries out of a deep financial crisis, may spend the next decade coping with disruptions from the climate crisis, as The New York Times reported.
The paper warned that central banks may be called on to bail out many communities that are devastated by climate emergencies.
"In the worst-case scenario, central banks may have to confront a situation where they are called upon by their local constituencies to intervene as climate rescuers of last resort," the report said. "Fundamentally, climate-related risks will remain largely uninsurable or unable to be hedged as long as system-wide action is not taken."
The European Central Bank is starting to grapple with climate-related issues, according to The New York Times. The new president of the European Central Bank has pledged to put the climate crisis at the forefront of the bank's decisions.
"While we might not be ahead of the curve yet, we are not sitting on our bottoms doing nothing," Ms. Lagarde said during a news conference on Thursday, as The New York Times. "It is going to be an important matter that will be debated during the strategy review."
She noted that bank's employee pension fund is shifting investment to companies with lower carbon dioxide emissions.
Environmental activists who have campaigned to divest from fossil fuels took to Twitter to highlight the report's findings. Bill McKibben, the founder of 350.org, rewrote The New York Times headline "Climate Change Could Cause the Next Financial Meltdown." Instead, he edited it to, "Financial Systems Could Cause the Next Financial Meltdown," as Common Dreams reported.
Since the banks fund the fossil fuel system, this is really a way of saying 'Financial systems Could Cause the Nex… https://t.co/LcA6ocTV2X— Bill McKibben (@Bill McKibben)1579786306.0
"Since the banks fund the fossil fuel system, this is really a way of saying 'Financial systems Could Cause the Next Financial Meltdown.' Unless we #stopthemoneypipeline," McKibben tweeted.
The report, to its credit, noted that a new level of global cooperation is required, as Reuters reported.
"A new global financial crisis triggered by climate change would render central banks and financial supervisors powerless," the BIS said. "We cannot be the only game in town."
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By Peter Giger
The speed and scale of the response to COVID-19 by governments, businesses and individuals seems to provide hope that we can react to the climate change crisis in a similarly decisive manner - but history tells us that humans do not react to slow-moving and distant threats.
A Game of Jenga
<p>Think of it as a game of Jenga and the planet's climate system as the tower. For generations, we have been slowly removing blocks. But at some point, we will remove a pivotal block, such as the collapse of one of the major global ocean circulation systems, for example the Atlantic Meridional Overturning Circulation (AMOC), that will cause all or part of the global climate system to fall into a planetary emergency.</p><p>But worse still, it could cause runaway damage: Where the tipping points form a domino-like cascade, where breaching one triggers breaches of others, creating an unstoppable shift to a radically and swiftly changing climate.</p><p>One of the most concerning tipping points is mass methane release. Methane can be found in deep freeze storage within permafrost and at the bottom of the deepest oceans in the form of methane hydrates. But rising sea and air temperatures are beginning to thaw these stores of methane.</p><p>This would release a powerful greenhouse gas into the atmosphere, 30-times more potent than carbon dioxide as a global warming agent. This would drastically increase temperatures and rush us towards the breach of other tipping points.</p><p>This could include the acceleration of ice thaw on all three of the globe's large, land-based ice sheets – Greenland, West Antarctica and the Wilkes Basin in East Antarctica. The potential collapse of the West Antarctic ice sheet is seen as a key tipping point, as its loss could eventually <a href="https://science.sciencemag.org/content/324/5929/901" target="_blank">raise global sea levels by 3.3 meters</a> with important regional variations.</p><p>More than that, we would be on the irreversible path to full land-ice melt, causing sea levels to rise by up to 30 meters, roughly at the rate of two meters per century, or maybe faster. Just look at the raised beaches around the world, at the last high stand of global sea level, at the end of the Pleistocene period around 120,0000 years ago, to see the evidence of such a warm world, which was just 2°C warmer than the present day.</p>Cutting Off Circulation
<p>As well as devastating low-lying and coastal areas around the world, melting polar ice could set off another tipping point: a disablement to the AMOC.</p><p>This circulation system drives a northward flow of warm, salty water on the upper layers of the ocean from the tropics to the northeast Atlantic region, and a southward flow of cold water deep in the ocean.</p><p>The ocean conveyor belt has a major effect on the climate, seasonal cycles and temperature in western and northern Europe. It means the region is warmer than other areas of similar latitude.</p><p>But melting ice from the Greenland ice sheet could threaten the AMOC system. It would dilute the salty sea water in the north Atlantic, making the water lighter and less able or unable to sink. This would slow the engine that drives this ocean circulation.</p><p><a href="https://www.carbonbrief.org/atlantic-conveyor-belt-has-slowed-15-per-cent-since-mid-twentieth-century" target="_blank">Recent research</a> suggests the AMOC has already weakened by around 15% since the middle of the 20th century. If this continues, it could have a major impact on the climate of the northern hemisphere, but particularly Europe. It may even lead to the <a href="https://ore.exeter.ac.uk/repository/handle/10871/39731?show=full" target="_blank" rel="noopener noreferrer">cessation of arable farming</a> in the UK, for instance.</p><p>It may also reduce rainfall over the Amazon basin, impact the monsoon systems in Asia and, by bringing warm waters into the Southern Ocean, further destabilize ice in Antarctica and accelerate global sea level rise.</p>The Atlantic Meridional Overturning Circulation has a major effect on the climate. Praetorius (2018)
Is it Time to Declare a Climate Emergency?
<p>At what stage, and at what rise in global temperatures, will these tipping points be reached? No one is entirely sure. It may take centuries, millennia or it could be imminent.</p><p>But as COVID-19 taught us, we need to prepare for the expected. We were aware of the risk of a pandemic. We also knew that we were not sufficiently prepared. But we didn't act in a meaningful manner. Thankfully, we have been able to fast-track the production of vaccines to combat COVID-19. But there is no vaccine for climate change once we have passed these tipping points.</p><p><a href="https://www.weforum.org/reports/the-global-risks-report-2021" target="_blank">We need to act now on our climate</a>. Act like these tipping points are imminent. And stop thinking of climate change as a slow-moving, long-term threat that enables us to kick the problem down the road and let future generations deal with it. We must take immediate action to reduce global warming and fulfill our commitments to the <a href="https://www.ipcc.ch/sr15/" target="_blank" rel="noopener noreferrer">Paris Agreement</a>, and build resilience with these tipping points in mind.</p><p>We need to plan now to mitigate greenhouse gas emissions, but we also need to plan for the impacts, such as the ability to feed everyone on the planet, develop plans to manage flood risk, as well as manage the social and geopolitical impacts of human migrations that will be a consequence of fight or flight decisions.</p><p>Breaching these tipping points would be cataclysmic and potentially far more devastating than COVID-19. Some may not enjoy hearing these messages, or consider them to be in the realm of science fiction. But if it injects a sense of urgency to make us respond to climate change like we have done to the pandemic, then we must talk more about what has happened before and will happen again.</p><p>Otherwise we will continue playing Jenga with our planet. And ultimately, there will only be one loser – us.</p>By John R. Platt
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