Stiglitz calls for climate capital rules

March 4, 2022|Written by David Clarke|Bank of England, Federal Reserve

Nobel Prize-winning economist and former White House advisor Joseph Stiglitz has backed calls for capital rules to be adjusted in order to correct ‘pervasive’ market failures during the green transition.

Speaking at a briefing organised by the New Economics Foundation (NEF), Stiglitz warned that fossil fuel assets will eventually lose much or all of their value, and that policymakers should use all of the tools at their disposal to minimise the impact this will have on global economic and financial systems. Alongside prudential regulation, he cited carbon pricing and corporate governance reforms as other measures that should be deployed.

At the same event, Chris Faint, head of the Bank of England’s climate hub, said that as well as addressing climate risks via regulation, central banks also have a coordination role during the green transition. He warned that the transition might lead to unintended consequences if not carefully managed. For example, a focus on greening portfolios in the short term may mean that firms requiring more intensive decarbonisation over a longer period will struggle to gain finance.

Speaking on behalf of NEF, Frank van Lerven warned that the policy approach of the UK Treasury and Bank of England is currently inconsistent with the country’s climate goals. He said there is an overreliance on deregulation, disclosure and transparency. He advocated a more proactive approach towards shifting finance from dirty to green sectors, with clear targets for success.

Specifically, van Lerven called for the establishment of a green term funding scheme to provide cheap loans for green lending. He also echoed Stiglitz’s call for a green capital requirement to help disincentivise dirty lending. He said central banks would not be able to act alone and advised the UK government to be more vocal in supporting these measures.

Separately, Stiglitz has spoken in support of the nomination of Sarah Bloom Raskin to the position of vice chair for supervision at the Federal Reserve. In an interview with the New Yorker, he said that the decision of Republican senators to prevent a vote on her nomination was ‘amazingly irresponsible’ given the magnitude of the country’s current economic challenges. He suggested that opposition to Raskin was being driven by fossil fuel companies, which see her as a threat and have been distorting her record in order to try and prevent her nomination.

This page was last updated March 30, 2022

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