Costs of extreme weather increasing, warns White House

A White House warning on the rising costs of extreme weather, the Fed plans a scenario analysis exercise, a discussion of targeted monetary policy and regulation, and more from this week in green central banking.

White House warns of rising costs of extreme weather

The White House has warned of the growing costs of extreme weather events, noting that the US is now experiencing, on average, at least one billion-dollar weather disaster each month.

In a blog post published on the White House website, the president’s council of economic advisers (CEA) examined the difficulties involved in predicting both the immediate costs and longer-term implications of extreme weather events. The authors explain that this is largely because historical data is of little relevance in understanding a new and rapidly changing climate. The methods used to assess climate-related risk are therefore in the midst of “a paradigm change”.

The bulk of the empirical evidence suggests extreme weather has long-lasting negative effects on economic growth, the CEA said. One study found that, after 15 years, GDP is 0.38% lower for every additional one metre per second of wind speed exposure, while another suggests that growth rates of output per capita peak at an average annual temperature of around 13°C.

“These findings suggest that the economic damages caused by climate change accumulate over time, with estimates roughly ten times larger than suggested by the previous generation of models,” the CEA concluded.

Fed plans scenario analysis exercise

The Federal Reserve’s new vice chair for supervision, Michael Barr, has given his first policy speech since being confirmed by the Senate in which he touched on the Fed’s approach to climate change.

Speaking at the Brookings Institution, Barr said that while the Fed wants to understand the risks that climate change poses to the US financial system, its mandate to address these risks “is important, but narrow”. However, the Fed will work with the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation “to provide guidance to large banks on how we expect them to identify, measure, monitor, and manage the financial risks of climate change”, he said.

Barr also said the Fed plans to launch a pilot microprudential scenario analysis exercise next year to assess the long-term, climate-related financial risks facing the largest US financial institutions.

Barr was nominated to the vice chair position following the withdrawal of Sarah Bloom Raskin, President Biden’s original nominee. Raskin, a strong advocate for the precautionary principle in addressing the financial risks arising from climate change, had come under attack from Senate Republicans as well as  oil and gas lobbyists.

Panel to discuss targeted monetary policy and regulation

The Financial Times and environmental charity  WWF have announced an online panel event focusing on addressing climate change and nature loss through targeted monetary policy and regulation. Topics to be discussed include “the preventive and preemptive actions central banks and supervisors can take now, the importance of addressing climate change and nature loss simultaneously, and the financial instruments that will incentivise swift and systemic change”.

The event follows the release last week of an open letter from international NGOs and civil society groups, calling on central banks and financial supervisors to use all the tools at their disposal to mitigate climate change and biodiversity loss. The letter was accompanied by a roadmap offering a wider range of recommendations in support of the pathway to net zero and ecological restoration by 2050.

The panel discussion will take place on Monday 19 September with speakers including former Fed governor Sarah Bloom Raskin and Sylvie Goulard, deputy governor of the Banque de France. Registration is free.

Online conference on climate crisis and the financial sector

The research and advocacy group Finance Watch is holding a web conference on climate-related risks and the transformation to a sustainable economy.

Featuring speakers from the European Commission, the European Banking Authority, Deutsche Bundesbank and the German government, the German language event will look at requirements for dealing with climate-related financial risks in the context of review of the EU regulatory framework for banks and insurers. With revisions to key legislation – the capital requirements regulation and capital requirements directive, as well as Solvency II – in the final stages, the conference will discuss how climate-related financial risks can be addressed comprehensively, sensibly and purposefully in the upcoming legislation.

The conference will take place on Thursday 15 September and registration is free.