The third annual Green Swan conference brings together senior figures from across the central banking and regulation world to discuss the impact of climate change on the financial system, and the relationship between monetary policy and the green transition.
With a particular focus on the opportunities presented by new technology, speakers include Mark Carney, Debora Revoltella, Ravi Menon, François Villeroy de Galhau, Lesetja Kganyago and Suzi Kerr.
Follow live updates from the conference, updated below. Catch up with discussion from day two.
Decisive action needed to scale frontier technology
The second panel of the day explored the practical challenges in scaling new green technologies. The discussion was chaired by Bertille Deleveau from Banque de France and asked if frontier tech – such as low-carbon steel, green hydrogen and carbon capture – will be viable soon enough to contribute to net-zero targets.
A key theme from the panel was what Paul Hughes of the International Energy Agency, described as the “interconnectedness” of advancements. For instance, effective carbon capture and large-scale electrification are needed to scale hydrogen production using green electricity. Green hydrogen can then be used to reduce industrial material emissions.
In her presentation, Prof Mercedes Maroto-Valler, director of the Industrial Decarbonisation Research and Innovation Centre, called for a “holistic approach”. This approach sees new tech as complementary to existing tech, and addresses the economic, regulatory, financial and behavioural changes needed to “turn ambition to deployment”.
The panellists each stressed the importance of energy infrastructure in emerging economies. José Miguel Benavente, vice president of Corporación de Fomento de la Producción, said that underfunded infrastructure caps the potential of many countries regions that are rich in renewable energy sources.
Regarding horizons, several panellists referenced IPCC research that states the tech to meet net-zero targets already exists. The panellists identified this decade as the critical window to scale frontier tech and establish its feasibility, while the 2040s should bring massive rollouts across all regions. Hughes said that retrofitting steel plants, for example, must occur in the coming investment cycle, which Deleveau described as a “call to action”.
Panellists also considered ways to reduce costs and increase the competitiveness of new tech. They discussed the need for massive investment flows, wide societal buy-in, public-private partnerships and comprehensive carbon taxes to achieve this. Maroto- Valler said there is a need to “move from funding to finance”. While funding should subsidise start-up costs, private capital is crucial in the medium-long term for market access, she said.
Renaud Crassous, executive president of EdF’s Nuward subsidiary, expressed frustration in delays to creating coherent carbon taxes. Benavente noted that in middle and lower-income countries large upfront subsidies may not be possible. In such cases, he said, affecting demand-side factors is key. This would include carbon taxes, tax breaks for research and development, and subsidies conditional upon reaching technological goals.
Panellists also addressed policy and regulatory frameworks, which were presented at times as possible obstacles to the pace of change. Crassous seemed sceptical about certain “habits” of national safety regulators. He called for international cooperation to swiftly establish technically sound and harmonised safety requirements for nuclear power.
Maroto-Valler recommended policies focusing on increasing predictability and stability, as they enable firms to design effective business plans and “unlock finance”. Benavente recognised that countries face localised transition challenges and said policymakers should be transparent about the costs and benefits to civil society. Where green frameworks are new, he added, they need time to mature. Growing institutional capacity can aid this process.
Responding to a challenging question about adverse impacts on biodiversity and nature, Crassous stressed that the next generation of small modular reactors will aim to “close the cycle” in nuclear power, by using the waste from older reactors as fuel. Though less radioactive waste will be produced, he also explained it will continue to be a by-product.
Discussing Chile’s role in producing transition critical materials such as lithium, Benavente said that Chile must learn from “past mistakes”, address local concerns and continue advancing technologies that reduce the environmental impacts of mining.
Deploying feasible solutions at speed and scale
The first session was on the theme of deploying feasible solutions at speed and scale, chaired by Mamokete Lijane of Economic Research Southern Africa.
Doug Arent from the National Renewable Energy Laboratory opened the session quoting the Economist; “It is not the essential nature of a technology that matters, but its capacity to fit into the social, political, and economic conditions of the day”. Echoing Ravi Menon’s opening address, Arent referenced the latest IPCC report, saying that the “power sector is the key backbone for decarbonisation. It represents around 50% of needed investment.”
James Thurlow from the International Food Policy Research Institute pointed to the agrifood sector, pinpointing two transformative solutions to major net-zero challenges. While noting that solutions and their practicality differ between developed and developing countries, Thurlow explained that reducing food loss and waste and reducing livestock emissions were the most crucial. Countries must seek to change to lower-emission diets, while also curbing food loss and waste which will reduce the need for additional land for crop production.
The challenge of filling the finance gap was discussed by Suzi Kerr from the Environmental Defense Fund. Referencing expected future greenhouse gas emission pathways, Kerr said that “75% of emissions reductions need to happen in developing countries” including India and China, while “emerging markets and developing economies account for two-thirds of the world’s population, but only 20% of global clean energy investment”.
When asked why a central banker should pay attention to these issues to mobilise investments, Kerr said that “central banks will want to understand these risks in order to avoid instability. If we fail to make those transitions fast enough, that will certainly lead to economic loss.”
The subsequent panel discussion touched on the sticky topic of critical minerals in the green transition. Kerr admitted that “there are several trade-offs regarding the specific geographical localities of critical minerals”. The panel seemed to be in agreement that innovation in technology would help reduce the critical mineral trade-offs, and Arent also underlined that re-formulating supply chains to be “inclusive” is imperative for sustainable development.
Discussing central banks’ scenario analyses, Arent appeared pessimistic that keeping to a 1.5ºC scenario is unlikely. The sentiment was somewhat shared by Thurlow when factoring in public power on the back of the Covid pandemic and inflation crisis in recent years.
Mamokete said: “There is a problem with the commons, as everyone is passing the buck… So there is a question of should the financing be private, or should it be public.” Government incentives, trust and results-based incentives are paramount for success, according to Kerr.
Georgina Grenon from the Paris 2024 organising committee explained how the games would be net zero. She stressed that, in order to scale up efforts in the next six months, we must “focus on getting the right leadership, not on technology”.
Behaviour change and business models must change from business as usual, while panel members added that inclusive processes across agencies, risk analysis, and subsequent finance mobilisation, as well as organising agrifood at scale, are all required during the next six months.
Transition finance needs in all areas
The opening address was delivered by Ravi Menon, chair of the Network for Greening the Financial System (NGFS) and managing director of the Monetary Authority of Singapore.
“The world is still not on a path that is aligned with the Paris Agreement,” Menon began, adding that we are “nowhere near” reaching the latest IPCC targets that say emissions must be cut by 43% in the next seven years to achieve net zero by 2050.
Menon outlined two key areas in which NGFS will make a “concerted push” in the coming years: transition planning and blended finance.
Regarding transition planning, Menon said that while there has been a growth in net-zero commitments, without widespread and credible transition planning efforts will remain “sporadic and ineffective”. Transition finance is needed across all sectors of the economy including hard-to-abate sectors.
Menon said regulators should set supervisory expectations and provide coherent guidance to financial institutions, including on the importance of science-based and intermediary targets. Regulators should also “nudge [financial institutions] to draw up their own transition plans to mitigate climate risks” and to engage clients on climate risks.
The NGFS has completed a stock-take of supervisory frameworks on transition planning and, Menon said, it is exploring whether financial institution transition plans could form part of the supervisory toolkit and overall prudential framework. It will publish a report to form the basis of further work in this area.
On blended financing, Menon said this is needed to “move the needle” on global emissions in emerging and developing markets.
Many emerging markets are heavily reliant on fossil fuels for economic development and energy, Menon said, adding that it is “not right to hold back their economic growth”. Rather “we need transition finance which decouples growth from emissions” and moves emerging economies towards cleaner, more efficient and electrified energy.
Menon outlined the various challenges in mobilising transition financing. This includes sovereign debt sustainability, a lack of access to private capital and an excess of marginally bankable projects which require prohibitively large amounts of startup capital.
Menon also stated that purely multilateral bank lending frameworks are often inadequate, and in many instances including private capital would be useful. Private capital can, Menon said, mitigate a portion of project risks for riskier transition projects which are only marginally bankable but which substantially support the transition.
Menon said NGFS will launch a handbook on blended finance at COP 28, which will include practical guidance on scaling up blended finance in emerging markets.
Menon concluded by saying “we must take an ecosystem approach to resolve the climate crisis”. Achieving net-zero goals, Menon added, requires “the real economy and the financial sector to move in lockstep” and “[apply] the collective knowledge and resources of governments, central banks and financial regulators, as well as financial institutions, corporates and individuals”.
Technology is not a silver bullet, but will create a revolution
In the welcoming remarks, Luiz Pereira da Silva, deputy general manager of the Bank for International Settlements, outlined the spirit of the Green Swan Conference 2023 which centres on the macroeconomic and decarbonising impact of green technology.
Da Silva said that every year the “window of safety to address climate risk is shrinking”. He added that technology is not a “silver bullet”, green technological advances will be “tantamount to a new Schumpeterian industrial revolution”.
This page was last updated June 1, 2023
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