The Deputy Governor of the Reserve Bank of Australia, Guy Debelle, has warned that climate change is affecting Australia's economy and future financial stability and that understanding of climate change and its ramifications has become an essential part of developing economic models and frameworks that inform monetary policy decision-making.
Addressing a public forum hosted by the Centre for Policy Development, Mr Debelle warned that climate change was a long-term trend, rather than a cycle, and its impact would be ongoing. He noted that the insurance sector has responded to the increasing frequency of climatic events by repricing insurance against such events.
He observed that the fiscal impacts of a transition to a less carbon-intensive world is “clearly quite different depending on whether it is managed as a gradual process or is abrupt. The trend changes aren't likely to be smooth. There is likely to be volatility around the trend, with the potential for damaging outcomes from spikes above the trend.
“Both the physical impact of climate change and the transition are likely to have first-order economic effects,” he said.
Mr Debelle illustrated the fiscal impacts of climate change with two current examples - investment in renewable energy sources in Australia, and the impacts on the Australian economy of environmental policy decisions taken in China.
He endorsed the comments made by Geoff Summerhayes (APRA) and John Price (ASIC) over the past two years.
Geoff stresses the need for businesses, including those in the financial sector to implement the recommendations of the Task Force for Climate-related Financial Disclosures (TCFD). I strongly endorse this point.
He also support calls for better data and the insights provided by climate modelling and mapping to be used by governments, regulators and financial institutions in responding to the impacts of climate change and developing macroeconomic models.
“For businesses and financial markets, that challenge is understanding the climate modelling and conducting the scenario analysis to determine the potential impact on their business and investments,” he said.
The full transcript of Mr Debelle's speech is available here.