Climate change could cause financial crash several times worse than 2008

10 Dec 2018

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Some of the world’s biggest investors have warned that a catastrophic financial crash could occur if climate change continues unabated.

In the final week of COP24, the UN climate conference currently underway in Katowice, Poland, some of the world’s biggest names in finance have had their say. However, rather than suggesting that financial interest should outweigh concerns for the planet, they have issued a stark warning that climate change could destroy the global economy at levels never seen before.

According to The Guardian, these investors – including some of the world’s largest pension funds and asset managers – said that unless substantial carbon taxes are introduced and fossil fuel subsidies ended, we could face financial catastrophe several times worse than the 2008 crash.

For example, investment firm Schroders estimated that unless action is taken, the world’s economy could see losses amounting to $23trn ever year. Meanwhile, Chris Newton of IFM Investors – which manages $80bn alone – said that the long-term nature of climate change has instigated a “zombie-like response in many” and is a “recipe for disaster”.

In terms of possible remedies, many of the investors at the conference said that a rapid shift to renewable-led economies could lead to a surge in employment, contradicting those who say that it will take away thousands of jobs in fossil fuel industries. As Lord Nicholas Stern of the London School of Economics put it: “You don’t create jobs for the 21st century by trying to whistle up jobs from the 19th century.”

Other investors added that they and their firms were already shifting quickly away from fossil fuels due to the threat they pose to the environment and society.

How not to introduce carbon taxes

Another suggestion proposed by investors was the ramping up of existing carbon taxes to be almost 10 times what they are today, from an average of $10 per tonne to $100 in the next two decades.

Given the ongoing situation in France with the Paris gilets jaunes protests over a rise in fuel taxes, questions were asked about how exactly such an increase in taxes could be introduced without causing mass disruption. As it turned out, investors said that the approach undertaken by French president Emmanuel Macron was not the right one. Camilla Born of adviser E3G said: “It failed to take people along with them, accompanying the policy with social measures to allow citizens to embrace the opportunities of the transition and ride out the challenges.”

On the topic of subsidies for fossil fuels, the investors were almost unanimous in their call for scrapping them, currently estimated by the International Monetary Fund as amounting to $5trn per year. In enacting this move, the UN believes that global CO2 emissions could fall by as much as 10pc by 2030.

On the other hand, the US, China and Japan were criticised for their investment of $500bn in new coal plants since the Paris Agreement was signed just a few years ago.

Colm Gorey was a senior journalist with Silicon Republic