The inability of parts of the US political system (e.g. the vast majority of the Republican Party) to rationally consider the impact of climate change is stunning, A recent article in The Washington Post cited a letter from members of the US Senate Finance Committee to Jerome Powell, Federal Reserve Chair, expressing their concern that the Federal Reserve should not focus on environmental concerns as it was beyond the remit of the Federal Reserve to do so. The letter states: “We urge you to refrain from taking any additional actions with respect to climate-related risks that would impose certain costs for uncertain benefits.”
But one of the key roles of the Federal Reserve is to look at systemic risk. Therefore it was of interest to see on the very same day of the letter in the US, a blog post from Luigi de Guindos of the European Central Bank that goes into detail on the risks facing the economy and hence the banking system from climate change. This post goes into detail on the approach used that leads to the conclusion that there is real systemic risk from climate change. Whilst the focus of the stress test was Europe, it is hard to believe that a similar stress test would have an alternative conclusion in the US.
Perhaps it is fine for the Republican members of the US Senate Finance Committee to want the Federal Reserve to bury its head in the sand regarding the risk of climate change. One can only hope that when those risks are realised, these same members will be happy to pay for the losses incurred by ignoring those risks. But of course those payments will not be from the individual senators but rather from US society as a whole.
