Mark Carney’s stark climate change warning has Canadian implications

Mark Carney, the former Bank of Canada governor who now heads the Bank of England, shook up the financial sector earlier this week with a blunt assessment of the economic cost of climate change.

Calling it the “tragedy on the horizon,” Carney said in a speech to the insurance market Lloyd’s of London that society faces profound environmental and social challenges due to changes in the climate.

“The combination of the weight of scientific evidence and the dynamics of the financial system suggest that, in the fullness of time, climate change will threaten financial resilience and longer-term prosperity,” he told insurance executives.

“While there is still time to act, the window of opportunity is finite and shrinking.”

There are implications for insurers, financial stability and the economy, Carney said, and the insurance industry is already seeing those implications.

Since the 1980s the number of registered weather-related loss events has tripled and the average annual losses have increased from US$10 billion in the 1980s to $50 billion today.

Yet “the challenges currently posed by climate change pale in significance compared with what might come,” he told the crowd.

Limiting the global temperature increases to two degrees above pre-industrial levels means between just one-fifth and one-third of the world’s proven reserves of oil, gas and coal could be burned, Carney said.

“If that estimate is even approximately correct it would render the vast majority of reserves ‘stranded’ – oil, gas and coal that will be literally unburnable without expensive carbon capture technology, which itself alters fossil fuel economics,” Carney said.

In Canada, that could mean billions of dollars’ worth of oil, gas and coal assets.

Brian DePratto, an environmental economist at TD, was pleased to see someone of Carney’s stature talking about the issue.

“It’s not a problem until it is, effectively, so I think it’s really great to see him raising these issues in such a prominent way,” DePratto told Yahoo Canada News.

Canada is beginning to make progress toward a low-carbon future, he said. Cap-and-trade is under discussion in Ontario and Quebec; Alberta is revising its gas emitters regulations.

“I think it is very much early days here in Canada,” DePratto said. “It’s certainly something that’s on the radar.”

John Kirton, director of the G8 Research Group and co-author of the book “The Global Governance of Climate Change,” said Canada has taken many steps over the past decade, including phasing out coal-fired electrical generation and requiring major carbon polluters control their carbon emissions.

Kirton said Canada submitted this year a credible climate action plan to the United Nations, and Prime Minister Stephen Harper committed Canada at the G7 summit in June to de-carbonize by the end of the century.

“Carney is correct. We should all be doing more,” Kirton said in an email exchange from the G20 energy ministers meeting in Istanbul. “But as a cold dark dispersed country Canada has relatively clean hands.”

Carney is also head of the Financial Stability Board, which the G20 have tasked to assess global economic risks that climate change poses to the financial system.

Kirton said Carney’s comments signal that the board will finally start assessing climate risk as part of its work on banks, insurers and asset managers.

That “carbon asset risk” — the devaluation of fossil fuels — is overblown for Canada, DePratto said. Oil and gas represents about 20 per cent of its GDP.

“Oil and gas has been a big driver of growth, there’s no question,” he said. “But it’s not the be-all and end-all of the Canadian economy.”