Central bankers should stay out of the climate debate

Politicians have handed over too much power to unelected technocrats.

Daniel Ben-Ami

The claim that climate change is the most important issue facing humanity has become an article of faith for the political class. Yet at the same time, politicians seem strangely happy for unelected technocrats to make pronouncements and even to form policy in this area. Central bankers once did little more than act as behind-the-scenes advisers to governments on technical matters of monetary policy. So it is striking that they have now become prominent figures in the climate debate.

After almost seven years as governor of the Bank of England, Mark Carney is about to become the United Nations’ special envoy on climate action and finance. From the early days of his time at Britain’s central bank, he played a key role in making climate change an area for central-bank policy. More recently, his counterparts at other central banks, including the European Central Bank (ECB) and the US Federal Reserve, have followed his lead. Although their arguments are usually framed in terms of finance, they generally have far wider implications for policymaking.

Carney took up his role at the Bank of England in 2013 after occupying the equivalent position for five years at the Bank of Canada. In parallel with his two stints as a central bank governor, he was chair of the Financial Stability Board (FSB) – an international organisation set up by finance ministers and central-bank governors – from 2011 to 2018. He has been active in the policymaking debate on climate change for several years.

Carney’s interventions were low key at first, but not for long. Back in 2014, he got into a correspondence with the House of Commons environmental audit committee on the subject of ‘stranded assets’. The concept was introduced by the financial think-tank Carbon Tracker to warn about assets that would be unusable as a result of either climate change itself or of climate-change policy. In 2015, Carney warned publicly that investors could face ‘potentially huge’ losses due to climate change. The thrust of Carney’s argument was that tougher rules to curb climate change could make vast reserves of oil, coal and natural gas ‘literally unburnable’.

Carney’s statements are not detached observations. On the contrary, they are designed as a direct threat to energy companies in the here and now. They put pressure on investors, such as pension funds, to withdraw money from fossil-fuel firms or at least to threaten to do so. Carney’s threat had far-reaching economic consequences. And yet it was made by an unelected state functionary.

In 2015, Carney’s FSB was asked by finance ministers representing the world’s 20 largest economies to set up the Task Force on Climate-Related Disclosures (TFCD). The goal of the committee was to develop climate-related financial risk disclosures for use by companies. Michael Bloomberg, the billionaire US media mogul, was made its chair. Although its work was framed in technical terms, it was another initiative designed to pressure businesses to behave in particular ways.

Not long before the TFCD was officially established, the Bank of England governor outlined the role it could play. In a speech at Lloyds of London, Carney emphasised what he saw as a narrowing window of opportunity to tackle the threat of climate change. Again, this was coming from a technocrat with no democratic mandate.

As it happens, Carney has no scientific expertise in this area, either. Nevertheless, he returned to the theme several times during his time as governor. For example, in December 2019 he gave an interview to Radio 4’s Today programme in which he argued that the world will face irreversible heating unless companies shift their priorities soon. The episode was guest-edited by climate campaigner Greta Thunberg.

Carney now views climate change as an organising principle of finance. As a prelude to the United Nations Climate Change Conference in Glasgow in November (COP26), he made a speech declaring as a goal that ‘every financial decision takes climate change into account’. In practice, taking account of climate change will mostly mean curbs on economic activity, driving down living standards. Of course, politicians and campaigners should be free to argue for eco-austerity if they think it is necessary. But they should not be leaving it to technocrats to encourage cuts to investment without any public debate.

Where Carney leads, other central bankers are following. Christine Lagarde, the former IMF chief who now heads the ECB, has argued that climate change should be central to her new organisation’s role. Even the Federal Reserve, the US central bank, which has until recently shied away from the climate initiatives pushed by its peers, has accepted that it has a role to play in combating climate change. The chair, Jerome Powell, says it is only a matter of time before the Fed joins the Network for Greening the Financial System, an organisation of several central banks and financial supervisors dedicated to understanding climate change. The Federal Reserve Bank of San Francisco, one of the Fed’s 12 regional branches, held a major research conference on climate change in November last year.

Of course, climate change is not the only important area of public policy in which unelected central bankers have come to play an important role. Perhaps most notorious were Mark Carney’s claims around Brexit. In May 2016, before the referendum, he warned that a Leave vote could spark a recession. In 2019, he said a No Deal Brexit would result in an instant shock for the British economy. Carney would no doubt claim he was only giving his neutral view as a technical expert. But in both cases, whatever his intention, he was intervening in an important public debate.

In many respects, the growing role of central bankers in policymaking parallels developments with the judiciary. As spiked has argued elsewhere, judges have become increasingly involved in making the law rather than simply implementing it. In the case of central bankers, their role has moved beyond even economic policy. Until the 1990s, the key role of setting interest rates was the responsibility of the chancellor of the exchequer, with the Bank of England providing technical advice. Since then, the bank’s role has expanded beyond setting interest rates and economic policy to contentious topics like climate change and Brexit.

The broadening role of central banking and the judiciary can be seen as an extension of the phenomenon of ‘constrained’ or ‘insulated’ democracy. The defining characteristic of constrained democracy is that limits are placed on the decision-making power of elected representatives. Usually, as in the case of central banks, the main driving force is politicians who are happy to relinquish important areas of responsibility. The relinquishing of power even extends to climate change, despite the fact that politicians themselves define it as being of existential importance to the world.

For the sake of democracy, it is time to kick central bankers out of politics.

Daniel Ben-Ami is a writer. An expanded version of Ferraris for All: In Defence of Economic Progress is available in paperback. (Buy this book from Amazon (UK).)

Picture by: Getty.

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Comments

James Knight

10th March 2020 at 10:18 pm

People have died in the desert when they had sufficient water because they were rationing themselves. That is the logic of “keep it in the ground” campaigns against fossil fuels.

Measuring every aspect of our life by CO2 emissions is the equivalent of an aneroxic obsessed with with counting calories to the point they end up starving themselves to death. So it is chilling to hear how some peope have internalised official puritanism around CO2, which is the foundation of all life on earth and which has helped to make the planet greener. Environmentalists should be praising the benefits of CO2 instead of demonising it as a “pollutant”.

Amusing also to see Greta meet Malala. One got shot by the taliban for the right to go to school, the other promotes mass truancy.

David Wolcott

10th March 2020 at 7:57 pm

I think the dialogue needs to change. Sceptics spend too much time pointing out that the “consensus” was fraudulently manufactured, sea-levels are not accelerating as one would expect with rising CO2 levels, and climate models are biased and systematically failing to provide accurate projections. Nobody is listening. If the influence has moved into the financial realm, the debate needs to be taken there. For example, if all UK businesses aim for a zero carbon footprint, will that actually have any effect on the climate? If the UK scales back its economic activity, will the gap that leaves be gleefully filled by other players in the market? What is the realistic cost-benefit analysis of the policies you are promoting, over and above virtue signalling?

And there is no such thing as providing neutral advice in this area if you have public prominence. You give your views on a public platform to influence people.

Jerry Owen

11th March 2020 at 7:39 am

When sea level rises reach the front doors of Obama’s and Gore’s front doors of their beach front houses I’ll get concerned.
Oh, the Maldives are building four new airports, how odd when it’s sinking… Although it should have sunk a decade ago.

Mature cheese

12th March 2020 at 4:15 pm

Exactly, they would not have been financed if it was considered too much of a risk. It make you wonder what the real agenda is behind ‘Climate Change’.

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10th March 2020 at 5:05 pm

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10th March 2020 at 1:53 pm

will

Thomas Rainsborough

10th March 2020 at 11:02 am

Carney is to governors of the Bank of England as Theresa May was to Prime Ministers. He has proved infallibly wrong about everything from facts to methodology to general worldview.

I am 122 pages into Mervyn King’s ‘Radical Uncertainty’ and it is clear that King and his co-author regard everything about Carney’s way of thinking as totally and systematically flawed. And empirically, they are clearly correct by all past evidence and current behaviour.

Just as May has probably ensured we do not see another female prime minister for a generation, Carney has probably guaranteed that we do not get another foreign establishment halfwit as governor of the Bank. It’s not that they are representative of either female politicians or foreign central bankers, it’s that no one in their right minds would want to be associated with choosing another failure of that magnitude.

Ven Oods

10th March 2020 at 10:34 am

“As it happens, Carney has no scientific expertise in this area, either.”
When did that ever put the brakes on the woke?

Puddy Cat

10th March 2020 at 9:41 am

I think that, as we have seen in recent weeks, climate change, some future maybe, possible condition, has been put in its true perspective by the spread of a non-climate orientated problem for mankind. Strangely, without the co-operation of much vilified industry and its advanced laboratory facilities, the attraction they have been for brilliant researchers (able to indulge their whims on corporation cash) we can rely on commerce and capitalism to save us from nature in a hitherto unexpected way.

The latest thinking is to let the tide go out and see who is swimming naked. Which businesses are no good enterprises merely hanging on to the coat tails of progress and share holder penury. It all seems a bit bloody but at the end of it their will be fortunes to be made in a bargain rich, modified market.

We use to be treated to homilies from actors and TV celebrities who would regale us with their superior insight. They are still there today, if slightly quieter. As the ones that, no matter what the price of comfort and self-preservation, will be able to afford it and their lives undergo little, if any, change.

Now we have a different set of luminaries to hand out their five penne’th. From the BBC’s main climate commentator, Roger Harrabin to Carney, here, there is no sign of a qualification in their chosen field that applies to Climatology or Meteorology. In fact, as a more general observation, it seems that a degree in English is a better qualification for modern climate analysis than any other when one considers the drama and prescience of our situation which they can sum in some of the most eloquent language while still not actually understanding the issue to hand. Full of threat and imagination in a real life block buster end of the world scenario.

Belonging to a society is far weightier that people have been led to believe for a long time. When viewing heroic films of the Second World War everyone is depicted as pulling in the same direction no matter how diverse their backgrounds. Matters today have atomised with some London Boroughs being little more than communes on the revolutionary Paris model. The pressure that can be exerted to conform in such environments must be immense and in an environment whereby everyone can know your business, if you crave any measure of acceptance, conforming is perhaps a cheap price to pay to be left alone.

Contagion starts in stifling localities where pathogens find it easy to find hosts, this is the story of modern activism. If there is nothing in your life but the issues that are foisted upon you, which you are daily examined about and where divergence is impossible without stigma or shunning. Here any virus can take root. The easiest thing then is for people to pop-up with an a la carte treatment to make sense of it all which actually only reflects the contagion and their celebrities. From cholera to phlogiston to the unwitting and accidental brilliant discovery has inevitably been the work of the persistent individual and a sudden insight regularly depicted as being apart and even more often averse to society.

With modern day group think, with every TV program, every government department charged with naming carbon dioxide and AGW as a certainty it will seem so whatever the facts, targets are the best way to obscure reality. These are the carriers of the new disease who have no proscription on their activities and who may even be held as model citizens, but only in their ready assimilation of one theory and their disregard for anything less indictable by their surroundings and interactions. You will be a better candidate for promotion if you tow the line, are one of us. Stand in a mass and infection is assured. Stand alone and you may be able to disabuse and retain your discrimination and usefulness.

Jerry Owen

10th March 2020 at 7:55 am

How can a man that got it so wrong about Brexit be trusted his knowledge of finances clearly less than impressive.
Now he pronounces on climate change a topic he has no knowledge of whatsoever.
He should have been sacked the day after the referendum and left in obscurity ever since.

Jonnie Henly

10th March 2020 at 10:52 am

Having no knowledge of a subject is now seemingly a requirement for talking about it.

That’s how we end up with the likes of Farage lecturing us on the beeb about the Coronavirus.

I guess this stems back to Gove and his ‘screw you experts’ proclamation.

Jerry Owen

10th March 2020 at 3:33 pm

Little Jonnie
Carney got it totally wrong over Brexit before and after, that is why he should not be commenting on finance or AGW/ finance.
Plenty of politicians have commented about the virus on TV, Farage is an elected politician and has every right to comment on the subject. Do you have a serious point to make Jonnie?

Jonnie Henly

10th March 2020 at 4:22 pm

Jerry, what is Nigel Farage’s elected position?

Do tell.

What power does he hold that would enable him to act in any way with regards to the virus?

Carney has as much right to comment on global warming as Farage does to lecture us all on the beeb.

The only difference between the two is you like with and agree with the latter, and are merely here to vent your dislike at the former.

So not a serious point at all really.

Jerry Owen

10th March 2020 at 5:21 pm

Little Jonnie he was an elected MEP until recently as you very well know. He is a man that has achieved more for his country than any living politician at present.
Farage has received millions of votes over the years be it with UKIP or the Brexit party.
Carney has received zero votes ever from the public, zero. he has no public mandate whatsoever to speak about AGW, his job is banking no more no less, and not a good forecaster at that.

Jerry Owen

10th March 2020 at 5:23 pm

Little Jonnie ever the pedantic twisting words to suit his strawman arguments, so tedious little Jonnie.

Jonnie Henly

10th March 2020 at 9:15 pm

“Was” and elected MEP, ie not “is” as you previously incorrectly claimed.

Whatever votes Farage received still doesn’t make him knowledgeable on the subject in hand.

Especially given all those votes were never enough to make him an MP.

Less whining about pedantics from you, and a bit more though before you comment next time.

Maybe then you’ll actually say something worthwhile.

Jonnie Henly

10th March 2020 at 9:19 pm

Jerry whines about pedantic twisting of words to cover for the fact he was exposed talking BS.

Again.

How sad.

Jerry Owen

11th March 2020 at 7:41 am

Little Jonnie. Farage’s millions of votes over he years and him getting us out of the EU gives him no authority to speak to the Media in current affairs …how pathetic.

Jonnie Henly

11th March 2020 at 9:06 am

Farage can fail to become an MP a hundred times, it still doesn’t make him knowledgeable on the subject.

Though your shilling for him does make you a pathetic little weasel.

Jerry Owen

11th March 2020 at 7:36 am

Poor little whiny pedant little Jonnie fails to understand that it’s a politicians job to comment on current affairs. And it’s a bankers job to manage finances.
How pathetic that his narrow minded strawman arguments fail to let him see that basic fact.
What tediuos little bore.

Jonnie Henly

11th March 2020 at 9:05 am

Jerry gets mad when his hypocrisy is pointed out to him. How predictable.

Farage could say anything, no matter how stupid, and Jerry would rush to his defence like a dull eyed fanboy, screeching that he was correct.

Have you ever thought for yourself Jerry?

steven brook

10th March 2020 at 7:41 am

Climate change is a cult and it’s going to be increasingly difficult and potentially dangerous to challenge this form of madness.

Chris Hanley

10th March 2020 at 6:11 am

“Politicians have handed over too much power to unelected technocrats”.
Brexit notwithstanding, it is a symptom of the continual erosion of the civic ‘consensual state’ based on the citizenry, towards the corporate state.

Stephen J

10th March 2020 at 5:16 am

I thought that central banks were a tool of government?

So why do we have central banks that work against that government’s interests? Possibly for the same reason that our civil service has gone rogue, Get them in the schools and you have them for life, being a very important socialist mantra.

Jonnie Henly

10th March 2020 at 1:28 am

“Central bankers once did little more than act as behind-the-scenes advisers to governments on technical matters of monetary policy”

That’s something of an understatement.

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