If the countries of the world deliver on the commitments made in the Paris Agreement, carbon taxes may be much higher than they are today. This may make our oil production less profitable, but it will strengthen the work on climate change. A large portion of government revenues from oil production has been transferred to the Government Pension Fund Global – the oil fund – which is invested widely in equities, bonds and real estate. This has provided for good returns and risk diversification. Interest rates worldwide have fallen to low levels in recent years. The prospect of continued moderate global growth means that interest rates may remain low ahead. The estimated expected real return on the oil fund has therefore been revised down and is now quite a bit lower than 4 percent. In December, Norges Bank advised the Ministry of Finance to increase the equity allocation in the fund.2 Historically, equities have produced higher returns than bonds, but the returns have also been more volatile. A lower return on bonds is the price we pay for dampening volatility in the fund’s value. In recent years bonds have become a more effective, but also more expensive, hedge against volatility. Both conditions suggest a somewhat lower allocation to bonds. Changes in the Norway’s overall petroleum wealth also warrant a lower allocation to bonds. Apart from the oil fund, this wealth consists of oil and gas still in the ground.
Looking after our money Speech given by Sir Jon Cunliffe, Deputy Governor Financial Stability, Member of the Monetary Policy Committee, Member of the Financial Policy Committee and Member of the Prudential Regulation Committee  University of Warwick Monday 26 February 2018  1  All speeches are available online at www.bankofengland.co.uk/speeches  I want to talk tonight about money. It is not something we talk about very much. We spend a lot of time talking about what we could, or should, do with money – who has it, who hasn’t, how it is distributed and so on. But money, the thing itself, rather than what it buys or does, is not really something we think about much. That is not surprising. Like other basic things we depend on in society – electricity, water supply, nowadays the internet – it only has to be reliable and safe. You don’t have to understand how it works. And yet, I suspect, we generally understand even less of what money, the ‘thing’ itself, actually is than we understand of the other basic essential technologies we use. While we use it every day, unless it goes wrong, we don’t actually notice it much. This is not new. J S Mill described money itself, for most of the time, as an ‘insignificant’ thing, simply a ‘machine for sparing time and labour… for doing quickly and commodiously’, only ‘exerting an influence of its own when it gets out of order’.