Clearly, if carbon emissions remain on their current trend, and if we want to keep the increase in temperature below 2°C, our global carbon budget6 will be consumed within 15 to 30 years.7 As central bankers and supervisors, our mission is both humble and considerable. Humble because the success of the Paris Agreement is the responsibility of the signatory states: the EU is committed to reducing carbon emissions by at least 40% by 2030, 8 and financial regulation cannot be a substitute for an ambitious climate agenda. Considerable because, we must do everything we can to support and complement the action undertaken by states. It is a great challenge for us, as supervisors in the 21th century. I would even say that it is our “ new frontier”, comparable to the financing of growth and major infrastructures in the 19th century or the management of great financial crises in the last 100 years. For this reason, I am very pleased to see that the Network for Greening the Financial System (NGFS), that the Banque de France launched last December, is gaining momentum. This pioneering initiative brings together, for the time being, 9 central banks and supervisors from all over the world, and is chaired by Frank Elderson (De Nederlandsche Bank). We plan to publish our first report by April 2019. In the meantime, let us take a closer look at the risks presented by climate change, but let us not overlook the opportunities.
But such lending is well-collateralised, so low risk, and is always intended to be temporary: to overcome a one-off shock or to bridge to a more lasting solution. To discourage reliance on these operations, standard practice is to charge a penalty rate relative to market prices. These liquidity insurance operations are an integral part of the Sterling Monetary Framework which delivers our monetary policy objectives (See Fisher, 2009 for further details). The Bank of England does not have access to funds that could be used to sustain commercial lending operations. We do not have the power to raise tax, nor do we have significant retail deposits, nor the freedom to borrow in large scale in the wholesale markets for non-monetary purposes. 3 More generally, in a capitalist economy, it is private sector or, in some cases, national savings which ultimately fund the banking system. And it is the job of financial intermediaries to translate those savings efficiently into private sector spending. In contrast, the fiscal authorities (including national wealth funds where they exist) can access private sector funding via taxation or by borrowing in large scale. There are many instances throughout UK economic history where the government has intervened to support private markets, or indeed individual firms. There are well-known risks associated with such action, including the loss of public money and/or an inefficient allocation of capital in the economy. There are also substantial and well-known potential benefits if the intervention corrects a market failure or achieves a wider social objective.