Governor hits back at Nigel Lawson’s description of research into
effects of global warming on insurance industry as ‘green claptrap’
Climate change is one of the biggest risks facing the insurance industry, the governor of the Bank of England has said after a former Conservative chancellor dismissed a study on global warming as “green claptrap”.
Speaking at the House of Lords, Mark Carney mounted a robust defence
of the Bank’s work on the impact of climate change on the insurance
industry in the face of claims by Nigel Lawson that it had its
priorities wrong.
Lawson, who has claimed “there is no global warming to speak of going on at the moment”, a view that puts him outside the overwhelming scientific consensus, attacked the bank for “focusing on green claptrap” rather than the remaining problems in the UK’s financial sector.
Lawson was referring to a recent speech by Paul Fisher, a senior policymaker at the Bank, who warned insurers they could take a “huge hit” by investing in fossil fuels,
which could collapse in value if action is taken to curb greenhouse gas
emissions in line with scientific advice. Fisher is deputy head of the
Bank’s Prudential Regulation Authority, which supervises insurers and
banks with the aim of ensuring financial stability.
The Bank has recently surveyed the insurance industry on its fossil fuel investments, as it investigates the risk of an economic crash if action on climate change renders oil and gas assets worthless.
The contribution from Threadneedle Street is expected to be published
after the election by the Department for Environment, Food and Rural
Affairs (Defra) as part of a bigger report on the impact of climate
change.
More frequent storms, hotter summers and an increase in flooding have driven up the global insurance industry’s annual weather-related losses to $200bn (£133bn) a year
– a fourfold increase in 30 years. But the insurance industry’s
investments in fossil fuel companies have attracted less attention.
Carney told the Lords economic affairs committee that the potential
impact of climate change was a fundamental issue for industry
regulators. “In the insurance business one of the top risks is climate
change ... it is absolutely essential to oversee and supervise the third
largest insurance market in the world.”
Carney said the issue of stranded carbon – where coal, oil and gas
may have to be left in the ground – was about proper reporting to
determine the true value of corporate assets. “It could well be the case
that [the insurance industry] is well provisioned, but we have a
responsibility to run that down.”
The Bank last year added its voice to growing concern about the risks
of a “carbon bubble” to the global economy. As oil and gas companies
are among the biggest in the world, a sudden collapse in asset prices
could trigger an economic crash.
At a World Bank meeting last year, Carney said the vast majority of fossil fuel reserves may be “unburnable” if global temperatures are to be limited to 2C, as pledged by the world’s governments.
Earlier in the session at the Lords, which ranged widely over
economic and monetary policy, Carney said he expected inflation to fall
to 0% and stay there for much of the rest of the year. The consumer
price index tumbled to 0.3% in January, raising fears of deflation.
However, Carney said it would be foolish for the Bank to resort to
financial stimulus to fight the “one-time adjustment” of falling oil
prices.
