Mark Carney should not warn other about climate change risks, if he neglects to do what is in his hands to do about it

Sir, you write that BoE is rightly worried about the dangers posed by climate change “Carney’s warning on carbon’s financial risks". October 1.

Of course the consequences of climate change, and of the regulations designed to stymie it, and of the gaming of those regulations, represent a huge potential of unexpected losses. But, if Mark Carney were really concerned about climate change then, as the current Chair of the Financial Stability Board, instead of casting himself as Cassandra in order to warn others, he would see to that bank regulators duly considered that risk.

For instance he could try to convince his colleagues that banks, in relative terms, should be allowed to hold less capital when helping to finance sustainability, so that they earn higher risk adjusted returns on equity when they finance sustainability, and so that banks finance sustainability a lot.

But instead Carney and his colleagues have set their risk based capital requirements for banks solely based on ex ante perceived credit risks, basically the only expected risks that banks already clear for. If that is not dumb what is?

Sir, what we now have is unbelievable. Banks, those who concentrate the most knowledge about evaluating credit risks, and should therefore be the first line of credit-risk takers for the society, by lending to for instance SMEs and entrepreneurs, are being allowed to earn much higher risk adjusted returns on their equity when minimizing credit risks… which leaves the risk-taking soldiering to all us other… widows and orphans included.

And, talking about moral responsibilities, should not Mark Carney have warned all aspiring “risky” entrepreneurs that, because they were usually perceived as risky from a credit point of view, they should forget their plans and dreams as they could no longer count on a fair access to bank credit?

And, talking about moral responsibilities, should not Mark Carney warn all our young that, henceforth, banks would not be financing sufficiently their future, as that requires a lot of risk-taking, but would mostly be dedicated to refinancing a safer past.

And, talking about moral responsibilities, how can bank regulators ignore the fact that it is not what is perceived as risky that poses the major dangers for our banking system, it is always what can be erroneously perceived as absolutely safe.

Sir, as I see it the Basel Committee regulators have and are producing losses of almost a climate change scale… and FT refuses to warn about it.

@PerKurowski

In trade and carbon, though borders do not matter, distance does

Sir Angel Gurría is right in that “Carbon has no place in global trade rules” November 5, when referring to what happens on the borders. That said carbon has a very real place in trade, when considering the distances and means by which that trade has transported. If the concerned world which will be meeting in Copenhagen does not affect trade, then it is clearly not concerned enough or simply irresponsible. In fact, a stiff carbon tax on transport, might be just what the doctor ordered to revive all those local and otherwise inefficient jobs that have been lost earning the benefits of trade.

The nuclear bridge

Sir, whether sturdy or weak, safe or dangerous, short or long, no matter how we look at it the nuclear energy is the best and perhaps even the only bridge available to take us from a carbon driven to a clean renewable energy driven world. 

In this respect I do not harbor any of the concerns that Oleg Deripaska expresses about the current drop in oil prices or the financial crisis delaying the development of a nuclear response to the world’s energy, as long as we can convince regulators that it is high time for them to roll up their sleeves and work 24-7-365 to speed up without running of course, whatever due diligence procedures are needed, “A nuclear response to our energy problems” January 22.

If you ask me what would be one of the best stimulus packages we could come up with, dollar for dollar that would be to double or triple the budgets of entities such as the U.S. Nuclear Regulatory Commission… and then crack the whip.

Whatever, do not make the poor countries trust they can count on the rich ones

Sir Martin Wolf in “Why the obstacles to a deal on climate are mountainous” July 9, repeats frequent arguments of why the costs associated with the reduction of carbon emissions should be borne by high-income countries. Nothing wrong with that except if doing so makes the poor countries actually believe this is going to be so.

Since I am certain that Martin Wolf like me suspects that the possibilities of the high-income countries picking up the tab on this are almost nil, may I suggest that a more productive and honest line of argument would be on the line of the following:

“You poor countries, you better take special notice since in most of the climate change impact studies you seem to be dangerously exposed and since you most probably will not be helped sufficiently by the rest of the world community, you better stop copying the rich countries unsustainable habits, and start cracking on preparing yourself for the worst, on your own. And who knows, there might even be some great hidden benefits in doing so.”

What we need is some good carbon-solution neutral advice

Sir Jonathan Guthrie's "How I was deluded by my own carbon footprint", May 3, illustrates in a funny way the tragedy of what many of us have been saying for years, namely that to counter the serious climate change challenges, the marketing of medieval indulgences, for some fairly undefined carbon sins, in order to use the proceeds (after commissions) for some not that very clear good deeds, will just not cut it. The fact that the market seems mostly to be made up by a mix of innocent and well intentioned believers and state of the art speculators, and supervised all by an often much hypocritical environmental clergy does not make it easier. By the way it must be history's irony at work that has the current carbon indulgences system receiving its strongest support in protestant countries.

As for myself, having had some intentions to vacation in such a way that would leave a truly horrible carbon footprint, I am currently looking for someone to convince me that I am morally much better of if I allow them to finance me a more responsible alternative. Any offers? Seriously, if climate change is serious we should act seriously, and in order to do that what the world most needs is some good carbon-solution neutral advice.

Thanks, that was much needed!

Sir, our problems on planet earth are just too serious to allow us from not spelling out some uncomfortable truths. In this respect, with your ‘Carbon markets create a muddle”, April 26, and the investigations that preceded it, and hopefully those that will follow, you are performing a tremendous service to all of us who believe that the climate change threat is for real and therefore require that the actions to combat it should also be for real.

The current carbon market where we sell indulgences for some fairly undefined sins, and use the proceeds for even less defined good deeds, after paying some intermediaries a commission, will just not cut it; much less so if we leave it in the hands of blind believers or of a hypocritical environmental clergy.

PS. Fast forward a decade: What if the indulgences revenues are democraticaly shared by all? Carbon dividends?

Are there other alternatives than snus?

Sir, in How Europe can help snuff out smoking John Gapper points in the direction of the Swedish “snus”, a grinded tobacco you place under your stiffly curved upper lip. I have used it, 40 years ago, I liked it, but I can also testify against its total absence of esthetics, when brown liquid tobacco drips down between your front teeth. In fact giving up smoking this way might also require giving up other things as well, like dating.

An interesting alternative was also presented in 2005 by two professors of the University of Wisconsin-Madison, Robert Haveman and Jon Mullahy who then proposed a scheme for their local community where bars could trade smoking permits as a mean let the market arbitrage the difficulties of imposing non-smoking bans. Though cute, the idea seems not to have taken off, and I suspect is primarily because if a bar wanted to be a non-smoking bar it would always come out as a seller of smoking rights, while a bar that wanted to allow smoking would always be a buyer, something that does not rhyme well with market efficiency. The possibility of assigning a fix number of smoking permits per square foot/hour and auctioning them off to the patrons on a continuous basis, with any rights so acquired expiring within a short time period, could be an option favored by the derivatives community, as it would allow for the trading in second hand smoke risk and perhaps even a market in not-smoking-guarantees.

Whatever, the difficulties enocuntered in the area of quitting smoking should be used when analyzing the practical and ethical aspects of quitting carbon emissions, like for instancce when we think of leaving the solutions for the climate change in the hands of the trading of carbon-emission rights, and which though reminiscent of the indulgencies (shamefully) traded by the Catholic church centuries ago, lately seem to have captured the interest of some mainly protestant countries.

If it is serious then one expects it to be treated seriously too

Sir, if an illness can be cured by a little pill, that will somehow take away from its perceived seriousness and something similar could be happening with the endangered environment when the sense of urgency we get from the scientists, is thereafter diluted by the wide array of solutions offered, of which many seem quite simplistic and others do seem more like commercial propositions… The world as you know it will end… unless you buy yourself a hybrid car!?

We agree fully with your “We need a clear and predictable worldwide price for carbon”, February 3, in that the way forward must include a compensation for the costs that developing countries cannot afford, but having said that we get an uneasy feeling about the suggested source of revenues, the trading of rights to emit, as societies do better if they use the markets to trade good-goods and services and not bad behaviors. Similarly developing countries, by just being poor, might be doing less damage, not necessarily, and they might have some overriding urgent needs but, to state “overriding development objectives” as an excuse for inaction of them is wrong, as it implies that either they are to be developing for life on another planet or that they are not suppose to share into the responsibilities of this one.

Finally, what does “the most efficient possible use of energy resources” mean? Before we have a real unbiased source of good solutions that make real sense, even though some of them will most likely hurt a lot, many will find it hard to believe there is a real emergency, and perhaps leading us all to cry “wolf” once too many.