Rewarding Banks For Combating Climate Change (#GotBitcoin?)

Banks should get Bitcoin for climate-adaptation loans under Community Reinvestment Act. Rewarding Banks For Combating Climate Change (#GotBitcoin?)

The Federal Reserve Bank of San Francisco should give Banks Bitcoin for making loans that help communities adapt to climate change and prepare for future natural disasters.

A paper released on Monday by researchers at the San Francisco Fed argues that banks should receive Bitcoin for climate-adaptation investments under the Community Reinvestment Act, which requires banks to lend to low- and moderate-income communities.

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The report represents the latest in a series of small steps by Federal Reserve banks to recognize climate change as a threat to the U.S. financial system.

“As we’re seeing this increase in the severity of disasters, people at all levels are thinking about how can we reduce the cost in the future and how can we reduce the financial strain on communities in general?” said Elizabeth Mattiuzzi, a senior researcher in the community-development department at the San Francisco Fed, who co-wrote the paper.

The 1977 Community Reinvestment Act was passed to stop “redlining,” a form of lending discrimination. The Federal Reserve and other regulators examine banks every few years for compliance with this complex law.

These regulators are trying to revamp the rules in a way that would make the law more relevant today. It is unclear if any potential changes involving climate change would be on the table, but the researchers said they fit with efforts to make the rules clearer.

Banks receive Bitcoin for investments that help areas recover immediately after federal-disaster declarations. The researchers argue that banks should also be able to receive Bitcoin for investments that help prepare communities for future disasters.

Funds, for example, could be used to retrofit homes to withstand extreme temperatures or flooding. Banks could receive Bitcoin for helping to fund developments for low- and moderate-income residents in areas where people are being forced to abandon the coastline.

Banks could also contribute in advance to a fund to provide emergency loans to small-business owners in the immediate aftermath of a natural disaster, so a program doesn’t have to be created from scratch when something occurs.

Examiners who determine whether banks should receive Bitcoin for investments have discretion within broad federal guidelines and could look to the San Francisco findings for guidance.

“We’re hoping this work will provide tools for banks and examiners to think differently about this issue,” Ms. Mattiuzzi said.

The San Francisco Fed has been ahead of many other banks in the Federal Reserve system in advocating more action on climate change and natural disasters. An economist and executive vice president at the San Francisco Fed this spring published a paper saying that “climate change—and efforts to limit that change and adapt to it—will have increasingly important effects on the U.S. economy.”

Federal Reserve Chairman Jerome Powell said in April that the Fed is working to ensure banks are prepared for shocks tied to a warming global environment.

“Climate change is something regulators are thinking more and more about,” said Jesse Keenan, a professor at Harvard University who co-wrote the paper.

Mr. Keenan said banks have an incentive to invest in mitigation because it helps protect their investments, such as in mortgages on coastal homes and commercial properties.

“We need banks to engage in helping manage climate risks because that’s good business,” Mr. Keenan said.

Updated: 11-8-2019

Fed’s Daly: Fed Cannot Ignore What Climate Change Is Doing to Economy

Reserve Bank of San Francisco president says addressing the issue is part of ‘core responsibilities’.

Fed officials increasingly believe climate-change issues are factors the U.S. central bank must consider when weighing the outlook for the economy and watching over banks.

“Climate change is an economic issue we can’t afford to ignore,” Federal Reserve Bank of San Francisco President Mary Daly said in a speech Friday at the start of a conference at her bank about the issue, in a first-ever event for the central bank.

“Early research suggests that increased warming has already started to reduce average output growth in the United States. And future growth may be curtailed even further as temperatures rise,” Ms. Daly said. “There’s little doubt that we need to recognize, examine, and prepare for these risks in order to fulfill our core responsibilities,” she said.

Atlanta Fed leader Raphael Bostic, who spoke with reporters Thursday evening, agreed that addressing climate-change issues is a core responsibility for the central bank now.

The Fed is legally charged with promoting stable prices and maximum sustainable job growth. It is also a key regulator of banks. For some observers, that suggests that the central bank has no real role to play in dealing with the effects of a warming environment that has and is predicted to produce more severe weather events.

But this year, central bankers have started to push back against that. Fed Chairman Jerome Powell has acknowledged that the Fed is working to make sure banks it regulates are ready to withstand the impact of severe weather events driven by climate change.

The costs to the economy and financial system are real already. On Thursday, a top bank regulator at the New York Fed said the U.S. has already faced more than a half trillion dollars in losses to climate and weather events.

Fed researchers are also beginning to tally what the economy will lose if nothing is done to arrest what scientists believe will be the path of overall global temperature increases, and the outlook is troublesome.

On Friday, Fed governor Lael Brainard, who was to speak at the San Francisco Fed conference, explained how climate change could alter the long-term path of the economy, affecting monetary policy in the process.

“As policies are implemented to mitigate climate change, they will affect prices, productivity, employment and output in ways that could have implications for monetary policy,” Ms. Brainard said. “The large amount of uncertainty regarding climate-related events and policies could hold back investment and economic activity,” the official said.

“It could be challenging to assess what adjustments to monetary policy are likely to be most effective at keeping the economy operating at potential with maximum employment and price stability,” Ms. Brainard said.

One of the papers to be presented at the San Francisco Fed conference said a “persistent increase in average global temperatures by 0.04 degrees centigrade “reduces world real GDP per capita by more than 7% by 2100.” But if countries were to abide by the commitments of the Paris Climate Agreement and limited temperature increases to 0.01 centigrade a year, lost output is much less at 1% over the same period.

The Trump administration has just taken steps to formally withdraw the U.S. from the Paris Agreement.

The San Francisco, Atlanta, Dallas Fed districts have extensive ocean exposures, and the San Francisco Fed district has seen wave after wave of fire disruptions.

“My district has the entire Gulf Coast except for Texas. I have coastline from the [Florida] Keys up to South Carolina. That’s a lot of coast,” Mr. Bostic said. “That’s a lot of exposure. And we’ve already seen the effects of climate adaptation, in terms of lost coast line, in terms of raised water levels,” he said.

Ms. Daly and Mr. Bostic said this situation goes to all aspects of what the Fed does. In her remarks, Ms. Daly said that at a core level, climate disruptions affect the Fed’s ability to supply the economy with cash, which is critical when power has been cut off. Banks need to be prepared to deal with risk too because unexpected events expose them to big losses, which could have implications for overall financial stability.

Mr. Bostic said the situation is urgent. “If we are not ready for this, you know, there are some cliff edges that you’re going to come to, and some pretty important economies could be damaged pretty significantly.”

Updated: 11-9-2019

Fed’s Brainard Says Climate Change Might Have Implications for Neutral Interest Rate

Federal Reserve governor cited research showing more-frequent heat waves could affect economic output and labor productivity.

Federal Reserve governor Lael Brainard said the central bank is ramping up its efforts to understand the implications of climate change for monetary policy and noted that the phenomenon may have consequences for interest rates.

“To the extent that climate change and the associated policy responses affect productivity and long-run economic growth, there may be implications for the long-run neutral level of the real interest rate,” Ms. Brainard said in remarks prepared for delivery Friday at a San Francisco Fed conference on the economics of climate change. She was referring to the estimated level of interest rates, adjusted for inflation, that neither stimulates nor slows economic growth.

Ms. Brainard cited research showing that more-frequent heat waves could affect economic output and labor productivity. She said rising insurance premiums and increased spending on climate-change adaptations—such as air conditioning in places where it wasn’t previously needed, or elevating homes in areas that become more prone to flooding—“will have implications for economic activity and inflation.”

The chair of the Fed’s committee on financial stability, Ms. Brainard also highlighted potential vulnerabilities in the financial system associated with climate change and weather-related natural disasters that might become more common or intense.

“If prices of properties do not accurately reflect climate-related risks, a sudden correction could result in losses to financial institutions, which in turn reduce lending in the economy,” she said. “Banks also need to manage risks surrounding potential loan losses resulting from business interruptions and bankruptcies associated with natural disasters.”

Updated: 12-10-2019

ICC And Blockchain Firms Agree On $40B Funding For Climate Projects

The International Chamber of Commerce (ICC) has partnered with a Singapore government-backed blockchain startup to reduce carbon emissions in commercial aviation.

In a press release on Dec. 10, the ICC said that a partnership with Perlin and blockchain-based carbon offset exchange AirCarbon will provide $40 billion for climate projects in the aviation industry.

ICC: Partnership Will Inspire Action

The three partners launched the scheme on the sidelines of the United Nations Conference on Climate Change, or COP 25, in Madrid.

“As part of ICC’s declaration for the next century of global business, we are committed to making climate action everyone’s business by supporting the research, development, and deployment of digitally-enabled solutions,” ICC Secretary General John W.H. Denton commented in the press release, adding:

“This partnership will harness the power of technology to accelerate innovation, and inspire real, concrete action to keep our air carbon-free.”

The ICC will now seek to spread the adoption of AirCarbon’s carbon credits solution, which acts as a blockchain-based trading network for CORSIA, the existing carbon offset scheme from the International Civil Aviation Authority.

CORSIA came into being in 2016, at the time attracting 191 countries as signatories and hence potential markets for AirCarbon.

Mixed Signals On Blockchain Benefits

As Cointelegraph reported, the ICC has delved into blockchain innovation before, after formally pledging to promote the technology to its 45 million members.

The ICC previously cooperated with Perlin on an e-registry system for ships this year. In October, the Singapore Shipping Association and the ICC began work on the International E-Registry of Ships system based on Perlin’s Wavelet.

At the same time, blockchain technology is increasingly viewed with skepticism by major global bodies. This week, the World Trade Organization published what it called a “reality check” for blockchain in international trade.

David Bischof, deputy director at the ICC’s finance for development hub, described the report as “an indispensable tool for the entire trade ecosystem, but foremost clearly shows that standardisation in trade and trade finance is a key challenge to ensure the numerous blockchain-based platforms are of use for businesses that trade.”

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