Central banks don’t think they can do much to protect the environment. The European Central Bank has introduced some climate change-based valuations into its bond portfolio, while warning that the fight against global warming is the business of politicians, not monetary authorities. The Federal Reserve has done even less by arguing that it should not deal with climate change without a special mandate from Congress. Recent energy price spikes and natural disasters have supported the ECB’s approach, suggesting that central banks may go even further. The Fed has both the power and the tools to play a small but decisive role in facilitating the transition to a green economy. The main goal of almost every central bank is to keep inflation under control. However, in recent years, climate change has gradually come to the attention of politicians. Former Bank of England Governor Mark Carney warned of the effects of warming in a 2015 speech, predicting that financial systems would take a big hit if weather storms intensified. This view is shared by other central bankers. In a 2021 survey by Invesco, 63% of central bankers said addressing climate change is part of their mandate.

However, the Fed has largely avoided the issue. Federal Reserve Chairman Jerome Powell said in January that the Federal Reserve “will not have a climate change policy.” In the ranking of the G20 (G20) countries, compiled by the green policy advocacy organization Green Central Banking, the Fed is in sixteenth place. Ignoring the effects of global warming is economically pointless. To begin with, the US’ dependence on fossil fuels makes it vulnerable to rising inflation caused by energy shocks. The Russian invasion of Ukraine has led to a sharp increase in gas and oil prices throughout 2022. More than half of the euro area’s headline inflation is attributable to higher energy costs. The US is less dependent on imported fuel than Europe, but is not immune from rising prices. Energy prices have risen 9% since January, according to the country’s consumer price index. Switching to domestic renewables would protect the US and other countries from such shortages and the resulting price increases.

Climate change also threatens to increase inflation and slow growth due to more frequent and devastating natural disasters. Extreme weather will cost the US $165 billion in 2022. This is the third highest value since 1980 and more than three times the historical average. Finally, interest rates – the central bank’s main tool for managing the economy – also affect the cost of investment in renewable energy. A 2020 study by the International Energy Agency found that when discount rates, which roughly track central bank interest rates, double, the cost of supplying electricity from offshore wind turbines rises by almost 45%, while the price of electricity from power plants, using natural resources. gas does not change fundamentally.