Shift to lower carbon economy a major structural change, central bank says

Carbon pricing and initiatives that ease flow of private-sector cash into sustainable investments can address climate change.

OTTAWA — A senior Bank of Canada official says he expects climate change itself and the actions to address it will have pervasive effects on the economy and the financial system.

In prepared remarks of a speech, Timothy Lane says there will be profound changes during the transition to a lower-carbon economy and it will have important consequences for both aggregate supply and demand.

“Make no mistake: the move to a lower-carbon economy is a major structural shift for the global and Canadian economies,” Lane said in a speech in Montreal.

Lane said if done right, carbon pricing and initiatives that ease the flow of private-sector cash into environmentally sustainable investments can do a lot to help address climate change.

He also said the Canadian economy has proven itself to be resilient, particularly during the downturn in commodity prices in recent years.

“While the coming shift does present some unique challenges, Canada has shown an ability to adapt,” his speech said.

Lane added that many of the “material” negative effects expected from climate change and efforts to deal with them have already become important.

For example, he pointed to last spring’s huge wildfires that disrupted Alberta’s economically crucial oil-producing region, which slashed overall Canadian economic growth in the second quarter by about one per cent.

He said he only expects the introduction of carbon-pricing programs to have one-off impacts on inflation rates.

Looking over the longer term, he said if rising temperatures were to trigger more frequent negative economic shocks, then the Bank of Canada would have to find ways to account for them as risks in its policy decisions.

He acknowledged, however, that the forces created by global warming can be difficult to capture in economic models.

News from © Canadian Press Enterprises Inc. 2016

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