Australia

RBA to take climate change into account when setting interest rates

RBA deputy governor Guy Debelle says climate change will challenge financial stability. Source: AAP

The Reserve Bank has warned the challenges of climate change threaten Australia's financial stability.

The Reserve Bank has warned interest rates will be influenced by the impacts of climate change and a rocky transition could cause economic shocks. 

In a landmark speech to the Centre for Policy Development in Sydney, RBA Deputy Governor Guy Debelle said he was compelled to speak about climate change because of the scale of the impact it would have on the economy. 

"Monetary policy is always having to analyse and assess these forces and their impact on the economy. But few of these forces have the scale, persistence and systemic risk of climate change," Dr Debelle said on Tuesday night. 

He said Australia's financial stability would be challenged by the physical and transition risks of climate change.

Dr Debelle said "an orderly transition to a low-carbon economy" would be better for financial stability than "an abrupt disorderly transition". 

Renewable and fossil-fuel energy is produced with wind generators seen in front of a coal fired power plant near Jackerath, Germany.
The Reserve Bank would prefer a smooth transition to a low-carbon economy rather than an abrupt disorderly change.
AAP

"For example, insurers may face large, unanticipated payouts because of climate change-related property damage and business losses. In some cases businesses and households could lose access to insurance.

"Companies that generate significant pollution might face reputational damage or legal liability from their activities, and changes to regulation could cause previously valuable assets to become uneconomic."

Coalition's coal argument rages

As arguments over energy policy and support for new coal projects continue to divide the Coalition, Dr Debelle urged decision makers in government and business to take climate change seriously. 

"Decisions that are taken now can have significant effects on future climate trends and can limit or eliminate the ability to mitigate the effect of those trends."

Federal Resources Minister Matt Canavan
Resources Minister Matt Canavan supports a new coal-fired power station for Queensland.
AAP

Senior Nationals MP Matt Canavan said the Reserve Bank's decision to factor in climate change was "not unreasonable", but he said Australia should not "handicap our economy unnecessary". 

The resources minister is the first government frontbencher to break ranks and publicly support a new coal-fired power station in Queensland. 

"Say we were to build a coal fired power station in Queensland that would be one," he told ABC radio.

"Over the last 10 years or so the world has built the equivalent of three Hazelwood power stations a week."

The government is assessing more than 60 applications for taxpayer support for new energy projects, 10 of which rely on coal. 

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