An odd report on climate risk

The Commodity Futures Trading Commission sponsored a subcommittee to look at the risks to financial markets. The report is being pushed through several news outlets including Marketwatch and Politico.

The report has a bunch of recommendations, but here is #1. Quote:

“Recommendation 1: The United States should establish a price on carbon. It must be fair, economy-wide, and effective in reducing emissions consistent with the Paris Agreement. This is the single most important step to manage climate risk and drive the appropriate allocation of capital.”

Here is how MarketWatch summarized the recommendations, quote:

The report, which presents 53 recommendations to mitigate the risks to financial markets posed by climate change, concludes that:

  • Climate change poses a major risk to the stability of the U.S. financial system and to its ability to sustain the American economy;
  • Climate risks may also exacerbate financial system vulnerability that have little to do with climate change; including vulnerabilities caused by a pandemic that has stressed balance sheets, strained government budgets, and depleted household wealth;
  • U.S. financial regulators must recognize that climate change poses serious emerging risks to the U.S. financial system, and they should move urgently and decisively to measure, understand, and address these risks;
  • Existing statutes already provide U.S. financial regulators with wide-ranging and flexible authorities that could be used to start addressing financial climate-related risk now;
  • Regulators can help promote the role of financial markets as providers of solutions to climate-related risks; and
  • Financial innovation is required not only to efficiently manage climate risk but also to facilitate the flow of capital to help accelerate the net-zero transition and increase economic opportunity.

I find it odd that financial types are more worried than the politicians … but somewhat comforting that risk management and rational plans are alive and well somewhere.

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