This is the link to where you can download the paper that goes into more depth than the article. Abstract below: I wanted to generate some discussion around this and gauge other peoples thoughts...
This is the link to where you can download the paper that goes into more depth than the article. Abstract below:
Central banks can potentially influence the investment decisions of private financial institutions, which in turn will create incentives towards green technology adoption and development of lower emission business models. This paper examines how monetary policies can be deployed to promote a greening of finance. To guide the efforts, the paper mobilizes the Money View literature. This enables a comparative assessment of different monetary policy options. The main finding is that a promising way forward for green monetary policy is to adopt a strategy of expanding collateral eligibility through positive screening and widening haircut spreads to change relative incentives in favor of green over brown assets.
I wanted to generate some discussion around this and gauge other peoples thoughts out there. This can be a touchy point in discussions about what monetary policy should and shouldn't do. To state my position clearly: I believe that central banks can and should direct financial flows away from assets that are tied to high emissions.
Beyond the significant challenges it will take to do this, opponents to this position will generally state a few things. First, directing financial flows is the role of fiscal policy and not monetary policy. I agree that this 100% a fiscal policy issue. But when the US Congress cannot seem to agree on much, we should throw everything we've got to curtail anthropogenic climate change. This is a race against the clock, and the IRA and the current administration do not go far enough.
Second, opponents of this stance may claim that monetary policy is not in the business of saying where money should and shouldn't go; only that the money flows should remain free and unobstructed. My response to this is that I absolutely agree with this stance on monetary policy, but in practice central banks make exceptions when there are threats to financial stability. For example, the US Federal Reserve has taken action to impose barriers on crypto related assets. It has similarly weighed in on over-the-counter derivatives in a way that deters activity with those assets. Which leads to the next point.
Third, opponents to this stance will claim that assets tied to high emissions do not pose a threat to financial stability. I agree that in the short term horizon (which most financial institutions operate under), it may not pose a threat to financial stability. In the long run, I'll even admit that anthropogenic climate change may not lead to financial instability as we understand it. But over the long run, it will lead to consolidation in the market and lead to more inequality as smaller financial institutions face greater risk. (See Heartland Tri-State Bank). Additionally, we know that inequality and instability in the food-price index also leads to societal instability (See Syrian Civil War). There's only so much inequality a system can take before it breaks.
It is not far fetched to say that when financial institutions invest in assets tied to high emissions, it leads to instability and acts against their own interests. With this knowledge, central banks can and should direct financial flows away from assets that are tied to high emissions.
I find the concept intriguing and concur with its premise. However, a recurring challenge is the presence of knowledge gaps, counter-intuitive outcomes, and unforeseen repercussions when...
I find the concept intriguing and concur with its premise. However, a recurring challenge is the presence of knowledge gaps, counter-intuitive outcomes, and unforeseen repercussions when implementing certain actions.
Take the realm of cryptocurrency as you mentioned, for instance. Recent studies have begun to challenge the prevailing notion that "mining is detrimental." These papers underscore Bitcoin's potential as a catalyst for renewable energy and a means to decarbonize investment portfolios:
An even more recent paper, Bitcoin’s Carbon Footprint Revisited: Proof of Work Mining for Renewable Energy Expansion, might highlight where a green monetary policy for bitcoin maybe ought to fall. Maybe the policy has to be on how large bitcoin miners need to have a certain amount of co-location and vertical integration with renewable energy suppliers, to provide flexible demand and incentivize clean energy production when normal consumer demand goes down (known as the belly of the duck chart.)
The second thing I'd be worried of is greenwashing from large financial institutions and fund managers looking to make a buck. We see this with the "ESG" label on portfolios:
92% of the carbon intensity reduction investors could have reached by solely weighting stocks to minimise carbon intensity is lost when adding ESG scores as a partial weight determinant. Only 8% of the carbon reduction objective survived the inclusion of ESG scores in portfolio weighting schemes.
Lastly, there's the issue of unintended consequences. For example, regulations introduced in 2020 to curtail high-sulfur ship fuel emissions inadvertently accelerated solar geoengineering changes, leading to the rapid warming of the Atlantic. While sulfate reduction is beneficial, the unintended result has been a decrease in reflective clouds, intensifying the warming of a significant part of the northern hemisphere. This recent Science.org: ‘We’re changing the clouds.’ An unintended test of geoengineering is fueling record ocean warmth article claims it as a matter of fact, but this was actually a controversial claim just a couple years ago.
And so, my reservations about the suggested strategy stem from the ever-evolving nature of our foundational knowledge, as evidenced by the frequent shifts in narratives.
I skimmed the abstracts (sorry) and it didn’t seem like the articles included an ROI comparison of using excess generation capacity to e.g. sell generic compute resources, provide district...
I skimmed the abstracts (sorry) and it didn’t seem like the articles included an ROI comparison of using excess generation capacity to e.g. sell generic compute resources, provide district heating/cooling, or as an input to other industries (smelters are a common one). The insufferable hippy in me also requires that I add “direct carbon capture” to that list, but I’m not sure if Texas has a financial mechanism to make that directly profitable.
May I ask if you know off hand if there’ve been any studies into the effectiveness of mining vs those alternatives?
Since you mentioned Direct Air Carbon Capture and Texas in the same sentence, I figured I'd use it as an opportunity to mention Occidental Petroleum. They're doing some interesting things with DAC...
Since you mentioned Direct Air Carbon Capture and Texas in the same sentence, I figured I'd use it as an opportunity to mention Occidental Petroleum. They're doing some interesting things with DAC in Texas.
Thanks for the perspective - I'll have to read the sources you posted. In the meantime, I think it's interesting that you discuss Bitcoin and then greenwashing concerns immediately after that....
Thanks for the perspective - I'll have to read the sources you posted.
In the meantime, I think it's interesting that you discuss Bitcoin and then greenwashing concerns immediately after that. Personally, I think blockchain technologies could play a pretty important role in this fight. One reason that greenwashing is possible, is because we don't actually know how many Scope 3 emissions are tied to products/services. In order to fully know the Scope 3 emissions, we'd need to connect the supply chain.
Of course, connecting the entire supply chain end-to-end is a challenge, but blockchain tech can help. Walmart has an initiative where they're attempting this with the help of VeChain (although not for the purposes of tracking emissions). Businesses can also estimate Scope 3 through various accounting techniques like PCAF
There's a lot of challenges out there in preventing greenwashing. At the end of the day, we need some standardization with carbon accounting. What counts as offsets? What doesn't? There's bound to be unintended consequences with any decision about anything, but we can't let that slow us down. We can't let perfection be the enemy of progress. There'll be some bumps in the road, but we'll figure it out.
This is the link to where you can download the paper that goes into more depth than the article. Abstract below:
I wanted to generate some discussion around this and gauge other peoples thoughts out there. This can be a touchy point in discussions about what monetary policy should and shouldn't do. To state my position clearly: I believe that central banks can and should direct financial flows away from assets that are tied to high emissions.
Beyond the significant challenges it will take to do this, opponents to this position will generally state a few things. First, directing financial flows is the role of fiscal policy and not monetary policy. I agree that this 100% a fiscal policy issue. But when the US Congress cannot seem to agree on much, we should throw everything we've got to curtail anthropogenic climate change. This is a race against the clock, and the IRA and the current administration do not go far enough.
Second, opponents of this stance may claim that monetary policy is not in the business of saying where money should and shouldn't go; only that the money flows should remain free and unobstructed. My response to this is that I absolutely agree with this stance on monetary policy, but in practice central banks make exceptions when there are threats to financial stability. For example, the US Federal Reserve has taken action to impose barriers on crypto related assets. It has similarly weighed in on over-the-counter derivatives in a way that deters activity with those assets. Which leads to the next point.
Third, opponents to this stance will claim that assets tied to high emissions do not pose a threat to financial stability. I agree that in the short term horizon (which most financial institutions operate under), it may not pose a threat to financial stability. In the long run, I'll even admit that anthropogenic climate change may not lead to financial instability as we understand it. But over the long run, it will lead to consolidation in the market and lead to more inequality as smaller financial institutions face greater risk. (See Heartland Tri-State Bank). Additionally, we know that inequality and instability in the food-price index also leads to societal instability (See Syrian Civil War). There's only so much inequality a system can take before it breaks.
It is not far fetched to say that when financial institutions invest in assets tied to high emissions, it leads to instability and acts against their own interests. With this knowledge, central banks can and should direct financial flows away from assets that are tied to high emissions.
Thoughts?
I find the concept intriguing and concur with its premise. However, a recurring challenge is the presence of knowledge gaps, counter-intuitive outcomes, and unforeseen repercussions when implementing certain actions.
Take the realm of cryptocurrency as you mentioned, for instance. Recent studies have begun to challenge the prevailing notion that "mining is detrimental." These papers underscore Bitcoin's potential as a catalyst for renewable energy and a means to decarbonize investment portfolios:
The second thing I'd be worried of is greenwashing from large financial institutions and fund managers looking to make a buck. We see this with the "ESG" label on portfolios:
Lastly, there's the issue of unintended consequences. For example, regulations introduced in 2020 to curtail high-sulfur ship fuel emissions inadvertently accelerated solar geoengineering changes, leading to the rapid warming of the Atlantic. While sulfate reduction is beneficial, the unintended result has been a decrease in reflective clouds, intensifying the warming of a significant part of the northern hemisphere. This recent Science.org: ‘We’re changing the clouds.’ An unintended test of geoengineering is fueling record ocean warmth article claims it as a matter of fact, but this was actually a controversial claim just a couple years ago.
And so, my reservations about the suggested strategy stem from the ever-evolving nature of our foundational knowledge, as evidenced by the frequent shifts in narratives.
I skimmed the abstracts (sorry) and it didn’t seem like the articles included an ROI comparison of using excess generation capacity to e.g. sell generic compute resources, provide district heating/cooling, or as an input to other industries (smelters are a common one). The insufferable hippy in me also requires that I add “direct carbon capture” to that list, but I’m not sure if Texas has a financial mechanism to make that directly profitable.
May I ask if you know off hand if there’ve been any studies into the effectiveness of mining vs those alternatives?
Since you mentioned Direct Air Carbon Capture and Texas in the same sentence, I figured I'd use it as an opportunity to mention Occidental Petroleum. They're doing some interesting things with DAC in Texas.
Thanks for the perspective - I'll have to read the sources you posted.
In the meantime, I think it's interesting that you discuss Bitcoin and then greenwashing concerns immediately after that. Personally, I think blockchain technologies could play a pretty important role in this fight. One reason that greenwashing is possible, is because we don't actually know how many Scope 3 emissions are tied to products/services. In order to fully know the Scope 3 emissions, we'd need to connect the supply chain.
Of course, connecting the entire supply chain end-to-end is a challenge, but blockchain tech can help. Walmart has an initiative where they're attempting this with the help of VeChain (although not for the purposes of tracking emissions). Businesses can also estimate Scope 3 through various accounting techniques like PCAF
There's a lot of challenges out there in preventing greenwashing. At the end of the day, we need some standardization with carbon accounting. What counts as offsets? What doesn't? There's bound to be unintended consequences with any decision about anything, but we can't let that slow us down. We can't let perfection be the enemy of progress. There'll be some bumps in the road, but we'll figure it out.