Back in mid-December, the Reserve Bank fronted up to Parliament’s Finance and Expenditure Committee for the Annual Review hearing on the Bank. I wrote about it here. You may recall that this was the appearance where (a) the Bank (unsuccessfully) tried to kept secret before the hearing the loss of another couple of senior managers, and (b) seemed to mislead the Committee on just how many of their senior managers had gone or were going. In the wake of it, the Governor forced the early departure of his deputy Geoff Bascand a couple of weeks before he was due to leave anyway, over unauthorised contact with the media [CORRECTION: “shared information to a third party”] (most likely over those two new senior management departures).
But towards the end of the hearing (about 50 minutes in here) there was a brief exchange on matters climate change, with an unusually clear and unconditional answer from the Governor. Here was my December account
The study by the Federal Reserve Bank of New York is here, and a Wall St Journal write-up is here. Here is the abstract
Which seems plausible and not very surprising. But it is just one working paper, on one aspect, and I’m not here to praise or critique the paper. My interest is in the Reserve Bank, and Orr’s response. “Yes”, he said, they certainly had done modelling of their own.
This is the Bank’s own climate change page. Even now, two months on, the only thing they are showing under Research Papers is this (their own words) preliminary analysis of some of the issues, dated July 2018 a few months after Orr had taken office. This was from the summary of that paper
So, I lodged an OIA request that day asking for copies of the modelling the Governor has been referring to, and of any write-ups of it. One might have supposed they would be keen to air it, but it still took them until 10 February to respond. They say they intend to put it on their website eventually, but it still isn’t on either the climate change or OIA responses page. So the full document is here
Climate change modelling OIA response from RBNZ Feb 2022
The first part of the response is a long (three page) letter, obviously attempting to provide some framing for what does (and particularly does not) follow. Their Senior Adviser, Government and Industry Relations assures me that
The RBNZ’s view is that there are significant climate-related risks for the New Zealand economy and financial system. This means that we consider that sectors of New Zealand’s economy will be at risk of being affected by physical risks, such as drought, flooding and sea level rise, and transition risks, such as international and national changes in policy/regulation, trade, investment and consumer preference. We consider that it is inevitable that policies and conditions will change in response to this global challenge, and that New Zealand’s economy will be affected and changed by these global and national changes. New Zealand banks and their international counterparts have set up teams to monitor and understand these risks and to respond as necessary.
While we are certain that there will be changes in the economy and financial system resulting from climate change and actions to mitigate climate change, the degree to which risks apply to financial stability will depend on a number of factors including how risks are understood and managed. New Zealand banks and their international counterparts have set up teams to monitor and understand these risks and to respond as necessary.
At which point, I’m drumming my fingers and going “yes, so you say, but my question was about the modelling the Governor assured Parliament had been done”.
There then followed a 15 page memorandum, dated 13 October 2021, to one of the Bank’s internal committees on “Prioritisation of climate-related risks for financial stability analysis”. It is mildly interesting
So it seems that they intend to do some work, but haven’t done anything very serious yet. This is their own summary
The only thing the Bank itself seemed to have done was this
The rest of the OIA release consisted of 15 pages of a Powerpoint presentation (from July 2021) on that dairy scenario, reporting work undertaken jointly with MPI (the Ministry for Primary Industries). Much of the presentation is withheld, and we really learn nothing from it beyond what is in that extract just above. None of this appears to have been independently reviewed, none of it has been published, and the Bank’s own description (see quote above) is that there is “very little” New Zealand research on the (possible) threat to the financial system. All we have is a statement of the fairly blindingly obvious: a serious drought out of the blue (as 2013 was) combined with low dairy prices – an unusual combination given that earlier Bank research found that New Zealand droughts tended to boost global dairy prices, but not impossible – would result in some losses to banks’ dairy loan books. And? It sheds no light at all on risks to the New Zealand economy and financial system as a whole, and especially not from climate change – a multi-decade process.
To be clear, I don’t think the Reserve Bank should be spending lots of scarce taxpayers’ money (well, not scarce to them given how lavish their funding now is) on modelling climate change risks, at least not without a great deal more serious robust international analysis suggesting that there was a substantive issue/risk emerging. But it is the Reserve Bank that holds forth on the issue, asserting the existence of a threat….and, it appears, it has done almost no work itself, in a New Zealand context, to support its handwaving.
For anyone interested in reading further, I can recommend a couple of pieces by Ian Harrison – who would no doubt have been heavily involved in this sort of stuff were he still at the Bank. The first, from October 2021, is on Climate Change and Risks to Financial Stability more generally. The second, from January this year,
Did the Governor actively mislead Parliament with his answer in December? At very best, it looks borderline. As is clear, from the OIA release and the Bank’s own papers, what little semi-formal work has been done to date sheds very little light of anything of interest, despite repeated claims by the Bank and the Governor about alleged “significant” financial system risks.