“From a climate perspective, we're not making progress,” he says Jenny Stephensprofessor of sustainability science and policy at Northeastern University.
“We need to phase out fossil fuels,” he says, “and that's not going to happen until there are significant changes in the financial system.”
New research by Stephens and co-author Martin Sokol, an economic geographer and associate professor of geography at Trinity College Dublin, explores the role of central banks in the climate crisis. By failing to address the volatility inherent in climate change, central banks are failing in their primary responsibility, Stephens and Sokol write.
“Their mandate is stability,” Stephens says, “and there's no way there's going to be stability in the future unless financial systems respond to climate destabilization.”
“The National Climate Assessment that was just released in November says that the United States is already spending $150 billion a year to deal with climate disruption,” says Stephens, who has studied climate change for more than 30 years.
The climate crisis is already destabilizing the financial system. “It's not an option to just ignore it.”
Unfortunately, central banks have so far pulled back on climate policy, and the US Federal Reserve is among the most reluctant, Stephens says. “Temperature, floods, fires, droughts, water scarcity, access to water. The fires and then the smoke from the fires,” he says, are all economic threats as well as existential ones.
“These are all symptoms of climate instability,” he continues. However, “we are not all equally vulnerable. That's where the lens of climate justice comes in.”
Climate justice, Stephens and Sokol write in their article, “prioritizes social, economic, and institutional innovations that link technical change with social transformation by focusing on social justice and economic equity.”
The 'communities and households and regions of the world [that] already experiencing intense climate suffering is an injustice,” says Stephens, “because most of these places and people are not the places and people from which most of the emissions arise.”
Stephens argues that central banks are at the forefront of promoting climate justice. If we stay on the current course, he says, “we will continue to respond to the climate crisis in ways that just perpetuate all of these inequalities and inequities.” But that would mean missing the opportunity to reshape the world in a more just way.
“We can respond to the climate crisis in ways that prioritize justice,” he continues, “and actually invest in the communities and people who are most vulnerable and [have] historically marginalized”.
“This is the opportunity before us.”
One possible solution suggested by Stephens and Sokol is adjustable interest rates for different types of projects. “We could have zero interest loans or even negative interest loans, [with which] you're actually paying people to do something you want them to do.”
While this may sound like a radical idea, negative interest loans for vulnerable households and communities could be a powerful tool to combat climate change and promote social and economic justice at the same time.
“Often,” says Stephens, “people in poorer communities don't have the money to insulate their homes.” This leads to a vicious cycle of them paying more for their heating and using more fossil fuels. This results in poor communities paying more for their heating than rich ones.
Therefore, providing loans at zero or negative interest rates to improve housing efficiency would not be an “extractive, exploitative, financial way, but [could] we really encourage people and support people in the changes they need.”
Ultimately, however, central banks must accept responsibility for promoting financial stability in the face of the climate crisis, Stephens says.
“Of course we need new technologies,” he continues. “Technological innovation is important, but we also need economic innovation. It is the flow of money that prevents the changes that are needed.”
“The most important thing would be to recognize the volatility associated with climate,” he says. “They will not be able to fulfill their stability mandate until and unless they recognize that they have a role to play in encouraging future stability – financial stability – through monetary policy.”
“Responding to the climate crisis in a way that promotes justice, social justice, economic justice, health, and racial justice and reduces inequalities among us is an opportunity before us.”
Despite the difficulties that may be caused by central banks unwilling — for now — to heed the call, Stephens remains optimistic. “All kinds of communities from all parts of the world are rising up and saying, 'Things are getting worse and worse and we have to change these systems.'
And because transformation doesn't happen along a linear progression, he says, there's still time to make radical, equitable changes. “Transformation can happen quickly – as soon as it happens.”
“We need big social changes and we can't just do business as usual.”
Noah Lloyd is a senior writer for NGN Research. Email him at n.lloyd@northeastern.edu. Follow him on X/Twitter at @noahghola.
