Over the past three months, alongside the regular coverage of the Clark Center’s polls and other news, On Global Markets has been reporting on the discussions held at the Clark Center Economic Experts Conference 9/10 October. Most of those sessions were held under the Chatham House Rule. This is the final conference report.
Following a broad overview of the state of climate economics, the final session of the Economic Experts Conference delved deeper into two topics – finance and climate and energy and climate.
When it comes to finance, the economic debate has focused on two core areas: the role of central banks and the use of climate related disclosures in financial statements when it comes to addressing climate change.
The role and position of central banks have been the subject of, often, fierce debate amongst economists and the wider policy community. Notably, as one panelist stated, the Federal Reserve and the European Central Bank now appear to be taking very different paths. Indeed the Fed pulled out of the global Network for Greening the Financial System in 2025 and scaled back its wider involvement in climate related activities. While this no doubt was partially about keeping the Trump administration happy, the central bank can find plenty of support amongst economists for its actions.
In terms of monetary policy – the core function of any central bank – there is a fairly broad consensus, that climate change is not likely to be a major factor in the near term. A case can be made that climate change could impact directly on inflation, through for example food prices, and it may have some impact on aggregate economic activity but these are unlikely to play out over the time frame in which monetary policy is typically set. Back in 2019 more than 50% of respondents in both the US and European expert panels agreed or strongly agreed that the physical risks associated with climate change would be “at most a very small factor” in monetary policy decisions over the coming decade. That may of course change in the 2030s, 2040s and 2050s but we are not there yet.
There is less consensus when it comes to the financial stability function of central banks. It is not hard to plot how changing weather patterns – or, say, increased flooding – could have a potentially large impact on the balance sheet of banks, or other mortgage lenders, or insurance companies. Asked whether such risks would threaten financial stability in the coming decade, both the US and European expert panels were far less sure. In the US respondents were (weighted by confidence) almost evenly split between agreement, disagreement and uncertainty. In Europe the results were slightly more tilted towards agreement but still highly uncertain. And, as one conference participant argued, even high levels of uncertainty suggest that central banks overseeing comprehensive stress tests over the impact of the physical impact of climate change on the institutions they supervise would be a good use of their time.
The last few years have seen a push towards forcing companies to include more climate related data – for example greenhouse emissions – in their published financial statements. In Europe the Corporate Sustainability Reporting Directive is now in force. Economists have broadly supported such initiatives although, as one conference participant argued, economists are usually in favor of more information being made available. A more interesting question, given the costs of gathering such data, is what is the supposed transmission mechanism from such information being published to steps to mitigate against climate change? Could it force up the cost of capital of especially ungreen firms as investors avoided their securities? Or would it come through shareholder pressure as investors engaged with management? Or more broadly, do such disclosures not just encourage ‘green-washing’? Or, worse still, do they not push polluting activities out of public markets and into more shadowy private hands?
Interestingly, both the US and European panels broadly agreed that a mandate for public-companies to provide more climate-related disclosures should induce them to reduce their climate impact. Although, for all the debate on climate and finance – together with the rise and fall of the trend of ESG related investing – many question how large a role the sector can really play in reducing carbon emissions on its own.
On the other hand, there is – understandably – a much clearer consensus that energy, and energy pricing, will play a decisive role in climate change.
It is also clear exactly what sort of policy economists would prefer in an ideal world. 99% of respondents, weighted by confidence, to a US expert poll either strongly agreed or agreed that “sound policy would involve increasing significantly the currently near-zero price of emissions of carbon dioxide and other greenhouse gases”. This is extremely simple economics – there is a large externality associated with carbon emissions and pricing that externality should have a large impact. It is hard to think of another policy question that would win the support of 99% of the experts.
Sadly for the experts though, what makes sense in theory is harder to implement politically in the real world. Indeed, as one panelist argued, the political obstacles to progress on climate change are now higher in the United States than in Europe as the fracking revolution has transformed the US into effectively a petro-state.
But if carbon pricing is off the table, what remains? The experts, both the US and European panels, are reasonably sure that voluntary emissions targets are unlikely to be an effective solution. Complicating the global political economy of all of this debate, the experts also widely accept that “the domestic net benefits of emissions reductions vary substantially across countries because of differences in income levels and exposure to climate risk”. In other words the incentives for individual countries to reduce their own emissions vary quite wildly, And there is, as one panelist argued, no global ‘climate policy king’ capable of handing down direction, itself there is a complex global bargaining system. Polling in 2025, of both the European and US panels, showed that – weighted, as ever, by confidence – around 90% of the experts either agreed or strongly agreed that “in the absence of incentives from developed countries, developing countries will not reduce their emissions substantially in places where the private costs of fossil fuels remain meaningfully lower than those of zero-carbon fuels”. But there was no clear consensus on whether the developed countries should encourage the emerging economies to decarbonise through penalties (such as carbon birder adjustment taxes) or subsidies. The answer, as many conference participants argued, was likely both – a combination of carbon sticks and carbon carrots.
