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June 2 — International regulators and governments should eliminate “unintentional” obstructions to long-term financing for low-carbon infrastructures that grew out of efforts to toughen financial stability rules, officials with the Organization for Economic Cooperation and Development said June 2.
International regulatory bodies began imposing tougher rules on banks in response to the global financial crisis sparked by the 2008 collapse of Lehman Brothers. One result of the moves was to limit the ability of banks to lend to big, long-term infrastructure projects.
“That's a real problem,” said Richard Baron, an OECD economist, “because the main part of what we have to do in response to climate change [is to implement] big infrastructure projects for renewable energies, energy efficiency, and others.”
Baron and Virginie Marchal, an OECD economist, presented a summary of their report calling on governments to coordinate climate policy goals with policies in investment, finance, tax, competition, energy, agriculture, land use, transport and market regulations.
Baron and Marchal spoke at the start of the two-day OECD Forum in Paris, site of the international climate talks late this year. The goal of those talks, the 21st Conference of the Parties to the United Nations Framework Convention on Climate Change, is to forge a global agreement to fight climate change.
The OECD said it plans to release Baron and Marchal's full report, “Aligning Policies for a Low-Carbon Economy,” July 2. It released the summary to correspond with the OECD activities this week, which include a meeting of the group's ministerial council.
The summary said several “misalignments,” if corrected, could improve effectiveness of climate policies. For example, existing policy frameworks are often geared to promote fossil fuels and carbon-intensive activities, rather than low-carbon options, it said.
In areas of taxation and urban mobility, “a suite” of policies interact to produce a major barrier to lowering carbon dioxide emissions, it said. It pointed to gasoline or diesel prices that it said don't reflect the full cost on society; subsidies to company cars; under-valued property taxes; and a lack of coordination for infrastructure investment.
After the 2008-2009 financial crisis sparked by the collapse of U.S.-based Lehman Brothers revealed that some rules governing financial institutions were deficient, the Group of 20 countries set up the Financial Stability Board, which gathered central bankers, finance ministers and officials from international financial institutions to coordinate regulatory and supervisory responses to the crisis.
The investment bank's complex operations proved difficult to unwind following its bankruptcy, triggering a domino effect in other financial institutions.
The Basel III rules that the Financial Stability Board eventually approved aimed to strengthen bank capital requirements by increasing bank liquidity and decreasing bank leverage. At their Seoul summit in 2010, G-20 leaders endorsed the rules, which have been tweaked several times since and are being implemented gradually through 2018.
Marchal said OECD strongly supported the Basel III rules, “but we are saying that there may be unexpected consequences of the current calibration between this regulation and investment, not only into renewable energies but long-term investment in general.”
“What we say in the report is that banks should identify areas where there may be blockages [to financing of projects]. Let's then try to find solutions that would not at all try to eliminate prudential rules,” she said. “Perhaps we could find solutions to better help banks make this kind of investment.”
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The summary of OECD's upcoming report, “Aligning Policies for a Low-Carbon Economy,” is available at http://bit.ly/1G2SN8g.
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