RBA out of touch: Sloan

March 19, 2019

The Conservative Party is concerned that public servants in the Reserve Bank are working from a partisan left-wing climate alarmist position on climate change which could have seriously negative implications for the Australian economy.

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Judith Sloan writes in The Australian:

"Judged by the number of speeches senior executives of the Reserve Bank give, it’s easy to conclude that they have a lot of time on their hands.

The governor, deputy governor and assistant governors are always out and about, holding forth on a range of topics, (sometimes overseas).

This brings me to the speech delivered last week by RBA deputy governor Guy Debelle, on the topic “climate change and the economy”.

The occasion was a public forum organised by the left-leaning Centre for Policy Development.

Clearly, his appearance was organised many months before the event and it was a real coup for the centre to host ­Debelle.

One can only assume there was some considered internal discussion among senior executives and possibly the board about the wisdom of accepting this invitation. The fact his speech would be continually referenced by environmental groups was one obvious consequence.

His presentation starts with a sappy reference to Dorothea Mackellar’s poem about a sunburnt country and droughts and flooding rains. He notes agriculture is affected by weather and agricultural output is part of the GDP. Nothing earth-shattering there.

But Debelle gets himself into deeper water by accepting holus-bolus all the material from the United Nations Intergovernmental Panel on Climate Change, the Bureau of Meteorology and the CSIRO.

We should expect more from one of our leading bureaucrats than merely regurgitating the propositions of these agencies while ignoring other findings.

Actually, if you read the IPCC reports closely, you will learn about the lack of definite evidence on the rising incidence of extreme weather events, particularly hurricanes/typhoons.

The information is there in the bodies of these reports; it’s just not in the executive summaries.

According to Debelle, climate change will have a significant impact on the conduct of monetary policy. “Monetary policy is always having to analyse and assess (various) forces and the impact on the economy. But few of these forces have the scale, persistence and systemic risk of climate change.”

I guess that means the GFC was a walk in the park and the central bank authorities did such a good job at predicting its onset and fallout, or not.

When it comes to investment in renewable energy in Australia, it is staggering Debelle doesn’t mention the billions of dollars of subsidies that have stimulated the investment boom.

No right-minded economist would support this level or type of intervention, but Debelle is silent on the matter.

In his world, “there has been a rapid decline in the cost of renewable energy sources, in part because of extensive spending on research and development in renewable energy technology … As a result of the price decline, the investment cost-benefit analysis has changed and continues to change quite rapidly”.

He includes a quite bizarre chart in his presentation, depicting what is called the levelised cost of electricity generated by wind and solar, as well as movements in wholesale electricity prices in the National Electricity Market. (The levelised cost is a proxy of the price necessary for an asset to achieve a market rate of return.)

His understanding of how electricity pricing works is close to zero. It’s the marginal supplier that determines the price and note that the greater penetration of renewable energy has been clearly associated with rising wholesale prices, something Debelle should have acknowledged.

There is a brief section of the speech dealing with China’s response to climate change. Debelle sees mainly upsides for Australia as China demands our high-quality coal, our LNG output and our lithium for storage batteries.

He moves on to mapping the link between climate change and financial stability. I’m not sure what happened to his reference to droughts and flooding rains, but evidently there is some fear that extreme weather events will now risk financial stability.

That’s because insurers could be badly hit (because they have never been badly hit before?), and that companies might suffer reputational damage (because that’s never happened before?), including to the banks.

In short, Debelle’s discussion is superficial and speculative. If climate change is already influencing monetary policy, it’s very hard to see it. It’s also a real worry if his speech represents the bank’s degree of understanding.

But, hey, we should all be pleased to know the RBA is joining the Network for Greening the Financial System, a group of central banks examining climate ­issues.

That should serve up more learning opportunities for the globetrotting members of the RBA executive."

Conservative Party leader Cory Bernardi has told Rowan Dean on the Sky News programme Outsiders, climate change is a dangerous cult that's about redistributing wealth and giving governments more power.

To read Judith Sloan's full article, click here.

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