AUGUST 20, 2020
VICTORIA FORUM 2020

The Great Reset

Supporting the transition to a greener, smarter economy

Paul Beaudry

DEPUTY GOVERNOR

The pandemic, central banks and climate change

• COVID-19 is a shock and an opportunity

• Pivot to a greener, smarter economy?

• Focus here on climate-related issues

• Our contributions to scenario analysis

• To start: how we view climate change risk

Two sets of risks from climate change

• Physical risks: Damage or destruction caused by extreme weather/higher temperatures

• Transition risks: Costs involved in the move toward a low-carbon economy

Different roles in facilitating a transition

• Governments: setting environmental policy

• Corporate sector: investing in technology

• Households: shifting preferences/behaviour

• Financial sector: financing transition

• Central banks: smoothing the transition to

  1. ensure the financial system is up to challenge

  2. maintain economic activity close to capacity

  3. understand the potential economic effects

Scenario analysis: a useful tool given uncertainty

• Scenario analysis describes plausible future pathways

• It is not what will occur, but what could occur

• Useful given the high degree of uncertainty related to:

  • climate change policy

  • technological development

  • evolving consumer and investor preferences

Scenario analysis framework

 

Delayed action leads to a disorderly adjustment

How to quantify macroeconomic and sectoral impacts?

• Global oil production could fall sharply

• Large structural shifts could occur across sectors
   

Looking ahead: scenario analysis and lessons of COVID-19

• Scenario analysis as a journey

  • Multi-year process

  • Time to build in-house expertise and tools and to address data gaps
     

• COVID-19 as a disrupter that offers new insights on climate change

  • An example of a structural shock with broad impact worldwide

  • If you knew 30 years ago that COVID-19 was coming, how would you prepare?

  • Preparation can reduce risks

  • Structural changes as we pivot to a greener, smarter economy

  • Opportunity to employ scenario analysis