The Bank of England told banks and businesses to start assessing the risks they face from climate change immediately, and brace to pay much more for polluting.
The regulator’s warning to businesses is a clear sign that the bank sees the price of carbon as a risk to companies as the world seeks to eliminate greenhouse gas pollution by 2050 in order to prevent catastrophic climate change. That puts pressure on executives to assess those risks and disclose them to investors or even to upend business models to adapt.
Sarah Breeden, who leads the central bank’s work on climate-related risks, said the cost of pollution allowances will need to rise significantly in order to achieve targets in the Paris Agreement to limit global warming to below 2 degrees Celsius.
Carbon prices may even exceed $100 if the transition to a low carbon economy is abrupt, or bumpy, she said. The current price to pollute in the European Union is around 33 euros ($40) a ton.
“I do think if risk is priced, it will drive the right behaviors,” said Breeden, who is also the central bank’s executive director responsible for the supervision of the U.K.’s banks, building societies and credit unions. She spoke at a webinar hosted by the bank on climate risk.