leaf half in drought, half near lake Researcher predicts financial problems caused byInfrastructure damage, agricultural losses, caused by the droughts,floods, and hurricanes amplified by climate change. (Photo:Shutterstock)

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(Bloomberg) –Climate change is becoming increasingly relevant tocentral bankers because losses from natural disasters that aremagnified by higher temperatures and elevated sea levels couldspark a financial crisis, a Federal Reserve Bank of SanFrancisco researcher found.

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“Climate-related financial risks could affect the economythrough elevated credit spreads, greater precautionary saving, and,in the extreme, a financial crisis,'' Glenn Rudebusch, the SanFrancisco Fed's executive vice president for research, wrote in apaper published Monday.

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“There could also be direct effects in the form of larger andmore frequent macroeconomic shocks associated with theinfrastructure damage, agricultural losses, and commodity pricespikes caused by the droughts, floods, and hurricanes amplified byclimate change,'' according to Rudebusch, who is also a seniorpolicy adviser at the reserve bank.

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While the Fed's primary policy tools — short-term interest ratesand large-scale asset purchases — aren't designed to addressphenomenon like global warming, policy makers may need to takeclimate-related damages into account whenconsidering the long-term economic outlook, the researcherwrote.

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“Many central banks already include climate change in theirassessments of future economic and financial risks when settingmonetary and financial supervisory policy,” he wrote.

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Fed Chairman Jerome Powell told legislators in February it was a“fair question'' to ask how the central bank would evaluate theeconomic impact of climate change and promised to look into it.

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Rudebusch, whose bank operates as part of the Fed system butisn't directed by Powell, suggested lawmakers could promote atransition to cleaner technologies by imposing a carbon tax, whichis a fee on emissions.

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Former Fed chairmen Alan Greenspan and Paul Volcker in Januaryendorsed a plan to tax emissions and distribute the revenue to U.S.households.

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Some pressure is mounting in Congress to take aim at climatechange, with House Speaker Nancy Pelosi pledging to take up climatelegislation.

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That effort may not go far in the current political environment,as Republicans control the Senate and the White House. PresidentDonald Trump said during the campaign he opposed taxing emissionsand has expressed skepticism that humans contribute to globalwarming.

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READ MORE:

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5 FAQs on low-carbon investing

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