03/11/2015 12:55 EDT | Updated 05/11/2015 05:59 EDT

Mark Carney Defends Climate Change Economic Study

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Mark Carney, governor of the Bank of England and chairman of the Financial Stability Board (FSB), speaks during a news conference following the board's plenary meeting at the Bank of England in London, U.K., on Monday, March 31, 2014. Carney said the FSB wants lenders and the International Swaps and Derivatives Association Inc., an industry group, to come up with proposals to write temporary pauses into derivatives contracts struck with banks that hit financial trouble. Photographer: Simon Dawson/Bloomberg via Getty Images
Bank of England governor Mark Carney is defending the U.K. central bank’s decision to study the economic risks of climate change after a former Conservative cabinet minister dismissed the research as "green claptrap."

Carney, a former Bank of Canada governor, told a House of Lords economic committee that climate change is one of the "top risks" facing the economy and financial institutions such as insurers.

"It’s absolutely essential we discharge our duty to protect policy holders in the insurance industry," he said Tuesday.

Carney said the insurance industry would bear the brunt of the costs of extreme weather and could lose money on its oil and gas investments if a global agreement to curb climate change results in many fossil fuel assets being unusable.

Nigel Lawson, a former member of Margaret Thatcher’s cabinet, had asked Carney why the central bank was researching climate risk at a time when the U.K. economy was still coming out of recession.

“There are a whole other lot of remaining problems … wouldn’t it be better if you focused attention on those instead of engaging in green claptrap?” Lawson said.

Lawson is a founding member of think-tank the Global Warming Policy Foundation, which says on its website there is no evidence for global warming.

That is counter to the findings of the vast majority of scientists, who argue that climate change is already here and already causing extreme weather.

The Bank of England has recently surveyed the insurance industry on its fossil fuel investments and highlighted the risk these investments could become “stranded carbon.”

Stranded carbon is oil, coal or gas that may have to be left in the ground to prevent the world’s temperature increasing by more than two degrees Celsius.

If the world comes to a consensus on curbing fossil fuel emissions in Paris this year, some fossil fuel assets could well become worthless, with a huge economic impact, Carney argued.

“In the insurance business one of the top risks is climate change ... it is absolutely essential to oversee and supervise the third largest insurance market in the world,” he told the House of Lords.

Disconnect between politicians, advisers

Carney said the insurance industry may well have adjusted its costs to reflect all the risks, as have many oil and gas companies, but it was the duty of the central bank to assess potential risks.

The exchange highlights a disconnect that exists between politicians who prefer not to deal with climate change and their advisers, who point to its potentially extreme impact.

Recently Florida legislators ordered its Department of Environmental Protection to not refer to climate change or global warming when talking about rising sea levels along the shoreline.

And numerous U.S. legislators, led by Republican James Inhofe, have called climate change a hoax, despite a U.S. Senate resolution passed in late January that declared climate change to be real.

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