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KZN floods: Why the Reserve Bank is worried about climate change green swans – and ‘bad solutions’

Business Insider SA
The aftermath of flooding in KwaZulu-Natal. (Photo by Gallo Images/Darren Stewart)
The aftermath of flooding in KwaZulu-Natal. (Photo by Gallo Images/Darren Stewart)

  • Flooding in KwaZulu-Natal has been declared a national disaster, and President Cyril Ramaphosa wants to see more spending on climate adaptation.
  • The Reserve Bank has warned about the broad impact that "green swan" events and climate change in general can have, including on inflation.
  • Part of its research agenda, set in 2021, is to avoid "bad solutions" being imposed on it, in response to climate change.
  • For more stories go to www.BusinessInsider.co.za.

On Monday night, President Cyril Ramaphosa explained that South Africa needed a national state of emergency to deal with flooding in KwaZulu-Natal, in part to unlock more resources to deal with its aftermath.

The KwaZulu-Natal floods were a reminded that South Africa must cut emissions through a "just transition that protects vulnerable communities and safeguards jobs", Ramaphosa said, and needs to put money into climate adaption.

See also | SA must spend more on climate adaptation, says Ramaphosa, as KZN floods become national disaster

In 2021 the SA Reserve Bank, in setting its medium-term research agenda, predicted that climate-change events could hold policy risks for the central bank, and provided a rare glimpse of how it thought politics could play out in its realm.

One of its priorities was to "avoid bad solutions that might be imposed on the Reserve Bank due to lack of appropriate analytical work" around climate change, it said.

"The breadth of policy risk faced by central banks in dealing with climate change and its consequences is becoming increasingly apparent."

It warned of the disruptive nature of "green swan events", "including and perhaps primarily through financial systems, and as stress impacts on firm and household balance sheets and risk profiles, with implications for financial stability".

The term "green swan" is credited to the Bank for International Settlements, which used it in January 2020 to describe the climate-change equivalent of black swans, which are by definition unpredictable. Green swans, on the other hand, are not impossible to foresee at least in general terms, because climate change is well understood and its likely path has been well charted.

Over the next 50 years, most of South Africa is expected to grow hotter and drier, worsening the droughts already common in important agricultural production areas.

South Africa's draft approach to such changes includes highlighting the opportunities that will come with climate adaption.

See also | Climate change has a bright side too: How SA plans to put a positive spin on global warming

For SA, climate change "will impact different regions very differently", the Reserve Bank says, while structural economic changes will be driven in part by policy decisions made in other countries.

But South Africa can focus its own approach in a couple of ways, it says.

"Adaptation and mitigation measures need to be economically and financially manageable in the sense of minimising damage and maximising opportunity. This also requires dealing with possible adverse impacts on particular groups and ensuring that any transition to a lower emissions development path is inclusive."

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