Ambrose, Bank of England, ECB, Solar
and $20tn-$30tn assets and $7tn debts of the global fossil complex
While politicians across Europe have been fighting a culture war over air conditioners and the causes of the deadly heat shock, central banks have been taking matters into their own hands.
The Bank of England has slipped through market notice 11, entitled “Changes to collateral eligibility in the Sterling Monetary Framework”.
Fossil fuel companies will face bigger haircuts from October onwards. Their debt will be worth less as collateral for borrowing money or securing a trade, depending on how far along they are on the green-to-brown spectrum.
Lenders will also have to integrate the financial risks of climate change in their stress testing and models. “The direction of travel is clear. Banks are going to have to set aside more capital when lending to some fossil companies,”.
The European Central Bank (ECB) is acting in parallel, using pillar two of the global “Basel regime” to squeeze loans to high polluters and shift incentives for the capital markets.
Banks in Europe already have to run a stress test for a “fossil debt shock”. The ECB is selling down its own holdings of corporate bonds with a high carbon footprint. It is exploring extra capital charges for banks that hold fossil assets, all in the name of financial stability.
Donald Trump’s America will have nothing to do with such policies, but that may not protect the US from the consequences. The country depends on huge inflows of global capital to fund investment and enable Americans to live beyond their means on the never-never.
The United States’ fiscal deficit is running at 7pc-8pc of GDP as far as the eye can see. The savings rate has collapsed to 3pc of GDP, a level seen only once before in US history: just before the Lehman crash.
The US has accumulated debt liabilities of circa $10tn (£7.5tn) to foreign creditors. It needs net inflows of $1.2tn a year to stay level. Half of this money comes from Europe.
The free market is pushing the rest of the switch. Ember says solar and batteries together – de facto baseload in sunny latitudes – are now so cheap that half of humanity can power itself at under $80 a megawatt/hour, and four-fifths at $100.
Try telling the Global South to waste their money importing liquefied natural gas from the US or Qatar.
Central banks know that the estimated $20tn-$30tn assets and $7tn debts of the global fossil complex – wells, rigs, pipelines, storage, refineries, tankers, and booked hydrocarbon reserves – are under historic threat and are vastly greater than the distressed property that caused the global financial crisis.
Ambrose Evans-Pritchard Telegraph 1 July2026
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