The ticking clock

25 November 2020

David Henry Doyle explores a policy tool to tackle climate change

David Henry Doyle

It’s a race against time. The hero must defuse the device before it explodes. Minutes become seconds. Tension mounts. And then… meet the ticking clock: a powerful storytelling tool. In film, the clock drives the plot towards an action packed crescendo. In regulation, a well-timed countdown can have equally dramatic effects. As policymakers apply the ticking clock to tackle climate change, understanding how the mechanism works can make the world of difference.

The Name’s Clock, Ticking Clock

Alfred Hitchcock, the ‘Master of Suspense’, once revealed his secret: “all suspense comes out of giving an audience information”. Reveal the risk and disclose the deadline. The mere glimpse of a ticking clock in a film tells us everything we need to know. Time is running out. Our heroes will either make it, or they won’t. “The audience’s anxieties”, Hitchcock tells us, “will be as long as that clock ticks away”.

For the financial system, Mark Carney set a new clock in September 2015, in his famous speech, ‘Breaking the Tragedy of the Horizon – Climate Change and Financial Stability’. “In the fullness of time,” Carney declared on the eve of the Paris Agreement, “climate change will threaten financial resilience and longer-term prosperity”. He then revealed the ticking clock: “While there is still time to act, the window of opportunity is finite and shrinking.” Hitchcock himself could not have done better.

Synchronize to Paris Time

Central to the Paris Agreement is a global ticking clock. Threats to Earth’s climate and biodiversity are the driving gears of this policy mechanism. A countdown with two possible outcomes: a 1.5-degree world held back from the brink, or a world spiraling beyond climate catastrophe.

In Europe, regulation is now increasingly synchronized to the Paris Agreement. The EU’s Emissions Trading Scheme will reduce carbon credits considerably over the coming years. A Sustainable Finance Action Plan seeks to mobilise investment in a lower carbon economy. Every week, like clockwork, new regulatory timers are set running through the ambitious EU Green Deal.

The Regulatory Clock

Hitchcock’s maxim also applies to policy: information creates suspense, suspense creates action. Policy makers and film directors even have comparable powers. At its core, the formula of the regulatory clock is simple: X must do Y before Z. Sound familiar? Carney demonstrates how one policy maker can help focus our attention on specific risks. The EU demonstrates how a script can be written to help avoid those risks.

Of course, regulatory clocks typically tick more like metronomes than movie scores. After all, regulation is supposed to keep regular time and prevent surprises. Steady tempo rather than dramatic countdown. However, regulatory deadlines can also be cliffhangers. Sectors can be left scrambling due to unforeseen delays. No Regulatory Technical Standards? Suddenly, the clock ticks a little louder.

Maintaining Momentum: Scoring for Success

This potential for such delays creates a challenge for the regulatory clock. How to maintain momentum in the face of turbulence? Back to the movies. We know an audience in search of action craves a countdown. Yet, if this is too obvious or the timing is implausible the action can unravel. Directors therefore hide a musical clock within a film’s score to generate additional drive, acting as a subtle bridge to the next challenge.

Think of James Bond’s signature theme. Each variation reveals where we are in the action. Time for a little romance? More gambling and martinis? Or just seconds to live? The music will tell us. The policy score is equally important.

The TCFD Template

Carney’s clock was scored by the Task Force on Climate-related Financial Disclosures (TCFD). As the Chair of the Financial Stability Board, he understood that a core function of financial markets is pricing risk to support economic decisions. Without the right information, markets may not understand the risks. Hitchcock’s maxim.

Carney therefore asked the TCFD to develop new climate information disclosure tools to provide this information. The TCFD responded with a powerful score. Its recommendations serve as a guide for the orchestra of economic actors to disclose climate risks. TCFD was followed by the EU’s Expert Groups on Sustainable Finance and the international Network for Greening the Financial System. These struck new keys generating further impetus for the financial system to move forward.

Collectively, this growing refrain by regulators, central banks, industry, and policy makers has created crucial momentum. Indeed, the TCFD’s recommendations serve as a template to apply the ticking clock principles in policy: communicate consequences, set ambitious – yet achievable – targets, and provide a credible timeline for action.

Three Rules for the Climate Clock

The power of the ticking clock lies in the activation of our fight or flight reflex. As Carney and the TCFD proved, three basic rules govern its effectiveness. Consequences must be clear enough to provide strong motivation. Obstacles must be challenging – yet resolvable – to build momentum. Above all, characters must have enough time to beat the clock.

With the Paris clock in sight and a guiding policy score, many companies are now disclosing climate risk scenarios and actions. The music builds. Characters make choices. The action accelerates. However, speaking to the UN General Assembly last year Carney reminds us: “the task is large, the window of opportunity is short, and the risks are existential.” Whether we act in time to avoid our own global cliffhanger is up to us. No time for gambling and martinis. The clock is ticking.

This blog was first posted on 23 November on linkedin.com.