Speech by Piero Cipollone, Member of the Executive Board of the ECB, at the Festival dell’ Economia di Trento
It is a great pleasure to be here.
As we meet today, we find ourselves at a critical juncture. Faced with the severe negative effects of climate change, we have to act swiftly while seizing the economic opportunities that the green transition offers.
I would like to focus on three important aspects. I will first talk about the increasing costs of climate change and the considerable investments the green transition requires. I will then discuss the implications for central banks and the role that the ECB can play. And finally, I will outline how this role interacts with the actions of other policymakers across Europe when it comes to facing the challenges ahead.
The growing cost of climate change
Historically, efforts to combat climate change were often hampered by what Mark Carney defined as the “Tragedy of the Horizon”: the impact of climate change was typically felt to be beyond the time horizon of most economic actors and policymakers, thus diminishing their urgency to act.[1]
However, we have reached a turning point and we cannot afford to delay any further, as the situation is changing rapidly, especially for Europe.
Global temperatures are rising faster than ever. The warmest years on record have been concentrated in the past decade, with 2023 being particularly extreme.[2] The accelerating pace of climate change is associated with an increase in the frequency of wildfires, periods of drought, heatwaves, and hurricanes and storms, all of which have contributed to growing environmental degradation and biodiversity loss.[3]
Europe is particularly affected by these changes. The European State of the Climate report 2023 indicates that Europe is the fastest-warming continent in the world, warming at twice the global average rate since the 1980s.[4] From 1980 to 2022 weather and climate-related events resulted in economic losses totalling around €650 billion in the EU. Annual losses in 2022 were 41% higher than in 2009.[5]
This trend of rising temperatures and related damages is more problematic than ever. Our economies have not yet devised a way to properly allocate the risks of negative climate events to entities capable of dealing with them, as reflected in low insurance coverage. According to a joint report by the ECB and the European Insurance and Occupational Pensions Authority (EIOPA), only a quarter of losses from extreme weather and climate events in the EU are insured.[6] Insurance coverage is even lower among the less affluent parts of the population, who tend to own housing that is more exposed to natural catastrophe risks and who, in relation to their income levels, face a higher cost of protection.[7]
Although it is leading the transformation at global level, and despite the considerable efforts made so far, the EU is currently not yet on track to meet its climate targets for 2030 and 2050.[8] Further action is needed.
The Network for Greening the Financial System (NGFS), which brings together central banks and supervisors working on climate issues around the world, has developed scenarios to assess how economies might look on different climate policy paths. These scenarios underline that to achieve the net zero target by 2050 the share of fossil fuels in the EU energy mix must be reduced from around 73% in 2020 to around 20% in 2050, However, current policies would only reduce it to slightly below 60% (Chart 1, panel a). Under current policies, we would fall well short of the net zero target in 2050. Even if all existing national pledges were fulfilled, there would still be a large gap (Chart 1, panel b).[9]
More Information, source : https://www.ecb.europa.eu/press/key/date/2024/html/ecb.sp240526~ef011def12.en.html
