“In the current phase, we cannot depend exclusively on renewable energy,” warns the President of the ECB, Christine Lagarde, about the efforts of governments to reshape the energy baskets of the euro countries. «The dramatic climate change can only be avoided if CO2 emissions are reduced to zero and this transition must be made quickly if the objectives of the Paris Climate Agreement are to be achieved, “he admits, noting that” the transition is likely to have some costs. Lagarde warns against the effects that the transition to the new energy model may have on the most disadvantaged and calls on the governments of the euro and the financial sector to orient their investments with precision.
On the positive side, he points out that “the development of new technologies has reduced the cost of solar energy so much that it is now one of the most profitable sources of electricity” and recalls that “according to the International Energy Agency, more than half of the Additional emission reductions needed to meet the Paris climate targets could be achieved without putting additional pressure on electricity customers ‘, but underlines that for now it is not possible for the European economy to rely exclusively on renewables:’ in some sectors, the required technology is not yet mature.
In his article, Lagarde indirectly defends his reform of the ECB’s inflation target, set in the entity’s bylaws. “Central banks have learned in recent decades that a credible inflation target can help drive expectations across the economy,” he says, calling on governments to provide guidance, providing “well-communicated and compelling transition pathways that can inspire people and businesses to take meaningful and coordinated action to mitigate climate change. “Clear markings can be used to divide a long and arduous road into stages that are easier to manage,” he suggests.
He also stresses that “some of these transition routes require a CO2 price that fully reflects current and future ecological and social costs, but for the moment we are still a long way from that.” “Worse still,” he adds, “in 2020 fossil fuels were explicitly subsidized with $ 450 billion.” “The rapid rise in energy prices can affect the most vulnerable in society. Therefore, a just transition should be well thought out, the benefits of which should be evenly distributed among all ”, is his message,“ public investment can be a catalyst for private investment and the financial sector has an important role to play here.
Lagarde calls on financial institutions to “establish in their transition plans how they intend to move towards a carbon-free world.” “The Glasgow Financial Alliance for Net Zero is the first step in this direction. Full, globally consistent and verifiable data disclosure can help ensure that funds flow where they are most needed while avoiding the risk of green laundering. ”He also states that“ central banks must do their part ”. He notes that “natural disasters and ecological change have an impact on inflation and, therefore, on the main mandate of the European Central Bank.” He confesses that “we are increasingly concerned about climate change. The risks it poses not only affect the banks we supervise, but also the balance sheet of the ECB ”. “We are not alone in our concern,” suggests a sense of relief, “about a hundred central banks and financial regulators from around the world have come together to form the Network to Green the Financial System. The objective of this network is to continue developing the management of climate and environmental risks in the financial sector and to mobilize financing to support ecological change ”.
Lagarde recalls that the ECB has publicly committed to working within its area of responsibility to ensure that decision makers can opt for decisive measures to implement the objectives of the Paris Agreement and contain the consequences of climate change. Lagarde has made climate protection one of the priority objectives of the ECB, which represents a revolutionary turn of strategy in an institution dedicated exclusively from its birth to monetary policy. He describes the high degree of uncertainty that the climate adds to the economic forecast and states that “we cannot say with certainty what our economies will be like in 30 years and how exactly climate change will shape the future, so this uncertainty can be paralyzing Especially if it is accompanied by the mistaken belief that we cannot change anything on our own or that it is too late. We can all do something and do our part ”.