ECB President Lagarde: Setting the course for climate protection

The COP26 climate summit in Glasgow this week represents a unique opportunity to set the course for a CO2-free world.

The dramatic climate change can only be averted if CO2 emissions are reduced to zero.

This transition must be made swiftly if the goals of the Paris Climate Agreement are to be achieved.

The time window for this closes quickly, but the most important thing is: it is still open.

The transition is likely to come with some costs, but it also offers opportunities.

The development of new technologies has reduced the cost of solar energy so much that it is now one of the most cost-effective sources of electricity.

According to the International Energy Agency, more than half of the additional emissions reductions required to meet the Paris climate targets could be achieved without putting additional strain on electricity customers.

In the current phase, however, we cannot rely exclusively on renewable energy sources.

In some sectors the technology required is not yet mature.

We cannot say with certainty what our economies will look like in 30 years' time and how exactly climate change will shape the future.

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 already too late.

We can all very well do something and do our part.

Rapidly rising energy prices can hit the weakest

Central banks have learned over the past few decades that a credible inflation target can help direct expectations across the economy.

Governments can also provide guidance.

Using well-communicated and compelling pathways for transition, they can inspire people and businesses to take meaningful and coordinated action to mitigate climate change.

Because clear markings can be used to divide a long and arduous path into easier-to-manage stages.

Some of these transition routes require CO2 pricing that fully reflects current and future ecological and social costs.

At the moment we are still a long way from that.

Worse still, in 2020 fossil fuels were explicitly subsidized with $ 450 billion.

Rapidly rising energy prices can hit the most vulnerable in society.

A fair transition, the benefits of which should be evenly distributed among all, must therefore be well thought out.

In order to go down this path, considerable technological innovations and investments in climate protection are also required.

Public investment can be a catalyst for private investment, and the financial sector has an important role to play here.

Financial institutions should set out in 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.

Comprehensive, globally consistent and verifiable disclosure of data can help ensure that funds flow to where they are most needed, while at the same time avoiding the risk of greenwashing.

"It's never too late to do something"

Central banks must also do their part.

Natural disasters and ecological change have an impact on inflation and thus also directly on ensuring price stability, the primary mandate of the European Central Bank (ECB).

That is why we too are increasingly concerned with climate change.

The risks it poses not only affect the banks we oversee, but also the ECB's balance sheet.

We are not alone in our concern.

Around 100 central banks and financial regulators from around the world have come together to form the Network for Greening the Financial System.

The aim of this network is to further develop the management of climate and environmental risks in the financial sector and to mobilize financing to support ecological change.

Yesterday, the ECB made a public commitment to work within its remit to ensure that decision-makers take decisive action to implement the goals of the Paris Agreement and to contain the consequences of climate change.

Climate change was also a major issue in our recent strategy review.

We have an ambitious timetable on which our work program is based.

Our macroeconomic climate stress test shows the advantages of acting early in this area.

The short-term costs of ecological change are more than offset in the long run by avoiding costly catastrophes such as fires, heat waves and droughts.

More comprehensible intermediate stages could be helpful on the way to climate neutrality in 2050.

Now it's up to us.

After the pandemic, we now have the opportunity to renew and reshape our economies and move away from CO2 emissions.

The road ahead may seem arduous.

But we know our destination, and a large part of the way is already clearly recognizable.

Moving to a carbon free world is the only way to a better future for all of humanity.

To put it in the words of Antoine de Saint-Exupéry: “The time has come to act.

It's never too late to do something. "