All of us need to work hard to lay the groundwork for a greener and brighter world. The resulting lower and more stable inflation rates would make our economies work better for the benefit of all. Harnessing the opportunity to push ahead with a timely shift of our energy system towards more renewable energy would not only make our economy greener and more self-sufficient, but it would also reduce the risk of spikes in energy prices. Speeding up the green transition has never been more important: surging energy prices have highlighted just how reliant we are on fossil fuels and how vulnerable this makes us. Looking ahead: paving the way towards a greener economy With our work on climate change, we aim to better manage climate-related risks, support the green transition in line with the European Union’s net-zero objectives and foster wider action from others, always within our mandate. And naturally, we work to reduce the environmental footprint of our day-to-day corporate activities in line with the goals of the Paris Agreement. We also analyse the impact of climate change on the economy and financial stability. As supervisors, we work to ensure that banks account for climate-related risks in their business and lending decisions. We have adjusted our corporate bond holdings, collateral framework and risk management practices to better account for climate-related risks. Over the past year, we have moved beyond words and on to real action. Ultimately, we need to ensure that our monetary policy accounts for the impact of climate change. We must incorporate climate change into everything we do: our models, data, projections and analyses. This means that our job of preserving price stability must include further work on better understanding how climate change affects our role. If we do not account for the impact of climate change on our economy, we risk missing a crucial part of the overall picture. By contrast, reinforced efforts to shift our energy supply towards more economical renewables should ultimately help to slow inflation. This can push up prices for key products and thereby fuel inflation, making it tougher for us to keep prices stable. Extreme weather events can damage infrastructure, ravage harvests and disrupt supply chains. To deliver on this core responsibility, we need the full picture on all factors affecting inflation so that our policies remain effective.Ĭlimate change is one of these factors, given its widespread effect on our economy. That is the compass guiding every one of our actions, now more than ever. Making our monetary policy fit for climate changeĪt the European Central Bank, our primary objective is to keep prices stable. If we do this early on, the long-term benefits will far outweigh the short-term costs of doing so. We must reduce our greenhouse gas emissions all the way to net zero. We also know that the only way to avoid the worst is to green our economy. Science tells us that this is only a preview of the impact climate change will have on our planet. Last summer, we were already confronted with record-breaking droughts across the globe, and with heatwaves and floods that caused suffering and damage across every continent. However, we must not lose sight of the challenges we will face tomorrow, and in the years to come. In particular, we are determined to do everything to ensure that inflation returns to our medium-term target of 2%. As the guardian of the euro, we are fully committed to playing our part in common efforts to address them here and now. These challenges are complicated and painful, particularly for those struggling every day to make ends meet. The world, and especially Europe, face a host of pressing challenges that require urgent attention, including from us at the European Central Bank: the economic fall-out from the coronavirus (COVID-19) pandemic, Russia’s invasion of Ukraine, and the cost-of-living crisis due to surging energy prices, to name just a few. This is the second entry in a series of climate related entries on the occasion of COP27.Ī year ago, in his speech at COP26 in Glasgow, Sir David Attenborough asked us: “Is this how our story is due to end? A tale of the smartest species doomed by that all too human characteristic of failing to see the bigger picture in pursuit of short-term goals?” That question remains ever more pressing, and, worryingly, unanswered. If we do not account for the impact of climate change on our economy, we risk missing a crucial part in our work to keep prices stable, argues Christine Lagarde in the ECB Blog.
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