ECB Welcomes EC Proposals to Support Climate Change Mitigation
In response to a letter from certain members of the European Parliament, the European Central Bank (ECB) welcomed the recent proposal of European Commission on the “Fit for 55” package. This comprehensive package aims to support climate change mitigation through a wide range of policy elements, including enhanced carbon pricing and improved energy efficiency. Among other things, a more realistic carbon price is expected to set better incentives and foster a surge in innovation and investment, which is indispensable for a timely and cost-efficient transition to a carbon-neutral economy. Building on its previous analysis of the implications for the economy of climate change and related policies, ECB plans to take a careful look at the individual elements of the “Fit for 55” package.
The Fit for 55 package is a set of proposals to revise and update European Union legislation and to put in place new initiatives with the aim of ensuring that EU policies are in line with the climate goals agreed by the Council and the European Parliament. "Fit for 55" refers to the at least 55% emission-reduction target, which the European Union has set for 2030. The proposed package aims to bring the climate and energy legislation in line with the 2030 goal. The European Commission presented the package on July 14, 2021. ECB will assess how and through which channels the individual elements of the "Fit for 55" package are likely to affect the euro area economy. While existing evidence suggests that the effects of climate change and the transition to a carbon-neutral economy are likely to be substantial, there is considerable uncertainty regarding the channels through which these would have an impact on the euro area in general and inflation developments in particular. The impact on inflation is likely to be both direct and indirect, affecting not only the level of inflation but also its seasonality and volatility. For example, inflationary pressures could emerge from higher carbon prices and from firms passing on to customers the higher costs they incur in having to become more environmentally friendly or having to adapt their business models. Conversely, prices for renewable energy sources may decline further over time if more efficient technologies are developed.
The letter also highlights that ECB is committed to increasing its contribution to addressing climate change in line with its mandate. The new Climate Change Center of ECB will contribute to shaping and steering the climate agenda of ECB; this includes the analysis of the impact of European Union policies such as the “Fit for 55” package. The results of these analyses will be communicated in due course.
Keywords: Europe, EU, Banking, Climate Change Risk, Transition Risk, Carbon Neutrality, European Green Deal, Fit for 55 Package, ESG, Carbon Pricing, ECB
Michael Denton, PhD, PE
Dr. Denton provides industry leadership in the quantification of sustainability issues, climate risk, trade credit and emerging lending risks. His deep foundations in market and credit risk provide critical perspectives on how climate/sustainability risks can be measured, communicated and used to drive commercial opportunities, policy, strategy, and compliance. He supports corporate clients and financial institutions in leveraging Moody’s tools and capabilities to improve decision-making and compliance capabilities, with particular focus on the energy, agriculture and physical commodities industries.
Credit analytics expert helping clients understand, develop, and implement credit models for origination, monitoring, and regulatory reporting.
Previous ArticleBIS and Central Banks Report on Progress Made in Area of CBDCs
Next ArticleEIOPA Sets Out Approach for IBOR Transition in EU
ECB Finds Banks Unprepared for Pillar 3 Climate Risk Disclosures
The European Central Bank (ECB) published results of the 2022 supervisory assessment of climate-related and environmental risk disclosures among significant institutions (103) and a selected number of less significant institutions (28).
NCUA Assesses Credit Union Exposure to Climate-Related Physical Risks
The National Credit Union Administration (NCUA) released a Research Note that examines the exposure of credit unions to climate-related physical risks. In a related development
EBA Issues Multiple Regulatory and Reporting Updates for Banks
The European Banking Authority (EBA) is seeking comments, until July 31, 2023, on the draft Guidelines on the proposed common approach to the resubmission of historical data under the EBA reporting framework.
EC Adopts Regulation on Own Funds, Issues Other Updates
The European Commission adopted Delegated Regulations on own funds and eligible liabilities, on requirements for the internal methodology under the internal default risk model
CDP Platform to Report Plastic-Related Impact, Issues Other Updates
The Carbon Disclosure Project (CDP) announced that its global environmental disclosure platform has enabled reporting on plastic-related impact for nearly 7,000 companies worldwide
IASB to Enhance Reporting of Climate Risks, Proposes IFRS 9 Amendments
The International Accounting Standards Board (IASB) updated its work plan to enhance the reporting of climate-related risks in the financial statements,
BIS Addresses Data Gaps and Macro-Prudential Policy for Climate Risks
The Financial Stability Institute (FSI) of the Bank for International Settlements (BIS) published a brief paper that examines challenges associated with the use of macro-prudential policies to address climate-related financial risks.
FCA Sets Out Business Plan, Launches TechSprint on Greenwashing
The Financial Conduct Authority (FCA) published its business plan for 2023-24. The plan sets out details of the work planned for the next 12 months to achieve better outcomes for consumers and markets
UK Committee Sets Out Recommendations for Next Phase of Open Banking
The Joint Regulatory Oversight Committee (JROC), comprising the Financial Conduct Authority (FCA) and the Payment Systems Regulator (PSR) as co-chairs and the HM Treasury and the Competition and Markets Authority (CMA) as members
ECB Publishes Multiple Regulatory Updates for Banking Institutions
The European Central Bank (ECB) published the results of the 2022 climate risk stress test of the Eurosystem balance sheet,