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
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.
Previous ArticleBIS and Central Banks Report on Progress Made in Area of CBDCs
Next ArticleEIOPA Sets Out Approach for IBOR Transition in EU
The Board of Governors of the Federal Reserve System (FED) adopted the final rule on Adjustable Interest Rate (LIBOR) Act.
The European Central Bank (ECB) published an updated list of supervised entities, a report on the supervision of less significant institutions (LSIs), a statement on macro-prudential policy.
The Hong Kong Monetary Authority (HKMA) published a circular on the prudential treatment of crypto-asset exposures, an update on the status of transition to new interest rate benchmarks.
The European Commission (EC) adopted the standards addressing supervisory reporting of risk concentrations and intra-group transactions, benchmarking of internal approaches, and authorization of credit institutions.
The China Banking and Insurance Regulatory Commission (CBIRC) issued rules to manage the risk of off-balance sheet business of commercial banks and rules on corporate governance of financial institutions.
The Hong Kong Monetary Authority (HKMA) made announcements to address sustainability issues in the financial sector.
The European Banking Authority (EBA) published regulatory standards on identification of a group of connected clients (GCC) as well as updated the lists of identified financial conglomerates.
The General Board of the European Systemic Risk Board (ESRB), at its December meeting, issued an updated risk assessment via the quarterly risk dashboard and held discussions on key policy priorities to address the systemic risks in the European Union.
The Financial Conduct Authority (FCA) is seeking comments, until December 21, 2022, on the draft guidance for firms to support existing mortgage borrowers.
The Financial Stability Board (FSB) published a report that assesses progress on the transition from the Interbank Offered Rates, or IBORs, to overnight risk-free rates as well as a report that assesses global trends in the non-bank financial intermediation (NBFI) sector.