Thursday , March 4 2021
Home / Amol Agrawal: Mostly Economics / ECB sets up climate change centre

ECB sets up climate change centre

Summary:
Interesting development on ECB front: The European Central Bank (ECB) has decided to set up a climate change centre to bring together the work on climate issues in different parts of the bank. This decision reflects the growing importance of climate change for the economy and the ECB’s policy, as well as the need for a more structured approach to strategic planning and coordination. The new unit, which will consist of about ten staff working with existing teams across the bank, will report to the ECB’s President, Christine Lagarde, who oversees the ECB’s work on climate change and sustainable finance. “Climate change affects all of our policy areas,” said ECB President Christine Lagarde. “The climate change centre provides the structure we need to tackle the issue with the urgency and

Topics:
Amol Agrawal considers the following as important:

This could be interesting, too:

Amol Agrawal writes Limiting Central Banking

Amol Agrawal writes India’s Approach to Open Banking: Some Implications for Financial Inclusion

Amol Agrawal writes History of Money: From cowries to cryptocurrencies (Three Part Series)

Amol Agrawal writes Negotiating Bank of England’s nationalisation

Interesting development on ECB front:

The European Central Bank (ECB) has decided to set up a climate change centre to bring together the work on climate issues in different parts of the bank. This decision reflects the growing importance of climate change for the economy and the ECB’s policy, as well as the need for a more structured approach to strategic planning and coordination.

The new unit, which will consist of about ten staff working with existing teams across the bank, will report to the ECB’s President, Christine Lagarde, who oversees the ECB’s work on climate change and sustainable finance.

“Climate change affects all of our policy areas,” said ECB President Christine Lagarde. “The climate change centre provides the structure we need to tackle the issue with the urgency and determination that it deserves. The climate change centre will shape and steer the ECB’s climate agenda internally and externally, building on the expertise of all teams already working on climate-related topics. Its activities will be organised in workstreams, ranging from monetary policy to prudential functions, and supported by staff that have data and climate change expertise. The climate change centre will start its work in early 2021.

The new structure will be reviewed after three years, as the aim is to ultimately incorporate climate considerations into the routine business of the ECB.

BIS has launched a new Euro-based Green bond fund in which ECB is investing.

Christine Lagarde, President of ECB in this speech explains the rationale:

It is with this history in mind that I want to talk about the role of central banks in addressing climate change. Clearly, central banks are not the main actors when it comes to preventing global heating. Central banks are not responsible for climate policy and the most important tools that are needed lie outside of our mandate. But the fact that we are not in the driving seat does not mean that we can simply ignore climate change, or that we do not play a role in combating it.

Just as with the mice in the fable, inaction has negative consequences, and the implications of not tackling climate change are already visible. Globally, the past six years are the warmest six on record, and 2020 was the warmest in Europe.[3] The number of disasters caused by natural hazards is also rising, resulting in $210 billion of damages in 2020.[4] An analysis of over 300 peer-reviewed studies of disasters found that almost 70% of the events analysed were made more likely, or more severe, by human-caused climate change.[5]

That said, there are now signs that policy action to fight climate change is accelerating, especially in Europe. We are seeing a new political willingness among regulators and fiscal authorities to speed up the transition to a carbon neutral economy, on the back of substantial technological advances in the private sector.

This increased action is often considered as a source of transition risk, which we need to take into account and reflect in our policy framework. This is not “mission creep”, it is simply acknowledging reality. Yet the transition to carbon neutral is not so much a risk as an opportunity for the world to avoid the far more disruptive outcome that would eventually result from governmental and societal inaction. Scenarios show that the economic and financial risks of an orderly transition can be contained. Even a disorderly scenario, where the economic and financial impacts are potentially substantial, represents a much better overall outcome in the long run than the disastrous impact of the transition not occurring at all.[6]

It now seems likely that faster progress will be made along three interlocking dimensions. Each of them lies outside the remit of central banks, but will have important implications for central bank balance sheets and policy objectives.

Amol Agrawal
I am currently pursuing my PhD in economics. I have work-ex of nearly 10 years with most of those years spent figuring economic research in Mumbai’s financial sector.

Leave a Reply

Your email address will not be published. Required fields are marked *