A climate stress test by the European Central Bank (ECB) shows that the longer measures against global warming are postponed, the more expensive it will become for private households, companies and banks. The states that give in most quickly will therefore have clear advantages in the future.
“We need stronger policy action to ensure a faster transition to a net-zero economy, in line with the objectives of the Paris Agreement,” warned ECB Vice President Luis on Wednesday.
On the occasion of the presentation of the results of the central bank’s second macroeconomic climate stress test, De Guindos said: “If we continue as before, the risks and costs to the economy and the financial system will increase.”
Greater efforts are needed
In the 2015 Paris climate agreement, the goal was set to keep global warming to 1.5 degrees if possible and thus prevent the worst consequences of climate change. In view of advancing climate change, environmentalists and scientists are repeatedly calling for greater efforts, for example to reduce emissions of the greenhouse gas carbon dioxide (CO2).
Climate goals are becoming a distant future
The ECB’s climate stress test analyzes the resilience of households, businesses and banks based on three transition scenarios. First, an “accelerated transition” with the early deployment of “green” investments, leading to emission reductions by 2030, in line with the goals of the Paris Agreement.
Second, a ‘late transition’ where the fight against climate change would not accelerate until 2026, but would still be intense enough to meet the 2030 targets. Thirdly, there is a ‘delayed transition’, also from 2026, but not ambitious enough to reach the Paris goals by 2030.
Larger investments pay for themselves quickly
The ECB’s conclusion: ‘The results show that companies and households clearly benefit from a faster transition.’ Although a faster transition is initially associated with higher investments and higher energy costs, in the medium term the financial risks in this case would decrease significantly . According to the ECB, about 2.9 million non-financial corporations and 600 banks in the euro area took part in the test.
Big risk for banks too
For banks, credit risk would increase significantly if the fight against climate change had to be accelerated at a later date, which would then require rapid investments at higher costs. According to the analysis, financial institutions should then expect their credit risk to increase by more than 100 percent in 2030 compared to 2022.
In the most favorable scenario – the ‘accelerated transition’ – an increase in credit risk of only 60 percent can be expected.
Source: Krone
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