Frank Elderson, ECB Vice-Chair, discusses how accelerating Europe’s green transition can reduce inflation volatility, improve resilience, and address climate and energy risks, while highlighting barriers and policy needs.
Frank Elderson, Member of the ECB Executive Board and Vice-Chair of the Supervisory Board, delivered a keynote speech at the 7th World Congress of Environmental and Resource Economists. He discussed the impact of conflicts and climate crises on inflation and economic uncertainty in the euro area.
He highlighted that overreliance on fossil fuels, especially imported ones, contributes to inflation volatility and energy insecurity. The ECB’s projections show that energy shocks could significantly lower growth and raise inflation, with various scenarios indicating heightened risks.
Climate and nature risks also affect food prices, economic activity, and financial stability. Extreme weather events and ecosystem degradation threaten sectors like agriculture and tourism, increasing default risks for banks. ECB supervision has engaged with banks to embed climate risks into their frameworks.
Accelerating the green transition offers benefits such as lower energy costs, improved energy security, and reduced health impacts from pollution. Technological advances have made renewables cheaper than fossil fuels across Europe, and renewable capacity is increasingly competitive without policy support.
However, barriers remain, including insufficient carbon pricing, regulatory uncertainty, limited access to finance, and the distribution of transition costs. Addressing these barriers requires coordinated policies, regulatory reforms, and investment in infrastructure and innovation.
Central banks, while not climate policymakers, can support the transition by maintaining price stability and reducing economic uncertainty. The ECB emphasizes the importance of a comprehensive policy approach involving multiple actors to facilitate an orderly and cost-effective green transition.
In conclusion, accelerating the green transition can enhance economic resilience, lower inflation volatility, and contribute to climate mitigation, provided that barriers are effectively addressed through coordinated policy measures.
