[ad_1]
After an extremely hot summer, Forest fires and flood The human and financial costs of climate change in Europe have become increasingly stark. A new report by the European Central Bank reaffirms the serious consequences of delays or inaction on climate change.
Banks and companies in the eurozone are at risk of economic loss and financial instability, the central bank said on Wednesday. first economy-wide climate stress testIt is part of a major effort by policymakers to support the transition to a net zero carbon world.
By the end of the century, more frequent and severe natural disasters could shrink the region’s economy by 10 percent unless new policies to mitigate climate change are implemented, the report said. By comparison, transition costs will be no more than 2 percent of gross domestic product.
“The short-term costs of the transition pale in comparison to the costs of uncontrolled climate change over the medium and long term,” the report said on Wednesday.
The European Central Bank used data from 2.3 million companies and 1,600 banks in the eurozone to analyze the impact of the three scenarios on the economy. In the first, there is a regular transition that includes global warming up to 1.5 degrees Celsius compared to the pre-industrial period. Then there is an “uneven transition” in which countries delay action until 2030 and then have to make sudden and costly policy changes to contain warming up to 2 degrees Celsius. The third scenario, the so-called warm home world, involves no further action to mitigate climate change, and the costs from natural disasters are “extremely high”.
European Union countries have already agreed reduce collective greenhouse gas emissions by 55 percent It is on track to become carbon neutral by 2050, from 1990 levels by 2030.
The European Central Bank has made climate change one of its main focuses that will affect monetary policy and fiscal regulation. But still a hot topic Whether central banks should take an active approach to tackling climate change through actions such as changing the composition of their asset purchases to exclude oil companies.
In July, the European Central Bank was right incorporating climate change into the monetary policy framework Arguing that “climate change and the transition to a more sustainable economy are affecting the outlook for price stability”.
Under the regular transition scenario, the average eurozone company will have slightly more leverage, less profitability and a higher risk of default over the next four or five years due to the cost of complying with green policies such as carbon taxes and substitution technologies. But then the benefits of the transition kick in.
By comparison, in an uneven transition, the company’s profitability would fall by more than 20 percent by 2050, and the probability of default would increase by more than 2 percent. In the warm home world where climate measures are not taken, profitability would fall by 40 percent and the probability of default would be 6 percent higher.
Banks in the eurozone are exposed to transition costs similarly, but their exposure to physical risks varies widely, the report said. The central bank said climate change is a “significant source of systemic risk” in southern European countries such as Greece, Portugal and Spain, where the risk of extreme heatwaves and wildfires is higher.
Wildfires are expected to cause more damage from flooding and rising sea levels, which will further affect northern countries. For example, more than 90 percent of bank loans in Greece are classified as associated with high physical risks from climate change. The share of bank loans in Germany is below 10 percent.
The European Central Bank plans to use the results of this study to inform climate stress tests on euro zone banks next year.
[ad_2]
Source link