The green transition: benefits and barriers

Frank Elderson, Member of the Executive Board of the ECB and Vice-Chair of the Supervisory Board of the ECB, delivered a keynote speech at the 7th World Congress of Environmental and Resource Economists, focusing on the green transition.

He identified two main factors affecting the euro area: recent inflation volatility caused by geopolitical conflicts and climate crises, both linked to reliance on fossil fuels. Accelerating the transition to net zero carbon can help insulate Europe from such shocks.

He discussed the costs of energy insecurity, noting that reliance on imported fossil fuels makes Europe vulnerable to supply disruptions and price shocks. The ECB’s projections show that adverse scenarios could significantly lower growth and raise inflation.

Climate and nature risks also impact food prices, economic activity, and financial stability. Extreme weather events and ecosystem degradation threaten sectors like agriculture and tourism, increasing credit risks for banks.

Progress in renewable energy technologies has reduced costs, with renewables now often cheaper than fossil fuels. This transition has already lowered electricity prices and oil consumption, providing economic and health benefits, including fewer premature deaths due to pollution.

Barriers to faster progress include insufficient carbon pricing, regulatory uncertainty, limited access to finance, and the distribution of upfront costs. Policy measures such as expanding the EU Emissions Trading System, simplifying regulations, and improving energy infrastructure are essential.

He emphasized the importance of coordinated policies, the role of academia in quantifying costs and benefits, and the need for a comprehensive approach to overcome barriers.

In conclusion, accelerating the green transition offers substantial economic, environmental, and social benefits, including reducing reliance on imported fuels, lowering inflation volatility, and supporting technological innovation and productivity in Europe.