The fourth event in the “Designing climate policies” series saw experts from academia, politics and public institutions discuss how the ecological transformation can be financed. Bundesbank Vice-President Claudia Buch kicked off the event, which the Bundesbank organised jointly with the Center for Liberal Modernity and the Potsdam Institute for Climate Impact Research.

The panel consisted of Ottmar Edenhofer, Director and Chief Economist of the Potsdam Institute for Climate Impact Research; Alexandra Jour-Schroeder, Deputy Director-General at the European Commission; Sabine Mauderer, Bundesbank Executive Board member; Michael Peters of Finanzwende Recherche; and Jörg Rocholl, President of the European School of Management and Technology (ESMT) Berlin.

Stable prices: the basis for effective climate policy

In her introductory statement, Ms Buch stressed that the design of the ecological transformation had a significant impact on the setting in which central banks operate.

The path to a carbon-neutral economy was giving rise to risks with an impact on financial stability, she pointed out, plus the adjustments made by households and firms would affect macroeconomic conditions and prices.

Given the present very high inflation rates, she said it was the task of central banks to ensure that high inflation does not become entrenched. “Ultimately, you see, stable prices and stable financial markets are also the basis for effective climate policy,” according to Ms Buch.

With Margaret Heckel moderating, the guests then discussed how the ecological transformation can be funded and what role the private sector, government and central banks play in this. The panellists were in agreement that both government and the private sector had to share in the sustainable financing of the ecological transformation, and that adjustment pressure had massively increased in the wake of Russian’s attack on Ukraine. But central banks also needed to ensure that market mechanisms function properly by safeguarding price stability and a robust financial system.

However, there was also contentious debate about the extent to which financial flows had already shifted towards renewable energy or whether the global financial system was still based on fossil fuels and sustainable financial products were no more than a niche product. The participants additionally discussed what the long-term energy supply in Germany and Europe would look like and what framework policymakers would need to set for it.