The European Central Bank published a keynote speech by Executive Board member Philip R. Lane setting out how climate change and the green transition are being incorporated into the ECB's economic analysis, forecasts and monetary policy framework. The speech argues that climate shocks can lower potential output, raise inflation and output volatility, and alter monetary transmission through asset prices, bank lending and financial conditions, so policy decisions must remain data dependent and assessed case by case rather than follow a fixed rule. It cites ECB analysis indicating that the 2025 summer heatwave may have raised euro area unprocessed food prices by 0.4 to 0.7 percentage points over 12 months. It also points to December 2025 Eurosystem scenario work suggesting that meeting the European Union's 2030 emissions target solely through higher carbon taxes would lift inflation by up to 0.4 percentage points above baseline in 2027, while a broader Fit for 55 policy mix would generate a smaller increase, and that the planned new EU Emissions Trading System for transport, building heating and small industrial installations, the ETS2, could add around 0.2 percentage points to headline inflation in 2028 assuming a carbon price of 46 EUR per tonne of CO2. Banks are already differentiating credit conditions by climate profile, with easier terms for lower-emission firms and more energy-efficient buildings and tighter terms for higher-emission borrowers. Looking ahead, the speech says the Eurosystem will keep reassessing the macroeconomic effects of Fit for 55 measures as they are phased in between 2026 and 2030 and will increasingly integrate alternative climate scenarios into euro area projections and models. It also references existing instrument changes, including climate tilting of corporate bond reinvestments and the July 2025 decision to add a climate-related collateral measure for marketable assets issued by non-financial corporations from the second half of 2026.
European Central Bank 2026-05-05
European Central Bank's Lane sets out how climate change and the green transition are shaping monetary policy analysis and tools
The European Central Bank published a keynote speech by Executive Board member Philip R. Lane on integrating climate change and the green transition into the ECB’s economic analysis, projections and monetary policy, noting that climate shocks can affect potential output, inflation, volatility and monetary transmission. The speech cites ECB and Eurosystem analysis of climate and policy shocks on euro area inflation, including alternative pathways to the EU’s 2030 emissions target and the impact of the planned EU Emissions Trading System 2, and notes emerging bank differentiation of credit conditions by climate profile. It confirms that the Eurosystem will further embed climate scenarios into projections and models and recalls climate-related adjustments to corporate bond reinvestments and collateral frameworks.