Jens Weidmann: Combating climate change - what central banks can and cannot do

Speech by Dr Jens Weidmann, President of the Deutsche Bundesbank and Chair of the Board of Directors of the Bank for International Settlements, at the European Banking Congress, virtual event, 20 November 2020.

The views expressed in this speech are those of the speaker and not the view of the BIS.

1 Introduction

Ladies and gentlemen,

Nobel laureate William Nordhaus has called it "the ultimate challenge": climate change. His words for the potential consequences if we fail to master this challenge were drastic: "Technological change raised humans out of Stone Age living standards. Climate change threatens, in the most extreme scenarios, to return us economically whence we came."[1] Nordhaus also referred to The Colossus, the ominous painting that has been attributed to Goya: "[Global warming] menaces our planet and looms over our future like a Colossus."

But how can we defeat this monstrosity? Who will forge the sword that we need? The market, governments or even the central banks? That is the question I would like to focus on over the next 15 minutes.

2 Effective and efficient climate policy

The International Energy Agency expects global CO2 emissions to fall by 7% in 2020. Unfortunately, this is not a sign of a transition towards a Instead, it is the result of the coronavirus pandemic, which has profoundly affected our everyday lives.