François Villeroy de Galhau: The role of central banks in the "macroeconomics of climate change"

Speech by Mr François Villeroy de Galhau, Governor of the Bank of France, at the City Week, London, 24 April 2023. 

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

Ladies and Gentlemen,

It is once more a great pleasure and honour for me to give a keynote speech today at the City Week in London, held in the venerable Guildhall. It is no longer possible to seriously question the severe effects of climate change, but the role of central banks in this area has become an increasing focus of discussion. Let me start by two very great temptations that have become typical pitfalls here.

Neither magic wand, nor ostrich policies

We could call the first of these the « magic wand temptation » in which central banks are seen as being able to curb climate change on their own. I want to be crystal clear on this: central banks cannot be the only green game in town, they cannot replace sound public policies and corporate transition plans. One necessary step for public policies is to put a price on carbon: it is the only signal capable of aligning climate imperatives with economic agents' decisions. It is the only way to make more green projects profitable; and green finance without enough green projects risks running idle. It can take various forms, including a carbon tax, in which case part of the resulting public receipts should be invested in low carbon alternatives, and another part redistributed to households in order to mitigate its social effects. A price on carbon should be supplemented with other climate regulations and subsidies to help develop alternatives sufficiently early.

The second and opposite temptation is that of "ostrich policies", which consist of burying our head in the sand to avoid seeing or hearing what is going on. This is not an option either. We are directly concerned, in two different ways [slide 2].