Pablo Hernández de Cos: The economic and financial implications of climate change

Speech by Mr Pablo Hernández de Cos, Governor of the Bank of Spain, at the Club Última Hora - Cercle D'Economia de Mallorca, Palma de Mallorca, 16 February 2024.

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

Presentation to the speech 

1 Introduction

Ladies and gentlemen, let me begin by thanking Carmen Serra, Chair of the Serra Group, and José María Vicens, Chair of the Cercle d'Economia de Mallorca, for their kind invitation to speak at this conference at the Club Última Hora. I also wish to thank professor and Council Member of the Banco de España Carles Manera for helping to make this meeting possible.

We are here today to discuss one of the greatest challenges facing our society: climate change and the transition to a low-carbon economy.

From an economic standpoint, the consensus among researchers is that if we fail to significantly reduce greenhouse gas (GHG) emissions in the coming decades, the impact of the physical risks associated with global warming will be very significant. At the same time, the transition to a low-carbon economy also poses transition risks arising from the need to adapt the productive model.

In this setting it is imperative that public policies actively contribute to the green transition.

Governments, in particular, have a key role to play in this process. They have the necessary democratic legitimacy to define a roadmap and the best toolbox to achieve the proposed targets, especially through fiscal and regulatory policies.

But climate change and the transition to a low-carbon economy also pose a major challenge for central banks, as they could significantly affect both economic activity and price and financial stability.

In my address today I will first focus on illustrating how the materialisation of some of the physical risks associated with climate change could affect the economic and financial situation. I will then show how ambitious, timely, orderly and predictable mitigation policies are our best option to tackle climate change, not only from an environmental standpoint, but also from an economic one.