Publications

The EU Competitiveness Compass has made connecting decarbonisation and competitiveness a “strategic imperative” for Europe. This will be delivered by the all-important Clean Industrial Deal – the flagship policy package on which this new Commission hopes to upgrade Europe’s industrial base and tackle the climate crisis simultaneously.

Methodologies for target-setting and climate alignment assessment: Current status and future prospects for taking further account of nature and resilience. Economic players must face climate change and sustainability issues by transforming economic models, while strengthening their competitiveness and resilience.

Sectoral climate change mitigation scenarios for strategy development and alignment assessment by economic players: Current status and future prospects for taking further account of nature and resilience All sectors face growing pressures to transform their business models in response to multiple challenges (sustainability issues, technological supremacy, control over natural resources, etc.), while strengthening their competitiveness […]

As the European economy decarbonizes, economic assets across sectors are at risk of stranding or repricing from transition pressures. Yet private financial institutions, particularly banks, often narrowly focus on fossil fuel credit losses using historical data, underestimating broader ‘whole of economy’ stranding risks. Risk mitigation in the form of prudential capital buffers and loss provisions […]

A step forward for green industrial policy, or another stumbling block. Context. The world's largest economies are turning towards green industrial policy to support their cleantech manufacturing to accelerate their decarbonisation, competitiveness, and economic resilience. In this cleantech race, the EU has several disadvantages, including higher costs of energy and labour, a less dynamic investment environment, and the impacts of the Inflation Reduction Act and Made in China 2025.

Directing more wood towards long-life products such as panels and insulation materials can help us maximise carbon sinks without increasing forest harvests. That’s because these products store carbon for a longer periods of time in form of long-lasting construction and renovation materials. But for this to happen in practice, more market opportunities and production capacity are needed. How can public policies help?

Assessing the state of progress to inform next steps in policy-making. The European Union (EU) is on its journey to become climate neutral by 2050. This multigenerational project holds many societal, economic, and environmental opportunities. At the same time, it is of unprecedented scale and implies considerable changes to the current systems, which need to be anticipated and addressed for the transition to be fair and acceptable to all. Regular progress checking is the key to understanding where the EU stands on the journey. It allows to identify challenges and opportunities and take targeted policy action guiding investment, supply, consumption, and societal development. There is still no official, comprehensive, and regular EU-wide progress monitoring to achieve this. This second ECNO progress check aims to close the current information gap. It provides a comprehensive view on the state of EU progress towards climate neutrality and identifies key areas of action for the next policy cycle.

Private financial institutions must rethink their approach to managing stranded asset risks. The current narrative on quantifying fossil fuel sector exposures within a limited scope of financial portfolios (mostly loans) largely underestimates potential stranding losses. As the low-carbon transition impacts all economic sectors, private financial institutions (FIs) must consider material transition-driven stranding risks within their overall transition risk management framework using a ‘whole of economy’ lens. Traditional risk management approaches are ill-suited to the methodological and quantification challenges of transition-driven stranding risks, so a flexible, dynamic, forward-looking approach is necessary. Strong, incentivising public policy coordinated with financial regulatory and supervisory impetus is necessary to preemptively identify, monitor and manage stranding losses on ‘assets-at-risk’ (i.e., potential stranded assets). The ECB finds that 40% of the total loan portfolio of euro area banks is exposed to energy-intensive sectors*, making them vulnerable to transition risks, including stranding. It is time for an urgent reframing of the stranded asset narrative to avoid significant financial losses (endangering financial stability) and direct orderly transition finance flows to retire or transform assets-at-risk before they become fully stranded.

The European Banking Authority (EBA) is clarifying how the banks should frame their “transition plan” as required by the EU prudential regulation. The transition plan is the bank’s strategic roadmap to prepare for the transition to a sustainable economy as framed by the jurisdictions they operate in, including an EU climate-neutral economy. It has been introduced in several EU regulatory frameworks, including as a disclosure requirement arising from the CSRD. The prudential framework and the EBA are focusing on a specific angle: how the banks plan to manage their financial risks related to the transition. EBA’s framing of these plans will be key to determine whether the banks will manage their financial risks consistently with the broader need of financing the transition to a low-carbon economy. 

After a first step in 2022, the Basel Committee on Banking supervision is finally moving towards regulation for climate-related risks. Founded in 1974, this forum brings together financial supervisors of the G20 countries and establishes the common standards for financial stability. Two years ago, the Committee published a consultative document on the principles of climate […]

Climate investments in the EU economy grew by 9% in 2022. This report finds that the European Green Deal is gaining economic momentum but investments in modernising energy, transport, and buildings must still double for the EU to hit 2030 climate targets.

A report to clarify linkages between these two approaches to climate action for the financial sector. The mobilization of the sector is necessary to help to finance the low-carbon transition. Some stakeholders thus advocate the explicit mobilization of the sector in favor of financing the transition. This rationale for action is known as the “transition finance approach”. The sector is also exposed to the financial risks arising from climate change and the necessary transition. This observation motivates a rationale for action known as te “risk approach”, aimed at managing the exposure of financial institutions to such risks.

The European Union has just adopted the Capital Requirements Directive (CRD) and introduced a new feature: transition plans will now integrate prudential regulations. This paper looks at the major opportunity represented by prudential transition plans and the decisive role that the European Banking Authority will play. It explains why the Authority should adopt a comprehensive definition of banking transition plans and how these plans should be consistent with the European directives on Corporate Sustainability Reporting (CSRD) and on Due Diligences (CSDDD).

The net-zero transition, i.e. the transformation towards a carbon-neutral and resilient economy, is a major and urgent challenge for reducing the effects of climate change. This transformation requires the transition and adaptation of all activities and all economic agents. It is first and foremost a matter for the real economy and must be based on an operational roadmap of actions to be taken. This must be defined by an ambitious economic policy (budgetary, fiscal, monetary, regulation of products and sectors, etc.).

What are the carbon taxes and markets around the world, the range of carbon prices, the revenues generated, the emissions covered by these mechanisms? Find the answers to these questions, and many more, in the new edition of the Global Carbon Accounts from I4CE.

Achieving carbon neutrality will require the redirection of harvested wood towards long-life uses. To achieve carbon neutrality, France is relying on its carbon sink to balance residual emissions in 2050. A smaller carbon sink would require even greater emissions reductions from other sectors (transport, agriculture, industry, etc.), sectors in which France is already calling for drastic sixfold cuts between 1990 and 2050. In a context where the carbon sink in ecosystems is already falling sharply due to an increase in tree mortality, preserving this sink and developing carbon storage in wood products must be a major concern of the national climate policy.

The European Union (EU) Innovation Fund is Europe’s largest fund for climate innovation. It has a keyrole to play in European climate action, energy security and technological leadership. To unleash the full potential of European cleantech, greater public support is needed to help more companies and projects cross the so-called “valleys of death” that are inherent to cleantech innovation and scale-up. In this endeavour, relying solely on national public funds would create two risks. In countries where governments do not rise to the financing challenge, innovators will fail or flee. Conversely, governments with the fiscal means to spend big on cleantech may create a harmful subsidy race among EU member states, undermining EU solidarity and the integrity of the EU Single Market.

Since their introduction, climate stress tests have taken a lot of space in the public debate. Put in the spotlight by supervisors and the NGFS, their primary objective is to encourage banks to integrate climate-related risks into their activities and to carry out an initial assessment of the banks' capacity to deal with these risks.

For years, the European Union assumed it would lead the cleantech race because it was the only one running in it. Mistakenly so. With the Inflation Reduction Act, the US quickly catches up. This brief argues that the best EU policy answer to the IRA is an EU long‑term climate investment plan. As the political appetite for such a plan is currently limited, the European Commission should use the political momentum to propose a targeted investment plan that focuses on the development, scale-up, manufacturing and deployment of clean technologies in the EU. It identifies three first bricks that can already be laid out to build this plan.

Private finance will not fund the transition without a stronger commitment from public authorities. For several years, and particularly since COP 26, considerable time and attention has been dedicated to the subject of voluntary commitments from private financial actors. These commitments, made within the framework of international initiatives, should in principle enable private finance to be mobilized for the transition to a carbon neutral economy.