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Uitzicht op een fabriek met een windmolen ernaast

A significant part of the Dutch economy still depends on carbon-emitting processes. It is imperative that we cut back emissions rapidly and change over to green energy to limit global warming to below 2 degrees Celsius. This change-over is known as the energy transition, and it started a long time ago. But we need to speed it up if we are to protect ourselves from the ramifications of climate change.

Why does DNB occupy itself with the energy transition?

At De Nederlandsche Bank we are committed to safeguarding the stability of the Dutch economy and our financial sector. Climate change poses threats to both. For one thing, the likelihood of natural disasters has increased, which may derail our economy. Also, if we keep putting off the change-over to green energy, we may end up having to do so very abruptly. As a result, firms and households could find themselves running out of time. This could also severely damage our economy.

A solution: Carbon pricing

The energy transition is progressing only slowly. The main reason is that high-emission businesses are not paying nearly enough to cover the social costs of their carbon emissions. Consequently, they have no financial incentives to switch to more sustainable business models and reduce their emissions. Introducing a carbon tax could be a solution. This way, governments could make carbon-emitting businesses pay a fair price for their climate impact. This could trigger such businesses to make the transition to green alternatives faster. The good thing is: prior research by De Nederlandsche Bank (available in Dutch) shows that a carbon tax is not necessarily harmful to the economy.

There is already pricing of carbon emissions across the globe, but more progress is needed to reach the Paris Climate Agreement target of limiting global warming to below 2 degrees Celsius, as evidenced by a range of studies.

What can the EU do?

In July 2021, the European Commission (EC) presented a comprehensive set of proposals for reducing greenhouse gas emissions by at least 55% by 2030, compared to 1990 levels. Carbon pricing is an important element in the proposals. Currently, only certain businesses in the energy and heavy industry sector pay for their carbon emissions. They do so under the European Emissions Trading System (ETS). Besides improving the ETS, the EC proposes to introduce a wider-scoped trading system that also covers such sectors as the buildings and road transport. A system of carbon certificates will apply at the EU's external borders, which importers of electricity, steel and cement must buy. At DNB we welcome these opportune proposals. It is important, however, that they are not excessively watered down under pressure from individual Member States.

What can the Netherlands do?

In the Netherlands, the new cabinet must substantially ramp up climate action if it wants to meet the European target of reducing emissions by at least 55% by 2030. After all, any stricter European agreements must be implemented in Dutch policy measures. In addition, the cabinet could bring forward planned and sorely needed climate-related investment. It could integrate these in an incentive package aimed at spurring recovery from the COVID-19 crisis (green recovery).

What can the financial sector do?

Companies in the financial sector can contribute to the energy transition by investing sustainably. Financial institutions have large investment portfolios worth billions of euros.  If they invest more money, for example, in renewable energy and less in carbon-intensive sectors, they can contribute to a more climate-neutral economy. We are already seeing that Dutch insurers invest less and less in fossil fuels. In 2012, for example, Dutch insurers invested 24% of their assets in the three most polluting industries, but figures for 2019 show that this percentage has now fallen to 17%.