The ECB believes it is necessary to make carbon emissions more expensive to reduce them

Economists at the European Central Bank (ECB) believe that higher carbon prices are needed to achieve net-zero emissions by 2050.

In an article in the ECB’s economic bulletin, published today, economists Mar Delgado-Téllez, Marien Ferdinandusse and Carolin Nerlich believe that an increase in rates of €10 per tonne of_CO2 would reduce emissions by 7.3% in the long term.

The effectiveness of the price increase also depends on the availability of green technologies and the timing for implementing tax increases.

“The short-term effects of a higher effective carbon rate on output and inflation depend on the speed of increase, which sectors see an increase in the carbon price, and what additional tax revenue is used,” the paper’s authors add.

In some sectors the effective carbon emission rate exceeds EUR 300 per tonne of_CO2.

But in general, much of the carbon emissions have very low prices or no taxes at all.

The average effective carbon emission rate in the euro area is €77 per tonne of CO2, below the €120 per tonne of_CO2 that would be needed in 2039 to achieve decarbonisation by 2050, according to the ECB.

Emissions taxes also bring in windfall revenues that can be used to reduce debt, for social measures or alternative spending such as supporting the green transition.

In addition, investments in the European Union’s (EU) NextGenerationEU recovery plan will be insufficient in scope and duration to meet the 2030 climate targets, according to ECB economists.

The EU recovery plan “will contribute to financing green investment needs”.

But, they add, “their share is limited in scope and duration” because the green investment financed through the plan will account for 5% of the total green investment required to meet the EU’s 2030 climate goals.

The total amount needed for climate action is €159 billion for euro area countries (1.3% of gross domestic product in 2019).

This amount represents 40% of the recovery and resilience funds requested so far.

There are large differences between countries in terms of GDP in the required amounts of climate funds, ranging from more than 5% in Greece to less than 0.5% in Germany or just over 2% in Spain.

75% of the available resources will be allocated to sustainable mobility, energy efficiency and clean energy and networks.

Source: Swiss Info