The new geopolitical and energy market reality requires us to drastically accelerate the clean energy transition and increase Europe's energy independence from unreliable suppliers and volatile fossil fuels. For the financial industry to become truly sustainable, we need to approach its development differently and rethink how this sector impacts society and the economy.
With the liberalizing the energy market and Ukraine crisis that caused a surge in energy prices, the European Central Bank (ECB) is facing a big dilemma between its price stability task and its duty to support the European Union’s objectives on mitigating the effects of the climate change. Moreover strengthening the EU’s autonomy from Russian gas, as tightening ECB policy would make green energy investments more expensive.
Oil and gas firms are also profiting hugely from the energy crisis, with biggest listed companies making enormous profits in 2021 and they use lot of green washing in financing their activity.
The goal of achieving climate neutrality by 2050 requires a transition of the entire economy, especially those sectors and economic activities that have a significant impact on the environment and therefore need to be transformed urgently or even stopped if the transformation it is not possible. Extending the EU Taxonomy to cover significantly harmful economic activities have also been recognized by the financial industry, arguing this it “would allow asset managers to bring to market financial products that help the‘ hard-to-decarbonise ’sectors confront climate change and accelerate their necessary transformation ”. This does not mean refusing to fund such activities, but rather prioritizing capital over companies that make the effort to make the transition to environmentally friendly, sustainable and environmentally sustainable activities, thus recognizing their efforts.
Even given high level of uncertainties in “turbulent” times it has become difficult to make concrete proposals for defining ex ante the expenditures and fiscal strategies to be privileged, we recommend further tax reforms to be introduced in the form of a fiscally neutral, variable stamp duty and land tax, granting credits for more efficient homes, offices, business venues and production plants.
Rather than the current approach of a ‘green levy’ on energy bills directly, the costs of decarbonisation should be funded by the government. This would allow the government to use taxation in a way that distributes costs on those who can most afford them.
Retrofitting homes would save households and entrepreneur hundreds of euro a year in energy bills while also reducing demand for Russian gas.
Lenders and investment finance institutions should introduce a Green Term Funding Scheme that provides reduced credit to different sectors of Member States' economies, provided that the funds are channeled at low rates to investments that support the transition, starting with housing modernization. The scope of such targeted lending could then be extended in line with the EU's green taxonomy once it is implemented.
