2023-09-06 15:54:13
Wednesday, September 6, 2023 – 7:51 PM
BRUSSELS, 6th September / WAM / A study by the European Central Bank showed that accelerating the transition to a greener economy will be cheaper than delaying it for eurozone companies and the households and banks they serve.
The ECB’s second “climate stress test” used data from 2.9 million companies and 600 banks in the eurozone, with a total exposure of around €3 trillion, making it one of the most comprehensive studies of the economic costs of achieving emissions reduction targets set under the Paris Agreement.
It found that introducing green policies and investing to phase out fossil fuels and save energy will ultimately lead to fewer defaults by households and businesses and, as a result, fewer losses for banks between now and 2030.
Under this “accelerated transition” scenario, eurozone companies will invest 2 trillion euros by 2025 to reduce their emissions, compared to 500 billion euros under delayed transition scenarios.
Meanwhile, energy costs will rise 10% for households by 2025 before stabilizing.
Despite these higher initial costs, the ECB said lower energy expenditures and later financial risks mean this path would see banks’ annual losses on loans at 13 billion in 2026, before falling to 6.6 billion euros by 2030.
By contrast, a scenario in which the bulk of transition costs are delayed to 2026 and beyond would see annual losses rise steadily to €21 billion in 2029.
On a cumulative basis, banks will incur losses equivalent to 0.7% of their loans by 2030 under Accelerated Switchover, compared to 0.9% under Late Payment.
Such losses will be concentrated among a few large banks, with 2% of lenders accounting for 75% of all projected losses by 2030 in “late payment”. This is because large banks tend to offer more unsecured loans, which are not backed by collateral, and thus lead to a greater loss for the bank when it is not repaid.
Among companies, the increase in defaults will be highest in the emissions-intensive mining and manufacturing sectors as well as among electric companies.
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WAM Reporter – Belgium
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