The traditional answer provided by economic theory to this type of market failure is none other than “Pigouvian taxes” which equalise marginal private and social costs and cause emissions to be reduced to their socially optimal level.4 However, as we all know there is a big gap between theory and practice and, moreover, the “devil is in the detail”. This is true not only of the most technical matters, but also of the political ones. Deciding, for example, how to use the revenues raised is of crucial importance to the success of the transition to a more sustainable economy. This is so both from an economic perspective, promoting technological innovation and the adoption of clean technologies, and also from a social perspective, compensating the losers in the transition process. I will be referring to this issue later on. In my opinion, fiscal policy should play a leading role in the management of climate change, to deter the most environmentally damaging activities and to stimulate the investment needed to develop cleaner technologies and, also, to alleviate the social costs of the transition. This is the thrust of various initiatives currently under discussion. For example, those that seek to reconsider or supplement the EU emissions trading system (EU ETS) so that the price of carbon approaches that consistent with the Paris agreements. And, likewise, those designed to reduce environmentally harmful subsidies (EHS). At the same time, we should not forget the truly global dimension of the climate change challenge.

What has been generated in recent years is a flourishing market for “green bonds”, with a primary market exceeding € billion,11 made up largely of private issuers. Although these developments are promising they are not without problems. First, there is no common denominator to determine which assets are entitled to the green label and which are not. Private initiative provides a response in the form of market standards12 and certifying companies, but due to their relative novelty, they still lack a sufficiently established record and reputation. Also, given the rapid growth of this market, there is some concern among issuers and investors about the possibility of greenwashing. Certain issuers may be attempting to appear more conscientious in relation to climate change, for reasons of corporate image and social responsibility, than their actions really imply, and this may generate future reputational problems. Especially useful for harmonising this market and avoiding these risks are the work performed in the European Union on the adoption of a taxonomy for sustainable activities, and the recognition of the importance of mitigation actions (investment to reduce the emissions of the most polluting activities). 8  Alan Blinder (2018), Advice and Dissent: Why America Suffers When Economics and Politics Collide. The Paris Agreement, ratified by 187 countries, including Spain, highlights the need for “making finance flows consistent with the pathway towards low greenhouse gas emissions and climate-resilient development”; Article 2(1)(c) of the Paris Agreement. https://unfccc.int/files/meetings/paris_nov_2015/application/pdf/paris_agreement_spanish_.pdf. 10 https://ec.europa.eu/commission/presscorner/detail/es/ip_20_17. 11 https://www.climatebonds.net/ 12 The Green Bond Principles of the International Capital Markets Association (ICMA).