cost of transition needs to be evenly shared, and in such a way that also takes into account historical responsibility for emissions. thirdly, the policy needs to address the free - rider problem by ensuring that everyone has an incentive to take part in the system. since climate change is a truly global problem, it implies by definition that we need solutions that in the end have a global scope. free - riding and carbon leakage would simply erode the work of even the best of students. based on these three requirements, the first - best solution to limiting co2 emissions would be a global carbon tax. many economists have expressed their support for such a solution. 1 1 / 3 bis central bankers'speeches in order to be effective, a global carbon tax would need to be complemented with a border carbon adjustment to avoid countries undermining the system by not signing up to it. when theories are put into practice, however, policymakers face the complexity of the real world. the sense of urgency on climate action seems to vary from country to country across the global arena. second - best solutions are therefore necessary as medium - term transitional measures, whether we like it or not. we have prominent regional and national initiatives, based on international treaties, in place that aim at effective climate change mitigation. ladies and gentlemen, in that spirit, the european commission adopted an ambitious european climate and energy strategy first in 2008 and a revised one in 2013. still today, they form the basis on which the member states build their national climate policies. later on, as the minister of economic affairs in 2015 to 2016, i had the honour to present to the finnish parliament the national energy and climate strategy to 2030. 2 not only did this strategy implement the eu - level goals, in many cases it went far beyond them. i will highlight only a few points from the strategy. the central target is that the share of renewable energy in end consumption would increase to 50 %. the share of transport biofuels would rise to 30 %, with the parallel aim of significantly increasing the usage of electric and gaspowered vehicles. by the end of 2029, coal would no longer be used for energy production in finland. overall, this is the background for finland as the eu presidency aiming to move forward an ambitious global climate agenda. the new president - elect of the european commission, ursula von der leyen, has promised to propose a european green deal within the first 100 days in office. it would include an

be discussed shortly, the high - level expert group was more focused on strengthening the capitalisation of the trading entity. conditional separation the general idea of conditional separation from avenue 1 was actually adopted into our second proposal, which says that a credible recovery and resolution plan for a bank may require, based on supervisory judgment, a more extensive separation of trading activities than laid out in our first proposal on mandatory separation. bail - in if a sufficiently simple and separate organizational structure is one precondition of successful recovery and resolution, the other is a sufficient amount of liabilities that can be bailed in. our third proposal aims to complement the commission ’ s plans on this front. we proposed that a layer of designated bail - in debt instruments could be considered. this would further increase and add transparency to the loss - absorbing capacity of banks. bis central bankers ’ speeches secondly, clear contractual terms of what would trigger the bail - in would facilitate the creation of a market for such instruments. thirdly, we recommended that these instruments be held by investors outside the banking sector in order to reduce contagion and hence systemic risks in a crisis situation. it is important to note that this would also strengthen investors ’ belief that recovery and resolution would indeed be implemented in a crisis. it is also important to note that solving the too - big - to - fail problem by a credible recovery and resolution system, including bail - in and facilitated by the structural measures, will level the playing field between smaller and larger financial institutions. review of capital requirements our analysis of capital requirements, central to avenue 1 of our thought process, found its way into the fourth of our proposals. the measurement of risks inherent in trading assets is prone to a significant “ model risk ” ; the risk that the model used in risk measurement is itself inaccurate. the severity of model risk stems largely from the presence of “ tail risks ” in trading assets. these are risks that cause catastrophic losses but that materialize with a very low probability. moreover, tail risks are intertwined with the severe liquidity shortages that occur in systemic crises. hence, almost by definition, tail risks are difficult to model and measure. the mandatory separation of the riskiest trading activities from deposit banking is a key step for limiting the impact of these risks. robust capital requirements which do not heavily rely on models are another. furthermore, limits on risk concentrations and counterparty exposures can also be strengthened. our group acknowledged the important work of the basel committee on banking supervision in reviewing the trading book