more readily embraced – and thus tend to be favoured by policy - makers even if their effect on global emissions often does not justify the cost. an international emissions trading system could ensure equal pricing of emissions across countries and sectors. at a global level we have not reached this goal, but important progress is being made. the eu emissions trading system and national taxes together cover much of the greenhouse gas emissions in europe. in norway, over 80 percent of these emissions are covered by emission allowances or taxes. chart : higher prices for european co2 emissions the price of emission allowances in the eu has long been so low that the emissions trading system has been of marginal consequence. but allowances are now being removed from the market. this has led to a fivefold price rise. the system is beginning to work. the shift towards a greener and more sustainable economy places heavy demands on businesses and investors, but also creates opportunities. technological advances and innovation are necessary for achieving more sustainable economies. economic instruments such as emission allowances and taxes make the quest for new solutions profitable. climate policy has already led to rapid progress in the area of solar, wind and battery technology. old, polluting equipment is gradually being replaced by new, cleaner and greener technology. at the same time, climate change entails new risks for business and industry. climate risks include the impact of climate change, uncertainty surrounding future climate policy and potential disruptive technologies. 3 / 6 bis central bankers'speeches expected return and risk are influenced by firms ’ response to potential structural changes. that is why many investors require companies to report on climate issues, as has the gpfg. managing climate risk is part of the systematic work in the area of responsible investment. financial investors must manage climate risk on a par with other risks. virtually all economic activities lead to emissions, either directly or from complex production chains. climate risks are therefore difficult to isolate and quantify, both at firm and sector level. identifying the winners in the green transition is also a demanding exercise. the financial sector has to adapt to climate risk, but does not have effective tools to contribute to solving the climate problem. also, it is doubtful whether defining emissions from sectors or individual businesses as unethical will make a difference. the responsibility for measures to combat global warming must rest with the authorities. the solution lies in economic instruments that promote structural change. structural change generates growth a shift in consumption patterns and production methods towards lower emissions will reduce demand for fossil fuels. this can

without their having to tighten lending abruptly. second, the new framework includes macroprudential tools. one such measure is the countercyclical capital buffer. banks may be subject to additional capital requirements if credit growth in the wider economy is excessive. this will smooth out lending growth and better equip banks to bear potential losses during downturns. third, the authorities must acquire tools that allow banks to be wound up in an orderly manner. the structure of banking groups should be transparent, and thus enable differentiated government interventions in case of a crisis. plans must be drawn up for the recovery or resolution of banks in the event of difficulties. owners and creditors – not taxpayers – must bear the losses. the interest rate on banks ’ funding will then reflect the risk they take rather than an implicit government guarantee. this will in itself have a preventive effect. politicians have the overriding responsibility for financial stability. it can be demanding to restrain credit growth in times of strong optimism and confidence in the future. well defined mandates and a clear delegation of responsibility in the field of monetary policy has worked well. similarly, the legal authority to implement macroprudential measures to safeguard financial stability should be delegated. it must be acknowledged that no regulation can prevent financial institutions from encountering difficulties. a new regulatory framework must therefore ensure that banks bear the ultimate responsibility for risk undertaken by them. regulatory compliance will then be in their own interest. we can never fully insulate the financial system from shocks. but we can increase our resilience. one of the most important things we can do is to keep our own house in order – by preventing major imbalances from building up in the economy or in the financial system, and by ensuring that the financial system in general is robust. thank you for your attention. bis central bankers ’ speeches