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Most prominently, carbon pricing is still not being used to an adequate extent. However, significant shortcomings in the functioning of the financial system are presently curtailing the flow of investment in green – and therefore truly sustainable – economic development. Most of this additional investment will need to come from the private sector as households and firms adjust to a net-zero economy. That estimate would add around €500 billion to the level of annual investment in climate and energy security seen in the previous decade. The European Commission estimates that reaching the Fit-for-55 and REPowerEU objectives requires an average annual investment of €1.25 trillion over the years 2021-30. Moreover, against the backdrop of Russia’s horrific ongoing war against Ukraine, the EU has pledged to become independent from Russian fossil fuels well before 2030 under its REPowerEU plan. Importantly, under its Fit-for-55 strategy, the EU is committed to lowering carbon emissions by at least 55% by 2030. Nonetheless, more specific commitments are clearly required and all promises need to be kept. For some existing commitments, the European Council recently endorsed several measures proposed by the European Commission. However, even then it is still not consistent with limiting global warming to 1.5 degrees Celsius. The picture improves if the tracker incorporates policy commitments made but not yet implemented.

Using a more sophisticated approach, the Climate Action Tracker – which was developed by a consortium of climate research organisations – when compiled in November 2022 assessed that the policies and actions taken by the EU were almost sufficient to be consistent with limiting global warming to 2 degrees Celsius. In other words, on top of the seven-plus years that have passed since the Paris Agreement, we have lost another ten. Mind you, when country delegates negotiated the Paris Agreement in December 2015, the trend suggested this level would not be breached until March 2045. Linear trend extrapolation of global warming puts us going beyond 1.5 degrees in March 2035. The state of the EU is not yet on a transition path that is aligned with the goals of the Paris Agreement – to pursue efforts to limit global warming to 1.5 degrees Celsius above pre-industrial levels, and in any case well below 2 degrees. My contribution will focus on the most pressing challenge requiring urgent action: the ongoing climate and environmental crises. Just as we have come to Palazzo Vecchio today to unlock the creativity required to address the multidimensional challenges that are affecting the state of the European Union. The most gifted individuals in the fields of art, science, politics and finance have long come to this city to make a difference, together unleashing creative forces of a magnitude greater than the sum of their already impressive individual contributions. As the cradle of the Renaissance, Florence has a long history of attracting people from different disciplines across Europe. Many thanks for inviting me to address this conference along with so many esteemed speakers. Speech by Frank Elderson, Member of the Executive Board of the ECB and Vice-Chair of the Supervisory Board of the ECB, State of the Union conference organised by the European University Institute