In the first case, we simulated the impact of different transition policies over a three-year horizon: 1) a rise in the price of CO2 emissions to € per tonne; 2) extension of the obligations to acquire emission allowances for the most polluting sectors to all other productive sectors; 3) a combination of the previous measures, which would be compatible with the aim of achieving net zero emissions in 2050; and 4) a combination of these same measures with an extension of the emission trading system to households. 17  This exercise comprises two instruments that operate separately but recursively. The first is a theoretical macro sectoral model, calibrated for the Spanish economy, which can be used to simulate the reallocation of resources across sectors resulting from the implementation of specific measures to combat climate change or technological innovations in this area. The second is an empirical model of the solvency dynamics of Spanish banks stemming from the results of the macro sector model, based on the tool for conducting stress tests (the so-called Forward-Looking Exercise on Spanish Banks (FLESB)). 7  Given the time horizon of the analysis (three years), these scenarios seek to calibrate the initial cost to the Spanish economy of the transition to a green productive model. The results show that the cost of applying these policies in terms of economic activity would be moderate over the first three years, although highly uneven across sectors.
Undoubtedly, the incorporation of these risks into their management decisions will help to change the relative prices of financial instruments in favour of those that fund more sustainable activities, thereby reinforcing the impact of other public policies. Today I wish to take this opportunity to describe the actions we as supervisors and financial regulators are taking at global level for this purpose. I will start by identifying the financial risks associated with climate change and the main channels of transmission to financial institutions, and then analyse the specific features of these risks, as well as the regulatory and supervisory initiatives adopted in the banking field. Risk factors associated with climate change Climate change risks may be divided into two types: physical risks and transition risks. Physical risks are those that arise when climate change materialises, to a greater or lesser extent. This leads to extreme weather events, a rise in sea levels, desertification, greater risk of wildfires, etc. In the case of Spain, the National Plan for Adapting to Climate Change 2021-20303 suggests that these risks have already started to materialise. Also, according to the European Environment Agency, extreme weather and climate events have already caused direct economic losses in Spain totalling more than € million since 1980.4 The 1  https://www.ipcc.ch/report/sixth-assessment-report-cycle/. 2  Strategy for Financing the Transition to a Sustainable Economy, European Commission, July 2021. 3  Plan Nacional de Adaptación al Cambio Climático (PNACC) 2021-2030, Ministerio para la Transición Ecológica y el Reto Demográfico, September 2020.