Uncertainty also characterises the subject I am going to focus on today – the effects of climate change on the Swedish and the global economy.2 We know that greenhouse gas emissions cause global warming, but we do not know how much and how rapidly the global temperature will increase. We know that climate change affects growth, inflation and productivity, but we don’t know how much and how quickly. We know that global warming can cause irreversible  1  Many members of staff at the Riksbank have contributed to this speech. I would especially like to thank Magnus Jonsson, Iida Häkkinen Skans, Conny Olovsson, Maria Ferlin, Marika Hegg, Anders Vredin, Jesper Hansson, Meredith Beechey, Marianne Nessén and Marianne Sterner. 2 The effects of climate change stretch well beyond effects on inflation, growth and financial stability. As the Riksbank’s task is to ensure price stability and a safe and efficient payment system, my speech will focus on this, but the intention is not in any way to detract from the human and ecological values that are affected. 1 [18]  threshold effects, but we don’t know how close we already are to such threshold effects. The Riksbank needs to respond to climate change. There are three reasons for this. First, because climate change affects the Swedish and the global economy – and may therefore threaten both price stability and financial stability.3 Second, because it is important to discuss what tools the Riksbank has to combat such threats.
Here, we need both more data and more analysis in the coming years to gain a better understanding of these mechanisms and of how monetary policy can and should react to this type of slow structural change in the economy.9 Central banks strive to stabilise resource utilisation around a long-term sustainable level. We know at the same time that climate risks and other environmental problems are mispriced, and I will come back to why this is so later in my speech. How we, as a central bank, should consider this and other market failures is far from obvious. Bearing in mind the potentially serious consequences of mispriced  7  See Cœuré (2019) for a discussion. See Brainard (2019). 9 See Debelle (2019). 8  6 [18]  climate risks, I would welcome a debate on the various benefits and drawbacks of taking this market failure into account.10  A severe economic crisis The final and third scenario is the most serious – a severe economic crisis. The transition to more sustainable development could trigger dramatic and rapid changes in financial markets, and in the worst case a financial crisis.11 What starts with financial instability tends to generate serious effects in the real economy with falling growth, rising unemployment and lower inflation. There is a certain unease in Sweden and in many other countries that central banks will have difficulty combatting a new economic crisis.