The annual report of the Bank of Spain, one of the great key documents for analyzing the economic situation in this country, dedicates this year an extensive and documented study to the climate challenge and the ecological transition. It is the first public assumption of the institution on the need to urgently and orderly face the green transformation of the Spanish economy and society. In this sense, it can be said that the Bank of Spain has become an environmentalist. Its main argument is that taking on the challenge of decarbonizing the Spanish economy in time, as well as the necessary measures to mitigate the negative impact that global warming will have, will always be less costly than doing nothing or doing it poorly. Consequently, it is a challenge that we must all take seriously and urgently under the leadership – in his opinion – of the public authorities, which have the necessary economic, regulatory and administrative instruments of action.

For the Bank of Spain, the main tool to act in the fight against climate change is taxes. In this sense, it defends, in line with the great international guidelines, that a green fiscal reform must be faced so that economic agents internalize the climatic consequences of their decisions. In this regard, he recalls the extensive academic literature that shows that environmental taxes are the most appropriate resource so that the prices that the different economic agents establish in their production and consumption decisions incorporate not only the private cost of said decisions, but also the social cost derived from its environmental impact. This means that green taxation should act as a reallocation of economic resources towards the common goal of fighting climate change.

For Spain, the alignment of green taxation with the European one can be especially problematic, since environmental taxes are below the average of the Twenty-seven.

The Bank of Spain also warns, in its extensive report, that the ecological transformation of the Spanish economy and society, despite being crucial to combating climate change, can cause many problems –and even be traumatic– for numerous business groups and family members, especially the most vulnerable. For this reason, in his opinion, green fiscal policy, as well as public investments and the regulation of economic activity, will have to pay very special attention to those most vulnerable households and companies, in order to temporarily mitigate the greatest impact adverse effects of climate change in the short term on these groups. In his opinion, the advisability of deploying this type of compensatory measure would not only be justified by questions of fairness, but also to achieve sufficient and essential social consensus to efficiently carry out the necessary ecological transition.

The challenge of combating climate change is enormous and, furthermore, it is subject to great uncertainty. But it must be faced with determination and efficiency, both at the Spanish level and through adequate international coordination, since the risk is global. In this framework, despite the difficulties, the Bank of Spain asks public policies for maximum political certainty. In this regard, given the doubts that still exist about the climate risks we face and their economic impact, as well as about the effectiveness and implications of many of the measures that can be adopted, a continuous and rigorous evaluation of all of this is necessary to ensure that the ecological transition occurs efficiently, without unwanted effects and without wasting public and private resources.