Climate change is one of the most important societal issues of our time, requiring a global transition to a sustainable economy. The responsibility for pursuing policies that lead to a sustainable society lies with the world's governments and parliaments. They also have the most effective tools. For the world's central banks, it is essential to manage the risks posed by climate change, as well as the measures to counteract it, and to contribute to the transition to a sustainable economy whenever possible. This report describes what the Riksbank is doing in these dimensions.

Climate change is caused by excessive emissions of greenhouse gases that have led to a rise in the Earth's temperature. This in turn imposes costs on individuals, businesses and countries as we experience more severe droughts, floods and other extreme weather, as well as rising sea levels. Ecosystems are also being destroyed as animals and habitats cannot adapt to rapid warming and die out, leading to loss of biodiversity.

Greenhouse gas emissions thus create a negative externality, as those who cause the emissions do not bear the full cost of the consequences. There is a broad consensus in economic research that the key to reducing greenhouse gas emissions is to make them more expensive, so that those who cause them bear the full socio-economic costs. One way of achieving this is through various kinds of taxes, primarily on CO₂. Another way is through overall quantitative limits, where allocation to companies is made through the purchase of emission rights.

Emissions move around the world regardless of national boundaries and climate change can occur in places completely different from where the emissions occurred. The task of reducing overall greenhouse gas emissions is therefore global. But this also means that reducing emissions at national or regional level is also good for the global climate.

The overall climate target for EU countries is to achieve climate neutrality by 2050, which includes a 55 per cent reduction in EU greenhouse gas emissions by 2030.^[1] Compared to 1990 levels. These targets are binding on all EU Member States through the EU Climate Change Act.^[2] Regulation (EU) No 2021/1119 of the European Parliament and of the Council of 30 June 2021 establishing the framework for achieving climate neutrality and amending Regulations (EC) No 401/2009 and (EU) 2018/1999 (‘European Climate Law’) In 2022, the European Commission agreed on a climate package proposing a series of reforms to achieve the target. In 2023, the reforms will begin to be negotiated by members and the EU Parliament.