Dafermos, Yannis, Gabor, Daniela, Nikolaidi, Maria ORCID: 0000-0002-8188-5482, Pawloff, Adam and van Lerven, Frank (2020) Decarbonising is easy: beyond market neutrality in the ECB's corporate QE. Technical Report. New Economics Foundation, London.

Preview

PDF (Published report) 37786_NIKOLAIDI_Decarbonising_is_easy.pdf - Published Version Download (792kB) | Preview

Abstract

Christine Lagarde, the President of the European Central Bank (ECB), has recently promised to explore every avenue for greening the ECB’s operations, including its quantitative easing (QE) programme. Yet the current corporate QE programme remains biased towards carbon-intensive sectors: these sectors are over represented in the ECB purchases, when compared to their contribution to the euro area employment and economic activity. An important consequence of the carbon bias is that it may lower the cost of borrowing (an implicit subsidy) and encourage more debt issuance by the most carbon intensive firms relative to low carbon firms. By favouring access to finance for highly polluting companies, this carbon bias is an important barrier to the decarbonisation of the euro area economies.
We argue that the ECB should abandon its market neutrality approach, the key driver of this carbon bias, and adopt alternative low-carbon strategies. We suggest two such strategies in which carbon-intensive bonds are replaced with more climate-friendly bonds. These strategies would significantly reduce the climate footprint of the ECB corporate QE and would make companies’ access to finance more aligned with the targets of the Paris Agreement.

Item Type:	Monograph (Technical Report)
Uncontrolled Keywords:	climate change; monetary policy; QE
Subjects:	H Social Sciences > HB Economic Theory H Social Sciences > HC Economic History and Conditions H Social Sciences > HD Industries. Land use. Labor > HD61 Risk Management
Faculty / School / Research Centre / Research Group:	Faculty of Business Faculty of Business > Department of International Business & Economics Faculty of Business > Institute of Political Economy, Governance, Finance and Accountability (IPEGFA) Faculty of Business > Institute of Political Economy, Governance, Finance and Accountability (IPEGFA) > Greenwich Political Economy Research Centre (GPERC)
Last Modified:	01 Nov 2022 16:49
URI:	http://gala.gre.ac.uk/id/eprint/37784

Actions (login required)

View Item

Downloads