Fed vs. ECB: The divergent approaches to climate change mitigation
In this paper, DiLeo et al. develop a theoretical framework to describe how the domestic context and international norms influence the evolution of central bank policymaking. In particular, they analyze the adoption of climate-related norms by central banks as a two-stage process:
- The first stage is one of “norm emergence” where government actors, think tanks and nongovernmental organizations (NGOs) try to convince individual central banks to adopt basic climate-related norms. This was a successful process in Europe as these “norm entrepreneurs” convinced the ECB to adopt basic climate-related norms. In the case of the Fed, the socio-political environment on climate action was highly fractious and norm entrepreneurs targeting the Fed were absent.
- The second phase is one of “norm cascade,” where a critical mass of early NGFS members started to spread these new climate norms, leading to widespread international adoption of climate-related central bank policies. In the U.S., an influential domestic fossil fuel industry coupled with a polarized and partisan debate on climate change led the Fed to adopt a modest version of the foundational climate norms.
The current divergence is unlikely to disappear soon, as the forces of divergence are deeply rooted in domestic climate politics. At the same time, given the international interconnectedness of central banking, we expect global policy norms to provide sustained pressure toward convergence. In this context, the ECB could still scale back some of its proactive commitments (Van Doorslaer and Vermeiren 2022), although it is unlikely to entirely disavow its current stance. The Fed is likely to seek a more favorable compromise, such as assuring domestic audiences of policy restraint, while cooperating with international peers on less overt regulatory interventions.


Why the Fed and ECB Parted Ways on Climate Change: The Politics of Divergence in the Global Central Banking Community
Authors: Monica DiLeo, Glenn D. Rudebusch, Jens van ’t Klooster
From: University of Queensland, Australia, Brookings Institution & New York University, University of Amsterdam
Energy politics
In this paper, Colgan and Hinthorn highlight how political scientists view the debate over the adoption of climate change mitigation policies. They argue that they are mainly two ideological camps:
- The first position, which they call climate consequentialism, suggests that policymakers must (eventually) face the environmental realities of climate change, and once they do, they can and will steer society toward a clean energy transition. This position is sometimes found among physical scientists who follow the Intergovernmental Panel on Climate Change and other scientific bodies, hoping politics will change as evidence of the environmental risk mounts.
- The second position, which they call climate libertarianism, is the idea that once policymakers correctly price carbon (and other GHG emissions), thereby internalizing the economic externalities associated with climate change, the market will adjust and fix the problem without much further ado. Economists sometimes take this position.
[T]he body of research produced by political scientists is different from either of these two positions and shows that the problem is not simply a lack of political will. Making the clean energy transition happen is a political problem that is phenomenally complicated and filled with obstacles beyond those typically highlighted by either economics or physical sciences.[…] While the world is indeed beginning to engage in a clean energy transition away from oil and other fossil fuels, that transition can only be understood in the context in which oil is likely to be, at the global level, one of the largest primary energy sources for decades to come. Oil consumption might decline rapidly in some places, and some oil producers will be among the losers from the energy transition. Worldwide, however, the oil industry will continue to be a major force.
International Energy Politics in an Age of Climate Change
Authors: Jeff D. Colgan, Miriam Hinthorn
From: Brown University, MIT