Greening monetary policy operations?
Steer bond purchases towards low carbon assets
If the Eurosystem were to pick up the challenge of greening its monetary policy operations, it would be of utmost importance to do that in full independence. The Eurosystem could adjust the eligibility criteria for assets and collateral in a general way, using a transparent and objective indicator, such as current and future carbon emissions (TCFD, 2017). It should refrain from favoring specific projects or setting sectoral targets. That is government policy. The EU and the member states can use their multilateral development bank (the European Investment Bank) and their national development banks to steer financing to specific green projects, if they wish to do so.
Greening monetary policy
Author: Dirk Schoenmaker
From: Erasmus University
…without generating inflation
What are the options for the ECB? The ECB has bought 2,600 billion of government and corporate bonds since 2015. These purchases have not fueled inflation, which has remained below 2% in the Eurozone. The ECB has now stopped making new purchases. It has announced though that when these government and corporate bonds come to maturity, new bonds will be bought in the market so as to keep the money stock (money base) unchanged. This creates a “window of opportunities” for the ECB. It could replace the old bonds with new “environmental bonds”, i.e. bonds that have been issued to finance environmental projects. In doing so, the ECB would not create new money.
Green money without inflation
By: Paul de Grauwe – LSE
The green premium
Gianfrate and Peri find that green bonds are issued with a statistically significant average negative premium of around 18 basis points. For bonds issued by corporations the premium is around -20/21 basis points.
Source: Initiative Climate Bonds
From the chart above: The US, China and France account for 56% of 2017 issuance. ABS outstripped all other issue types as a result of Fannie Mae boosting MBS issuance off the back of its Multifamily Green Initiative program.
The Green Advantage: Exploring the Convenience of Issuing Green Bonds
Authors: Gianfranco Gianfrate, Mattia Peri
From: EDHEC Business School, Bocconi University
