How to “green” monetary policy without affecting market neutrality
Dirk Schoenmaker, in this paper, develops a method to green monetary policy operations by steering or tilting the allocation of assets and collateral towards low carbon companies in a general way. Such an approach will only introduce minimal distortions to ECB’s asset and collateral base. The table below depicts the changes Schoenmaker is proposing. He finds that such an approach can reduce carbon emissions in the corporate and bank bond portfolio by 41 percent.
Greening Monetary Policy
Author: Dirk Schoenmaker
From: Rotterdam School of Management, Erasmus University
How to “green” monetary policy while dropping market neutrality all together
In this policy brief, Dafermos and al. propose two strategies that would significantly reduce the climate footprint of the ECB’s corporate QE purchases but would also take the ECB away from its market neutrality principle.
- With the first strategy, the ECB stops buying bonds issued by fossil fuel companies with relatively high carbon intensity in the sectors of non-renewable utilities and carbon-intensive transportation. In this case the outstanding amount of green bonds in the ECB list will be slightly higher than the existing one, maintaining therefore the ECB’s ability to affect interest rates during the pandemic;
- With the second strategy, the ECB excludes all bonds issued by carbon-intensive sectors in favor of green bonds but relaxes the investment grade criterion.
The two approaches are depicted in the figure below as “lower carbon list” and “low carbon list.”
Decarbonising is Easy: Beyond Market Neutrality in the ECB’s Corporate QE
Authors: Yannis Dafermos, Daniela Gabor, Maria Nikolaidi, Adam Pawloff and Frank van Lerven
From: New Economics Foundation
