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Unconventionally Green: Monetary Policy between Engagement and Conflicting Goals

Author

Listed:
  • Liebich Lena

    (Goethe University Frankfurt, Theodor-W.-Adorno-Platz 1, 60323, Frankfurt am Main, Germany)

  • Nöh Lukas

    (German Council of Economic Experts, Gustav-Stresemann-Ring 11, 65189, Wiesbaden, Germany)

  • Rutkowski Felix

    (Single Resolution Board, Treurenberg 22, B-1049, Brussels, Belgium)

  • Schwarz Milena

    (Senior Economist at KfW, Palmengartenstaße. 5-9, 60325, Frankfurt am Main, Germany)

Abstract

We study the potential role of the ECB in supporting the transition to a low-carbon economy by decarbonizing the corporate sector purchase programme (CSPP). We demonstrate that the carbon intensity of CSPP purchases is determined by three main factors: First, by the CSPP-eligibility criteria, as these tend to exclude bonds from low-emission sectors. Second, by the underlying structure of the bond market, as this tends to be skewed towards carbon-intensive sectors. Third, among the eligible bonds, the ECB tends to select those from relatively emission-intensive sectors. To decarbonize the CSPP, the ECB can theoretically act along these three lines: (i) adjust the CSPP-eligibility criteria to expand the range of eligible low-carbon assets, (ii), revise the principle of market neutrality to tilt the CSPP portfolio towards low-carbon companies, or, (iii), purchase so far neglected low-carbon bonds within the current eligibility and market neutrality framework. As all approaches have either very limited effects or are associated with significant theoretical and practical concerns, we conclude that their contribution to the success of active green monetary policy is not guaranteed, while at the same time risks arise for a monetary policy that targets price stability.

Suggested Citation

  • Liebich Lena & Nöh Lukas & Rutkowski Felix & Schwarz Milena, 2023. "Unconventionally Green: Monetary Policy between Engagement and Conflicting Goals," Review of Economics, De Gruyter, vol. 74(1), pages 53-77, April.
    • Handle: RePEc:lus:reveco:v:74:y:2023:i:1:p:53-77:n:1
    DOI: 10.1515/roe-2023-0024
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    References listed on IDEAS

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    1. Binh Bui & Olayinka Moses & Muhammad N. Houqe, 2020. "Carbon disclosure, emission intensity and cost of equity capital: multi‐country evidence," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 60(1), pages 47-71, March.
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    More about this item

    Keywords

    green monetary policy; green finance; asset purchase programmes;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • Q50 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - General
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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