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The CO2 content of the TLTRO III scheme and its greening

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  • Senni, Chiara Colesanti
  • Pagliari, Maria Sole
  • van 't Klooster, Jens

Abstract

This paper investigates the climate impact of central bank refinancing operations, with a focus the ECB’s TLTRO III program. Notably, we construct a novel database that combines i) confidential data on loans granted by EU banks to non-financial corporations; ii) confidential data on TLTRO III participation and iii) data on sectoral emissions. We find that the emissions content of bank loans granted over the TLTRO III reference period amount to 8% of overall Euro Area 2019 emissions and that more than 80% of total cumulated loans issued in the reference period was directed towards polluting companies. We then investigate the effectiveness of a green credit easing scheme via a general equilibrium model. Our findings are twofold: first, the central bank policy can increase the costs for lending to polluting companies, thus re-directing loans to less-polluting firms; second, the financial stability implications of such a policy should be carefully considered. Finally, we address legal and operational challenges to such a policy by outlining three alternative ways of implementing a “green” TLTRO programme.

Suggested Citation

  • Senni, Chiara Colesanti & Pagliari, Maria Sole & van 't Klooster, Jens, 2023. "The CO2 content of the TLTRO III scheme and its greening," LSE Research Online Documents on Economics 120562, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:120562
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    References listed on IDEAS

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    1. Drudi, Francesco & Moench, Emanuel & Holthausen, Cornelia & Weber, Pierre-François & Ferrucci, Gianluigi & Setzer, Ralph & Adao, Bernardino & Dées, Stéphane & Alogoskoufis, Spyros & Téllez, Mar Delgad, 2021. "Climate change and monetary policy in the euro area," Occasional Paper Series 271, European Central Bank.
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    More about this item

    Keywords

    TLTRO; CO2 emissions; transition risk; monetary policy; financial stability;
    All these keywords.

    JEL classification:

    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • 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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