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Empirical evidence of a green investment channel of monetary policy under the EU ETS

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  • Boungou, Whelsy
  • Dufau, Bastien

Abstract

This paper examines the influence of monetary policy on the impact of the Phase IV announcement of the EU Emissions Trading System (EU ETS) on firms’ R&D investments. To this end, we employ a Difference-in-Differences approach on 128 industrial sectors (95 regulated and 33 non-regulated) across OECD countries between 2005 and 2019. The results show that the announcement of Phase IV in 2015 significantly boosted R&D investments in regulated firms, with the effects strengthening as the implementation year approached. Moreover, accommodative monetary policy, through persistently low interest rates, amplified these investments by lowering financing costs. Our findings highlight the complementarity between environmental regulation and macroeconomic policy in fostering green innovation.

Suggested Citation

  • Boungou, Whelsy & Dufau, Bastien, 2026. "Empirical evidence of a green investment channel of monetary policy under the EU ETS," Economics Letters, Elsevier, vol. 260(C).
    • Handle: RePEc:eee:ecolet:v:260:y:2026:i:c:s0165176526000108
    DOI: 10.1016/j.econlet.2026.112816
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    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects
    • Q55 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Technological Innovation
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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