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The CO2 content of the TLTRO III scheme and its greening

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Listed:
  • Chiara Colesanti Senni
  • Maria Sole Pagliari
  • Jens van ‘t Klooster

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

  • Chiara Colesanti Senni & Maria Sole Pagliari & Jens van ‘t Klooster, 2023. "The CO2 content of the TLTRO III scheme and its greening," Working Papers 792, DNB.
    • Handle: RePEc:dnb:dnbwpp:792
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    References listed on IDEAS

    as
    1. Jens van ’t Klooster & Clément Fontan, 2020. "The Myth of Market Neutrality: A Comparative Study of the European Central Bank’s and the Swiss National Bank’s Corporate Security Purchases," New Political Economy, Taylor & Francis Journals, vol. 25(6), pages 865-879, September.
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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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