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A European Climate Bond

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Abstract

The European Union faces a large climate investment gap. To fill it, we propose the joint issuance of EU climate bonds. These bonds would be funded by the sale of emission allowances, traded on the EU Emissions Trading System and extended to cover all sectors. Access to the resulting funds would be conditional on countries’ performance on the implementation of climate investments. EU climate bonds would meet global demand for a safe and liquid asset, while increasing the speed and efficiency of EU climate investing, its resilience to sovereign crises, and the greening of investors’ portfolios and monetary policy.

Suggested Citation

  • Irene Monasterolo & Antonia Pacelli & Marco Pagano & Carmine Russo, 2024. "A European Climate Bond," CSEF Working Papers 702, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
    • Handle: RePEc:sef:csefwp:702
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    File URL: https://www.csef.it/WP/wp702.pdf
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    References listed on IDEAS

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    1. Arvind Krishnamurthy & Annette Vissing-Jorgensen, 2012. "The Aggregate Demand for Treasury Debt," Journal of Political Economy, University of Chicago Press, vol. 120(2), pages 233-267.
    2. Fuest, Clemens & Meier, Volker, 2023. "Sustainable finance and climate change: Wasteful but a political commitment device?," Journal of Environmental Economics and Management, Elsevier, vol. 118(C).
    3. Grégory Claeys & Conor McCaffrey & Lennard Welslau, 2023. "The rising cost of European Union borrowing and what to do about it," Bruegel Policy Brief node_9089, Bruegel.
    4. Monika Grzegorczyk & Guntram B. Wolff, 2022. "Greeniums in sovereign bond markets," Bruegel Working Papers node_8334, Bruegel.
    5. Suraje Dessai & Mike Hulme, 2004. "Does climate adaptation policy need probabilities?," Climate Policy, Taylor & Francis Journals, vol. 4(2), pages 107-128, June.
    6. Elmar Kriegler & Massimo Tavoni & Tino Aboumahboub & Gunnar Luderer & Katherine Calvin & Gauthier Demaere & Volker Krey & Keywan Riahi & Hilke Rösler & Michiel Schaeffer & Detlef P. Van Vuuren, 2013. "What Does The 2°C Target Imply For A Global Climate Agreement In 2020? The Limits Study On Durban Platform Scenarios," Climate Change Economics (CCE), World Scientific Publishing Co. Pte. Ltd., vol. 4(04), pages 1-30.
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    Cited by:

    1. Papathanassiou, Chryssa & Nieto, María J., 2025. "Different shades of green: EU corporate disclosure rules and their effectiveness in limiting “greenwashing”," Occasional Paper Series 370, European Central Bank.
    2. Broeders, Dirk & Dimitrov, Daniel & Verhoeven, Niek, 2025. "Climate-linked bonds," Working Paper Series 3011, European Central Bank.

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    More about this item

    Keywords

    climate finance; green investment; EU safe asset; emission allowances; ETS.;
    All these keywords.

    JEL classification:

    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H27 - Public Economics - - Taxation, Subsidies, and Revenue - - - Other Sources of Revenue
    • P18 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Energy; Environment
    • Q51 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Valuation of Environmental Effects
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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