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A European Climate Bond

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Abstract

Europe faces a large climate investment gap. To fill it, we propose the joint issuance of climate bonds by the European Stability Mechanism. These bonds would be funded by selling greenhouse gas emission allowances via the Emissions Trading System, extended to cover all sectors. Access to the resulting funds would be conditional on countries’ performance on the implementation of climate projects. European climate bonds would meet the demand for a safe, liquid and green asset, while accelerating climate investment, and increasing its resilience to sovereign crises, as well as the greening of both 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, revised 27 Mar 2024.
    • Handle: RePEc:sef:csefwp:702
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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. 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.
    3. Monika De Ridder (Grzegorczyk) & Guntram B. Wolff, 2022. "Greeniums in sovereign bond markets," Bruegel Working Papers node_8334, Bruegel.
    4. Suraje Dessai & Mike Hulme, 2004. "Does climate adaptation policy need probabilities?," Climate Policy, Taylor & Francis Journals, vol. 4(2), pages 107-128, June.
    5. 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).
    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. Mazzocchetti, Andrea & Monasterolo, Irene & Dunz, Nepomuk & Essenfelder, Arthur Hrast, 2025. "Breaking the economy: How climate tail risk and financial conditions can shape loss persistence and economic recovery," Ecological Economics, Elsevier, vol. 237(C).
    3. Broeders, Dirk & Dimitrov, Daniel & Verhoeven, Niek, 2025. "Climate-linked bonds," Working Paper Series 3011, European Central Bank.
    4. Dirk Broeders & Daniel Dimitrov & Niek Verhoeven, 2024. "Climate-Linked Bonds," Working Papers 817, DNB.

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    More about this item

    Keywords

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    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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