Is climate change the job of central banks?

Background literature:

  • Conny Olovsson (Riksbank) argues that “monetary policy does not have the appropriate tools for counteracting global warming, but global fiscal policy is significantly better suited for this purpose.”
  • Isabel Schnabel (ECB) argues that climate risks are mispriced by financial markets. Central banks should not sustain market failures.
  • The fraction of bonds issued by carbon intensive companies in the ECB’s CSPP portfolio and accepted as collateral is far larger than the GVA of these companies, see e.g. Matikainen (figure 3) or Dafermos (figure 4).
  • Paris Agreement, Article 2, 1(c): This Agreement, in enhancing the implementation of the Convention, including its objective, aims to strengthen the global response to the threat of climate change, in the context of sustainable development and efforts to eradicate poverty, including by: Making finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development.
  • The European Green Deal is a priority of the European Commission.
  • Lagarde has said climate change is the job of the ECB: “[w]hether climate change (…) is to be considered as part of our primary objective. And the answer is yes.” (1:44)
  • A green mandate for the ECB? Dirk Schoenmaker says yes, Hans Peter Grüner says no.

Hard work pays off

Remember Actually, lobbyists are good?

I wrote

it seems that the ECB is way ahead of the Federal Reserve when it comes to green central banking

Indeed, new ECB President Christine Lagarde acknowledged her institution’s climate responsibility at the European Parliament…

…and the European Investment Bank (EIB) will stop financing fossil fuel energy projects.

The hard work of the “climate and finance lobbyists” pays off!


How the ECB can align its monetary policy with the climate targets of the EU

There is a discussion going on about how climate change should influence central banking. The Veblen Institute and Positive Money Europe have published a study which shows that although the European Central Bank (ECB) has acknowledged its responsability, bonds issued by carbon intensive companies make up a large fraction of the corporate bonds held by the ECB.

You can find the report (in French) here.

Update 7 April 2019: for the English version, click here.

Actually, lobbyists are good

Lobbyists are often mistrusted. Special interest groups use them to influence politicians.

However, what’s the alternative? Policy makers cannot know everything. They need input from industry and non-profit groups. Through personal contacts with officials and by publishing articles, lobbyists can get new ideas on the agenda.

Take the responsibility of central banks in the green transition to phase out carbon-based fuels.

European Central Bank (ECB) board member Benoit Cœuré recently declared that the ECB should actively support the transition to a low carbon economy. Continue reading “Actually, lobbyists are good”

Green infrastructure bonds with macro strings attached: How the ECB could fulfill its mandate by fighting climate change

This is the paper I submitted to the Central Banking and Green Finance workshop organized by the Council on Economic Policies (CEP) and De Nederlandsche Bank. I wrote it to stimulate a discussion about how central banks can contribute to the fight against climate change. The text does not necessarily reflect my personal opinion. Continue reading “Green infrastructure bonds with macro strings attached: How the ECB could fulfill its mandate by fighting climate change”