Unconventionally Green: Monetary Policy between Engagement and Conflicting Goals

Liebich Lena (), Nöh Lukas (), Rutkowski Felix () and Schwarz Milena ()
Additional contact information
Liebich Lena: Goethe University Frankfurt, Theodor-W.-Adorno-Platz 1, 60323 Frankfurt am Main, Germany
Nöh Lukas: German Council of Economic Experts, Gustav-Stresemann-Ring 11, 65189 Wiesbaden, Germany
Rutkowski Felix: Single Resolution Board, Treurenberg 22, B-1049 Brussels, Belgium
Schwarz Milena: Senior Economist at KfW, Palmengartenstaße. 5-9, 60325 Frankfurt am Main, Germany

Review of Economics, 2023, vol. 74, issue 1, 53-77

Abstract: We study the potential role of the ECB in supporting the transition to a low-carbon economy by decarbonizing the corporate sector purchase programme (CSPP). We demonstrate that the carbon intensity of CSPP purchases is determined by three main factors: First, by the CSPP-eligibility criteria, as these tend to exclude bonds from low-emission sectors. Second, by the underlying structure of the bond market, as this tends to be skewed towards carbon-intensive sectors. Third, among the eligible bonds, the ECB tends to select those from relatively emission-intensive sectors. To decarbonize the CSPP, the ECB can theoretically act along these three lines: (i) adjust the CSPP-eligibility criteria to expand the range of eligible low-carbon assets, (ii), revise the principle of market neutrality to tilt the CSPP portfolio towards low-carbon companies, or, (iii), purchase so far neglected low-carbon bonds within the current eligibility and market neutrality framework. As all approaches have either very limited effects or are associated with significant theoretical and practical concerns, we conclude that their contribution to the success of active green monetary policy is not guaranteed, while at the same time risks arise for a monetary policy that targets price stability.

Keywords: green monetary policy; green finance; asset purchase programmes (search for similar items in EconPapers)
JEL-codes: E52 E58 Q50 Q54 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://doi.org/10.1515/roe-2023-0024 (text/html)
For access to full text, subscription to the journal or payment for the individual article is required.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:lus:reveco:v:74:y:2023:i:1:p:53-77:n:1

Ordering information: This journal article can be ordered from
https://www.degruyter.com/journal/key/roe/html

DOI: 10.1515/roe-2023-0024

Access Statistics for this article

Review of Economics is currently edited by Michael Berlemann

More articles in Review of Economics from De Gruyter
Bibliographic data for series maintained by Peter Golla ().