布鲁盖尔-Greening-monetary-policy_24页_7mb

Summary of "GREENING MONETARYPOLICY"

Core Content

This working paper explores the feasibility and implications of incorporating environmental considerations into the monetary policy operations of the Eurosystem, specifically through the lens of asset and collateral allocation. It argues that while central banks traditionally operate with market neutrality, there is a legal and policy basis to consider the carbon intensity of assets in order to support the EU's transition to a low-carbon economy.

Main Views

• Market Neutrality vs. Carbon Bias: The Eurosystem's current market-neutral approach to asset purchases and collateral eligibility is biased towards carbon-intensive sectors, as these sectors are overrepresented in financial markets.
• Legal Mandate: The Treaty on European Union (TEU) allows the Eurosystem to support sustainable development as a secondary objective to price stability. This provides a legal foundation for greening monetary policy.
• Role of Central Banks: Central banks are not tasked with setting specific environmental policies, but they can support the broader EU objective by steering asset and collateral allocation towards low-carbon sectors.
• Impact of Greening: A modest tilting approach could reduce carbon emissions in the corporate and bank bond portfolio by 44%, and lower the cost of capital for low-carbon sectors by 4 basis points.
• No Interference with Price Stability: The paper emphasizes that greening should not compromise the transmission mechanism of monetary policy, and suggests a gradual implementation to avoid market distortions.

Key Information

1. Central Bank Mandate

• Primary Objective: Price stability.
• Secondary Objective: Supporting general economic policies, including sustainable development.
• EU Definition of Economic Growth: Includes environmental protection and social progress, allowing for the inclusion of environmental considerations in monetary policy.

2. Central Bank Reach

• Minimalist vs. Maximalist Approaches: The minimalist approach limits central banks to short-term Treasury paper, while the maximalist approach allows them to manage the consolidated balance sheet.
• Current Eurosystem Policy: A hybrid system, as it already includes private sector assets in its operations.
• Carbon Intensity: Fossil fuel companies, utilities, and others are typically capital-intensive, leading to a carbon bias in the market.

3. Greening Monetary Policy Operations

• Eligibility Criteria: Central banks can adjust eligibility criteria to favor low-carbon assets, increasing their liquidity and reducing the cost of capital.
• Carbon Intensity Measurement: Defined as emissions (scope 1, 2, and 3) divided by sales, with a time lag of -1 for historical data.
• Data Sources: ASSET4 ESG Scores and the Carbon Disclosure Project (CDP) provide emissions data for companies. For mortgages, energy labels (A-G scale) are used to measure carbon intensity.

4. Implementation Strategy

• Three Conditions for Implementation:
  1. No Major Adjustments: Avoid significant changes in asset mix, currency denomination, and maturity to prevent market distortion.
  2. Broad Eligibility List: Maintain a broad range of eligible assets within each category to avoid targeting specific sectors.
  3. Gradual Approach: Implement a low-carbon bias incrementally to allow for learning and analysis of its impact on monetary policy transmission.

5. Data and Results

• Carbon Intensity by Sector:
  • Oil, gas, and coal: 4,179
  • Materials: 3,855
  • Utilities: 1,916
  • Chemicals: 1,340
  • Transportation (airlines): 1,135
  • Automotive (carmakers): 941
  • Average: 1,563
• Impact of Tilting: A modest tilting approach can reduce carbon emissions in the corporate and bank bond portfolio by 44% and lower the cost of capital for low-carbon sectors by 4 basis points.

Conclusion

The paper concludes that the Eurosystem can adopt a low-carbon allocation policy without undermining price stability. It should do so in a gradual and non-targeted manner, using a broad range of assets and collateral, and ensuring that the transmission mechanism of monetary policy remains intact. The role of central banks in this context is to support the broader EU goals of sustainable development, rather than to dictate specific environmental policies.