While there is increasing interest in decarbonising or greening monetary policy, central banks are keen to maintain market neutrality. However, there is evidence that the market has a bias towards carbon-intensive companies. The paper develops a method to tilt the European Central Bank’s (ECB) asset and collateral framework towards low-carbon assets. We find that a medium tilting approach reduces carbon emissions in the ECB’s corporate and bank bond portfolio by over 50%. We show that a low carbon allocation can be done without undue interference with the transmission mechanism of monetary policy.

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Climate Policy
Rotterdam School of Management (RSM), Erasmus University

Schoenmaker, D. (2020). Greening Monetary Policy. Climate Policy, forthcoming. Retrieved from http://hdl.handle.net/1765/132557