New research by the Grantham Research Institute confirms our criticism against the European Central Bank’s quantitative easing programme and calls for serious reconsideration of the ECB’s strategy.

More than half of corporate bond quantitative easing programmes by the Bank of England and European Central Bank (ECB) back carbon-intensive sectors, and may give them a disproportionate advantage over low-carbon sectors, a new study shows.

The analysis concludes that although the purchases, made under the central banks’ quantitative easing programmes to boost economic growth, are intended to be sector-neutral, they inadvertently favour carbon-intensive manufacturing and utilities.

The report ‘The climate impact of quantitative easing’ was conducted by the Grantham Research Institute on Climate Change and the Environment at the London School of Economics and Political Science.

Co-authors Sini Matikainen, Emanuele Campiglio and Dimitri Zenghelis point out that 62.1 per cent of the ECB’s corporate bond purchases, under their  €82 billion corporate bond purchase programme, have been in manufacturing and utilities sectors though they make up only 18 per cent of the Eurozone area economy. These sectors produce 58.5 per cent of greenhouse gas emissions in the Eurozone.

The analysis also reveals that renewable energy companies are not represented at all in ECB or Bank of England purchases, while oil and gas companies make up an estimated 8.4 per cent and 1.8 per cent of the banks’ corporate bond purchases respectively.

This piece of research back the previous analysis carried out together with NGO Corporate Europe Observatory, which we revealed in December 2016.

The report warns that the central banks may be “unintentionally reinforcing the status quo, in which low-carbon investments suffer from a ‘green investment gap’ relative to the socially optimal scenario consistent with limiting warming to 1.5–2°C above pre-industrial levels.”

The report states that the current implementation of the corporate sector QE programmes by the ECB and the Bank of England are in “direct contradiction with the concerns among central banks about climate financial risk.” 

A call for strategy shift

The report calls for the central banks to increase transparency around their asset purchases and around the eligibility criteria governing which purchases they make under programmes designed to stimulate growth across the economy after the 2008 financial crash.

It also recommends that the central banks could consider options for changing their purchasing strategy, including our proposal for a “green quantitative easing programme” which we have been advocating in the context of the QE for People campaign.

It calls on the central banks to “investigate the impact of their interventions on both high-carbon and low-carbon investment” and work with fiscal policy-makers and financial regulators to “harmonise the overall policy effort aimed at achieving a rapid and smooth transition to a low-carbon economy”

The report concludes: “While monetary policy cannot be a substitute for environmental policy, monetary policy-makers should be mindful of the impacts on asset pricing, including risks to market efficiency and financial stability.”


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