The ECB’s Green Agenda

 Question 1: Which of the following actions is the most advisable approach for European Central Bank to address the environmental impact of its bond-purchasing policies?

Question 2: Would you support changing the ECB’s mandate to incorporate the EU’s target of carbon neutrality by 2050, if such a change is deemed legally necessary to adopt your preferred approach?

Summary

The majority of the CfM-CEPR European panel of experts supports active measures to use the ECB’s bond-purchasing programme to either exclude industries with negative environmental impact or biasing its portfolio towards green investments. An additional 30% of the panel believes that the ECB should rebalance its portfolio to correct its current bias in favour of polluting industries. However, a majority also believes it would be inappropriate to change the ECB’s mandate to reflect green objectives.

Background

The February 2021 CfM-CEPR survey asked members of its European panel of experts about measures the European Central Bank could take to address the environmental impact of its bond-purchasing policies, in light of some suggestions that the bonds the central bank purchases over-weigh industries that have negative environmental impact. The panel was also asked whether it would consider changing the ECB’s mandate to contain environmental targets.

Concerns about the ECB’s environmental impact                                                          

Concerns about climate change have been central to the economic policy discussion in recent decades, with increasing urgency. More recently, debates have emerged on central banks’ role in mitigating climate change or at least to increase their awareness of their environmental impact. The ECB has been on the forefront of thinking among central banks and climate policy is a central “work stream” of the Bank’s monetary policy review this year.

The ECB’s existing policy states that environmental externalities are best tackled by taxation, but that there is still potential scope for monetary policy to factor environmental concerns into its policy considerations. The ECB has already been doing so, having purchased green bonds under its asset purchase programmes, amounting to 3.5% of its portfolio (before the Covid-19 pandemic). The ECB’s annual report from 2019 states that “all authorities need to reflect on the appropriate response to climate change and related risks in their own area of competence.”

The main argument for central bank action in this regard has been that the central bank’s actions aren’t “market neutral”. That is, the types of bonds typically purchased through central banks’ quantitative easing policies tend to be from larger firms that do more environmental harm on average than does the average firm. In this regard, the quantitative easing may be an implicit subsidy for fossil fuel and other “brown” industries.

In a recent lecture (at the American Economic Association meetings this year), Monika Piazzesi presented work in progress (Piazzesi, Papoutsi, and Schneider, 2021; see summary in Julia Wdowin’s Economic Observatory note) that shows that the ECB’s bond portfolio is significantly different from the universe of outstanding bonds in the market and overweighs industries that are heavier in emissions (manufacturing, utilities, and transport), as these industries issue more bonds than do other sectors. She argues that the ECB should restore market neutrality by consciously tilting its portfolio towards green industries. Paul De Grawe goes further and argues that the ECB could actively tilt its portfolio towards green bonds and do so without stoking inflation.

Ferrair and Nispi Landi (2020) model a temporary green QE in a DSGE model and concur that this policy could be effective in mitigating emissions, but this requires imperfect substitutability between bonds of “green” and “brown” firms (an assumption also made in Piazzesi et al’s analysis). Further, they find that green QE can only have a small positive impact on the environment because it cannot affect the stock of atmospheric carbon, only the flow of emissions.

In recent speeches, ECB President Lagarde has supported this view, arguing that “we have to ask ourselves as to whether market neutrality should be the actual principle that drives our monetary policy portfolio management.” Isabel Schnabel, an ECB executive board member goes beyond market neutrality and argued for excluding bonds from the Bank’s portfolio that are inconsistent with the EU’s target to be carbon-neutral by 2050. President of the Bank de France, François Villeroy de Galhau, also supports this idea, calling for “decarbonizing the ECB’s balance sheet in a pragmatic, gradual and targeted manner for all corporate assets, whether they are held on the central bank’s balance sheet or taken as collateral.”

Other central bankers are less supportive of this shift. Jens Weidmann, president of the Bundesbank, wrote in the Financial Times that “it is not up to us to correct market distortions and political actions or omissions”, adding that “the market price of carbon” is an issue for governments to address — not central banks.” Otmar Issing, the Bank’s former chief economist has written that “Central bankers who would assume responsibility for tackling climate change are acting out of pretention, and could well undermine the very independence upon which their institutions rely. Central banks were not made independent so that they could extend their own mandates. And where environmental issues are among their secondary objectives, central banks should warn against exaggerated expectations regarding their contribution. Making themselves publicly accountable beyond their limited capability in this field must lead to disappointment and undermine their reputation.”

There are also reasons to be sceptical whether a change in the ECB’s portfolio will have much more than a symbolic effect on a transition to climate neutrality. Hassler et al (2020) predict that reducing the price (and thus the financing costs) of green technologies alone isn’t an effective substitute for emission pricing. This is because green and brown technologies aren’t sufficiently substitutable for lower priced green technologies to “outcompete” brown ones.

Beyond market neutrality, climate change itself may have important implications for price stability. As Volker Wieland pointed out in his 2020 presentation to the ECB Forum on Central Banking, increased energy prices due to CO2 pricing may lead inflationary pressures and have a negative impact on growth, as in a traditional cost push. (See also Garnadt, Grimm, and Reuter 2020.) These factors may affect the type of policies the ECB needs to pursue to fulfil its targets of medium-term price stability while attempting to ensure full employment.

In this month’s survey, members of the CfM-CEPR European panel of experts were asked about their views on policies that have been proposed to address the environmental impact of the ECB’s bond purchasing program.

Question 1: Which of the following actions is the most advisable approach for the European Central Bank to address the environmental impact of its bond-purchasing policies?

36 panelists responded to this question. More than half the panelists supported some active measures to use the ECB’s balance sheet to support climate objectives (biasing the portfolio to green industries, banning purchases of bonds of firms who currently have a negative environmental impact, or of those who have no plan to improve by 2050). An additional 30% of the panel supports aiming for market neutrality—this was also the single most popular answer. A minority of 14% rejected any change in policy regarding climate change. The minority view was strongly held—this was the group that expressed most confidence in its response.

Supporters of ECB action suggested that the ECB should help mitigate climate change and is able to do so even within its current remit. Robert Kollmann (Université Libre de Bruxelles) opined that: “Saving the environment and stopping climate change is an existential challenge for humanity. All countries and all institutions, including the ECB, must contribute to this goal.” Ramon Marimon (European University Institute and UPF-Barcelona GSE) suggested that “the ECB may well take into account that some firms have a (well documented) negative environmental externality and stop purchasing their bonds.” Alexander Ludwig (Goethe University) sought to dismiss concerns regarding central bank independence, positing that ECB action “does not undermine independence of the central bank, as it only refers to making its portfolio selection problem consistent with EU policy.”

The panelists’ comments paint more consensus, and more middle ground, than may seem at first glance. In fact, many supporters of an active ECB approach on climate change had substantial caveats in their support for ECB action. The respondents’ most notable reservations regard the effectiveness of ‘green’ monetary policy. Costas Milas (University of Liverpool), who supported an active bias of the ECB’s portfolio towards green investments, pointed out that “there appears to be some inherent contradiction in the whole debate. Indeed, the ECB’s QE programme by definition will be short lived. So it appears rather futile for the ECB to support green technology now (or at least in the short run) only to ‘pull the green plug’ later on when QE is abandoned.” David Miles (Imperial College London), who supported market neutrality, also questioned the exact role of monetary policy in achieving environmental objectives: “The best way to address environmental issues is by setting an appropriate price for carbon which reflects the cost of the externalities. Using monetary policy seems like fourth best as a policy and unlikely to do much good.” John VanReenen (London School of Economics) echoed this sentiment: “Monetary authority can only have a marginal impact on climate change. [The] main issue is raising carbon price, subsidizing green innovation & better regulation.”

Concerns regarding the political implications of such a move were also raised. Patrick Minford (Cardiff Business School) remarked that “it is important that monetary policy is independent of politics”. Sir Charles Bean (London School of Economics) elaborated on the political sensitivities underlying this issue: “I would be more than happy to see the ECB (and other central banks) skew their operations to foster the greening of the economy and to meet climate objectives. But the initiative to do this should in the first instance come from the appropriate political authorities. Central banks should only stray beyond their mandates if they have the support of the political authorities, as otherwise they lack the necessary democratic legitimacy.”

Furthermore, respondents discussed the potential negative impacts of market-neutral policy. John Hassler (IIES, Stockholm University), advocating for no change in policy, opined that: “One might argue that a neutral stance with respect to temporary purchases and sales of different types of assets is reasonable. However, I think the proponents of green monetary policy are after a more permanent money financing of investments in green projects.” Regarding the reduction of bold holdings in polluting industries, he raised the point that “the fossil industry that is most vulnerable to emission prices is coal power, but the stock market value of this industry is almost gone already, in both [the] EU and the US.” He further argued that “financial stability is also threatened if a green bubble is building up”, and that “the most effective way to reduce financial risk is to make sure risky assets are held by risk tolerant agents, e.g. pension funds rather than banks. Policies that might lead to a more concentrated ownership of fossil assets could therefore be a risk to financial stability.”

Question 2: Would you support changing the ECB’s mandate to incorporate the EU’s target of carbon neutrality by 2050, if such a change is deemed legally necessary to adopt your preferred approach?

40 members of the panel responded to this question. Although most panelists supported taking some action in the first question, only a minority is willing to go so far as to change the ECB’s mandate for this objective.

One panelist who does support changing the ECB’s mandate is Wendy Carlin (University College London), who voiced her support unambiguously: “If such a change is necessary, then the mandate should change. Climate change is non-negotiable.”

However, many more panelists who supported climate action in the first question wouldn’t go so far as supporting a change in mandate in the second. Ricardo Reis (London School of Economics), who supports a move to market neutrality, pointed out that current research is unclear on what constitutes an effective “green mandate” for central banks: “I think incorporating carbon targets for central banks may eventually be a good idea. But I'm not sure how I would do it right now in an effective way, given what I know of research in the area.” Agnès Bénassy-Quéré (University Paris 1 & Paris School of Economics), who supports a ban on bond purchases from industries with no clear plan to get to zero emissions by 2050, raises a different concern regarding the role of central banks: “Carbon neutrality is an objective for governments, not for central banks. The latter should draw the consequences of such policies for price stability and financial stability.” Ramon Marimon, who also supports banning non-green bond purchases, directly attacked the slippery slope argument that could arise from a change in mandate: “Then we should also incorporate an unemployment target (e.g. not to purchase bonds of firms that fire workers?), a health industry target, you name it. This is not, and should not be, the job of the ECB or any independent Central Bank.”

Finally, panelists who were unsupportive of a change in ECB policy were naturally opposed to changing its mandate for this purpose. Volker Wieland (Goethe University Frankfurt and IMFS) argued that environmental goals can (and should) be achieved without changing the mandate and by use of other policy means: “Achieving carbon neutrality of the EU economy by 2050 and achieving price stability in the euro area in the medium are two completely different objectives that require deploying different policy tools and can be achieved independently of each other.” John Hassler laid out a similar line of reasoning: “The key tool for climate policy is the EU ETS. Additional tools need to be used for dealing with, e.g., distributional consequences of climate policy and climate change. Also here, monetary policy is not the right tool and ECB not the right institution to deal with these issues.”

References

Ferrari, Alessandro and Valerio Nispi Landi, “Whatever it takes to save the planet? Central banks and unconventional green policy”, ECB Working Paper Series, 2020.

Garnadt, Nilas, Veronika Grimm, and Wolf H. Reuter. “Carbon adjustment mechanisms: empirics, design and caveats,” Working Paper 11/2020, German Council of Economic Experts, 2020.

Hassler, John, Per Krusell, Conny Olovsson, and Michael Reiter, “On the effectiveness of climate policies.” Working paper, 2020.

Piazzesi, Monika, Melina Papoutsi and Martin Schneider, “How green is unconventional monetary policy?”, Presented at JEEA-FBBVA Lecture at ASSA, 2021.

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How the experts responded

Question 1

Participant Answer Confidence level Comment
John Hassler's picture John Hassler Institute for International Economic Studies (IIES), Stockholm University No change in policy Extremely confident
The mandate of independent central banks is stabilization policy with the purpose of reducing variations in economic activity around its potential level. There are strong reasons, both economic and political, not to include also industrial and structural policy into the CB's mandate. One might argue that a neutral stance with respect to temporary purchases and sales of different types of assets is reasonable. However, I think the proponents of green monetary policy are after a more permanent money financing of investments in green projects. This would not be stabilization policy, and extending the ECBs mandate to include such industrial policy is not advisable. The argument that the risk of fossil stranded assets could motivate CBs paying attention to too high investments in the fossil industry is in principle correct, but quantitatively not likely to be very strong. Certainly, the risk that an acceleration in climate policy leads to financial losses in the fossil industry is real. However, three things need to be noted. First, the fossil industry that is most vulnerable to emission prices is coal power but the stock market value of this industry is almost gone already, in both EU and the US. The conventional oil and gas industry has at least since the oil shocks in the 70s faced very volatile prices and it seems unlikely that the uncertainty of future emission prices would radically increase these risks. Second, financial stability is also threatened if a green bubble is building up. Third, the most effective way to reduce financial risk is to make sure risky assets are held by risk tolerant agents, e.g., pension funds rather than banks. Policies that might lead to a more concentrated ownership of fossil assets could therefore be a risk to financial stability. Overall, I conclude that the arguments for changing the monetary policy are very weak.
Jumana Saleheen's picture Jumana Saleheen CRU Group Actively biasing its portfolio towards green investments Confident
The EU/ECB has made clear that it wants to encourage the transition to a low carbon economy. It therefore makes sense to use a range of policies to make that happen, including through the ECB’s bond purchase policies. We know that the re-pricing of financial assets is a key part of the transition to low carbon (i.e. pushing up the price of green assets and pushing down the price of brown assets). Such a bias would at the very least provide a ‘signal’ to financial makers, that the ECB is behind the climate agenda. In choosing this option, of actively biasing, the portfolio, the ECB can decide by how much to bias the portfolio. It could be a small bias, or a large one.
Ramon Marimon's picture Ramon Marimon European University institute and UPF-BarcelonaGSE Banning bond purchases from industries with current negative environmental impact Not confident
I would also insist in what should not be done: "pure green rhetoric", as if the ECB had to follow the EC (changing) mandate, which should not. Having said this, the ECB may well take into account that some firms have a (well documented) negative environmental externality and stop purchasing their bonds.
Martin Ellison's picture Martin Ellison University of Oxford Aiming for market neutrality Very confident
Douglas Laxton www.thebetterpolicyproject.org Aiming for market neutrality Confident
I would rather they focus on implementing a dual mandate. That would be a much easier objective to achieve. They would just need to look at the experiences of other countries and focus on implementing best practices. Start by looking at the United States, New Zealand, Czech Republic, Chile, etc.
Francesca Monti's picture Francesca Monti Kings College London Banning bond purchases from industries with no clear plan to get to zero emissions by 2050 Confident
Wendy Carlin's picture Wendy Carlin University College London Actively biasing its portfolio towards green investments Confident
Central bank bond purchases should align with decarbonization objectives. This should be combined with incentives to increase the supply of such bonds.
Patrick Minford's picture Patrick Minford Cardiff Business School No change in policy Very confident
First, it is important that monetary policy is independent of politics; otherwise this puts central bank independence at risk. Second, biasing the portfolio of assets used in open market operations may undermine the effectiveness of monetary policy.
Philippe Bacchetta's picture Philippe Bacchetta Université de Lausanne Actively biasing its portfolio towards green investments Confident
David Cobham's picture David Cobham Heriot Watt University Banning bond purchases from industries with current negative environmental impact Confident
Volker Wieland's picture Volker Wieland Goethe University Frankfurt and IMFS No change in policy Very confident
The size of the ECB balance sheet and its bond holdings should be governed by its effects on the primary objective laid down in the treaty, which is price stability. For example, if there is a sustained increase in inflation beyond its aim, it should be respond by reducing the balance sheet, including bond holdings, and eventually raising policy rates. So bond holdings are not available as a permanent tool to use to achieve climate objectives. The ECB can and should take into account negative side effects of its policies. This is implied by the the secondary objective laid down in treaty, which is to support Union policies in other areas. In some of these areas it may contribute positively and significantly, for example, counteracting short-run fluctuations of economic activity and employment or financial stability. That's why it defined its pursuit of price stability to occur over the medium term. Side effects of its monetary policy on long-term climate change are insignificant. Governments have other tools to effectively combat climate change, such as a price for CO2 emissions and, if needed, subsidies or tax incentives for particular CO2 emission reducing investments. Monetary policy can not play an important role, but can risk failing on its primary objective and in other areas, if it is side-tracked by fine-tuning its balance sheet to achieve certain climate effects.
Michael McMahon's picture Michael McMahon University of Oxford Banning bond purchases from industries with no clear plan to get to zero emissions by 2050 Confident
I think there is an argument for starting with a move to a greener balance sheet position. An initial move to market neutrality, even if that initial move is gradually achieved, would be a fine starting point but ultimately it is likely something further should be done (even if it is not a major impact on QE or monetary transmission).
David Miles's picture David Miles Imperial College Aiming for market neutrality Confident
The best way to address environmental issues is by setting an appropriate price for carbon which reflects the cost of the externalities. Using monetary policy seems like fourth best as a policy and unlikely to do much good (beyond letting a central bank look like its on the side of the angels).
Michael Wickens's picture Michael Wickens Cardiff Business School & University of York No change in policy Confident
Biasing the ECB's portfolio is fiscal policy and not monetary policy. The ECB would be behaving politically if it biased its portfolio. Other ways should be found to encourage a green environment such as through corporation tax and allowances. The ECB should not be encouraged to purchase corporate bonds unless deemed necessary to fulfil its existing mandate.
Roger Farmer's picture Roger Farmer University of Warwick No change in policy Extremely confident
We are entering an era of central bank policy creep which endangers the mandate for central bank independence. Central banks, including the ECB, were granted independence from political constraints to protect the control of the money supply from political bias. The reasons for independence are well documented in the work of Kydland and Prescott for which they were awarded the Nobel Prize. Central Bank independence is one of the few successes of economic policy advice which followed from the rational expectations revolution. Large sections of the European polity have never been comfortable with the European project. Political power is on loan from the people and, for legitimacy, it requires regular refreshment through popular elections. The mechanisms that grant political legitimacy are already tenuous in the case of the EU. The further centralisation of political power in the hands of unelected 'experts' at the ECB, by extended their policy mandate to engage in climate policy and or other non monetary objectives, will damage public trust in the institution itself. This will not end well.
Gino A. Gancia's picture Gino A. Gancia Queen Mary University of London Actively biasing its portfolio towards green investments Confident
Ricardo Reis's picture Ricardo Reis London School of Economics Aiming for market neutrality Confident
This may change with its mandate review but, right now, given the goals of the bond-purchasing programs and the targets of the ECB, market neutrality seems to be the right answer. But, and this is important, defining and measuring market neutrality is not straightforward. The Papoutsi et al research mentioned in the question argues that current measures of market neutrality are flawed, and biased against green investments. I think there are further reasons why this is so, including an over-reliance on credit rating agencies. So, aim for market neutrality, but measure better what this is, and doing so may well lead to buying more green bonds than in the current portfolio.
Sir Charles Bean's picture Sir Charles Bean London School of Economics Aiming for market neutrality Very confident
I would be more than happy to see the ECB (and other central banks) skew their operations to foster the greening of the economy and to meet climate objectives. But the initiative to do this should in the first instance come from the appropriate political authorities. Central banks should only stray beyond their mandates if they have the support of the political authorities, as otherwise they lack the necessary democratic legitimacy. In this instance, the impetus should come first from the European Council, the European Parliament and the European Commission.
Cédric Tille's picture Cédric Tille The Graduate Institute, Geneva Aiming for market neutrality Confident
Alexander Ludwig's picture Alexander Ludwig Goethe University Actively biasing its portfolio towards green investments Very confident
While I do agree that it has a small direct impact, I agree with Isabel Schnabel's assessment. This does not undermine independence of the central bank as it only refers to making its portfolio selection problem consistent with EU policy.
Robert Kollmann's picture Robert Kollmann Université Libre de Bruxelles Banning bond purchases from industries with current negative environmental impact Confident
Saving the environment and stopping climate change is an existential challenge for humanity. All countries and all institutions, including the ECB, must contribute to this goal.
Kate Barker's picture Kate Barker British Coal Staff Superannuation Scheme and University Superannuation Scheme Banning bond purchases from industries with no clear plan to get to zero emissions by 2050 Confident
Fabrizio Coricelli's picture Fabrizio Coricelli University of Siena and Paris School of Economics Actively biasing its portfolio towards green investments Very confident
Marcel Fratzscher's picture Marcel Fratzscher DIW Berlin and Humboldt University Berlin Actively biasing its portfolio towards green investments Very confident
Lucio Sarno's picture Lucio Sarno Cambridge University Aiming for market neutrality Not confident
Jordi Galí's picture Jordi Galí CREI, Universitat Pompeu Fabra and Barcelona GSE Aiming for market neutrality Confident
Linda Yueh's picture Linda Yueh London Business School Aiming for market neutrality Confident
Wouter Den Haan's picture Wouter Den Haan London School of Economics Aiming for market neutrality Not confident
Of course, if there is a change in the mandate regarding the investment portfolio it would be best for central banks to be neutral and not favor particular sectors.
Natalie Chen's picture Natalie Chen University of Warwick Actively biasing its portfolio towards green investments Not confident
Panicos Demetriades's picture Panicos Demetriades University of Leicester Banning bond purchases from industries with no clear plan to get to zero emissions by 2050 Very confident
To the extent that such a policy does not jeopardise the ECBs primary objective of price stability, the ECB should do everything it can to support the EU’s objective of being carbon neutral by 2050. Although increasing the borrowing costs of polluters may initially appear inflationary, that presupposes that they do not change their behaviour. The polluters will, however, have huge incentives to change their behaviour if they know that there are economic, as well as reputation, costs from not doing so. They will, therefore, change their behaviour. Thus a credible commitment by the ECB will rule out the bad equilibrium and the economy will converge to the good equilibrium. In effect, central banks are sufficiently large players that they can help choose the right equilibrium.
Gernot Müller's picture Gernot Müller Eberhard-Karls-Universität Tübingen Aiming for market neutrality Very confident
Ugo Panizza's picture Ugo Panizza The Graduate Institute, Geneva (HEID) Actively biasing its portfolio towards green investments Confident
It seems a good idea as long as it does not diminish the Bank's effectiveness in achieving its mandate. A carbon tax would be more effective, but why not acting with multiple instruments. The only risk is that the ECB could be asked to act on too many fronts and this would reduce its effectiveness and independence.
Costas Milas's picture Costas Milas University of Liverpool Actively biasing its portfolio towards green investments Confident
Although I am keen to see a bias towards green investments, there appears to be some inherent contradiction in the whole debate. Indeed, the ECB’s QE programme by definition will be short lived. So it appears rather futile for the ECB to support green technology now (or at least in the short run) only to ‘pull the green plug’ later on when QE is abandoned. Which brings into the picture the importance of a change in the ECB's mandate.
Agnès Bénassy-Quéré's picture Agnès Bénassy-Quéré University Paris 1 & Paris School of Economics Banning bond purchases from industries with no clear plan to get to zero emissions by 2050 Confident
Nicola Fuchs-Schündeln's picture Nicola Fuchs-Sc... Goethe University Frankfurt Banning bond purchases from industries with no clear plan to get to zero emissions by 2050 Confident
Ethan Ilzetzki's picture Ethan Ilzetzki London School of Economics Other or no opinon Confident
Climate change is arguably the greatest challenge facing humanity, but it is best addressed using fiscal rather than monetary policy. Central banks are best suited to address price stability and stabilization policy. They are not institutionally suited to address problems in the realm of taxation and public finance, where climate change should be addressed. The ECB's bond-purchasing programs are distortionary and biased on many dimensions, not only environmental. If these distortions are deemed large (as I think they are), we should reconsider QE, rather than turn it into a permanent policy fixture aimed at (ineffectively) addressing one of the biggest policy challenges on the agenda. QE may well have been desirable during the Eurozone crisis and Covid-19, but we should aim to make it temporary and rare, in which its long run consequences (on the environment and everything else) will be limitted.

Question 2

Participant Answer Confidence level Comment
Camille Landais's picture Camille Landais London School of Economics Yes Confident
John Hassler's picture John Hassler Institute for International Economic Studies (IIES), Stockholm University No Extremely confident
This question is a bit ambiguous. One the one hand, EU's target of carbon neutrality should be incorporated in ECB's plans and forecasts. The policies required to meet the target may affect energy prices, emission prices and thus inflation. However, there is no reason to believe that this much changes the economic environment the ECB works in, neither qualitatively nor quantitatively. To give the ECB the mandate to implement the target of climate neutrality would clearly be wrong. Monetary policy, neither conventional nor non-conventional, is effective as a tool for industrial policy aims in general and climate goals in particular. Instead, the key tool for climate policy is the EU ETS. Additional tools need to be used for dealing with, e.g., distributional consequences of climate policy and climate change. Also here, monetary policy is not the right tool and ECB not the right institution to deal with these issues.
Jumana Saleheen's picture Jumana Saleheen CRU Group No Confident
I’m in favour of clear and simple mandates. They allow policy institutions to be effective. I don’t think it’s a good idea to change the mandate. It would muddy the water. And the EC
Ramon Marimon's picture Ramon Marimon European University institute and UPF-BarcelonaGSE No Very confident
Then we should also incorporate an unemployment target (e.g. not to purchase bonds of firms that fire workers?), a health industry target, you name it. This is not, and should not be, the job of the ECB or any independent Central Bank.
Martin Ellison's picture Martin Ellison University of Oxford No Very confident
Douglas Laxton www.thebetterpolicyproject.org No Confident
Like with the dual mandate (inflation and full employment) it would have to be made very clear that the primary objective of monetary policy is price stability and that placing weights on other variables cannot be inconsistent with achieving the primary objective. As would be the case with the dual mandate it will be critical to clearly delineate what the ECB can and cannot do to help out with climate-change issues.
Francesca Monti's picture Francesca Monti Kings College London Other or no opinion Confident
I think the ECB's mandate, which is currently very narrowly focused on price stability, should be reviewed to account for other possible objectives that relate to climate change, but not necessarily with the wording suggested in the question.
Wendy Carlin's picture Wendy Carlin University College London Yes Confident
If such a change is necessary, then the mandate should change. Climate change is non-negotiable.
Philippe Bacchetta's picture Philippe Bacchetta Université de Lausanne No Confident
Jorge Braga de Macedo's picture Jorge Braga de ... Nova School of Business and Economics, Lisbon No Very confident
the EU’s target of carbon neutrality by 2050 is part of an international effort where central banks are not at the forefront. in addition a change in the mandate of the ECB is much more difficult than that of a national central bank
David Cobham's picture David Cobham Heriot Watt University Yes Confident
Volker Wieland's picture Volker Wieland Goethe University Frankfurt and IMFS No Extremely confident
Achieving carbon neutrality of the EU economy by 2050 and achieving price stability in the euro area in the medium are two completely different objectives that require deploying different policy tools and can be achieved independently of each other.
Michael McMahon's picture Michael McMahon University of Oxford Yes Confident
There is a need to make many reforms to the EU treaties to bring macro-policymaking more fit for purpose in a changed economic environment; ECB mandate adjustments could and should form part of those adjustments.
David Miles's picture David Miles Imperial College No Confident
The ECB is just not the right institution to be endorsing a target for carbon neutrality. Such endorsement would be very largely a gesture and is cosmetic given the ECB does not have appropriate tools to bring the carbon neutrality neutrality. Indeed such endorsement could be negative if it lets politicians who do have control over more appropriate policies say that the central bank is helping achieve the target.
Michael Wickens's picture Michael Wickens Cardiff Business School & University of York No Confident
Previous comment explains why
Roger Farmer's picture Roger Farmer University of Warwick No Extremely confident
See my answer to Q1.
John VanReenen's picture John VanReenen London School of Economics No Confident
Monetary authority can only have a marginal impact on climate change. Main issue is raising carbon price, subsidizing green innovation & better regulation. See http://cep.lse.ac.uk/pubs/download/dp1178.pdf, Journal of Political Economy
Ricardo Reis's picture Ricardo Reis London School of Economics Other or no opinion Not confident
It is not legally necessary to adopt my approach to question 1, so the "if" is not satisfied. More generally, I think incorporating carbon targets for central banks may eventually be a good idea. But I'm not sure how I would do it right now in an effective way, given what I know of research in the area. There are some good ways of changing the ECB's mandate to incorporate this that I would support, and many bad ones that I would not support.
Gino A. Gancia's picture Gino A. Gancia Queen Mary University of London Yes Confident
Sir Charles Bean's picture Sir Charles Bean London School of Economics Yes Confident
Cédric Tille's picture Cédric Tille The Graduate Institute, Geneva No Very confident
Alexander Ludwig's picture Alexander Ludwig Goethe University Yes Very confident
Robert Kollmann's picture Robert Kollmann Université Libre de Bruxelles Yes Confident
Kate Barker's picture Kate Barker British Coal Staff Superannuation Scheme and University Superannuation Scheme Yes Confident
Fabrizio Coricelli's picture Fabrizio Coricelli University of Siena and Paris School of Economics Yes Confident
Marcel Fratzscher's picture Marcel Fratzscher DIW Berlin and Humboldt University Berlin No Very confident
Maria Demertzis's picture Maria Demertzis Bruegel Yes Confident
Lucio Sarno's picture Lucio Sarno Cambridge University No Confident
Jordi Galí's picture Jordi Galí CREI, Universitat Pompeu Fabra and Barcelona GSE No Confident
Linda Yueh's picture Linda Yueh London Business School Yes Confident
Wouter Den Haan's picture Wouter Den Haan London School of Economics No Not confident
Carbon neutrality objectives are best dealt with by governments not central banks.
Natalie Chen's picture Natalie Chen University of Warwick Yes Not confident
Panicos Demetriades's picture Panicos Demetriades University of Leicester No Very confident
I do not think this is desirable, necessary or indeed feasible. A change of mandate could de-anchor inflation expectations and that will actually be a present to those who believe central banks should do nothing about climate change. A change of mandate requires unanimous approval by EU27 and the political discussions leading to a vote will be difficult, create uncertainty and unnecessary controversy and could damage the ECBs independence. I can envisage a long and controversial discussion with Germany and possibly other countries exercising veto in the end. That would be a destabilising exercise by itself. What I am proposing in my answer to the first question does away with such risks.
Gernot Müller's picture Gernot Müller Eberhard-Karls-Universität Tübingen No Very confident
Ugo Panizza's picture Ugo Panizza The Graduate Institute, Geneva (HEID) No Confident
Costas Milas's picture Costas Milas University of Liverpool Yes Confident
Agnès Bénassy-Quéré's picture Agnès Bénassy-Quéré University Paris 1 & Paris School of Economics No Confident
Carbon neutrality is a, objective for governments, not for central banks. The latter should draw the consequences of such policies for price stability and financial stability.
Tony Yates's picture Tony Yates University of Birmingham Yes Confident
If the mandate were changed by EZ member states, then yes. But I would not support the ECB doing this autonomously.
Nicola Fuchs-Schündeln's picture Nicola Fuchs-Sc... Goethe University Frankfurt Yes Confident
Ethan Ilzetzki's picture Ethan Ilzetzki London School of Economics No Very confident
See my response to Q1