Greening Monetary Policy Measures: The Eurosystem’s obligations with regards to the transition towards a low carbon economy

Abstract

Climate change has exacerbated extreme weather events; global warming and its effects have been described as unequivocal and unprecedented. It has been recognized that transitioning to a low carbon economy will require large scale transformation. We are witnessing a period in which there are several attempts by different EU institutions to actively contribute towards a greener economy. However, whether and to which extent the European Central Bank (ECB) ought to participate in the transformation remains a point of controversy. As such, this paper seeks to provide a comprehensive assessment of the ECB mandate in order to address the looming question of the potential legal obligation of the ECB with regards to tackling climate change. A thorough understanding of the mandate and the legal requirement of the ECB is a precursor to exploring the concrete ways in which the central bank must act. As such, the paper peels off several layers by exhaustively interpreting the ECB mandate to clarify whether the ECB is legally required to consider climate change and whether that obligation stems from its secondary and/or primary objective. In the second part of the paper, a concrete green monetary policy measure – Green Targeted Longer Term Refinancing Operations (Green TLTROs) – will be discussed, which illustrates that incorporating climate considerations into monetary policy may only require tweaking the existing monetary policy measures.

JEL Classification: E52, E58, H23, K23, Q54, Q56