Climate Change Mitigation: How Effective is Green Quantitative Easing?

53 Pages Posted: 9 Aug 2022

See all articles by Raphael Abiry

Raphael Abiry

Goethe University Frankfurt

M. Ferdinandusse

European Central Bank (ECB)

Alexander Ludwig

Max Planck Society for the Advancement of the Sciences - Munich Center for the Economics of Aging (MEA); Goethe University Frankfurt

Carolin Nerlich

European Central Bank (ECB) - Directorate General Economics

Date Written: August 1, 2022

Abstract

We develop a two-sector incomplete markets integrated assessment model to analyze the effectiveness of green quantitative easing (QE) in complementing fiscal policies for climate change mitigation. We model green QE through an outstanding stock of private assets held by a monetary authority and its portfolio allocation between a clean and a dirty sector of production. Green QE leads to a partial crowding out of private capital in the green sector and to a modest reduction of the global temperature by 0.04 degrees of Celsius until 2100. A moderate global carbon tax of 50 USD per tonne of carbon is 4 times more effective.

Keywords: 2-sector model, carbon taxation, climate change, green quantitative easing, integrated assessment model

JEL Classification: E51, E62, Q54

Suggested Citation

Abiry, Raphael and Ferdinandusse, M. and Ludwig, Alexander and Nerlich, Carolin, Climate Change Mitigation: How Effective is Green Quantitative Easing? (August 1, 2022). ECB Working Paper No. 2022/2701, Available at SSRN: https://ssrn.com/abstract=4185382 or http://dx.doi.org/10.2139/ssrn.4185382

Raphael Abiry (Contact Author)

Goethe University Frankfurt ( email )

Gr├╝neburgplatz 1
Frankfurt am Main, 60323
Germany

M. Ferdinandusse

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Alexander Ludwig

Max Planck Society for the Advancement of the Sciences - Munich Center for the Economics of Aging (MEA) ( email )

Amalienstrasse 33
Munich, 80799
Germany

Goethe University Frankfurt ( email )

Gr├╝neburgplatz 1
Frankfurt am Main, 60323
Germany

Carolin Nerlich

European Central Bank (ECB) - Directorate General Economics ( email )

Kaiserstrasse 29
D-60311 Frankfurt am Main
Germany

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