The CO2 content of the TLTRO III scheme and its greening
Gepubliceerd: 03 oktober 2023
Door: Chiara Colesanti Senni Maria Sole Pagliari Jens van ‘t Klooster
This paper investigates the climate impact of central bank refinancing operations, with a focus the ECB’s TLTRO III program. Notably, we construct a novel database that combines i) confidential data on loans granted by EU banks to non-financial corporations; ii) confidential data on TLTRO III participation and iii) data on sectoral emissions. We find that the emissions content of bank loans granted over the TLTRO III reference period amount to 8% of overall Euro Area 2019 emissions and that more than 80% of total cumulated loans issued in the reference period was directed towards polluting companies. We then investigate the effectiveness of a green credit easing scheme via a general equilibrium model. Our findings are twofold: first, the central bank policy can increase the costs for lending to polluting companies, thus re-directing loans to less-polluting firms; second, the financial stability implications of such a policy should be carefully considered. Finally, we address legal and operational challenges to such a policy by outlining three alternative ways of implementing a “green” TLTRO programme.
Keywords: TLTRO, CO2 emissions; transition risk; monetary policy; financial stability
JEL codes E40; E50; Q50; Q54
Working paper no. 792
792 - The CO2 content of the TLTRO III scheme and its greening
Research Highlights
- We provide an assessment of the emissions content and composition of the loans issued by banks participating in the TLTRO III programme.
- We find that lending activities of institutions participating in the TLTRO III programme in the period from March 2020 to March 2021 generated around 151 million tonnes of CO2, about 8% of overall euro area emissions in 2019.
- We devise a theoretical model where the central bank can differentiate the banks’ costs of funding on the basis of the carbon footprint of their lending portfolios.
- Our results are twofold: first, the central bank policy can increase the costs for lending to polluting companies, thus re-directing loans to less-polluting firms; second, the financial stability implications of such a policy should be carefully considered
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