Low-carbon allocation in monetary policy implementation
This document was provided by the Economic Governance and EMU Scrutiny Unit at the request of the Committee on Economic and Monetary Affairs (ECON) ahead of the Monetary Dialogue with the ECB President on 27 November 2023.
Abstract
This paper analyses how the European Central Bank (ECB) can incorporate climate change considerations into its implementation of monetary policy. It reviews the impact of climate shocks on inflation, and the instruments available to decarbonise the ECB’s asset and collateral portfolio. The paper concludes with recommendations to the ECB that would increase the low-carbon allocation in its monetary policy framework. This will in turn speed up the green transition and reduce the euro area’s fossil-fuel dependency.
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