The FT has a report this morning under the title:
Pushback and practicalities limit hopes for ‘green QE' from ECB
Green quantitative easing has come a long way since 20210 when I wrote this with Colin Hines:
As the report notes:
Protesters marked Christine Lagarde's first day as European Central Bank president on Friday by marching on its Frankfurt headquarters behind a banner that read “if the Earth was a bank you'd have rescued it”.
Activists in that 150-strong crowd may have found an ally in Ms Lagarde, who said recently that she wants to make climate change a “mission-critical” priority – a stance that has raised hopes that the central bank could boost purchases of green bonds, in an effort to bump up inflation and save the planet in one stroke.
This would make sense, if quantitative easing is to be pursued. And it is exactly what Colin and I argued in 2010. But there is the kickback:
But “green QE” is a controversial idea. Jens Weidmann, head of Germany's Bundesbank, said last week that he would react “very critically” to the policy, adding that such decisions should be left to politicians, not unelected central bankers.
The ECB has bought green bonds under previous rounds of asset purchases. By late last year it had purchased 24 per cent of the €48bn pool of eligible green public sector bonds and 20 per cent of the €31bn pool of eligible green corporate bonds, ECB executive board member Benoît Coeuré said in a speech.
Buying green bonds in greater volumes, however, would be hard. Although issuance of green bonds is growing quickly, it remains small compared with the overall size of debt markets. Eurozone companies and governments have sold $66bn of bonds with a green label so far this year, a large rise from 2018 but still only around 5 per cent of total issuance.
This is, of course quite ridiculous. First, of course politicians decide on this: they must tell the ECB to buy green bonds.
Second, governments have to get on and issue these bonds to fund the Green New Deal: the need is pressing and urgent and the demand for these bonds is high.
Third, there need be no ambiguity on what is green: certification schemes need to be created but the essence is simple:
- It funds a government's Green New Deal, and that is demonstrated by action
- It funds similar action by a local authority, devolved government or government agency
- It funds this issue in developing countries
- It funds the transition of a company to being net zero-carbon, which is a process that will, as a matter of fact, require sustainable cost accounting.
The first three should not exactly be hard. And the volume of bonds to be issued is big: in the Uk alone there could be £100 billion a year required. We really do not need to quibble over supply.
The point re sustainable cost accounting is, if anything, more important. Without audited accounting for climate change this market will be at risk. Sustainable cost accounting will provide that. And it also overcomes the ridiculous claim that the markets can't price climate change, which some use as reason to object to ECB interference. With sustainable cost accounting there is no need to price climate change. All we have to price is the cost of transition, which is quite different and does not involve a climate price, at all.
Green QE may well have a role in the future, especially in Europe. But without sustainable cost accounting it's hard to see how far it can go. That makes sustainable cost accounting vital.
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Such an approach was proposed by Lord Skidelsky in the House of Lords:
“Ministers are constantly exhorting banks to lend. Banks say that there are no borrowers, by
which they mean borrowers at the going interest rate. However, here is a suggestion for
overcoming this blockage which is consistent with the deficit reduction programme. The
government should set up a national investment bank, which they would capitalise and
mandate to spend £X billion a year on investment projects at interest rates low enough to
fulfill the investment mandate. We are already promised a tiny prototype of this in the
proposed green investment bank. Candidates for such investment would be infrastructure
projects such as the high-speed rail …, road building and repairs, house construction by local
authorities, or projects to do with carbon emissions-insulating houses, solar panels and so
forth. Lending by the investment bank would not affect the deficit and so would not spoil Mr
Osborne’s austerity story. True enough, subsidised interest rates imply a lower expected
return on equity than from current lending, but a lower return is still better than no return,
which is what idle capital now earns”
An obvious question arises from an investor’s point of view: What on earth is a subsidised interest rate?
“But “green QE” is a controversial idea. Jens Weidmann, head of Germany’s Bundesbank, said last week that he would react “very critically” to the policy, adding that such decisions should be left to politicians, not unelected central bankers.”
Yeah, right. Fine if it’s bailing out a dysfunctional financial system, but any thing socially useful we’re not so sure about.
“First, of course politicians decide on this: they must tell the ECB to buy green bonds.”
Does the independent ECB do what politicians tell it to do ? That’s not the impression I’ve been getting in recent years. The entire basis of neoliberalism is that politicians do what the bankers tell them they can afford to do. EU governments can’t just embark on green infrastructure projects willy nilly and demand the ECB buys its bonds. They have to work within spending parameters.
I wonder how much control Christine Lagarde is prepared to cede and to whom (?) And do finance ministers want to accept the responsibility. I’m not convinced they do.
SCA is the necessary precursor to authentically embedding GND policy and practice in our daily life. You are right to continuously promote it.
Thanks
SCA is completely unworkable.
But this isn’t really about that – it’s more about Ritchie going “please give me lots of money to write my blog and a few self- reviewed papers, because I’ve pissed off everyone else who would give me money and nobody will hire me”.
Is that really the best you can do?
Pretty pathetic, I suggest
Haha..it’s absolutely spot on.. no more EU money, no teaching, no funds from the SNP despite all the arse licking so why not get on the “green gravy train” using my experience as a chartered accountant..makes a lot of sense until one reads the ill thought out nonsense you write… it is hillarious
Who is the troll master writing your scripts? Someone clearly is. Do I smell Worstall? Or is there funding involved?
‘(SCA is) completely unworkable.’
I note the standard response from Sakma and his ilk – those with little imagination, sense of responsibility and an unwillingness to accept challenges.