The CO2 content of the TLTRO III scheme and its greening

Chiara Colesanti Senni, Maria Sole Pagliari and Jens van 't Klooster

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: 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 (search for similar items in EconPapers)
JEL-codes: E40 E50 Q50 Q54 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2023-05-31
New Economics Papers: this item is included in nep-eec, nep-ene, nep-env and nep-mon
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http://eprints.lse.ac.uk/120562/ Open access version. (application/pdf)

Related works:
Working Paper: The CO2 content of the TLTRO III scheme and its greening (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:120562

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