The issue of climate change remains at the heart of the ECB's (European Central Bank) strategy. Its fight against climate change is back in the spotlight with the approach of a carbon tax led by governments.
Focus on virtuous companies
The ECB, with the support of Christine Lagarde, has reaffirmed its commitment to the climate. It intends to direct its asset purchases primarily towards corporate bonds that have environmental impact as one of their investment criteria.
In concrete terms, so-called "non-virtuous" companies will still be able to obtain easy financing at a negligible discount, to the benefit of less demanding investors. However, unlike capital investments in accompanied projects where the aim is to accelerate the ecological transition, the purchase of assets such as undifferentiated debt will become more symbolic than effective.
Carbon tax
For the ECB, the most relevant tool to date for combating global warming belongs first and foremost to governments. And that tool is carbon taxation. With this tax, each product must be fully redistributed to citizens in such a way as not to penalize national competition or individual purchasing power. Carbon tax means distributing a constant sum to compensate for the amounts deducted through environmental taxation.
While some major insurance groups are taking the issue of climate change very seriously, others continue to make their fortunes from fossil fuels. According to ex-minister Nicolas Hulot, there is a high risk of a "climate point of no return", when any investment will no longer be profitable.
The role of central banks
By 2025-2030, investing in fossil fuels will really put a heavy burden on the financial system, in the same proportions as the subprime mortgages that brought about the last financial crisis. For Nicolas Hulot, central banks have a large part to play, and a great responsibility to assert.
It is the role of the ECB to protect the transition of wishes and desiderata in the financial sector. Thus, the ECB had to take concrete steps towards central banks that need to adjust the implementation of their monetary policy, or more precisely the valuation of their assets. The ECB could, in time, adjust eligibility criteria or monitor haircut levels.
The most polluting sectors would still be able to finance themselves, but with a heavily discounted loan in the calculation of collateral when refinancing European banks with the ECB. This measure is ambitious, as it aims to create a real program of revisions to the operational framework adapted to the new constraints.
Direct cash injection
Another solution is to introduce rules for refinancing banks over the counter. This would favor banks that contribute assets not linked to polluting activities. This alternative seems more attractive than targeting the bonds bought back. Indeed, the distribution of a regular amount to citizens (between €50 and €100 per citizen) is the responsibility of the ECB and therefore of the central banks in fine. This is what Milton Friedman called "helicopter money". A system that requires close coordination between all eurozone countries.
It's worth noting that the two schemes - direct cash injection and the carbon tax - could remain independent, with the state managing taxation and central banks handling cash.