Report reveals the paradoxes after central bank ties quantitative easing to climate concerns
One of the world’s most ambitious attempts by a central bank to go green isn’t exactly working as planned.
Here’s how quantitative easing works: when the government wants to inject money into the economy, the BOE buys bonds in financial markets to help lower borrowing costs. The central bank last month finished a programme of purchases that brought the value of its quantitative easing to £895bn, which included about £20bn of corporate bonds.
That far exceeds the Paris Agreement to keep global warming well below 2°C and is at odds with the UK’s goal of reaching net zero emissions by 2050. The researchers found that in some instances, paradoxically, carbon-intensive companies could end up getting better treatment than environmentally friendly ones because companies are being compared with their peers in the same industry. The BOE would thus reduce holdings of some fossil fuel bonds while increasing purchases of bonds issued by other fossil fuel companies that perform better in the same sector.
“The climate emergency cannot be addressed through economic policies that simply tinker around the edges,” the authors wrote. Further reductions could occur over the next three years, but only if eligible companies cut emissions accordingly, which is very uncertain, they say.
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