Unconventional monetary policies to finance the low-carbon transitions Camille Ferron and Romain Morel 8 July

Unconventional monetary policies I 9 July Main issues: climate and economic challenge 2.The three mechanisms studied 3.Global economic impact 4.Potential barriers Summary

Unconventional monetary policies I 9 July Investment needs: a paradigm shift from brown to green ► A need to shift private finance from brown investment to green investment ► A need to mobilize private finance and “supply-side” policies, associated to relevant “demand- side” policies Amounts of investment needed in a 2 degrees scenario (billion USD per year) Data: IEA, World Energy Outlook, 2014

► Budget constraint ► Deflation ► Precedent uses of unconventional monetary policies ■ SDRs ■ QE Unconventional monetary policies I 9 July The current economic situation lead to try unconventional policies

Unconventional monetary policies I 9 July Main issues: climate and economic challenge 2.The three mechanisms studied 3.Global economic impact 4.Potential barriers Summary

Unconventional monetary policies I 9 July Three mechanisms based on unconventional monetary policies ► Two mechanisms based on existing elements and one original mechanism ► Different scales of implementation ► Possible co-benefits

Unconventional monetary policies I 9 July Main issues: climate and economic challenge 2.The three mechanisms studied 3.Global economic impact 4.Potential barriers Summary

Unconventional monetary policies I 9 July Stimulating private investment with limited macroeconomic impacts ► Impacts for entrepreneurs and investors ■ Limited budgetary expenses ■ Stimulated climate investment ► Limited macroeconomic impacts ■ Inflation ■ Green bubbles

Unconventional monetary policies I 9 July Main issues: climate and economic challenge 2.The three mechanisms studied 3.Global economic impact 4.Potential barriers Summary

Unconventional monetary policies I 9 July Limits that can be tackled thanks to an efficient MRV procedure ► Economic limits ■ Windfall profit and rent-seeking ■ Moral hazard ■ Crowding-out of private investment ■ Transaction costs ► Hence a need for an efficient Monitoring, Reviewing and Verification (MRV) procedure with limited costs of implementation

► Need for multilateral agreements ■ To issue new SDRs ■ To implement a CC or a Green QE mechanism in Europe or internationally ► Potential need for the modification of existing treaties ► Need for agreements on methodological issues Institutional and political agreements that seem difficult to reach Unconventional monetary policies I 9 July

► A need for further research ■ financial volume ■ environmental consequences ■ economic consequences ► Major challenges ■ Bringing private finance on board ■ Implementing a robust selection and MRV procedure ► Associated jointly with appropriate « demand-side » policies, monetary policies could give a kick-start to a green recovery Unconventional monetary policies I 9 July Conclusion

Unconventional monetary policies I 9 July Thank you for your attention Camille Ferron and Romain Morel Research fellows More about us on

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