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First Green Quantitative Easing Of A Central Bank Fails To Work As Planned

The Bank of England, which became in November 2021 the first central bank to adopt green criteria when buying corporate bonds under quantitative easing programs, is way off its targets to reduce the carbon intensity of its corporate bond-buying portfolio, a new study shows.

The Bank of England published in November its plan for Greening its Corporate Bond Purchase Scheme (CBPS), aiming “to support an orderly economy-wide transition to net zero, subject to maintaining its primary monetary policy purpose, protecting public money, and basing any adjustments on robust and proven metrics.”

“Our approach will be consistent with targeting a 25% reduction in the carbon intensity of the CBPS portfolio by 2025, on the way to full alignment with net zero by 2050,” the bank said in November.

Under the greening quantitative easing portfolio, “Issuers with any coal mining activities are ineligible. Issuers using thermal coal in their activities are also ineligible unless they meet stringent criteria related to: eliminating existing activity in line with science-based pathways; reducing emissions over time; and renewable energy provision,” the Bank of England says.

However, a study published on Friday by SOAS University of London found that the Bank of England’s so-called tilting approach will not significantly reduce the Weighted Average Carbon Intensity (WACI) of the CBPS portfolio. This carbon intensity, the study authors say, would only be reduced by 7 percent by 2025, compared to the bank’s 25-percent target.

According to the study, “the approach that the Bank has taken to green the CBPS lacks ambition,” and the bank continues to be committed to the principle of ‘market neutrality’, despite having recognized its inherent carbon bias.

Carbon intensity could be reduced more by reducing the share of bond buying in carbon-intensive industries, the authors of the study suggest.

“The climate emergency cannot be addressed through economic policies that simply tinker around the edges. A sharp reduction in emissions requires bold changes in the design of economic policies and the implementation of unprecedented measures that will transform the structure of our financial systems,” they said.

By Tsvetana Paraskova for Oilprice.com

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