Econonomics of Energy and Environmental Policy

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Towards a Green Monetary Policy for Developing Countries: A Climate Rating Mechanism for Funding Sustainable Projects

Abstract:
Even though the monetary policy first mission, has never been oriented to fight against global warming, central banks are starting to mobilize more efforts, in the financial sector, to tackle the negative impact posed by the uncontrolled climate change on the economy. In this paper, we propose a new mechanism contributing to the greening of the monetary policy for local authorities, particularly in developing countries, engaged in pro-environmental projects. Therefore, the low-carbon investments should be supported indirectly by the Central Bank and channelled to the real economy through local development banks using loans refinancing program. Analysis and illustration of the proposed mechanism show that funding sustainable projects, through an adequate climate rating mechanism, can be quite successful while central bank's primary mission of macroeconomic stabilization and inflation control, will not be altered but will be extended to encompass the climate change issues.
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Keywords: Central banks and monetary policy, green finance and rating sustainable projects, environment, climate change, developing countries

DOI: 10.5547/2160-5890.13.1.aela


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Published in Volume 13, Number 2 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.


 

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