This year, the world has become more alert to climate change issues. Countries join hands at the COP26 global forum to speed up tackling the global warming crisis. Many countries have announced their domestic policy strategies to align with each other in order to achieve the goals. “Carbon neutrality (carbon neutrality)” within the announced year. Even central banks have begun to announce their climate change strategies, especially among the G20 countries with large economies. Some of these central banks have started using monetary policy to incentivize industrial sectors to cut carbon emissions. This is a new dimension of the central bank’s focus on climate change more clearly.
green monetary policy How to reduce global warming
Central banks around the world view climate change as a major medium-to-long-term risk, jeopardizing monetary policy goals for sustaining long-term economic growth. (sustainability) and price stability. Including it may inevitably affect the financial situation in the country. Because global warming causes physical risks (such as severe natural disasters) affecting the supply chain in production, investment, employment, which will eventually affect the overall price and wages. During the transition (transition risks) from behavioral changes of businesses and people from government policies to come out to solve global warming. These two risks will change the investment and lending behavior of financial institutions in the financial system as well.
ช่Earlier this year, the Bank of Japan and China were among the first to unveil the idea of a “new monetary policy tool”, similar to a green lending facility, aiming to launch later this year to provide incentives. Encourage the private sector to invest in reducing carbon emissions. This will help encourage businesses and financial institutions to accelerate the transition to a green economy, which the Bank of Japan calls the “green economy” tool. “fund-provisioning measure to support efforts on climate change” is a 0% interest loan program for financial institutions to invest or provide loans that fall within the scope of green loans/bonds. Sustainable loans/bonds targeting climate change and transition finance with a 1-year term and 10-year renewal.
The People’s Bank of China, also known as the “carbon emission reduction facility (CERF),” announced on Nov. 8, 2021 that it will provide loans to financial institutions 60% of the principal loaned to three targeted businesses that qualify for investment. Technology to reduce carbon emissions, clean energy and energy conservation. Financial institutions must charge interest for this green loan project at a rate as low as the loan prime rate (LPR) of 3.85%, where the People’s Bank of China will provide a low-interest CERF loan of 1.75% for one year, renewable twice. That is, the People’s Bank of China clearly announced that this new monetary policy tool was classified as a “structural monetary policy tool”, which during the COVID-19 crisis, the People’s Bank of China turned to this group of tools very aggressively. climb as a mechanism to allocate funds to specific target groups in the real economy In particular, micro and small businesses were severely affected, such as the targeted medium-term lending facility (TMLF) measure.
The Green Monetary Policy Tool: How is it the same or different from the old one?
In fact, this new monetary policy tool resembles the one used by many central banks during COVID: (1) Central banks provide ultra-low-interest loans through financial institutions to provide specific liquidity to certain sectors of the economy. economies such as those hit hard during COVID, the agricultural sector, spatial development, and (2) have a central bank market neutrality-based capital allocation mechanism, using this tool to deliver effect on the overall economy Do not directly interfere with the consideration of loan allocation for individual businesses of financial institutions. Or the central bank does not directly buy bonds/debentures issued by businesses to fund green investment projects.
But the specialty of this new monetary policy tool is that (1) it is a long-term ultra-low-interest lending program and stipulates conditions to link the problem of climate change with monetary policy implementation, with a fund allocation mechanism for financial institutions to take funds. and (2) financial institutions must help publicly disclose the carbon emissions the project will reduce in a transparent manner.
It can be seen that many countries now view the global warming problem as a long-term problem that requires a strategic plan of policy to support each other as an organism. Start solving early so that policies can be adjusted along the way in order to create incentives for businesses, people and financial institutions to adjust their behavior to help reduce global warming. Because if you start late, there’s not much time left. In addition to not being able to cope with the effects of the global warming crisis that will become much more severe The government may have to issue measures that are so intense that the adjustment is not smooth.
Author : Dr. Thitima Chucherd Monetary Policy Department
