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Financing Energy and Low-Carbon Investment in Europe: Public Guarantees and the ECB
Abstract
The Eurozone has been said to have caught a disease called “secular stagnation”. The engineering of a powerful investment drive seems the only way out of this self-fulfilling low-growth trap. The European Union has already set investment objectives in the Climate and Energy Package, related to four key sectors. Several financing tools need to be combined to tailor risk-sharing devices for investments in each sector. This can be achieved through a two-tier approach. First, for the four key sectors, a high notional carbon price is used to set an asset value on the carbon saved by new investments (“carbon asset”): these assets are accepted as repayment by central banks, and publically guaranteed. The ECB, by buying financial instruments issued by the low-carbon investors, creates a direct transmission channel to these areas of the economy. Second, fiscal measures ensure the carbon price catches up with the notional value, thus generating revenues that allow for the purchase of the carbon debt held by the central banks, guaranteeing the final budget neutrality of the process.
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