Bank of England invest in green projects to prevent climate change: REPORT

Bank of England climate change

According to a new report, the Bank of England should pay for the government’s investment in a low-carbon economy to combat climate change.

The activity and research team Positive Positive stated that the Bank of England must also remove fossil fuel assets and use its existing power more effectively to promote green projects.

The report believes that the bank’s task of ensuring financial stability “becomes incoherent over time unless it considers the long-term viability of the economy”. The researchers said that unless the threat of climate change is quickly resolved, this feasibility will be undermined.

“The nature of climate change is such that either physical damage from weather or radical changes in technology and policy will occur in some combination, so action is needed now,” the report says.

It challenges the bank’s record on climate change and says its programme of, in effect, printing billions of pounds to prop up the economy has disproportionately helped carbon-intensive companies that are choking the planet.

Under quantitative easing (QE), the bank has bought billions of pounds of debt from companies and the government.

This is supposed to increase demand for debt, which in turn lowers interest rates. Cheaper borrowing means more borrowing which is supposed to be used to fund economic activity.

But the researchers argue that QE has been actively harmful to efforts to combat climate change because the bank’s own criteria have been skewed towards buying debt from high-carbon sectors like manufacturing and utilities.

In the energy sector, for example, the BoE has been restricted to buying debt from oil and gas companies’. It has purchased none from renewable energy providers.

The report says the BoE should get rid of those linked to fossil fuels face significant risk if the world rapidly shifts to a low-carbon economy.

It also argues that the purchase of hundreds of billions of pounds worth of government bonds (debt) via QE has poured cash into the financial system, pumping up prices of assets such as stocks, but has had little impact on the “real economy”.

These bond purchases have also not stimulated public borrowing because the government has been committed to austerity and cutting debt.

To have a genuinely powerful, positive impact central banks should instead instigate “green QE”, which prioritises buying sustainable investments, the report suggests. This would directly stimulate activity in green sectors which have the potential to grow rapidly, Positive Money argues.

It points out that Swiss, Norwegian, and Dutch central banks already look at environmental, social and governance criteria when considering some investments.

Positive Money’s most radical proposal is for the bank to effectively print money for the government to spend directly on green projects.

This method, known as “overt monetary financing”, is controversial but has been advocated in a variety of forms byrespected figures including Lord Adair Turner, former head of the UK’s financial regulator.

Supporters argue that it simply dispenses with the artificial step of the government issuing debt to the markets in the form of bonds which are then bought up by the central bank.

This approach is illegal under the Lisbon Treaty, but the UK will not be bound by this once it leaves the EU.

Despite the potential hurdles, the report argues that the BoE could already begin to take sustainability into account in its decision-making without any need for the government to overhaul current laws.

The primary aspect of the BoE’s mandate is to maintain stable prices but it must also “support the economic policy of Her Majesty’s government”. That policy already includes sustainability as an aim.

In addition, the Treasury should reassess the Bank’s remit to require that it considers how climate change affects financial stability, the report says.

Hello Readers, Its Ginny, I'm science graduate with majors in Chemistry. I has worked and written press releases for pharmaceutical companies. Ginny is our go to science news writer and contributor.