The paper studies the effects of a central bank's permanent purchases program of green bonds, i.e. bonds issued by (green) firms that do not pollute, during the transition to a net-zero-CO2-emission economy. We use a dynamic general-equilibrium model calibrated to the euro area, assuming that CO2 emissions increase when the production of polluting (brown) firms rises, fueling the stock of atmospheric carbon.
A permanent program of green bond purchases contributes to reducing CO2 emissions; however, the impact on the stock of pollution is small, even under strong assumptions. The effectiveness of the program in reducing pollution improves - but nevertheless remains limited - if purchases are carried out in the early stage of the transition and if goods produced by brown firms are substitutes for goods produced by green firms.
Pubblicato nel 2023 in: International Journal of Central Banking, v. 19, 5, pp. 287-340.
