Our era’s crucial challenge is being played out in the context of climate and the environment, an extremely complex topic but also rich in opportunities. The spotlight is on these issues as evidenced by media coverage of the heads of government summit held at the UN headquarters in New York on 23 September of this year. The main reason for this intense interest is that many countries are far from reducing their greenhouse gas emissions to the levels set by the December 2015 Paris Agreements and the risk that global warming will exceed 2° C in 2050 is real.
In Europe, this debate has been fuelled further by opportunities to balance the slowdown in economic activity by introducing fiscal policy measures to support public and private investment in environmental sustainability, climate change and protection of biodiversity. Many commentators and policy makers, not least the outgoing ECB president, Mario Draghi, are pushing for a fiscal expansion in these directions.
In Europe, Germany has the largest fiscal space, which is allowing it to address the negative effects on the domestic economy of the trade war and Brexit. An impressive €54 billion green plan, spread over the next 4 years, has already been announced (Klima Paket). The aim is to promote sustainable mobility, use of more environmentally friendly domestic heating systems and creation of a system of CO2 emissions certificates for sectors not included in the European ETS (Emissions Trading Scheme). A small part of the Klima Paket will be financed by the revenues obtained from this certification scheme, with the majority funded by a special purpose vehicle that will not be part of public administration. This tool will allow the collection of resources via a maxi-green bonds issue and a one-off contribution from the state and will provide loans to projects that comply with certain environmental sustainability requirements.
The German experience has attracted a great deal of interest from the media. However, other European countries have already been working for several years to make their growth and development models successively less dependent on carbon. In particular, Poland, France, Belgium, Lithuania, Ireland, and the Netherlands have issued government green bonds to mobilize new resources (Tab.1). Green bonds are bonds whose revenue is earmarked for sectors identified within the national frameworks (Tab.2) developed by each country, inspired by the general principles of the International Capital Market Association (ICMA) . How these resources are used is at the discretion of the state, which can opt for a mix of direct public investment, subsidies, tax credits, tax expenditure, and operating expenses.
Since 2017, France has issued €20 billion green bonds, which will mature in 2039. These resources are being devoted to six areas (Buildings, Transports, Energy, Living Resources, Adaptation, Pollution and Eco-Efficiency) with priority given to the energy efficiency of buildings, transition to a more efficient mobility system based on better public transport, development of technologies to exploit renewable resources and promotion of sustainable land use.
Belgium’s green government bonds amount to €7 billion and are mainly used to fund projects in the areas of energy efficiency, clean transportation, renewable energy, circular economy, and living resources and land use. Belgium is committed to addressing three major global environmental challenges: climate change mitigation and adaptation, and conservation of biodiversity and natural resources.
Lastly, the Netherlands issued €6 billion in May 2019 (demand reached €21 billion, more than three times the offer). The main objectives of the Dutch programme are to reduce greenhouse gas emissions through measures similar to those being introduced by France and, based on its geographical context, to invest in a programme for protection from rising sea levels, flooding, and other extreme weather events.
In Italy, despite some successful corporate initiatives related to the issuance of green bonds, debate on the possibility of an incisive public intervention to address environmental sustainability has been on the back burner. It is only recently, according to the Update to the Economic and Financial Document and the Draft Budgetary Plan, that the environment has achieved some prominence in the definition of government policy. Decree Law 111/2019 (the so-called climate decree) was published on 14 October, and committed around €450 million for environmental initiatives and government’s approval of a National Strategic Programme to fight climate change and improve air quality within 60 days. The Minister of Economy and Finance, Roberto Gualtieri, pointed out that it might be possible for this plan to be financed also through issuing of a green BTP, based on the experience of other European countries.
A green bond would be also suitable for the proposal of a Golden Rule, which Minister Gualtieri has proposed at the European level. This financial tool would allow identification of ‘real’ green investments that should be excluded from the accounting of the structural deficit in line with the Golden Rule. The idea has not achieved broad consensus, but it should be noted that in the report published in September, the European Fiscal Board set out a similar proposal, although it referred generically to growth-enhancing rather than green investments . Also, the forthcoming European Commission chaired by Ursula von der Leyen, whose government agenda prioritizes the European Green Deal, could strengthen political commitment in this direction.