1. Unconventional monetary policies to finance the low-carbon transitions Camille Ferron and Romain Morel 8 July 2014 1

2. Unconventional monetary policies I 9 July 2014 2 1.Main issues: climate and economic challenge 2.The three mechanisms studied 3.Global economic impact 4.Potential barriers Summary

3. Unconventional monetary policies I 9 July 2014 3 Investment needs: a paradigm shift from brown to green ► A need to shift private finance from brown investment to green investment ► A need to mobilize private finance and “supply-side” policies, associated to relevant “demand- side” policies Amounts of investment needed in a 2 degrees scenario (billion USD per year) Data: IEA, World Energy Outlook, 2014

4. ► Budget constraint ► Deflation ► Precedent uses of unconventional monetary policies ■ SDRs ■ QE Unconventional monetary policies I 9 July 2014 4 The current economic situation lead to try unconventional policies

5. Unconventional monetary policies I 9 July 2014 5 1.Main issues: climate and economic challenge 2.The three mechanisms studied 3.Global economic impact 4.Potential barriers Summary

6. Unconventional monetary policies I 9 July 2014 6 Three mechanisms based on unconventional monetary policies ► Two mechanisms based on existing elements and one original mechanism ► Different scales of implementation ► Possible co-benefits

7. Unconventional monetary policies I 9 July 2014 7 1.Main issues: climate and economic challenge 2.The three mechanisms studied 3.Global economic impact 4.Potential barriers Summary

8. Unconventional monetary policies I 9 July 2014 8 Stimulating private investment with limited macroeconomic impacts ► Impacts for entrepreneurs and investors ■ Limited budgetary expenses ■ Stimulated climate investment ► Limited macroeconomic impacts ■ Inflation ■ Green bubbles

9. Unconventional monetary policies I 9 July 2014 9 1.Main issues: climate and economic challenge 2.The three mechanisms studied 3.Global economic impact 4.Potential barriers Summary

10. Unconventional monetary policies I 9 July 2014 10 Limits that can be tackled thanks to an efficient MRV procedure ► Economic limits ■ Windfall profit and rent-seeking ■ Moral hazard ■ Crowding-out of private investment ■ Transaction costs ► Hence a need for an efficient Monitoring, Reviewing and Verification (MRV) procedure with limited costs of implementation

11. ► Need for multilateral agreements ■ To issue new SDRs ■ To implement a CC or a Green QE mechanism in Europe or internationally ► Potential need for the modification of existing treaties ► Need for agreements on methodological issues Institutional and political agreements that seem difficult to reach Unconventional monetary policies I 9 July 2014 11

12. ► A need for further research ■ financial volume ■ environmental consequences ■ economic consequences ► Major challenges ■ Bringing private finance on board ■ Implementing a robust selection and MRV procedure ► Associated jointly with appropriate « demand-side » policies, monetary policies could give a kick-start to a green recovery Unconventional monetary policies I 9 July 2014 12 Conclusion

13. Unconventional monetary policies I 9 July 2014 13 Thank you for your attention Camille Ferron and Romain Morel Research fellows camille.ferron@cdcclimat.com romain.morel@cdcclimat.com More about us on www.cdcclimat.com

14. 14 Disclaimer This publication is fully-funded by “Caisse des Dépôts”, a public institution. CDC Climat does not contribute to the financing of this research. Caisse des Dépôts is not liable under any circumstances for the content of this publication. This publication is not a financial analysis as defined by current regulations. The dissemination of this document does not amount to (i) the provision of investment or financial advice of any kind, (ii) or of an investment or financial service, (iii) or to an investment or financial proposal of any kind. There are specific risks linked to the markets and assets treated in this document. Persons to whom this document is directed are advised to request appropriate advice (including financial, legal, and/or tax advice) before making any decision to invest in said markets. The research presented in this publication was carried out by CDC Climat Research on an independent basis. Organisational measures implemented at CDC Climat have strengthened the operational and financial independence of the research department. The opinions expressed in this publication are therefore those of the employees of CDC Climat Research alone, and are independent of CDC Climat’s other departments, and its subsidiaries. The findings of this research are in no way binding upon, nor do they reflect, the decisions taken by CDC Climat’s operational investment and broking services teams, or by its subsidiaries. CDC Climat is not a provider of investment or financial services. Unconventional monetary policies I 9 July 2014