ECB European Central Bank : Slides

Looking through higher energy prices? Monetary policy and the green transition

Isabel Schnabel, Member of the ECB's Executive Board

Remarks at a panel on "Climate and the Financial System"

at the American Finance Association 2022 Virtual Annual Meeting, 8 January 2022

EU carbon price increased sharply in 2021, accelerating the green transition

Emissions Trading System (ETS) spot price developments (units in legend)

ETS spot price (EUR/t CO2 equivalent, left-hand scale)

ETS price changes (yoy percentage change, right-hand scale) 100 USD/t equivalent (EUR/t CO2 equivalent, left-hand scale)

120										250%
									200%
100
80										150%
60										100%
40										50%
20
									0%
0
-20										-50%
2018	2019	2020	2021	2022

Source: Eurostat and ECB staff calculations.

Notes: Daily observations. Last observation is 06/01/2022 for ETS spot prices. The horizontal read line represents a price level of 100 USD/t CO2 equivalent (using Jan-Nov 2021 average exchange rates).

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Financial markets as a corrective device, with high emissions implying higher credit risk

Impact of transition risk metrics on credit ratings vis-a-vis leverage

(y-axis: percentage of a credit notch)

Estimated impact of a one standard deviation change in environmental metrics

Estimated impact of disclosure dummies

Estimated impact of a one standard deviation change in financial controls

60
40
20
0
-20
-40
-60
-80
-100
Disclosed scope 1-	Disclosed change	Disclosure	Disclosure Target	Leverage
2 GHG Intensities	in Scope1-2 int.	Emissions Dummy	Dummy

Source: Carbone, Giuzio, Kapadia, Krämer, Nyholm and Vozian (2021), "Thelow-carbontransition, climate commitments and firm credit risk", ECB Working Paper No 2631.

Notes: The first two columns represent the estimated magnitude of a one standard deviation increase in disclosed Scope 1 and 2 GHG intensities and disclosed changes in Scope 1 and 2 GHG intensities, respectively. The third and fourth columns reflect the impact of the decision to disclose GHG emissions and make a forward-looking commitment, respectively. The fifth column shows the impact of

a one standard-deviation increase in leverage. The coefficients are obtained via a panel regression of credit ratings on environmental variables, firm-level, sectoral and country controls as well as time fixed effects. Ordered logit estimators lead to similar results.

3

Oil production is responding more slowly to rising oil prices

	Oil price and US shale production
		(lhs: USD per barrel, rhs: number of oil rigs)
						Oil price
175						Number of US oil rigs (rhs)
														1,750
150														1,500
125														1,250
100														1,000
75														750
50														500
25														250
0																0
2009	2011	2013	2015	2017	2019	2021

Sources: Bloomberg and Baker Hughes.

Latest observation: 06/01/2022 (oil price), 31/12/2021 (rig count).

Response of world crude oil production three months after oil demand shocks

(percent)

90% confidence interval

Median response

5

4

3

2

1

0

-1

-2-3

-4
Entire period	Post-covid period

Sources: Bloomberg, Refinitiv, IEA and ECB staff calculations.

Notes: "Entire period": 06/2015 - 08/2021, "Post-covid period": 06/2020 - 08/2021.

Latest observation: August 2021.

4

Gas and electricity prices may stay elevated as green transition accelerates

Wholesale and future prices for electricity

and natural gas in the euro area

(units in legend)

Wholesale electricity prices, EUR/MWh (lhs)

Euro area natural gas spot price, EUR/MMBtu (rhs)

350						40
300						34
250						28
200						22
150						16
100						10
50						4
0						-2
2018	2019	2020	2021	2022	2023	2024

Sources: Bloomberg for electricity and gas futures, ICE for gas spot prices, OMIO, Gestore Mercati Energetici,

Fraunhofer ISE and ENTSOE for wholesale electricity prices.

Note: Cut-off date for futures is 06/01/2022. Electricity wholesale prices is a weighted average of electricity prices in

Germany, France, Spain, Italy and the Netherlands.

Latest observation: November 2021 for electricity wholesale prices and December 2021 for gas spot prices.

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