Captured States? Decarbonisation Lending and Policy Change in the EU

• In Event: International Politics and the Environment

Abstract

The European Central Bank (ECB) has been of little interest to political scientists over the course of the 20th century and the beginning of the 21st. This is due mostly to the fact that the ECB has a limited scope of policies that it can influence and has tended to shy away from fully exercising it’s policymaking abilities. In the 21st century, however, climate change, the financial crisis of 2008 and the COVID-19 pandemic has caused the ECB to reconsider its role as an independent institution. Specifically, the ECB has stated that climate change poses a risk to the economy and the financial sector. Thus, they want to assess how transitioning to a carbon-neutral society can keep prices stable. To accomplish this, they have been taking bold action on climate change through a “decarbonisation” public debt program in which explicitly provides more favorable terms to EU member states which comply with the bank’s climate change agenda.

To accomplish this, the ECB has created a set of “climate stress test” criteria that EU member states are judged on that will determine the interest rate and terms for taking out ECB loans. Those member states who fare poorly on criteria laid on in the climate stress test will face high interest rates and limitations in terms of the amount that they can borrow. Using natural language processing methods, case studies and causal inference, this paper seeks to understand how the ECB is shaping economic policy in EU member states through this new “green lending” agenda and the extent to which these policies promote or harm scientific and technological innovation in EU member states. This is accomplished through exploring how dependency on ECB loans in the past is related to legislation consistent with the ECB climate agenda.

Author

• Jason Anastasopoulos, University of Georgia