SOAS Research Online

Abstract

According to the new governor of the Bank of England, Andrew Bailey, aligning the Bank’s corporate bond purchase scheme with the government’s climate goals is a ‘perfectly sensible thing to do’ and should be made a ‘priority’. Yet in its current framework, the pandemic corporate bond purchase programme is heavily biased towards carbon-intensive sectors – and thus at odds with the government’s environmental objectives. This carbon bias means the programme may lower the cost of borrowing (an implicit subsidy) and encourage more debt issuance by the most carbon-intensive firms relative to low-carbon firms. To help support the governor’s efforts, this briefing sets out two alternative purchase strategies – the ‘Lower-carbon pandemic QE’ scenario and the ‘Low-carbon pandemic QE’ scenario − that would help decarbonise the Bank’s corporate bond purchases (boosting green investment in the process) and ensure that the Bank’s policy interventions are consistent with its rhetoric.