Macron endorses dual interest rates for green energy

December 13, 2023|Written by |European Central Bank

French president Emmanuel Macron has said it is “absurd” that there are few incentives for green financing and pushed for a dual interest rate.

“As I speak, the private sector benefits from the same interest rates whether it finances renewables, gas or coal. This is totally absurd,” Macron said at Cop28 earlier this month.

Over the next few years, there should be an interest rate for green energy and energy derived from fossil fuels, he explained but did not expand on whether this was something he would actively push for in France.

Advocates welcomed Macron’s remarks, which came as a welcome surprise.

Clarisse Murphy, central bank campaigner at Reclaim Finance, was glad that Macron recognised “the absurdity” of the same interest rates applied to all business activities. She believes a dual-rate system should be implemented by central banks to support green investments.

“Without such a measure, high rates will continue to penalise and slow down the deployment of sustainable energy,” she said.

A dual interest rate by central banks is a tool advocates have been pushing for years. Vicky Van Eyck, executive director at Positive Money Europe, said the European Central Bank’s (ECB) approach of raising interest rates to combat inflation has increased the costs of renewables, which have higher upfront costs.

“Ironically, this means that high interest rates are harming the very investments in renewable energy that are needed to avoid future fossil-fuel-energy-induced inflation,” she said.

She hopes that given Macron’s endorsement of dual rates, “the Banque de France could be a first mover to speak out in favour of green dual rates within the ECB’s governing council”.

Supporting a transition to a green economy will require a lot of investment from both governments and the private sector. The European Commission estimates that the EU alone will need €620bn in annual investments, with 45% coming from public investment.

Van Eyck said the ECB already has experience with offering lower interest rates for specific types of investments, through its targeted longer-term refinancing operations (TLTROs) programme. Although it increased lending to higher-than-average carbon-emitting sectors, the programme could be tweaked to “channel cheap lending towards green investments,” Van Eyck said.

In addition, the EU’s green taxonomy and climate disclosure requirements could make it easier for the ECB to adopt a dual interest rate, as banks will need to disclose more data about their loans, she added.

“Dual rates would ensure that finance keeps flowing towards much needed green investments without increasing countries’ deficits,” she said.

This page was last updated December 14, 2023

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