© Dual Logic
Lower interest rates for adaptation projects in the housing sector could reduce energy consumption at a time when the EU is looking to limit its fossil fuel dependence, panellists argued during a panel at Paris Climate Week in late October.
A green dual interest rate could not only help with the transition to a net-zero economy but could reduce energy costs and, as a result, potentially lower inflation..
“We need a green monetary policy, not only because it’s ethical but because it’s in the mandate from our point of view,” said Philippe Ramos, a consultant and advocacy officer at Positive Money Europe.
ECB’s green mandate
Like most central banks, the ECB’s core mandate is to keep unemployment low and manage inflation. But it also has a secondary mandate to further the objectives of the EU, including those around climate change.
“The challenge of ecological transition is quite expensive and requires a lot of investment,” said Oriane Wegner, an economist at Banque de France (BdF). “That is why [interest rates are] one of the most debated instruments because it is the one on which we sometimes see a form of arbitration between keeping inflation at a level that is compatible with our missions.”
Several ECB members have highlighted the impact that climate change could have on the economy and the central bank has made managing climate change risk a core part of both its supervisory and monetary policy.
Whether that mandate extends to lowering rates for specific green projects is up for debate. ECB executive board member Isabel Schnabel has said green interest rates could be considered, while ECB board member Frank Elderson has said that any new financial instruments by the central bank would likely take climate issues into account.
But others have pushed back on funding the green transition through central banks, including BdF governor and ECB council member François Villeroy de Galhau and Fundi Tshazibana, deputy governor of the South African Reserve Bank, who have both argued it would increase inflation over the long-term.
Lowering inflation through real estate renovation
Real estate, both commercial and private, makes up a large portion of banks’ assets. The housing sector is also one of the largest energy consumers in the EU after transportation, with the largest proportion used (62.5%) for heating. With many historic and ageing homes in the bloc, renovating is often the only answer to lower energy consumption, such as installing new windows or insulating roofs.
The energy intensity of buildings is why a green interest rate would serve central banks’ primary mandate, argued Lucas Chabalier, advocacy manager at French nonprofit Agir pour le climat (Act for Climate).
“When there is volatility in energy prices, there is an impact on bills for everyone, particularly in terms of heating, and this impact in terms of bills can have consequences for financial stability,” Chabalier said.
“So curbing energy consumption is beneficial in terms of financial stability and also in terms of fighting inflation and effectively combating climate change”.
But to even begin having a discussion around lower interest rates for real estate, there needs to be standardisation of energy performance certificates both before and after renovation, in order to ensure loans are actually green, said Ramos.
While some countries like France have a standardised energy certificate, it is usually issued when someone rents or buys a home. Getting a certificate before and after renovation needs to be done privately and can cost several thousand euros, Ramos said.
He said offering lower rates to specific sectors isn’t a new concept: the ECB has also introduced them before through targeted longer-term refinancing operations (TLTRO).
“There are several tools available to the central bank that … exist and could be activated, and that could make it possible to better finance the transition,” Ramos said.
The role of a central bank is a paradox, as they are independent actors while mandates are defined by politicians, said Aurélie Maréchal, executive director at Positive Money Europe.
Because the ECB does not have a clear mandate on climate, “if we take the primary mandate that everyone agrees on … we can show how climate risks, energy instability issues, risks to biodiversity, we can show how all these elements contribute” to inflation, Maréchal said.
“This is a way, in any case, that seems to me to be quite powerful in pushing for a more active role for central banks in the fight against climate change.”
This page was last updated November 18, 2025
Written by
Moriah Costa is the Editor-in-Chief of Green Central Banking and has over a decade of experience writing about banking and finance. She is an award-winning American journalist based in Paris and has written for major international publications, including Reuters, The Guardian, and S&P Global. Having grown up in water-stressed Arizona, she has always had a strong interest in bringing awareness to climate and environmental issues.
