How to Make the ECB’s Negative Interest Rates Pay for Building Renovations

February 24, 2021Published by Positive Money

This report from Positive Money Europe proposes that the European Central Bank (ECB) incentivise banks to offer cheap building retrofits and renovation loans by tweaking its vast Targeted Longer-Term Refinancing Operations (TLTRO) programme.

ECB President Christine Lagarde has already committed the bank to examining ways in which it might green its TLTRO programme as part of it’s strategy review process. This policy proposal shows how that can be done, while encouraging and supporting the mass energy retrofit of homes across the EU.

With the goal of supporting the real economy, the ECB TLTRO programme offers banks long-term funding at favourable rates, with lower interest rates available for banks lending to non-financial businesses and households. The ECB currently lends €1.75 trillion to banks at a negative interest rate under this programme, effectively providing a subsidy to banks with no climate or environmental requirements.

The report begins by showing why energy efficient building renovation matters for climate, people and the economy, and identifies lack of affordable finance as a primary barrier. It then looks at the state of financing for renovations and the role of bank lending in funding them. TLTROs are then introduced as a “secret weapon” that the ECB could use to help green the EU’s housing stock.

A potential ‘renovation TLTROs’ pilot programme is then outlined, involving tweaking TLTRO rules to offer a super-negative discount rate (below the current -1%) to banks on their portfolio of loans dedicated to energy efficient renovation projects.

This would give banks an incentive to extend credit for renovation purposes, reduce transaction costs for banks and customers, and help the renovation projects for millions of EU households and businesses. Such a programme would also allow existing public subsidies for renovation to be redirected and targeted at low-income households, empowering a fairer and just green transition.

The report concludes with technical recommendations, including the establishment of an EU standard for energy efficiency loans, the creation of a certification framework, and the adjustment of the EU’s statistical framework to facilitate reporting and impact evaluation.

This paper builds upon a previous study on green TLTROs published in September 2020 by Positive Money Europe and Sustainable Finance Lab

This page was last updated April 27, 2021

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