Failure to Tackle Climate Change Suppresses Rates, ECB Study Says

Slow progress in reducing carbon emissions risks putting pressure on central banks to keep interest rates low, according to a European Central Bank working paper.

“Climate risk reduces the natural rate of interest,” researchers Ghassane Benmir, Ivan Jaccard, and Gauthier Vermandel wrote in a study published Tuesday. “The reason is that households become more risk averse when firms fail to internalize the damage caused by their emissions.”