The Federal Reserve’s policy committee is expected to lift its target interest rate a quarter-point – to a range of 0.5 percent to 0.75 percent – at its final meeting of 2016.
Carolin Schellhorn, Assistant Professor of Finance at Saint Joseph's University in Philadelphia, Pa. wrote an article on this topic for The Conversation, a journal for academics.
"The main reasons the Fed has kept rates near zero for eight years have been to restore economic growth and lower unemployment – goals that have been largely achieved. But doing so has had an important, if little noticed – and probably unintended – side effect: It has been promoting efforts to curb global warming.
That is, the ultra-low interest rates have favored sustainable projects like wind farms and corporate solar installations, the kind that are necessary if the world is to transition to a low-carbon future in line with the Paris climate accord. At the same time, they have discouraged unsustainable, high-carbon projects like coal power plants that appear cheap but become unprofitable over time when you factor in the cost of carbon.
Government policy, without help from the Fed, could nudge businesses and consumers to reduce carbon emissions. But, as my research shows, governments walk a fine line when setting carbon policies. They may fail to adequately address climate risks with policies that are too lenient or come too late or they may create systemic instability and financial crises with policies that are too harsh or aggressive."
Dr. Shellhorn can be contacted via University Communications at firstname.lastname@example.org or 610-660-1222.