A European climate bond.

This article addresses the significant climate investment gap faced by Europe and proposes a comprehensive policy framework centered on the joint issuance of European climate bonds. These bonds would be financed through revenues generated by extending the European Union Emissions Trading System (EU ETS) to all sectors, creating a uniform EU-wide carbon pricing scheme. The proposal includes conditioning access to bond proceeds on member states’ performance in implementing climate projects, thereby enhancing accountability and effectiveness. Estimates based on climate scenarios suggest that the fiscal capacity from auctioning emission allowances could range from €2.2 trillion to €11.5 trillion, exceeding current EU climate budgets and investment gaps. Beyond mobilizing substantial funding, the issuance of European climate bonds aims to provide a safe, liquid, and green asset to investors, support macroeconomic stability, foster integrated capital markets, and facilitate the European Central Bank’s green monetary policy operations.