Euro Area: The Environmental Footprint of Banknotes Is Negligible

A Negligible Environmental Impact

The European Central Bank (ECB) published the long-awaited environmental footprint study of euro banknotes as a payment instrumentDevice, tool, procedure or system used to make a transaction or settle a debt. More. It shows that the average environmental footprint for payments with banknotes was 101 micro points (µPt) per euroThe name of the European single currency adopted by the European Council at the meeting held in Madrid on 15-16 December 1995. See ECU. More area citizen in 2019. This is equivalent to driving a car for 8 km, or a negligible 0.01% of the total environmental impact of an individual‘s annual consumption activities. The results are very similar to those of the 2018 Life Cycle Assessment of the Dutch Cash CycleRepresents the various stages of the lifecycle of cash, from issuance by the central bank, circulation in the economy, to destruction by the central bank. More, which concluded that the cashMoney in physical form such as banknotes and coins. More paymentA transfer of funds which discharges an obligation on the part of a payer vis-à-vis a payee. More system’s Global Warming Potential (GWP) amounts to 17 million kg of CO₂ equivalents or 0.009% of the GWP of the Netherlands.

The study compares the use of banknotes with that of other everyday products (see Figure 1). For example, the impact of producing a cotton T-shirt washed once a week for a year is comparable to driving 55 km. In comparison, the impact of manufactured water bottles consumed by euro-area citizens in one year is equivalent to driving 272 km. The annual total environmental impact of a Euro area citizen is equivalent to driving 79,575 km.

Figure 1. Comparison of the Environmental Footprints of Euro Banknotes and Other Common Products

Source: ECB (2023).

The study measures the potential environmental impact of all activities in a full cycle of euro banknotes – from raw material acquisition, manufacturing, distribution, and circulation to disposal by euro area national central banksIn general, the expression refers to the central banks of different countries. More (NCBs). It is based on the European Commission’s (EC) Product Environmental Footprint methodology. It builds on the work begun in the life cycle assessment of the first series of euro banknotes in 2004. The study focuses on the environmental impact of euro banknotes as a payment instrument; it does not address other euro functions (like the store of valueOne of the functions of money or more generally of any asset that can be saved and exchanged at a later time without loss of its purchasing power. See also Precautionary Holdings. More) or the effect of coins. The MintAn industrial facility manufacturing coins. More Industry has commissioned a LCA study for coins.

Contributors to the Environmental Footprint of Banknotes

The distribution stage is the largest source of the environmental impact of paying with euro banknotes. This includes the energy consumption of automated teller machines (which account for 37% of the total) and transportation (35%), followed by processing by national central banks (10%).  The authenticationThe process of proving that a banknote or security document is genuine. More of banknotes in shops accounts for 5%.

The banknoteA banknote (or ‘bill’ as it is often referred to in the US) is a type of negotiable promissory note, issued by a bank or other licensed authority, payable to the bearer on demand. More printing, paperSee Banknote paper. More manufacturing, and acquisition of cotton and raw materials account for 13%. The long lifespan of banknotes and the fact that they are used for many payments means that the impact of banknote production is lower than that of transportation and distribution. The end-of-life stage shows a positive environmental impact, mainly owing to the use of incineration, which has energy recovery, for waste disposal.

Figure 2. Single Overall Score Subdivided by Activities and their Percentage Contributions.

Source: ECB (2023).

Further Reducing the Environmental Footprint of Cash

“The EurosystemThe Eurosystem comprises the European Central Bank and the national central banks of those countries that have adopted the euro. More is committed to making euro banknotes as environmentally friendly as possible, while ensuring cash is widely available and accepted.” – ECB Executive Board member Piero Cipollone.

Since 2004, the Eurosystem has made efforts to reduce the environmental footprint of euro banknotes, for example, by using only 100% sustainable cotton and banning the disposal of banknote waste in landfills.

In addition, ATM manufacturers and cash-in-transit companies have made progress in reducing the environmental impact of their activities. The study shows that improvements in the energy efficiency of ATMs contributed to a 35% decrease in their environmental footprint between 2004 and 2019. Reconnaissance International’s 2021 report Cash: Roadmap to Sustainability identified a range of best practices in terms of sustainability, including banknote recirculationThe right to recirculate banknotes that have been checked for authenticity and sorted for fitness by banks and cash-in-transit companies. The right is normally based on rigorous rules established by the central bank. More to reduce transportation, routing optimisation to reduce fuel consumption, the reduction of single-use plastics, or the use of hybrid and electric vehicles.

Extensive research and development is being conducted to make future euro banknotes even more environmentally friendly at all life cycle stages. For instance, the ECB is exploring alternative waste disposal methods for banknotes, such as recyclingThe process of converting waste materials into new materials and objects. Banknotes are increasingly recycled after destruction, and the waste is often used for landfills, isolation material etc. Polymer notes are melted into pellets which are recycled into new products. Recycling is often incorrectly used instead of recirculation. See Recirculation. More and reusing waste material, and possible improvements to materials and components used in printing.

Can Cash Encourage More Sustainable Consumption Models?

The ECB report confirms that the environmental impact of cash is low and that the cash community, far from being complacent, is exploring ways to reduce it further. But what if we adopted a bolder approach and researched whether cash could encourage behavioural changes towards more sustainable consumption? Economic literature and social media show that cash is widely used as a budget management instrument as it leads to less conspicuous spending. Research also shows that cash tends to generate greater ‘pain of paying’ and more emotional attachment to purchases, and hence more sustainable – and healthier – spending. It is also worth noting that during the public consultations organized by the ECB to select topics for the future euro banknote designs, two of the three preferred themes are directly related to nature: “Rivers: the waters of life in Europe” and  “Birds: free, resilient, inspiring.” Could future banknote designs nudge consumers towards more sustainable behaviour?

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