Themes
Shared Perspectives 2023 will consider diverse economic and political aspects of the green transition and will seek to identify and develop politically feasible paths to complete the transition.
Can the green transition be pro-competitive and market-friendly?
How can market forces be directed towards sustainability? The energy transition has revived old polemics about “state vs. markets”. Closing the enormous externalities associated with environmental problems requires putting a price on pollution such as carbon. Yet pollution pricing is insufficient by itself, and industrial policy is also required. According to this view, to be induced to pursue green decisions firms must be confident that everything else falls into place: infrastructure, networks, human skills, research output, current and future regulations, et cetera. For example, the US Inflation Reduction Act plans to allocate $ 369bn to the largest industrial policy response to the global climate crisis to date. The EU will respond with its own Net-Zero Industry Act. Will strategic planning by governments lead us to a new age of Leviathans, or can it be reconciled with entrepreneurial risk-taking? What role remains for carbon pricing, as governments focus on industrial policy?
Will sustainability deter or spur economic growth?
The green transition will lead to an upheaval in every aspect of our economies. Shedding assets and jobs will reduce growth, but then building new infrastructures and producing cheap and clean energy will spur growth, as will the avoidance of the impacts of climate change. Which effect will prevail? Is there a trade-off between growth and green, or a synergy? What climate policy should we choose if we do not know the answer? Perhaps in the long run we will all be better, but which countries will be sure losers, and which stand to be net gainers in the medium run? Can these trade-offs be improved, and how?
Paying for the green transition: what will be the impact on fiscal policies?
Governments budgets are strained and debt levels have surged after the Covid-19 recession and the security crisis in Europe. At the same time, central banks have resumed fighting inflation, adding a further threat to debt sustainability. Yet the energy transition will place new burdens on fiscal policies. How can we pay for the green transition without compromising fiscal sustainability? The question is particularly delicate for the eurozone, where countries lack monetary sovereignty, fiscal sovereignty is decentralised, transfers between member states are frowned upon and the ECB’s role as the monetary backstop is untested.
How can the costs of the green transition be made politically and socially acceptable?
With the green transition, assets will be stranded, factories will close, jobs and markets will be lost. To be acceptable, the energy transition must also be “just”. But providing social insurance will be costly, and targeting assistance towards (re)employability will be difficult, and not always feasible. Who is entitled to this insurance, and who will pay for it? Political acceptability may require compensating wealthy asset owners, running against social acceptability. International transfers are even more difficult politically. Which countries will need to be compensated, by which other countries and how? Can such compensation be made incentive-compatible?
Will the green transition foster global cooperation or division?
Global pollution externalities like carbon dioxide require global cooperation for their efficient control. Yet considerations of geopolitical security and supply-chain resilience have prompted a new emphasis on friendshoring. With the recent adoption of the IRA in the USA and the proposed adoption of CBAM and of the Net-Zero Industry Act in the EU, many commentators have begun to equate the energy transition with renewed protectionism. Is this unavoidable, or can sustainability be achieved as a cooperative effort among countries? Can Europe strategically lead climate negotiations to incentivise cooperation by other international players, and how? And will cooperation be reached – if at all – just within the club of rich countries or can other countries be induced to join?
Will the energy crisis help or hurt in the energy transition?
The war in Ukraine has been suggested to accelerate the energy transition. The increased cost of gas and the decision to reduce imports of fossil fuels from Russia have failed to lead to the economic doomsday first predicted. Yet if Europe replaces Russian gas with coal or with liquefied natural gas, carbon emissions will increase. How will we manage the intermittency problem of solar and wind power in the absence of cheap natural gas? What do we learn from the energy crisis? How can we ensure our responses to it will also accelerate the green transition?