A green economy requires more than subsidies

In recent years, many policymakers thought they had found the perfect formula for implementing climate-friendly policies without facing tough political trade-offs: massive subsidies. This strategy is often associated with US President Joe Biden’s deflationary legislation, Influenced many western countries.

Historically, mainstream economists believed that the best way to facilitate the green transition was to establish a carbon price through taxation or quotas and then leave the associated economic decisions to private companies. Unsurprisingly, many economists have criticized the US deflationary act as an ineffective method of allocating resources. But they miss important aspects of policies based on green industry subsidies.

Such policies have overcome some of the political obstacles that have hindered climate policymaking. They raised hopes that industrial interests, safety concerns and environmental priorities could be aligned. They balance voters’ deep concerns about climate change with workers’ demands for reindustrialization, and some serve purely economic purposes.

From a macroeconomic perspective, when interest rates are at historically low levels, debt-financing programs can provide much-needed relief to economies affected by the Covid-19 crisis and fears of prolonged secular stagnation. Encouragement In aggregate demand. From a microeconomic perspective, such programs can be expected to accelerate innovation in specific sectors.

But the limitations of this theory are becoming increasingly apparent. First, financial conditions have changed. Estimated Green Investments France Needs to Make by 2030 2% of GDP, half of which is expected to come from the public sector. These figures are consistent with other estimates for similar countries. Given the rise in interest rates, additional financial analysis is required to accommodate these investments.

Second, subsidies alone will not achieve our climate goals. There is a danger in increasing the use of clean energy without dramatically reducing the use of fossil fuels. Sadly, this is the current global trend.

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Third, from a political standpoint, while green industries are essential, they do not immediately build a constituency large enough to counter public backlash against new regulations. This challenge is evident in Germany, where the government has recently Moderate its plan In the Netherlands, a program to reduce nitrogen emissions was triggered to phase out fossil-fuel heating systems. A similar reaction.

A revised theory is needed. Although the main features of green industry policies should be maintained and improved, amendments and additions are necessary. Importantly, fiscal policy needs to be reformed. In times of monetary tightening, public debt should be diversified away from climate policies. France is doing this at the local level, but progress is also needed at the national and European levels. This could involve additional EU investment or Amendments to the EU’s financial rules.

To create additional resources, it is necessary to reducebrownSubsidies and raising some taxes through international integration. Possible measures include expanding carbon offset mechanisms and increasing contributions from the maritime and aviation sectors.

By publicly committing to a long-term strategy for financing and delivering climate investments, governments can more easily influence the investment decisions of private firms and households and help coordinate financial and industrial policies across national borders. Annual budgets do not provide the visibility we need. The French Parliament already exists A bill was passed compels such action.

A detailed road map is also required. All policy instruments must be compatible to reconcile climate objectives, economic sustainability and political support. To this end, French President Emmanuel Macron’s second term has been marked by the introduction of a new approach: Environmental planning.

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The strategy stems from a recognition of the drawbacks of relying heavily on carbon pricing, particularly after the 2019 hike in petrol and diesel taxes’.Yellow vest’The protests are driven by people who depend on petrol and diesel vehicles and feel abandoned. While acknowledging that market forces cannot produce alternatives fast enough to meet societal needs, environmental planning also recognizes the limitations of relying solely on subsidies.

Based on the French approach Meticulous mapping All measures needed to reduce the country’s greenhouse gas emissions by 55% (compared to 1990) by 2030. When it comes to areas such as home renovation, electric cars and industrial decarbonisation, potential solutions already exist and primarily require scaling up or scaling up. Improvements. There are only rare cases where breakthrough innovations are required. Clean electricity generation will be boosted with nuclear and renewables, while energy efficiency will play a key role.

Achieving climate goals requires a combination of tools. For example, in the housing sector, the French government has provided massive subsidies to poor and middle-class families. Protect their homes. It has encouraged others by phasing out needy rental properties Emergency repairs. It has set ambitious industrial policy targets, particularly for domestic manufacturing Heat pipes.

Of course, there is still a long way to go to achieve a green economy. The coming year will be a critical test for many Western countries, with elections taking place amid rising political tensions over environmental issues in the US, EU and UK.

A number of factors are important for curbing public opposition to climate policies and encouraging the adoption of clean solutions such as electric vehicles. While the negative impact of policy changes is often obvious, the positive outcomes are often implicit. For example, European governments have announced that there will be new petrol and diesel-powered cars Banned in 2035 But they were unable to provide even an estimated price for electric vehicles. Clear commitments need to be made as citizens are understandably concerned about the current cost of petrol and diesel cars compared to electric vehicles.

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Also, public involvement must play an important role, as phasing out fossil-fuel vehicles will require extensive programs to retrain automobile workers and support small businesses. Geographical diversity and renewed urban planning are needed to reduce the long journeys people have to make to depend on cheap fuel.

Finally, we must strive for integrity. To counter the populist narrative of elites evading restrictions imposed on the middle class, the super-rich must contribute more than the general public. As a symbolic gesture and proof of concept, the EU could announce ambitious plans to regulate the private jet industry and accelerate its clean energy transition.

This is just one small part of the vast reinvention we urgently need. By focusing solely on carbon prices and industry subsidies, policymakers hoped to avoid tough political choices. But both approaches are socially and economically inadequate. Climate policies must move away from the age of green taxes and subsidies and into the age of politics.

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