Rapidly scaling up public investment is vital to spurring a green transition

In addition, a green transition will not happen without the revolution this book is advocating in how governments operate and how the relationships between public and private organizations are structured. For too long, governments have over-invested in carbon and under-invested in renewable energy sources. Mainstream economic prescriptions of simply solving climate change with a carbon tax and some R&D subsidies (to let markets find the optimal pathway), combined with political economic impediments to carbon taxes, have left us with negligent carbon tax systems and a worryingly slow green transition. The political-economic constraints are not solely to blame here. Economists have failed to realize and set out the reasoning for transformative public investment and re-regulation that accomplish what CO2 tax cannot on its own. As behavioural science has shown (and the reader knows from everyday life), real persons do not normally optimally react to price incentives, and they tend to ‘satisfice’ (are satisfied) rather than maximize profits or measures of happiness at every step of the way.19 This leaves a sizeable scope for clever, well-informed regulations such as energy performance standards. Furthermore, industrial change through radical innovation and infrastructure investments cannot be expected to respond mechanically to CO2 taxes as a matter of supply and demand in a farmer’s market.20 A few governments have created markets in which renewable energy technology – such as wind power in Denmark and solar power in Germany – can flourish and develop through learning by doing, in order to give them opportunities to mature and compete with fossil-based technology.

Our lethargic transition pace, globally, is a lesson in what can happen if government leaves the market to sort out problems and abstains from assuming its entrepreneurial role in society. It also flies in the face of what happened in that most transformative technological and business upheaval, the IT revolution, when government initiatives and investments were pivotal. This time, however, we need more than just initiatives from government. Neither the US nor the EU proposals can operate in a vacuum within sectors like renewable energy, de-carbonizing vehicles, or any other sector-specific initiatives. Instead, innovative transformation is required across all sectors, constituting one of the largest shifts humans have ever attempted.21 Reducing the material content of heavy industries like steel, and introducing a circular economy for waste in sectors with a repurpose, reuse and recycle mentality will be critical. This requires changes to materials that can produce more durable clothing, changes to our nutrition, with more focus on locally sourced food, and switching to production techniques like 3D manufacturing.22

Markets will not find a green direction on their own, however. Governments have a fundamental role to play in providing a stable, consistent conduit for investment which ensures that regulation and innovation converge along a green trajectory that addresses climate change. Moreover, governments cannot resort to typical interventions such as tax incentives or public subsidies; these are simply not enough to fuel the change needed. Business will not invest unless it sees an opportunity for growth. Only bold investments like Roosevelt’s New Deal will match the scale of the climate emergency.23