13 Overcoming the political-economy bottlenecks to the green transition, Part 2

A green transition is a systemic transition

The public goods question that I discussed in the previous essay on how to think about solutions also raises the issue of the interdependencies between solutions, actors and other aspects of the green transition, and which may not always be easily discernible. For example, labour is nothing without capital and vice versa. Without adequate training for the green transition, capital investment will be underutilised; but without the certainty of current and future investment, workers will be reluctant to train. Similarly, electrifying all or most currently fossil fuel energy sources, relying on zero-carbon renewables, requires a massive investment in the power grid to avoid dramatic energy price shocks or policy collapse. One does not exist without the other.

Many aspects of the green transition have such a systemic character. Think of the network effects I mentioned earlier in this essay, or the link between accounting standards and financing, the knock-on effects on skills, etc. Often, it seems, the green transition resembles a series of nested problems, a bit like the famous Russian babushka dolls. Many processes in the green transition also have secondary and tertiary effects, which we need to understand to support the first steps. Again, the shifts in skill needs (and its effects of changes on wages and working conditions) is a good example, but so is the ‘eco-system’ surrounding the introduction of EVs (supply chains, raw materials, new plants, skills, charging points, etc.)

But there is more: not only are problems and solutions mutually dependent, but one solution will often also throw up new problems, with new possibilities. Think of this as walking down a decision tree, where options are closed off at every fork, but new (often not yet known) ones become available once you make your choice. This contingent characteristic of real-existing transitions makes them very fragile: if many parts are moving at the same time, things are more likely to go wrong than in a simple, linear process where you can identify and steer all the relevant parameters – especially if success requires that all are addressed more or less simultaneously. As a result, it is often impossible to get it right the first time, and accepting errors, while developing and nurturing deliberative mechanisms to understand and analyse them, is an integral part of complex, systemic transitions. The green transition is, therefore, perhaps also best understood as a collective process, in which all participants develop the ability to learn from success as well as mistakes and debate and negotiate them. Zero carbon requires full-on debate.

These moments of collective learning are not lamb-lies-with-wolf pipedreams, however, in which interests and conflict disappear to the benefit of what Habermas called ‘communicative action’. There will always be winners and losers in a transition, and both will fight for their interests. While winning intrinsically justifies the former (history is written by the victorious), losers raise legitimate concerns and will mobilise according to their institutionally or politically determined capacity unless presented with a reasonable alternative. It is therefore crucial to entertain such alternatives with low social costs (for the losers) early in the process. Sometimes that will entail not much more, and not much less, than social plans that mitigate the losses. But on other occasions these alternatives can be more creative.

The EV revolution in the car industry, for example, can also be a time to consider different final assembly methods, reorganise and shorten supply chains (themselves a significant source of carbon emissions), and redevelop deeply brown regions as service centres for the new car industry that is emerging – including a revamped educational system that concentrates on sophisticated, high-end skills. Many organisational routines that we know today grew organically and haphazardly out of new constraints that a previous step required. Think of semi-skilled workers hierarchically organised on a slow-moving assembly line with short cycles, introduced by Henry Ford in the 1910s to increase productivity. The relative simplicity of EVs may render stationary assembly by highly-skilled operators possible (again) (BCG 2020): the possible (though not necessary; see Berggren 1993) fall in physical productivity – cars per worker per day – would be compensated by product quality, flexibility and customisation, and therefore higher profit margins per car. Such a worker-oriented alternative, with support for social and skill upgrading, would go a long way toward alleviating the concerns of unions and workers about the green transition in the automobile sector.

Finally, the systemic character is also reflected in the existential novelty of the green transition. We may look back at previous energy transitions, from human and horse over, primitive wind, sun and tides, to coal, electricity and later nuclear power as ‘complete’ transitions, in which one energy source supplanted the previous. Yet, a closer look at the history of energy, reveals that different energy sources have persisted and therefore coexisted for a long time: we still burn wood, along coal, use horses alongside tractors, and coal, gas, nuclear power and renewables simultaneously. Shifts may have appeared discrete and all-encompassing but were actually gradual and layered, usually starting in the margin of an older, dominant energy source, and taking several decades to claim their central role in the new model (Fressoz 2024). The green transition is, in that sense and to use an overused term correctly for once, unprecedented. We plan, with very few exceptions, to replace all fossil fuels with zero-carbon energy sources, and to eventually rely almost solely on renewables, and do so within one generation.

The idea that we have done this before is not only wrong, but also deeply misleading, as it suggests that we can find a gradual way into a green future. I started this essay by pointing out that transitions – large-scale processes of structural change – do not favour gradualism. A deep shift from one underlying model to another almost always requires a destruction of key elements of the old and building a new order on the ashes of that. In addition, gradualism requires time – which we probably do not have (assuming we still aim to keep temperature increases at maximum 1.5C above pre-industrial levels). The lack of recognition of the problem two or three decades ago, and procrastination once the problem became clear, impose a relatively speedy adjustment now. Had we started to think more carefully about how to reduce carbon emissions, and ways to lower existing carbon debt in the 1990s, we might now be able to engage the latter stages of the transition without incurring steep social and economic costs over a short time. But we did not do that.

It's no use crying over spilled milk, of course, but we do not have to ignore the lost chances, and their implications, either. If anything, this combination of unprecedentedness and urgency suggests that we need a very different way of looking at the green transition, one that thinks of it as an overarching goal for which all resources are mobilised. Many use the language of a moonshot or a mission (Mazzucato 2021), but that is, in my view, an incorrect adaptation of an older idea in innovation studies that bears some resemblance to a green transition but suggests that (a) the mission can exist alongside other missions (I presume) and (b) builds on existing capacities. While history always matters in what we do, the continuities between yesterday and tomorrow are probably weaker than we care to admit (hence the rejection of gradualism as a viable trajectory). Moreover, since there is a hierarchy – all other plans and missions are futile unless we get this one right – the idea of the green transition as a mission among other policy goals is somewhat weak.

The best parallel in human history to our current predicament is probably that of a war economy (see Milward 1980 on the economy of the Second World War) – an encompassing effort to mobilise all necessary resources, possibly at the expense of all or most other policy goals, to reach one clearly defined overarching goal: keeping temperature increases below 1.5C while fully decarbonising the economy. If the analysis in the preceding essays makes any sense, part of the effort needs to be geared towards handling the social and political-economic constraints and fallout of the transition. We can probably rely on many existing processes and actors for this massive mobilisation – private business will play a large role, the educational systems in the advanced capitalist economies offer a decent framework for the acquisition of new skills, research institutes and innovation hubs ditto, and some of our existing products and processes could be decarbonised without a complete bottom-up overhaul. But overall, governments are likely to lead the effort. Only governments can overcome the public good and wider collective action problems that follow from rational actions of private parties under the conditions of deep uncertainty that we face.

One of the central preoccupations in my analysis of the green transition has been time inconsistency: jam today beats (the promise of) jam tomorrow. No pain today beats uncertain gains tomorrow (or later). If that Gestalt of the problem is correct, we will face a tough battle unless we develop mechanisms to bring forward the massive future gains to today’s losers to mitigate the negative effects,. Finance, fortunately, does precisely that: it should be possible to develop a green bond, with a 50 or 100-year life span, a fixed low-rate coupon, and backed by governments, public banks and central banks, international organisations and the EU. The more serious economic actors like banks, governments and large firms underwrite such a bond, the lower the interest rate will be. Moreover, we have learned during the EMU crisis of 2012 that phrases like ‘whatever it takes’ have power, and we should not be afraid to use them. But all that good work will be for naught if we do not dramatically reduce the endemic uncertainty that plagues the green transition and which holds back private investment. This is also is, as I have pointed out earlier, part of a task for governments to shoulder. There’s a lot of work to do, and little time to do it.

Such rather abstract macro-level time inconsistency hold-ups can be overcome through relatively simple means like long-term green bonds. For individual citizens and households, however, something more tangible is probably needed, especially for the lower part of the income distribution, for whom the green transition announces itself as an extra financial burden at a time when their incomes may be stagnating and the short- or medium-term cost-benefit calculus is seriously negative. Accompanying policies should therefore also target these economic obstacles. For example: if EVs are expensive (not least because there is no developed second-hand market yet), governments should think of using subsidies now to be recovered from households’ later savings: fund the difference in price between an EV and a traditional car today, and cream off a share of the later gains in transportation costs when a large part of the car is paid off. Businesses that rely heavily on transport should receive zero-carbon tax breaks, as their vehicles are much more intensively used than passenger cars. Home insulations schemes, solar panels and green tariffs should be subsidised and claimed back later as a share of the gains. The examples are legion. Effectively, they put current consumption of the green good at zero or very low cost, while collecting a small fee over a long time after the benefits of the green good have been realised. Think of it, perhaps, as a variation on the idea of a graduate tax: higher education is free at the point of learning, but you pay a small extra income tax when you start earning (above a certain threshold and for a limited number of years, to be actuarially determined). Any public economist worth their salt ought to be able to come up with an effective and efficient green subsidy and tax scheme to bridge the gap between today’s expenditure and tomorrow’s gains. It does not even have to be perfect, just good enough to get the job done and defuse resistance now, since the transition will, properly accounted, largely pay for itself.